Health Care Affordability: Definitions and Options for States to Track Progress 

Health care affordability is a key concern for state agencies and policymakers looking to ensure access to care without creating undue financial burdens on patients, employer purchasers, and states. But affordability means different things to different stakeholders. For consumers, it might mean whether they can pay out-of-pocket costs without skipping care. For employers, it may mean health plan premium increases that don’t cut into their margins and/or reduce the ability offer competitive wages. For state officials, it might mean balancing the state budget by managing Medicaid and state employee health plan spending. 

States have explored how to define affordability so that they can measure it, track changes over time, and make data-informed policy decisions. In this post, we examine two main categories of affordability definitions: (1) those that focus on the consumer or household level at a single point in time, and (2) those that address state-level health care cost growth over time. We also explore the ways states can leverage these definitions to better understand and improve affordability for their residents. 

Defining Affordability for Households at a Point in Time 

Some affordability definitions focus on whether individuals and families can manage premium payments, deductibles, and out-of-pocket costs. Other definitions in this category capture whether people are delaying or skipping necessary care due to cost. By examining a household’s total spending on care as a share of income, or by capturing self-reported difficulties in affording care, states can assess how many residents are at risk of unmet health care needs due to cost. These measures are usually looking at affordability at a point in time (e.g., a calendar year). 

The table below provides examples of several definitions of consumer or household affordability used by states, the federal government, and researchers.  

Examples of Affordability Defined at the Consumer or Household Level 

Defining Affordability in Terms of State Spending Growth Over Time 

Another way to think about affordability is to gauge whether overall health care spending growth in a state outpaces key economic benchmarks. By comparing total per capita health care expenditures to wage growth, economic growth, or inflation, states can see if costs are growing in ways that strain household budgets, employer finances, and government budgets. 

It is important to note that health care spending tends to lag in its response to macro-economic changes like information due to the manner in which payment amounts are determined (e.g., multi-year negotiated insurance rates, Medicare rate setting methods). Should states wish to account for this, they can compare total health care spending growth to economic benchmarks like CPI over a multi-year period, rather than year-over-year, to smooth out short-term timing misalignments. They can also adjust indicator values to account for an estimated two-year lag in the impact of significant increases or decreases (e.g., +/- three percentage points) in general inflation. 

The table below lists measures that can be used to track health care spending growth and define statewide health care affordability.  

Benchmarks for Affordable Statewide Total Health Care Expenditure Growth 

How States Can Use These Definitions to Track and Improve Affordability 

Definitions that track affordability for individuals and families can be powerful communication and policy tools. State can use these measures to: 

• Communicate the harms of unaffordable care. Point-in-time measures reveal whether people are skipping needed health care or spending a troubling share of their income on health care. Because these metrics focus on familiar household scenarios, they are often easier for policymakers and the public to understand than economic indicators. Survey results showing that, for instance, “30% of families can’t afford needed services” can galvanize legislative or regulatory action. 

• Track the impact of cost-growth policies on consumer-level affordability. Even when a state adopts broader system-level cost containment policies (e.g., a cost growth target), those measures can fail to translate into improved affordability at the individual level if savings do not reach consumers. For example, an insurer may negotiate lower payment rates with hospitals and specialists, or a provider organization may lower utilization through better care management but if those savings are retained as increased margins or used to reduce employer premiums without lowering employee payroll contributions, deductibles or copays, individual consumers may see little or no relief in their out-of-pocket spending. By continuing to monitor point-in-time definitions — such as the share of households spending more than 10% of income on out-of-pocket costs —states can see whether these macro-level interventions actually reduce financial burdens for residents. 

Definitions centered on overall spending growth highlight the full economic impact of health care costs, and help states manage system-wide budgets and set standards for cost containment. States can use these measures to: 

• Implement cost-growth benchmark programs. In recent years, several states have established annual benchmarks tying per capita health spending growth to targets linked to wages, personal income, or gross state product (GSP). Policymakers can opt to hold payers and providers accountable when growth exceeds the benchmark, through tools like performance improvement plans. Benchmark values can also be incorporated into cost and market impact reviews of health care mergers and acquisitions. 

• Develop hospital price growth targets. States like California are developing hospital price growth targets that are tied to economic measures. By focusing on one of the largest spending sectors, hospital price growth targets have the potential to slow cost growth for a significant share of total expenditures. 

• Inform rate review decisions. Although historically focused on insurer solvency, some states are now integrating affordability into insurance rate review. For example, regulators can assess whether proposed premium increases are reasonable given household income trends or affordability thresholds. However, states must balance this with maintaining insurer solvency and ensuring adequate provider networks. 

Because neither point-in-time household measures nor system-level health spending growth alone tell the full affordability story, states may choose to use both. When used together, these metrics can paint a picture of whether health care is becoming more or less affordable for households—and if statewide costs are rising at a sustainable rate relative to wages, personal income, or the broader economy.