To Transparency and Beyond: Snapshots of States Using Cost Growth Targets to Improve Health Care Affordability

Introduction

Health care costs have been rising for decades, far outpacing growth in incomes and the economy – and eating into other state, employer, and family investments. How can we work together to make health care more affordable? Enter health care cost growth target programs, which are designed to create a pathway for health care affordability by creating an annual statewide goal for health care spending growth called a target or benchmark. With this information, everyone in the state can work together to create data-driven solutions to promote affordability. 

For nearly four years, the Peterson-Milbank Program for Sustainable Health Care Costs has been supporting pioneering states – Connecticut, New Jersey, Oregon, Rhode Island, and Washington – as they implement cost growth target programs, which serve as a vehicle to achieve more affordable health care. Making Health Care More Affordable: A Playbook for Implementing a State Cost Growth Target outlined the types of activities required for success:

• Program planning, development & sustainability
• Public–private stakeholder engagement
• Establishing the target methodology & value
• Measuring performance against the target
• Understanding the drivers of cost growth
• Accountability and action to slow cost growth

This series of state profiles shows how each state in the Peterson-Milbank program has approached one or two of these activities, underscoring that any state initiative must be customized to that state’s needs and health policy environment. Read these snapshots for a look at how dedicated state officials and their health care stakeholders are taking on the seemingly intractable problem of health care costs by opening the black box of spending.

Connecticut: Designing a Holistic Health Care Reform Program

Taking a Holistic Approach

Connecticut began by convening a technical advisory board to develop a methodology for setting an annual cost growth target for per-person health care spending. Members developed a formula combining 80% of the forecasted growth in median household income and 20% of the per capita potential gross state product, a forecast for statewide economic growth. While other states have put heavier weight on economic growth, Connecticut’s formula prioritizes affordability for consumers. 

Connecticut is complementing these efforts by seeking to increase spending on primary care to 10% of total health care expenditures by 2025. In 2021, spending on primary care was 5% of the state’s total health care expenditures. The state is also rolling out new quality measures and benchmarks for all public and private payers.

To guide its work, the state convened a steering committee of technical experts, consumer advocates, health care provider groups, pharmaceutical companies, and insurers. Unlike boards in Washington and other states, neither the technical advisory board nor the steering committee vote or have other formal statutory power but instead make recommendations to state leaders. 

Understanding Cost Drivers

Before gathering data on total health care spending, Connecticut leveraged its all-payer claims database to understand the historical factors driving health spending. A Connecticut Office of Health Strategy report published in 2021 found that medical spending for commercially insured adults increased 21% from 2015 to 2019 and consumers’ out-of-pocket spending on deductibles, coinsurance, and copayments had increased even more, by 28%. (By comparison, annual rates of inflation ranged from less than 1% to just over 2% in those years.) The analysis pointed to particularly high spending growth for hospital services, with price increases – rather than greater use of services – driving costs.

_{Source: Connecticut Office of Health Strategy. Healthcare cost growth benchmark and primary care spending target initiatives – 2020 and 2021 performance. https://portal.ct.gov/-/media/OHS/Cost-Growth-Benchmark/2020-2021-Benchmark-Report/OHS-Cost-Growth-Benchmark-Final-Report-PY2020-and-PY2021-3-30-2023.pdf. Published March 31, 2023. Accessed March 5, 2024.}

Moving Toward Policy Solutions

“We understand why providers and insurers have questions about the data in this relatively new process, but we want to get past arguing about the data and into talking about policy solutions,” says Gifford, pointing to some initial efforts that may help.

For example, state legislation passed in 2022 targets some anti-competitive practices, while legislation passed in 2023 prohibits hospitals or health systems from collecting facility fees on certain outpatient health care services. There is more work to be done to address price growth, the primary driver of costs. 

Gifford is also hopeful that, in the long term, the state will reduce overall health care spending through its efforts to strengthen primary care. 

New Jersey: Creating a Blueprint for Health Care Affordability

“The out-of-pocket issues are big,” says Maura Collinsgru, director of policy and advocacy for New Jersey Citizen Action, a coalition and grassroots membership organization that advocates for social, economic, and racial justice, and one of the members of the HART advisory group. “Many people face huge deductibles, so they put off seeking care and then they end up having a much bigger problem that costs much more money for them and the system.” 

Commemorating Discussions

In March 2022, the state published a blueprint that lays out the “why, what, when, how, and who” of the HART program, commemorating the months of work it took to get there. “It was really important to be able to document the process, the decisions, and the discussion, so that we could share with interested parties and say, ‘Right, this is what we agreed to do,’” says Shabnam Salih, MPA, chair of the interagency working group and director of the Governor’s Office of Health Care Affordability and Transparency.

Setting a Benchmark for Cost Growth

To develop the benchmark for cost growth, participants developed a set of criteria to ensure the target would 

• be predictable over time,
• be based on objective data sources,
• take into account the real-world incomes of New Jersey residents, and
• effectively reduce spending over time.

