In the debate over Medicare for All, one of the central issues is the pricing of health care services. The broadest version of these reforms proposed to date would create a program in which physicians and hospitals receive Medicare prices for all patients they serve.

In JAMA, assistant professor of health care policy and medicine Zirui Song, MD, PhD, discusses the potential implications of health care services pricing under Medicare for All. He compares traditional Medicare prices to average commercial insurer prices for common physician services. In this comparison, Song considered both in and out of network pricing in commercial insurance. In-network prices ranged from about 100% to 300% higher than Medicare levels, while out of network prices exceeded Medicare prices by larger margins.

At first glance, it would appear that reducing commercial prices to those of Medicare would result in a substantial decrease in health care costs. However, this could also lead to unintended consequences in physicians and hospital behavior. As studies have shown, providers have often responded to large fee cuts by increasing the amount of services they deliver or substituting toward higher-margin services.

A large price reduction could also affect the way that physicians and hospitals code or bill for their services. When Medicare required outpatient consultations that were more expensive to be billed as less expensive office visit appointments, physicians billed a greater share of appointments as higher-level office visits. Additionally, physicians may find further reason to move their practices into hospitals or facility settings, as services delivered in facilities are reimbursed more than those performed in a physician-owned independent practice.

Patients facing high deductibles and co-payments through commercial insurance or Medicare today may welcome the abolishment of cost-sharing under some Medicare for All proposals. However, eliminating all cost-sharing without regard to value could unintentionally raise demand for low-value care. This moral hazard effect could also offset some of the intended savings under Medicare for All.

Song suggests that for policymakers who champion Medicare for All, instead of lowering all prices to Medicare levels, they may consider setting prices at a fixed percentage above Medicare levels. Depending on where this percentage is set—as shown by the examples of 125% and 200% of Medicare levels in the study—some prices would end up below commercial levels while others could land above commercial levels. Phasing in such price changes over time could be less disruptive to physicians and hospitals and garner more support from the provider community.  

Song notes that currently, large organizations representing physicians and hospitals have yet to broadly support Medicare for All, in part due to the uncertainty over prices. In order to be successful, Medicare for All proposals will likely need to gain the support of the physician and hospital communities.