States Start to Move Away from Health Care Cost Shifting

“You can’t improve what you don’t measure.”  

 Innumerable improvement sages murmur this message, but the logic still holds.  

 It follows then that if we are serious about addressing rising health care costs in this country — what Warren Buffett pungently labeled the “tapeworm of American economic competitiveness” — we had better get serious about measuring it.  

Message received. But it turns out measuring health care costs is not as easy as it seems. Public payers — Medicaid and Medicare — know how to measure their part, but the government has only a hazy view of the 50% of US health care spending that does not involve their money. Likewise, commercial insurers measure their piece very carefully, but only their piece. Same for self-insured employers. And individuals, who ultimately pay for it all — in taxes, cost sharing, and goods and services — have no idea how much health care really costs.

With only a fractional view of total health care spending, cost reduction is hard, but cost shifting is easy: I can control my expenses by making you pay more. We learned this as the Affordable Care Act was implemented, with contentious disputes over how much young and healthy people should subsidize the health insurance coverage of older and sicker populations. The biggest health care cost shifts today, however, are led by consolidating health systems. Health providers load up prices paid by commercial insurance to make up for tight-fisted public payers, resulting in an ever-larger gap between public and private payer spending growth rates in the 2010s (Figure 1). Beleaguered businesses buying that insurance then shift what they can to employees in the form of more cost sharing, and pass what they can’t onto consumers through higher prices (Mr. Buffet’s parasitical tapeworm).

When the cost-shifting game stops, and people get serious about the toll of underlying health care costs — on household and state budgets, economic competitiveness, and foregone investments in other public services — the focus turns to measurement to understand health care costs in particular markets, cost changes, and what is driving them. The Milbank Memorial Fund, in partnership with the Peterson Center on Healthcare, is proud to be leading this effort in five states through the Peterson-Milbank Program for Sustainable Health Care Costs.

With resources provided by Peterson, the Fund and Bailit Health are working with state officials and high-level multistakeholder groups in Connecticut, Nevada, New Jersey, Oregon, and Washington to measure per capita health care expenditures in the state across all payers and providers, set targets for future growth rates, and develop the capacity to assess future performance relative to the target and understand what drives that performance.

The program builds on pioneering statewide cost growth target implementation conducted by Massachusetts’ Health Policy Commission, which was adapted by Rhode Island and Delaware. These pathbreaking states offer several important lessons for the Peterson-Milbank program and other states that pursue health care cost growth targets as a cost containment strategy.

Commit Publicly. Public policy happens because government leaders make an issue a priority and galvanize attention and resources. To participate, each of the five states in the Peterson-Milbank program had to either pass legislation, as in Washington, or issue a gubernatorial executive order commissioning the work and the multi-stakeholder oversight group, as in New Jersey. These states recognize that cost-shifting is not a sustainable solution. They see that dollars spent on health care services are dollars not available for other, more socially productive uses, and that a health system that spends 75% more per capita than other countries for shorter lifespans is one that can use some attention.

Socialize the Number. Many of us can repeat current inflation rates and unemployment trends, but we are clueless about health care inflation rates. Awareness of the growth target has spread though the employer and health care communities in Massachusetts and has changed the discussion about premium increases from insurers, Medicaid budgets, and provider contract terms. The Peterson-Milbank Program is agnostic about policy solutions — with its regulated commercial insurance market, Rhode Island will likely implement a different response from Nevada. There are many ways to lose weight, but to be successful you have to commit to a goal.

Build Analytic Capacity. Weight loss strategies also require a reliable scale and the will to use it. Labor departments produce unemployment statistics and public health departments produce vaccination rates. Cost growth target stakeholder committees like the impressively diverse group in Connecticut need a government entity to take responsibility for collecting spending data and transparently reporting on a statewide measure. Measuring health care expenditures is complex; a state must commit resources to it. While private philanthropy can kickstart the work, as Peterson has done in Rhode Island, local leaders need to marshal newly available federal resources and establish a regular funding stream to assess adequately what amounts to almost one-fifth of any state’s economy and affects the well-being of every resident.

Practice Persistence. Health policy in the United States is notoriously faddish. It is far easier to wish our way out of a problem with aspirations of innovation than work our way through it. What will happen when a state in this program finds itself above its targeted growth rate? Will it do the political equivalent of tossing out the scale that delivered the bad news: decommission the commission, succumb to recriminations, and blame things beyond its control? Will state leaders embark on another policy fad? Or will they do the hard work of consensus building, which Oregon has engaged in for years, seeking to understand what contributes to high cost trends and acting on the findings?

We need our health care sector to be high performing, equitable, and sustainable. Our collective well-being depends on it. That requires public measurement in states and communities where health care happens. Measurement can lead to collective understanding, and understanding can lead to common purpose and the political will for sometimes difficult change. The Milbank Memorial Fund is proud to partner with the Peterson Center on Healthcare and these five states in this important effort to measure health care spending, make health care more affordable, and ultimately improve population health.