By: Abigail Knapp and Sabrina Corlette
Households, employers, and state budgets alike are straining beneath the load of rising well being care prices. As the costs for well being care providers proceed to climb, these will increase are handed on to customers within the type of larger premiums, deductibles, and different types of price sharing. Greater well being care costs will not be solely squeezing family budgets, but additionally slowing wage development and undermining the financial competitiveness of small companies. As states search for methods to curb well being care spending, cost-growth benchmarks have emerged as a helpful however incomplete strategy. These benchmarks are coverage instruments designed to measure and restrict the speed of well being care spending development inside a state, sometimes tying spending development targets to a fee aligned with state financial and earnings development. Additionally they allow states to gather and analyze spending information, serving to policymakers establish and goal the drivers of well being care spending development. Whereas benchmarks lay the groundwork for price oversight, states should pair them with extra direct regulation and pro-competition reforms to meaningfully enhance affordability.
Influence and Limitations of Price-Progress Benchmarks
Setting a cost-growth benchmark alone has confirmed largely inadequate to include spending development. The well being care trade in lots of states with cost-growth benchmarks ceaselessly exceeds its annual targets. Well being care entities in Connecticut have exceeded their benchmark every year for the reason that benchmark was carried out and entities in Delaware have exceeded the benchmark each yr besides 2020, a yr by which COVID-19 social distancing mandates depressed the usage of well being care providers. Oregon, Rhode Island, and Connecticut not too long ago recorded their highest development charges for the reason that implementation of their benchmarks, with will increase of 5.2 p.c, 7.8 p.c, and seven.9 p.c, respectively. Rampant supplier consolidation and the monetary pursuits of insurers, suppliers, and “intermediary” industries (corresponding to income cycle administration firms, claims re-pricers, pharmacy profit managers, and others) additionally proceed to push spending upward, diminishing the constraining results of voluntary benchmarks. As such, a number of states have adopted enforcement mechanisms for his or her cost-growth benchmarks, exerting better stress on well being care entities to deliver down spending. States can take two basic approaches to enforcement:
- Direct enforcement: Efficiency enchancment plans (PIPs) and monetary penalties for entities exceeding the benchmark.
- Oblique enforcement: Integration of price development targets into different oversight processes, corresponding to certificates of want approvals, transaction evaluations, and hospital finances evaluations.
Even in states with comparatively robust and established enforcement authority, the well being care trade continues to exceed development fee targets. In Massachusettsif the Well being Coverage Fee (HPC) finds {that a} well being care entity’s spending was unreasonably excessive, the HPC can require the entity to develop a PIP. The HPC screens the entity’s progress and evaluates whether or not the entity has met its targets. As a final resort, the HPC might assess a civil penalty of as much as $500,000. Regardless of these accountability mechanisms, the well being care trade has exceeded the benchmark nearly yearly for the reason that targets have been set, with spending development rising much more sharply within the years following the COVID-19 pandemic. An analysis of the state’s benchmark program discovered that whereas the benchmark initially motivated entities to manage price development, the affect of the benchmark has diminished over time, partly as a consequence of minimal penalties for entities which have exceeded the benchmark. Extra essentially, cost-growth benchmarks are inherently forward-looking, constraining how briskly spending grows over time, however they don’t immediately handle already excessive costs.
To be efficient, cost-growth benchmarks must be coupled with broader, extra systemic price containment initiatives. Some states are doing simply that: Oregon enforces PIPs for entities that exceed the benchmark and can start assessing monetary penalties in 2026, but additionally employs different price containment measures, together with transaction oversight and reference pricing for its state worker well being plan. Starting this yr, the California Workplace of Well being Care Affordability (OHCA) should take motion in opposition to entities that exceed the state’s benchmark, together with PIPs and escalating monetary penalties. Nonetheless, the California Hospital Affiliation filed swimsuit in opposition to OHCA in October 2025, asking the court docket to declare the benchmarks illegal and prohibit the company from making use of the fee targets to hospitals.
Shifting Past Enforcement
To successfully constrain well being care price development and ship extra reasonably priced well being care to customers, states will possible have to pair cost-growth benchmarks with extra direct value regulation and/or pro-competition reforms. Like Oregon, a number of different states have carried out reference pricing for his or her state worker well being plans (SEHPs). Analysis has estimated that implementing a SEHP cost cap at 200 p.c of Medicare charges might have saved the plans $7.1 billion nationwide in 2022. Vermont and Indiana will start implementing hospital value caps throughout their industrial markets in 2027 and 2029, respectively, with Indiana’s reference pricing strategy targeted on the state’s largest, high-cost non-profit hospitals. Rhode Island limits the quantity by which insurers can improve their charges for hospital providers, which has led to a mean 9.1 p.c discount in hospital costs within the industrial market relative to comparability states. Different states are prohibiting anti-competitive contract restrictions and strengthening hospital transaction oversight to rein in excessive costs. Connecticut bans a number of anti-competitive contracting techniques in payer–supplier contracts, and likewise has the authority to overview sure hospital mergers and acquisitions and conduct post-transaction monitoring.
It’s additionally essential to include fairness issues into price containment insurance policies. With out intentional planning, efforts to scale back well being care spending might lead to an underinvestment in traditionally marginalized communities, corresponding to communities of colour and rural areas, in addition to in sure care settings, providers and important suppliers, corresponding to major care, psychiatric care, and maternal well being. A price-growth benchmark alone, with out tailor-made regulatory approaches, is a blunt instrument and infrequently lacks significant fairness issues. Nonetheless, states can use focused value regulation, transaction overview, and different extra direct, systemic reforms to gradual value development in rich, high-priced settings whereas preserving entry to care.
Conclusion
State implementation of cost-growth benchmarks can pave the best way for holding well being care costs and enhancing affordability in necessary methods: establishing oversight our bodies, amassing spending development information, conducting analyses to establish price drivers, and extra. Nonetheless, the proof reveals {that a} voluntary price containment goal for right this moment’s well being care trade is inadequate to ship affordability to customers. As states try to deliver prices down for customers, cost-growth benchmarks needs to be coupled with value regulation approaches and/or constraints on anti-competitive practices to extra successfully impression well being care spending and affordability.
