Focus on Affordability: State Strategies for Responding to Federal Policy Changes 

The passage of HR1/OBBB, the 2025 budget reconciliation law, is expected to lead to the loss of coverage for 16 million Americans and lower revenue for health systems. Many states were already facing budget shortfalls and HR1/OBBB will require implementation of administratively complex Medicaid program changes. At the same time, problems with health care affordability will worsen for households losing coverage and employers that may face higher health care prices set to compensate for provider revenue losses. There are a few ways that states can try to minimize these harms. 

Maintain Coverage 

Out-of-pocket costs and rising premiums are two factors driving affordability concerns across lower- and middle-income households. Medicaid, ACA marketplace, and employer-sponsored insurance have provided significant levels of financial protection and health care access but still leave gaps in coverage. New federal policies will exacerbate the affordability crisis by limiting eligibility for marketplace and Medicaid coverage and increasing household costs for those maintaining eligibility. The risk of adverse selection (the departure of healthy people from the insurance pool, resulting in higher premiums for those remaining) poses an additional threat to the marketplace. 

States will need to assess the specific impacts on coverage and out-of-pocket costs. Plans have already submitted requests for significant premium increases. Provider concerns about lost revenue could be partially mitigated if states can keep as many people covered as possible.   

Examples of potential state actions include: 

• Enhanced eligibility systems to keep people enrolled across multiple health related programs 
• Policies to limit premium increases using affordability standards 
• Identifying alternative funding sources for insurance navigators  

Protect Patients  

Federal and state laws provide a range of protections for consumers, including bans on surprise medical bills and reporting of medical debt to credit bureaus. Non-profit hospitals are required to fund charity care, provide financial assistance programs, and participate in community health improvement activities. As more people require assistance through these programs, it will be important for state health care ombudsmen and health care advocates to publicize consumer rights and work with health care regulators and attorneys general to make sure providers follow the law. 

Balance Provider and Patient Affordability Concerns 

While policymakers need to keep an eye on the bigger affordability picture, there is heightened attention to the law’s financial impact on health care providers, particularly hospitals. Hospitals that serve a large portion of Medicaid enrollees, such as many safety-net and rural facilities, will be at greatest financial risk and may request additional support from state governments.  

Given that all hospitals will face some uncertainty, large hospitals and hospital associations are likely to double down on requests for enhanced funding and sharpen their resistance to policies designed to improve affordability including those that would cap cost growth, ban facility fees, require site neutral payment, or hold provider entities responsible for managing cost growth.  

At a time when access to affordable care and good health will become increasingly unattainable, it will be essential for state governments to scrutinize hospitals’ concerns carefully and continue to press for targeted policies that help ensure the state’s health system is growing more financially balanced and efficient.

Taking action will require states to: 1) determine the financial status of their hospitals and health systems, 2) develop affordability policies that may apply only to dominant hospitals and health systems that have large financial reserves, 3) engage stakeholders like employers and consumers on affordability policies, 4) respond to industry resistance, and 5) prioritize scarce funds in areas that can improve health and reduce utilization, such as primary care and behavioral health.  

With support from the Peterson Center on Healthcare, Milbank has published a suite of resources to help states meet this need. 

• Health Care Affordability: Definitions and Options for States to Track Progress – States have explored how to define affordability so that they can measure it, track changes over time, and make data-informed policy decisions. This post examines 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.  
• Guides to Hospital Financial Analysis – These guides help states to use publicly available data sources to examine the financial condition of hospitals, as well as identify opportunities to reduce health care spending growth while avoiding any unintended consequences.
• Assessing Hospital Efficiency: Considerations for States Seeking to Reduce Health Care Costs – This report provides an overview of existing state, federal, and private sector hospital efficiency measures; the advantages and limitations of those measures; potential modifications to existing measures; and options for how states can employ new or existing measures to better understand current hospital efficiency levels and incentivize improved efficiency.  
• Forthcoming: Separating the “Haves” from the “Have-Nots”: Targeting Policies to Address Hospital Prices – This brief will describe how states can target affordability efforts to impact highly resourced hospitals and health systems (the “haves”) without endangering those that would struggle to shoulder state commercial market affordability policies (the “have nots”). It will also provide options to help states identify hospitals within each group using existing public analyses and state data where available. 
• Forthcoming: Advancing Equity in Health Care Affordability Strategies – This post will offer several approaches states can take to slow health care spending growth while safeguarding and promoting health equity, which means that everyone has a fair opportunity to attain their highest level of health.  

It is even more important now for states to monitor health care spending and market structure trends and utilize this capacity to gauge the impact of the federal policy changes on population health, access, and affordability. It is likewise important for states to use their more limited funds in ways that will most directly improve health. These resources can help states inform policymakers and the public about the range of policy options for your state.