These criteria led the state to a methodology combining 75% of projected median household income and 25% of potential gross state product, or the expected growth rate of New Jersey’s economy. With the recognition that the historical and projected rate of growth is unsustainable, the goal was to establish and work toward a more reasonable rate of growth that is aligned to growth in the economy and in families’ incomes, according to Salih.

This approach translated to an initial target of 3.5%. The program has established an independent expert panel of neutral parties, including health and labor economists, who will regularly advise on broader economic forces to be monitored and considered as appropriate.

Getting a State-Specific View

New Jersey is in the process of aggregating data on total health care spending for the pre-benchmark baseline year, taking into account three main categories: (1) payment for medical services and pharmaceuticals as well as for incentives and other value-based payments to providers, (2) patient cost-sharing such as copayments and deductibles, and (3) the cost of private health insurance.
The HART program also began analyzing data to identify cost drivers, a more labor-intensive process than in other states that have all-payer claims databases. The first report, expected in the spring of 2024, will outline spending trends across the state and identify variation by geography, service category, and patient demographics. It will also report statewide performance related to measures of health care quality, access, affordability, and equity.

Oregon: Building Support and Moving Toward Actions to Increase Affordability

Engaging Consumers and Employers

Oregon’s leaders have drawn on hearings, committee meetings, webinars, and comments posted on social media or sent by email to hear from members of the public about how health care costs were affecting them. The Oregon Health Authority received 100 comments from members of the public, including families, retirees, health care professionals, businesspeople, and others. People shared concerns about rising health care costs and the difficulties they face accessing care.
At a public hearing in September 2023, the AARP shared results of a survey of Oregonians age 45 and older in which 91% of respondents said being able to afford health care expenses was extremely or very important, up from 78% in 2020. Sarah Duckwall, project and communications director for Duckwall Fruit, a 104-year-old family business in Hood River that packages and ships pears around the world, shared challenges her company faced in providing health insurance for its 63 full-time employees, one of whom had just gone through a heart transplant. “We understand how important insurance is to our employees and we want to do our best to ensure quality coverage is available,” Duckwall said. “However, with untenable cost increases it is getting harder to carry the burden on employers’ back.”

PIPs are collaborative processes in which health plans or provider organizations with unjustifiably high cost growth take responsibility for identifying ways to reduce their spending. According to Oregon’s draft guidelines for PIPs, insurers or providers organizations that undertake improvement plans will be required to state their goals for reducing spending or spending growth and strategies for achieving them, as well as how they will measure progress. “It is about continuous quality improvement; it’s not a punishment,” says Bartelmann. “It is your opportunity to get technical assistance, to have really focused efforts on your cost drivers.” In January 2023, the state agreed to delay implementation of these plans by one year, given payer and provider organizations’ concerns that the high costs of health care labor and other inflationary pressures would make it more difficult to meet the target.

Oregon’s cost growth target implementation committee is also discussing financial penalties, which would vary based on the amount by which the entity exceeds the target, the entity’s size, and its willingness to work with the state to reduce health care spending. Penalties would only be used if a health plan or provider organization exceeds the target for multiple years without good reason, taking into account statistical certainty, the entity’s solvency, and any other penalties it may face.

Promoting Value-Based Payment

Oregon is also encouraging more payers and providers to adopt value-based payment approaches. In 2021, it created a Value-Based Payment Compact, a voluntary commitment to participate in and spread advanced value-based payment models, with the goal of having 70% of health care spending under some form of value-based contract by 2025. As of September 2023, 48 insurers or provider groups had signed on to the voluntary agreement, representing nearly three-quarters of Oregon residents.

The effort builds on long-standing payment reforms in Oregon, including Comprehensive Primary Care Plus, but it is encountering challenges, according to Bartelmann. Several providers have noted significant challenges in adopting value-based approaches, including the variety of existing models and lack of data infrastructure, while others have said they’re unwilling to take on financial risk. To try to overcome some of these barriers, the state created a toolkit and is offering technical assistance to participants.

Finding Synergies and Momentum

Oregon’s sustainable health care cost growth target program is complemented by other state reform efforts, including one focused on health care market oversight. Some research has found that consolidation in health care markets leads to higher prices without improving health outcomes. Legislation passed in 2021 directs the Oregon Health Authority to review proposed mergers, acquisitions, and other business deals to assess how they affect the state’s goals of advancing health care quality, equity, access, and affordability. The authority can approve, approve with conditions, or disapprove proposed transactions; as of November 2023, it has approved five transactions without conditions and four with conditions.

Bartelmann suggests that other states considering cost growth target initiatives should build on related work to find synergies and create momentum.

Rhode Island: Measuring and Publishing Statewide Spending Performance

Measuring Performance Agains at Cost Growth Target

Among the five states that reported cost trends for 2021, Rhode Island was the only one to meet its statewide target. Spending in the commercial market increased by 9.7% – the lowest rate of increase among the five states. Spending in the Medicare market also increased (by 8%), but decreased Medicaid spending pulled down the statewide average. 

