Owning the Car: Some States Are Taking Charge of Health Care Costs

Getting a driver’s license is a rite of passage for many kids in the US. The little card brings freedom — to bomb around with friends — and responsibilities. Most of the time, the responsibilities don’t extend to finances, however. Driving on fumes and avoiding the keys until someone else has transformed the “E” in the tank to “F” is a skill youths seem to acquire naturally.

That changes when a person takes responsibility for their own car. The price of gas now matters. The style and reliability of the “wheels” become tangible tradeoffs. Routine maintenance has new benefits.

For the past two years, the Milbank Memorial Fund and the Peterson Center on Healthcare have had the privilege of working with public and private sector officials in six states on understanding health spending and improving health care affordability. These state leaders, and their counterparts in the health care industry, have acknowledged that they “own the car” when it comes to health care. The health system ride continues to provide some real benefits (jobs, community pride, patient care), but it is not in great shape and costs a lot of money to keep going.

Responsible leaders recognize that state and local governments, employers, and health care providers can’t keep their foot on the gas and hope somebody else maintains the car; not when the high costs of health care like the emissions of automobiles — have adverse long-term effects. The victims are often hard-working individuals and families who are under- or uninsured and skip needed care. Foregoing needed care creates economic stresses on families and greater societal inequities.

These are systemic problems. They require system-wide assessments and systemic responses. Shifting costs to somebody else, whack-a-mole solutions like buying drugs in Canada, or magical thinking regarding politically easy policies like increased consumer price transparency will not get at the tectonics of underlying cost trends.

Informed by the pioneering work of the Massachusetts Health Policy Commission, the states in the Peterson-Milbank Program for Sustainable Health Care Costs (Connecticut, Nevada, New Jersey, Oregon, Rhode Island, and Washington) are rejecting easy and ineffective affordability policies. Instead, they are implementing by law or executive order the establishment of public/private sector commissions to provide input as they:

• Establish targets for per person health care costs growth in the state
• Measure per person cost growth by payer type (Medicare, Medicaid and commercial) relative to the target
• Analyze the drivers of cost growth
• Consider policies to address those documented drivers

The Peterson-Milbank program provides a framework, technical assistance, and cross-state connections for this work.

The cost growth target programs in some of these states are starting to understand the real costs of health care in their states. As they look under the health care hood, a recent analysis summarizes some key findings.

1. It’s the commercial market, stupid.

In the three states that have reported cost trend analysis, per person cost growth in the commercial insurance far out stripped Medicaid and Medicare (Figure 1).

2. It’s hospitals and pharmaceuticals. 

Within commercial insurance, pharmaceuticals and outpatient hospital services are driving cost increases. This is true from New England to the West: Washington and Nevada report findings similar to Connecticut’s and Rhode Island’s in Figure 2.

3. It’s the price you pay.

Bruce Springsteen is not a health care economist but he could have been, pointing out that these cost increases in pharmacy and hospital outpatient are being driven by the increasing price of the services, not an increasing rate of use (Figure 3).

For the health services cognoscenti — those doomed to read blogs like this — these are not new and earth-shattering findings. Thanks to national and state all payer claims databases and dogged analyses, the narrative that pharma and consolidating providers have used their economic and political clout to extract from employers and employees the prices they can’t get from Medicare and Medicaid is becoming increasing well known and accepted.

But evidence alone does not build a common view of reality and the political will to agree on shared goals and actions to achieve them. That requires leadership, credible processes for dialogue and compromise, and viable means of implementing agreed-to actions. The strength of these early findings is not just their face validity but the way they are being developed. With the structure and processes set forth by the states and supported by the Peterson-Milbank program, providers, insurers, employers, consumers, and public officials are in the room together reviewing the work. Differing views of health care realities are confronted in ways the national conversation can avoid.

A common view of reality is only the start, however. The hard work of agreeing on shared goals and actions to achieve them remains. Even if state-level actors have limited levers in health care financing – Medicare policy and pharmaceuticals development and pricing for example are not on their screen — they are better positioned to do this work than their federal partners. They understand the needs in their communities. They bear the consequences of those needs not being met — that a shiny new ambulatory surgery facility might come at the expense of repaired elementary school classrooms or wage increases for day care staff. They face greater pressure and incentives to compromise personal positions for the common good.

Joy riding can only last so long. Adults have to figure out where they and their communities need to go — and what kind of transportation will best get them there. That is the process the Peterson-Milbank program is attempting to support.