Keith Marzilli Ericson

Associate Professor of Markets, Public Policy, and Law at Questrom School of Business, Boston University

Research, Research-Feature

How important is price variation between health insurers? 

Craig, S.V., Ericson, K.M. and Starc, A., 2021. How important is price variation between health insurers?. Journal of Health Economics77. Download from author here.

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Prices negotiated between payers and providers affect a health insurance contract’s value via enrollees’ cost-sharing and self-insured employers’ costs. However, price variation across payers is difficult to observe. We measure negotiated prices for hospital-payer pairs in Massachusetts and characterize price variation. Between-payer price variation is similar in magnitude to between-hospital price variation. Administrative-services-only contracts, in which insurers do not bear risk, have higher prices. We model negotiation incentives and show that contractual form and demand responsiveness to negotiated prices are important determinants of negotiated prices.


We examined how prices vary between insurers for the same procedure at the same hospital, using a dataset of all commercial Massachusetts hospital claims. Between provider price variation has been the topic of substantial public policy concern, but it has been hard to observe how prices vary between insurers at the same provider.

The prices an insurer negotiates for a procedure is important because it determines the value consumers get from a health insurance plan, and it determines the total costs a self-insured employer will face.

Our analysis shows that price variation between insurers is about as important as price variation between hospitals. Moreover, for particular procedures, the variations are substantial. We find that that the national insurers as a group (Aetna, United Heathcare,  and Cigna) are approximately 40% more expensive than Blue Cross Blue Shield for lower-limb MRI at the same hospital. Yet any given procedure can be misleading. We look on average across all inpatient procedures, we find that Blue Cross Blue Shield is about 15-20% more expensive than these national carriers (Aetna/United Healthcare/Cigna).

Choosing a low price instead of a high price major insurer would give average out-of-pocket (OOP) savings of $182 in a high-deductible plan. An individual with more knowledge about the types of services and hospitals they would use could do substantially better. The cost reduction for self-insured employers is larger: $750–$1000 per enrollee. 

The type of contract you are in matters too—the same insurer can have multiple prices at any given hospital. Insurers benefit more by negotiating lower prices for plans that are fully insured (where the insurer pays the claims) than for by negotiating lower self-insured employers. Our results imply that a plan for only self-insured enrollees would pay about 8% more—at the same hospital and with the same insurer— than a plan only for fully insured enrollees.

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