While spending on outpatient hospital services (such as colonoscopies, imaging, and other diagnostic services as well as other preventive, rehabilitative, and curative treatments) went up by 10% in Rhode Island, that rate of increase was less than in three other states (Connecticut, Delaware, and Massachusetts) and on par with Oregon. King attributes this, in part, to Rhode Island’s cap on hospital price growth. For commercial insurers, the state limits increases in prices for hospital services to the Medicare price index plus one percentage point. 

The Rhode Island Office of the Health Insurance Commissioner (OHIC) shared the findings in a public forum on May 8, 2023. The forum also included an introduction to the state’s dashboard (the OHIC Data Hub), a review of pharmacy spending growth, and a discussion with state stakeholders on current and planned efforts to address rising health spending.

For example, the data hub illustrates the high and growing costs for brand-name drugs. Some states have proposed legislation to tackle this issue, for example a policy that would set reference pricing for high-cost drugs and fine insurers that pay more than the reference price. Another proposal would levy a tax on revenues for which prices rise beyond the rate of inflation. King would like to see a multistate coalition formed to assess these and other strategies and develop shared approaches that could give individual states greater leverage to control drug prices.

Washington: Creating a Health Care Cost Transparency Board to Steward Its Affordability Initiative

Developing a Shared Understanding

Nine of the 14 members of Washington’s Health Care Cost Transparency Board are consumer, business, or labor representatives appointed by the governor; the other five are the state insurance commissioner, the Health Care Authority administrator (Birch), the director of the Department of Labor and Industries, the CEO of the Health Benefit Exchange, and a representative of a local government that purchases health care.

It’s been particularly helpful to have large employers on the board, according to Birch. “They are keenly interested in understanding why we have all this variation and what we can do to get costs down,” says Birch. “They have had to become health policy experts with us on this journey.”

Board members are advised by an advisory group of health care providers and insurance carriers, many of whom have been lobbying to adjust the cost growth target to account for rising wages for health care workers and other operational costs. Another advisory group consists of data experts offering technical support, while a third group is developing recommendations for how to meet the state’s goal to devote 12% of total health expenditures to primary care.

In August 2023, Washington’s Health Care Cost Transparency Board reported on the drivers of health care costs from 2017 through 2021. It found that: 

• total expenditures showed high growth in all markets except Medicaid fee-for-service, 
• the highest spending category was for inpatient services, 
• spending on outpatient services grew, driven by increases in utilization rather than price increases, and 
• prices for prescription drugs increased by 25%.

Moving Toward Accountability

In 2020, Emily Brice, JD, who worked in Massachusetts’ health insurance marketplace, where she had a front-row seat to that state’s health care cost control efforts, moved back to Washington to take a job at Northwest Health Law Advocates, a consumer advocacy nonprofit. 

Brice felt that consumers didn’t really understand the potential of the Health Care Cost Transparency Board. “Folks didn’t know what it was and perhaps thought of it as a sleepy program focused on transparency, which doesn’t ring many bells from a consumer perspective,” Brice says. She and others brought consumers, employers, and labor representatives into the Fair Health Prices Washington coalition and enlisted members of this and other groups to testify at public meetings. 

Last year, they partnered with legislators to introduce a bill that would expand the board’s scope. The bill – which passed in the 2024 session – directs the state to conduct an annual survey to understand how many residents are underinsured. It also modifies the stakeholder advisory committee, adding consumers and other stakeholders to the group of health care providers and carriers to round out the discussions.

The bill originally included provisions to authorize the Health Care Cost Transparency Board to require performance improvement plans and, if needed, impose fines on health care providers or insurers that have persistently high spending, as has been done in California, Massachusetts, and Oregon. However, these provisions were stripped from the final version.

In addition to these accountability mechanisms, Birch says other state policies could tamp down health care expenditures. One example is the state’s new public option plan, which has already helped hold down premiums in the individual insurance market. Enrollment so far in 2024 has increased substantially from 2023,with more returning and first-time customers. The state is also working through Medicaid (through a newly approved waiver) to provide social supports, which could pay long-term dividends in terms of better health. “As we dive more into housing, employment, and other health-related social need programs, I hope we gain a sense of … the appropriate amount of spending … on that social side to reap gains in health,” says Birch. 

Keeping the Transformation and Momentum Going

Mich’l Needham, MPA, chief policy officer for the Health Care Authority, says communication will be key to keep the efforts moving. “We need to show how high health care costs are affecting consumers and identify additional policy solutions that can help contain costs,” she says.

“States have to simplify and keep the momentum going. There’s a huge amount of resistance; many people don’t want to look at any of this. But we hear from families all the time who’ve skipped services or gone without care. That is simply not okay. As a state committed to coverage and access, we simply have to drive toward greater value.” 

Sue Birch, MBA, BSN, RN, Director, Washington State Health Care Authority