The Hidden Subsidy
How much more does private insurance pay compared to Medicare?
Private insurance pays 254% of Medicare rates on average (RAND, 2022). For a knee replacement, that means private patients pay ~$3,490 vs Medicare $1,374 — a hidden $2,116 subsidy that gets passed on through higher premiums.
According to the RAND Corporation's 2022 study, private insurers pay an average of 254% of Medicare rates for the same hospital services. That's not a typo — if Medicare pays $1,000 for a procedure, your employer-sponsored insurance pays $2,540.
This isn't a market at work. It's cost-shifting. Hospitals claim they lose money on Medicare patients (debatable) and make it up by charging private insurers more. The result? Your insurance premiums subsidize a government program — a hidden tax that never appears on any budget line.
Below, we estimate the private-insurance premium for every major procedure and calculate the total annual subsidy flowing from privately insured patients to the healthcare system.