The problem of high and rising health care prices is well documented, especially in the commercial sector, which is the main source of insurance coverage for most people in the United States. Reining in prices is a key concern for the U.S. public but not at the top of many states’ health care agendas, despite the fact that state policymakers have an important role in ensuring the affordability of health care for their residents. Because of partisan obstacles to significant federal action, effective policy efforts to control spending growth are most likely to occur at the state level. This post outlines reasons state policymakers should consider focusing their attention on commercial health care prices and highlights recent research supported by the Commonwealth Fund.
Rising Commercial Health Care Prices Are Making Care Unaffordable for Americans
Prices commanded by health care providers and drug companies are the primary driver of increases in employer-sponsored private health insurance spending, accounting for nearly two-thirds of overall growth in per-person health care spending in recent years. Additionally, prices — not utilization — are responsible for the higher levels of health care spending in the U.S. compared to other high-income countries. These higher prices drive annual increases in costs to workers, in the form of premiums, deductibles, and other out-of-pocket costs, which patients increasingly can’t afford. In addition, prices can vary wildly and do not always align with quality of care received.
Addressing Commercial Prices Could Be an Economic Boon for States
High prices and costs can make it harder for employers to be competitive; addressing costs could be a competitive advantage in recruiting new workers by allowing companies to increase wages. States that effectively contain costs could be at an advantage in attracting more companies and jobs because it makes it cheaper for them to operate. Lowering health care prices also could lead to increased tax revenue for states, since rapidly rising health care costs have eaten into workers’ taxable wages over the past 20 years.
Employers Need Policymakers’ Help to Lower Prices
In some states, employers have formed buying groups to negotiate lower prices. These groups have focused on initiatives like direct negotiations with providers; providing financial incentives to employees to seek higher-quality, lower-cost providers; and efforts to call attention to high prices through transparency efforts. But most employer-driven efforts are unsuccessful in meaningfully containing costs and employers are increasingly turning to policymakers to address this issue.
What else can states do? Recent analyses, supported by the Commonwealth Fund, highlight several state strategies.
- In Health Affairs, researchers demonstrated that contrary to conventional wisdom, both price regulation and market competition can exist in U.S. commercial health insurance markets. They argued hospital price regulation can directly address high prices and at the same time increase market competition among providers on aspects like quality, convenience, and patient satisfaction. They proposed “lighter touch” regulations like limits on permitted out-of-network costs and flexible all-payer hospital budgets as less administratively complex and burdensome regulation options.
- Other Fund-supported researchers examined strategies available to states to control spending across all payers. These included “promoting competition, reducing prices through regulation, and designing incentives to reduce the utilization of low-value care to more holistic policies such as imposing spending targets and promoting payment reform.”
- A Commonwealth Fund case study highlighted the Massachusetts Health Policy Commission, which uses a statewide spending growth target to promote health care cost containment. The commission monitors payers’ and providers’ performance against the target and provides technical support to foster care delivery transformation.
- A recent Commonwealth Fund issue brief provided practical guidance to state policymakers seeking to contain commercial health care cost growth by outlining 10 strategies, which included promoting the adoption of population-based provider payment to encourage use of high-value services; improving oversight of provider consolidation to prevent anticompetitive practices and price increases; and strengthening health insurance rate review to allow regulators to evaluate and disapprove excessive rate increases. Forthcoming work will go deeper, providing states with a more detailed implementation roadmap for several of these strategies.
Rising health care costs continue to be a major concern for the American public and present a major opportunity for state policymakers wishing to tackle the problem. Recent research and evaluation have outlined a variety of strategies that could be utilized to begin making a difference. States just need the will to act.