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September 12, 2022
Sustainable Health Care Costs Peterson-Milbank Program for Sustainable Health Care Costs
Oct 31, 2022
Oct 10, 2022
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The rising cost of health care is burdening household, employer, and state budgets. For states, growing health care spending makes it harder to respond to public health crises, like the COVID-19 pandemic. It also means there are fewer dollars available for housing, nutrition, and income security, which are critical to the health of populations.
Yet states are uniquely positioned to address unsustainable health care costs. One approach is establishing state-specific health care cost growth targets, which offer insight into health care spending that can lead to policy or market-based actions designed to make health care more affordable. The following are a list of messages to emphasize in state communications about health care cost growth targets.
Health care costs are eating into household budgets, leading some individuals and families to skip care or forgo other household necessities. Out-of-pocket costs for consumers rose 53.5% cumulatively between 2006 and 2016, and employer and employee spending on premiums and out-of-pocket costs rose faster than wages from 2008 to 2018. (See chart).
Employer-sponsored health insurance covers more than half of people under age 65. Deductibles and premiums in employer health plans are comprising a growing percentage of median income across the country. (See chart.)
The COVID-19 pandemic’s impact on the economy has stressed state, employer, and household budgets, underscoring the need to develop an understanding of statewide health care spending and what is driving unsustainable increases. Use of non-COVID medical care dropped in 2020 and 2021, but spending is projected to normalize through 2024.
A growing number of states have health care cost growth target programs. These states work with health insurers, health providers, consumers, and other stakeholders to set annual targets for statewide health care cost growth to help ensure costs don’t rise faster than the economy, state revenues, or wages. States then collect and publish annual spending data and analyze it to identify cost drivers and develop accountability measures like penalties for payers or providers that do not meet the target.
In Massachusetts, the first state to set a target, or a benchmark, stakeholders report that benchmark has helped constrain the rate of health care cost growth by creating a focal point for conversations about cost trends. According to a review of the program by Mathematica researchers, the benchmark reportedly influenced contract negotiations between payers and providers in its first few years. It also increased providers’ willingness to participate in accountable care organizations, which reward improved quality and lower costs. However, Mathematica researchers found that the target should be coupled with meaningful accountability measures that encourage sustained payer and provider compliance.
Massachusetts and Delaware, the six states supported by Peterson-Milbank Program for Sustainable Health Care Costs—Connecticut, Nevada, New Jersey, Oregon, Rhode Island. and Washington—and most recently, California, all have cost growth target initiatives. Some initiatives have been codified in legislation while other programs operate under executive order. Governance structures and target methodology also vary by state.
States can measure health inequities as part of their cost growth target implementation process by:
States, health insurers employees, and health providers are working together to set health care cost growth targets that will help ensure everyone can get high-quality health care at a price they can afford. This public-private partnership is reflected in their advisory committee structures and the growing use of compacts to set joint goals on payment approaches in health care.
Most states have tied their cost growth targets methodology to inflation and household income. The target needs to reflect a balance of those factors. Given the current rise in inflation, short-term increases in health care costs may be out of payer or provider control; states may consider these factors before taking enforcement actions.
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