Changes to the Maryland All-Payer Hospital Model & Why it Matters to Employers
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Article Summary
Maryland is the only state in the country where all payers — Medicare, Medicaid, and commercial insurance — pay the same hospital rates. That's about to change. The federal government is exiting the model by January 1, 2028, removing the subsidy that has kept Maryland commercial hospital costs lower than the national norm. Employers should expect above-average cost increases through 2027, a more significant jump in 2028, and likely network changes from carriers. OneDigital recommends reviewing your Maryland hospital utilization now and building higher trend assumptions into your 2027 and 2028 budget planning.
What Is the Maryland All-Payer Model?
Maryland has operated the nation's only remaining all-payer hospital rate regulation system for nearly 50 years. Under this system, the state sets the rates that all payers (Medicare, Medicaid, and commercial insurance) pay to hospitals. This means that every payer reimburses Maryland hospitals at the same rate, regardless of their negotiating power.
This arrangement has historically benefited commercial employers and their employees. In every other state, commercial insurers typically pay 180-200% of Medicare rates because they have far less negotiating leverage than the federal government. In Maryland, Medicare and Medicaid rates have been pulled up to meet the commercial market, keeping commercial rates comparatively lower. Essentially, the federal government has been subsidizing Maryland's commercial market under this model.
Why This Is Changing
The federal government decided to end that subsidy. After negotiations, Maryland has been able to continue a modified version of the model since January 2026; however, the all-payer model must end by January 1, 2028. Going forward, the state will continue to set rates for commercial plans, but the federal government will set its own rates for Medicare separately.
What to Expect
Commercial rates will rise as the federal subsidy is removed. There is no exact schedule for the speed of these changes. Thus far, every time CMS reduces what it pays under Medicare, the Maryland Health Services Cost Review Commission (HSCRC) increases commercial rates. The HSCRC meets monthly, and approximately one-third of those meetings result in a rate change. Whether this trend continues or if either CMS or HSCRC takes a more predictable approach is to be determined.
What This Means for Employers
Cost increases are coming. All medical plans that have covered individuals receiving care at hospitals in Maryland will be impacted. Regardless of which scenario plays out, Maryland hospital costs for commercial payers will increase materially:
- During 2027, expect commercial hospital costs to rise faster than historical norms.
- In 2028, the more significant shift will occur as CMS reclaims Medicare rate setting and HSCRC is expected to increase commercial rates at a faster rate to absorb a portion of the lost Medicare subsidy.
- For 2029 forward, HSCRC will maintain ongoing oversight of commercial rates, adjusting as needed.
Hospital consolidation and network disruption are likely. With the subsidy gone in 2028, financially weaker hospitals, especially those with a significant Medicare population, may close, merge, or consolidate services. Over the next several years, experts estimate that several Maryland hospitals could close or consolidate under some transition scenarios. In addition, since HSCRC only regulates hospital facility charges, larger healthcare systems are using this moment to negotiate significantly higher reimbursements for other nonregulated charges, such as physician fees and freestanding outpatient sites, as we are already seeing signs of this in the market.
Product and network changes are coming. Carriers are expected to respond by introducing:
- Narrow network plans that exclude higher-cost healthcare systems
- Tiered network products that give members a cost incentive to use lower-cost facilities
- More active direct negotiations between hospitals and payers
What Employers Should Do Now
- Understand your Maryland hospital utilization. What percentage of your total medical spend is hospital-based and how much of that is in Maryland?
- For self-insured plans, begin budget planning for 2027 and 2028. Build in above-average hospital trend assumptions for Maryland-based employees.
- For fully-insured plans with a large percentage of their hospital utilization in Maryland, be prepared for higher than average increases for the 2028 renewal season (or throughout 2027 for non-calendar year plans).
- Watch for network and product changes at renewal. Your carrier may begin offering narrow or tiered network options in Maryland.
To learn more about these changes, please connect with a member of our OneDigital Employee Benefits consulting team.