Taking Action to Lower Rising Health Care Costs: A Playbook for States Seeking New Solutions

Focus Area:
Sustainable Health Care Costs
Peterson-Milbank Program for Sustainable Health Care Costs

In 2021, patient out-of-pocket costs rose 10.4%. This increase, the largest since the early 2000s, reflects persistent and growing unaffordability of US health care for states, employers, and individuals. Downstream, real-life impacts of this cost growth are experienced by the four out of ten adults that said they had to delay needed medical care because of costs and the 23 million people that owe more than $195 billion in medical debt. Without tackling continued cost growth, our health care system is leaving many people sick and in debt while forcing states to make hard choices between continuing to ensure access to quality health services and investing in other much-needed social programs, such as schools and local infrastructure.

Historically, efforts to address health care costs have been fragmented—focusing on just prescription drug costs, for example—and costs have continued to rise faster than the economy or incomes. However, cost growth target programs are emerging as a promising systemwide policy solution to shine a light on drivers of health care costs and inform action to contain costs and cost growth. To help states move toward evidence-based solutions, the Peterson-Milbank Program for Sustainable Health Care Costs has developed a cost growth target playbook.

Cost growth targets: What they are and how they work

A state cost growth target program sets a benchmark for collective action by stakeholders —including payers, providers, employers, consumer advocates — and establishes critical infrastructure to gather data, create transparency, and propose solutions to lower health care costs. Setting a cost growth benchmark is an important step toward restraining health care spending increases because it gives the state and health care entities a concrete target around which cost growth can be measured. First pioneered in Massachusetts, cost growth targets have expanded to nine states, ensuring a sustained statewide focus on health care costs for 1 in 5 Americans.

Programs have resulted in evidence-backed decisions to advance value-based care, invest in primary care and lower health care costs. For example, Rhode Island and Oregon are leveraging the data culled from their cost growth programs to develop payment models that incentivize cost growth mitigation. A recent review of Massachusetts’ program found that the statewide average rate of cost growth fell below the benchmark during the first five years of the program, due in part to the state’s effective use of its accountability tools. These spurred payers and providers to adopt alternative payment models and curbed market transactions that would have led to greater cost growth.

Any state can adopt and tailor this framework to their specific context. For example, states can establish a cost growth target program though a voluntary compact signed by stakeholders such as payers, providers, and business and community leaders; a governor’s executive order; or legislation. States can also deploy more than one approach over time. Connecticut jumpstarted their work through an executive order before progressing to legislation that solidified and sustained their program.

A playbook for transparency and action on health care costs

Drawing from this growing body of state experience, the Peterson-Milbank cost growth target playbook is designed to help states build a transparent and inclusive policy process to implement cost growth programs.

Key elements of the playbook include:

  1. Program planning, development, and sustainability
  2. Public–private stakeholder engagement
  3. Establishing the target methodology and value
  4. Measuring performance against the target
  5. Understanding the drivers of spending growth
  6. Accountability and action to slow spending growth

The playbook provides case studies and technical guidance for states in establishing governance, setting the cost growth target, and collecting and analyzing data, as well as how to use cost growth programs to effect policy and behavior change. (See exhibit.) This can be accomplished, for example, via public reporting and stakeholder engagement to build a trusted, transparent source of data on health care cost trends while encouraging payers and providers to meet the target. The playbook also includes examples of actions states can take when there is persistent and excessive cost growth.

Typical Timeline for Collecting, Analyzing, and Reporting Target Performance Data

Identifying and acting on the drivers of excessive health care cost increases is not easy, requiring sustained state leadership, trusted evidence, and public-private cooperation. However, examples from nine states provide a roadmap of how state leaders can expedite the creation of a better, more affordable, and sustainable health care system to ensure their residents have equitable access to quality health services.