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January 26, 2021
Sustainable Health Care Costs Peterson-Milbank Program for Sustainable Health Care Costs
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State efforts to curb health care cost growth have largely focused on Medicaid and public employee benefits programs because states have direct purchasing control over those programs and responsibility to manage costs for individuals enrolled in them. Governors and legislators are now considering strategies to constrain total health care spending statewide, across all populations. As health care spending takes up a greater portion of state and local budgets, employer budgets, and personal income, there are fewer dollars for other uses. At the state and local level, health care spending can crowd out funding for other public services, such as housing or nutrition, which are both important to improve population health.
Addressing growth in health care spending requires a system-wide view and the collective action of payers and stakeholders. States are leading the way by setting health care spending targets, developing new capabilities to collect and analyze data, and forging strong partnerships with stakeholders to make sure there is buy-in and trust in the resulting actions.
Rhode Island is among a few states that have implemented a cost growth target to stimulate action to improve health care affordability and curb health care spending growth. Massachusetts and Delaware are the two other states that first established a target for health care spending growth. A cost growth target is an expected rate of annual per capita growth of total health care spending in a state. The target itself forms the basis for accountability for spending growth at the state, insurer, and provider levels.
Setting a cost growth target alone is unlikely to slow the rate of health care spending growth. Rhode Island recognized this and pursued parallel strategies to analyze cost growth and drivers of cost growth. The state engaged leaders in the health care industry to develop the target, pursue a complementary data strategy to analyze factors contributing to health care spending growth, and then take action.
Through a public–private partnership, and with funding from the Peterson Center on Healthcare, Rhode Island established the Health Care Cost Trends Project (Cost Trends Project) in 2018 to address health care cost growth and set a cost growth target. This partnership underscored the commitment of state officials and industry leaders to address the affordability of health care for consumers, businesses, and the state.
The project has involved several key steps, from convening a stakeholder group to selecting a cost growth target methodology to recommending policy actions based on the data (Figure 1). Rhode Island’s experience highlights how the resolve of a small team of state staff, engaged and effective state and private sector leadership, and a shared commitment of stakeholders can address rising health care costs. It also provides important insights for other states considering a cost growth target, such as the value of providing reporting guidance on data submission to insurers and developing a data validation process.
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This case study is a product of the Peterson-Milbank Program for Sustainable Health Care Costs, a partnership between the Peterson Center on Healthcare and Milbank Memorial Fund.
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