Health care costs and affordability remain top of mind in 2023. The rising cost of health care has outpaced wage growth, placing increasing financial pressure on individuals, families, and employers, and crowding out investment in other public services. Over the past decade, health care spending in the private market has grown faster than spending by Medicare and Medicaid. This trend is expected to continue, pushing states to focus on slowing the rate of spending growth and making health care more affordable.
To identify and understand cost-containment opportunities, we interviewed officials in 11 states,* selected because of their engagement on health care affordability, as well as variation in terms of population size and geography. Across the states interviewed, hospital and prescription drug costs emerged as priorities, with states indicating that progress in curbing costs and improving affordability will require focusing on these issues.
State-level data confirm that hospital and pharmaceutical spending have been major drivers of spending growth across both public and private markets. State and national data also show that price increases — not increased utilization — have propelled the high spending rates.
Curbing Hospital Spending
Interviewees were keenly aware of the need to address spending growth at its source, and said that hospital spending, particularly in the form of high prices, is a key driver. However, officials relayed the challenges associated with addressing hospital prices. Hospitals wield significant political clout as large employers and anchors in their communities. In addition, as hospitals emerge from the COVID-19 pandemic and navigate workforce shortages, they are perceived to have particularly strong public and legislative support.
While this dynamic may mean the current environment is less conducive to immediate state action, officials spoke to the importance of laying the groundwork for future activities. In some states, this may mean implementing new strategies, while others may seek to expand current efforts. For example, one state that has capped the increase in year-over-year prices that providers can charge private insurers for hospital inpatient and outpatient services expressed interested in expanding these price growth caps to other categories of services.
States identified the need to better understand hospital finances to be able to effectively target proposed policies and respond to hospital arguments against price constraints to cultivate legislative support for policy solutions. They also were interested in leveraging existing and future data sources to analyze hospital prices and price variation. In addition, states acknowledged the need to develop a public communications strategy that highlights the role of hospital prices in driving up health care spending.
Reaching Across States to Cut Pharmaceutical Costs
While states stressed pharmaceutical spending as a key cost growth driver and affordability concern for consumers, they also acknowledged the political challenges associated with addressing this area because of the influence of the pharmaceutical industry. Like hospitals, pharmaceutical companies are large employers — and significant political donors. States that identify as hubs of innovation in pharmaceuticals and biotechnology must additionally balance those interests in policymaking.
Despite these challenges, states expressed interest in engaging with other states to develop and pursue strategies to slow pharmaceutical spending growth. Officials relayed wanting to explore multistate collaboration such as simultaneously enacting price restrictions in multiple states to prevent pharmaceutical manufacturers from threatening to withdraw products from any given state. A regional effort could increase the reach and efficacy of state-level policies and create a united front in the face of significant industry opposition. Officials also indicated the value in sharing best practices on collecting and utilizing prescription drug price and spending data, and using that data in public messaging. States already engaged in implementation efforts acknowledged the benefits of sharing information and troubleshooting technical implementation issues and challenges.
Looking Forward
As states seek ways to tackle health care spending growth, increasing cost pressures on consumers and businesses heighten the imperative to find a path forward. Funders and policy experts can support states in working collaboratively and engaging in a coordinated approach when feasible, especially when tackling thorny issues around hospital and pharmaceutical spending. For example, support can entail holding multistate convenings and creating affinity groups to share information and experiences. Cross-state collaboration also can amplify the message of health care affordability, which can catalyze national momentum and galvanize other states to pursue similar policies to curb escalating costs for individuals, families, and businesses.
* Officials interviewed for this project were from Colorado, Connecticut, Delaware, Massachusetts, Minnesota, Nevada, New Jersey, North Dakota, Oregon, Rhode Island, and Washington.