Public Payer Differential

The following calculation is provided to illustrate how the public payer differential affects the Medicare, Medicare Advantage plans, Medicaid, and Medicaid MCOs. 

For Medicare, the differential is 7.7%.  Plans pay 92.3% of billed charges. 

For Medicaid, there are two parts of the differential.  Medicaid and Medicaid MCOs have the same differential available as Medicare, but it is split into two parts.  There is a base differential of 5.7%, which all plans are automatically entitled to, and a prompt pay differential of 2%. 

Medicare and Medicare Advantage Calculation Sequestration and Payment Differential and Cost Share:​

Medicare differential—Medicare and Medicare Advantage plans pay 92.3% of billed charges, less patients’ cost shares, a differential of 7.7%.  Medicare Advantage plans (and traditional Medicare) get the full benefit of the 7.7% differential.

Sequestration amount – Medicare Advantage Plans (and traditional Medicare) take an additional discount of 2% of the Plan’s payment amount.  No reduction is applied to the member’s cost share.



Medicare and Medicare Plans Payment = ((Billed Charges * .923 ) - Cost Share) * (1.-02)

               (Rounded to the nearest dollar for the example).


Billed Charges = $30,000

Deductible or Co-insurance Cost Share = $1500

               (($30,000*.923) - 1500) * (1-.02)

               ($27,690 -$1500) * .98

               $26,190 * .98=$25,666

Medicare/Plan Payment $25,666 Member Payment $1500, Total Payment $27,166

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