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January 10, 2023
Sustainable Health Care Costs Peterson-Milbank Program for Sustainable Health Care Costs
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Health care costs have been rising faster than inflation for decades, meaning health care is taking up larger and larger proportions of government, employer, and household budgets and crowding out other critical priorities.
Policymakers across the political spectrum have long recognized the widespread and growing burdens posed by high and rising health care costs,1 but state governments have not looked at cost growth patterns across insurance markets using standard metrics. As a result, it has been difficult to create a comprehensive and cohesive picture of overall costs or identify where costs are growing fastest. To draw attention to the problem of health care affordability and increase systemwide health care cost transparency and accountability, more and more states are taking action through cost growth target initiatives.
A health care cost growth target, also referred to as a benchmark, is an expectation of how much per capita total health care spending in the state should grow annually. Once a target is established, the state measures and publishes how all health care payers and large provider organizations perform against this expectation and may develop accountability mechanisms to encourage them to meet the target. Establishing a target, in and of itself, is not likely to slow health care cost growth. The process must be supported by additional data analyses to understand the specific drivers of health care costs and cost growth. These reports allow states and their partnering stakeholders to identify specific opportunities to take individual or collective steps to lower cost growth.
Massachusetts was the first state to implement a statewide target in 2012. At that time, Massachusetts’ commercial cost growth (spending among private payers) was above the national average. But from 2013 to 2019, commercial cost growth fell below the national average. Stakeholders reported that the target, and the potential for scrutiny of payers or providers that exceeded it, had a sentinel effect that helped restrain cost growth.2 A recent assessment of Massachusetts’ efforts indicates that the program influenced contract negotiations and fostered commitment among health care stakeholders to reduce cost growth, at least in the early years.3
Seven more states — Connecticut, Delaware, Nevada, New Jersey, Oregon, Rhode Island, and Washington — have since implemented targets. In addition, California recently passed legislation to establish an Office of Health Care Affordability that is responsible for setting targets as part of a suite of measures to enhance transparency and accountability around health care cost growth.
This playbook provides a program design and implementation roadmap for states that are interested in, or in the process of, establishing a target. It offers concrete steps, practical tools, best practice strategies, and insights to guide states through the work. This playbook is organized into six types of activities:
Exhibit 1 presents the key action steps and their timing, which are described in greater detail in this playbook. While these activities and steps are presented linearly and discretely, many of them are interconnected and interrelated.
The playbook is informed by the experience of six states that are participating in the Peterson-Milbank Program for Sustainable Health Care Costs and receive technical assistance from Bailit Health as they implemented targets, as well as the experiences in Massachusetts and Delaware.
As states consider a target initiative, they have several options for how to structure their policies and processes. In some cases, states may need to take incremental steps — establishing short-term processes while paving the way for long-term commitments. No two states have implemented targets in the same way, but all of them have built on lessons learned from other states’ experiences to fit the pieces together and build a program that recognizes and respects their local context.
1 Jones DK, Page C. Bipartisan Approaches to Tackling Health Care Costs at the State Level. Milbank Memorial Fund, October 2020.
2 Waugh L, McCarthy D. How the Massachusetts Health Policy Commission Is Fostering a Statewide Commitment to Contain Health Care Spending Growth. Commonwealth Fund, March 2020. 3 Lipson D, Orfield C, Machta R, Kenney O, Ruane K, Wrobel M, Gerovich S. The Massachusetts Health Care Cost Growth Benchmark and Accountability Mechanism: Stakeholder Perspectives. Mathematica, October 2022.
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