In context: During the 1st Democratic candidates debate 6/26/19, it was stated that

If you go to every hospital in this country and you ask them one question, which is how would it have been for you last year if every one of your bills were paid at the Medicare rate? Every single hospital administrator said they would close.

Are the Medicare approved rates significantly different than that of (most) Commercial Insurers? Does it make a difference if it is a hospital charge or a Part B (physician) charge?

The following is additional information, that explains why I ask this question:

While I personally have no first hand experience with hospital reimbursements, I have had some experience with comparing commercial insurance approved physician and CPT code rates versus Medicare approved rates.

For several years my employer provided a Commercial (Aetna I believe) Medicare supplement plan that covered the difference between an Aetna approved charge and a Medicare approved charge. So for several years I would get checks from Aetna for amounts ranging from 10 cents to a couple of dollars. I called the commercial insurer asking why I was getting these checks, that is when they explained the provisions of my employer's supplement plan. For example: For CPT code XXXX, Medicare had an approved rate of 102.34, while Aetna had an approved rate of 102.95. So Aetna would send me a check for 64 cents. (This plan did NOT cover the 20% coinsurance that Medicare did not reimburse, so I had to pay 20.46 (the 20% coinsurance 102.34) and the supplement reimbursed me 64 cents. Fortunately for me I had no hospital charges, so I never had the opportunity to see a difference between a medicare allowable for a hospital charge and the corresponding allowable from a commercial insurer.

2 Answers 2


CBO reports show private insurers pay physicians, hospitals far more than Medicare:

The reports found that private insurers pay much more for physician services than Medicare and Medicare Advantage pays hospitals nearly the same amount on average than Medicare fee-for-services — and much less than private payers.

The links in the quotation go to PDFs that are apparently for Congressional Budget Office reports. I have not tried to verify that the article matches the reports, but they are there if a reader wishes to do so.

  • After reading the linked article, I'm unclear on what's being talked about. It seems to be reporting that Private Medical Insurers pay more for services than Medicare does. (Suggesting medicare is better at negotiating service purchases) But as far as I can see it doesn't mention if this costs patients any more in terms of payments not covered by the various plans, which is what I thought the question was about.
    – Jontia
    Jun 27, 2019 at 11:40
  • Thanks, reviewing the CBO report certainly could cause brain freeze. The conclusion of commercial payouts versus traditional Medicare payouts would have been far more compelling if one or two specific CPT examples were provided. Part of the complexity is that while traditional Medicare payouts for CPTs is published publicly , the commercial insurer's payouts are considered to be a closely guarded secret - even to the patient with that insurance.
    – BobE
    Jun 27, 2019 at 11:44
  • continuing- If what the CBO seems to report is accurate - that physicians make more significantly more money by not treating medicare covered patients - why would physicians (approx 96%, I'm told) choose to take on medicare covered patients. (Physicians are in business to make money, - if they don't they won't be in business very long)
    – BobE
    Jun 27, 2019 at 11:53
  • @BobE Among other things, if your hospital wants to have a residency program (the programs medical school graduates do for their first 3-7 years after graduating if they want to be attending physicians themselves), then you are also required to take Medicare patients, as a large portion of residents' salaries are paid by the federal government.
    – Jimmy M.
    Jun 27, 2019 at 15:49
  • @Jimmy M. Granted by accepting federal "aid" hospitals have to agree to take on medicare patients. Is there any legal obligation for physicians to accept medicare patients? If not, then I would expect that the physicians would migrate en masse to accepting privately insured patients only. I'm focusing on Part B (physician services) as compared with Part A (hospital services).
    – BobE
    Jun 27, 2019 at 18:07

Are Medicare approved amounts significantly different than Commercial insurance approved amounts?

Yes, insurance company payments are much greater than Medicare (and Medicaid) payments. The following applies to hospitals not physicians (though similar results may be found). Note that the underpayments (shortfalls) mentioned below are covered by insurance companies and patients. And, if insurance company payments did not cover uncompensated (or uncollectible) costs, as well, hospitals would go broke.

About 16 years ago, I had reason (don't ask!) to look at such matters. A local, non-profit, public hospital published their annual statement. The amounts were interesting, to say the least.

As I recall the amounts, approximately, in millions of US$.

Net billing 210
Medicare and Medicaid underpayment 50
Uncollectible 40
Payments from insurance and patients 120

Expenses 100
Building fund reserve 10

[The above figures are off by 10 million, but, after 16 years, I can't remember which figure is wrong. The point is that payments from insurance companies are much larger than Medicare (or Medicaid) because those payments cover all underpayments to hospitals.]



Underpayment is the difference between the costs incurred and the reimbursement received for delivering care to patients. Underpayment occurs when the payment received is less than the costs of providing care, i.e., the amount paid by hospitals for the personnel, technology and other goods and services required to provide hospital care is less than the amount paid to them by Medicare or Medicaid for providing that care. Underpayment is not the same as a contractual allowance, which is the difference between hospital charges and government program payments.


In the aggregate, both Medicare and Medicaid payments fell below costs in 2015:

  • Combined underpayments were $57.8 billion in 2015. This includes a shortfall of $41.6 billion for Medicare and $16.2 billion for Medicaid.

  • For Medicare, hospitals received payment of only 88 cents for every dollar spent by hospitals caring for Medicare patients in 2015.

  • For Medicaid, hospitals received payment of only 90 cents for every dollar spent by hospitals caring for Medicaid patients in 2015.

  • In 2015, 64 percent of hospitals received Medicare payments less than cost, while 60 percent of hospitals received Medicaid payments less than cost.

From Revcycle Intelligence:

Reimbursement Shortfalls, Uncompensated Care Costs Grew in 2016:

AHA data uncovered that Medicaid and Medicare reimbursement shortfalls reached $68.8 billion in 2016 and uncompensated care costs rose to $38 billion.

The recent growth in Medicaid and Medicare reimbursement shortfalls stemmed from Medicare underpayments. Medicare reimbursement was $48.8 billion less than actual hospital costs in 2016.

With the payment shortfall, hospitals only received 87 cents for every dollar spent to treat Medicare patients.

Required to accept government insurance:

Most hospitals had to cover the financial loss of treating Medicare and Medicaid beneficiaries because the majority of hospital patients belong to the healthcare programs. Patients from the Medicare and Medicaid programs represented more than 60 percent of all hospital care.

Non-profit hospitals must also treat Medicare and Medicaid beneficiaries to qualify for federal tax exemptions.

Uncompensated amounts:

Self-pay patients do not generate as much revenue for hospitals as insured patients. True self-pay patients who are responsible for all healthcare costs typically paid about 6.06 percent on the dollar, while patients who owed out-of-pocket costs under their health plan paid about 15.51 percent, a recent Crowe Horwath study uncovered.

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