- Issue: Rising health care spending continues to be a concern for state governments and their constituents, who are facing greater out-of-pocket costs and premiums.
- Goal: To examine the strategies available to states to control spending across all payers and how state health policy commissions can support implementation of those strategies.
- Methods: We survey literature and analyze policies with respect to their impact on spending at the state level.
- Key Findings: States may pursue a variety of strategies to control spending growth, ranging from 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. Though different states will likely choose different approaches, health policy commissions can support a wide variety of strategies by supporting initiatives of existing state agencies or by directly implementing new policies themselves. The specific strategies a state may prefer will depend on its resources, priorities, and health care landscape.
- Conclusion: Given limits to significant federal action, meaningful policy action to control spending growth is likely to occur at the state level. State health policy commissions can play a central role in supporting any of those efforts.
The United States spends more on health care as a share of the economy than any other country. In 2018, health spending accounted for 17.7 percent of the U.S. gross domestic product (GDP) — nearly twice as much as the average OECD country despite scant evidence of better outcomes.1 These costs also are anticipated to rise, reaching $6 trillion or 19.7 percent of the GDP within the next 10 years.2
This is of particular concern to states. Unlike the federal government, states must balance their budgets. The more dollars that get spent on health care, the less there is for other priorities such as education and transportation. Additionally, there is growing concern from constituents, who are facing greater premiums and out-of-pocket costs as spending increases.
To this end, many states have expressed interest in reducing the rate of growth in health care spending. To do so, states, by definition, must change the behavior of health care providers and payers. This presents two core challenges. The first is to identify the components of spending that should change. For example, one strategy may be to lower, or constrain the growth of, health care prices. Another may be to reduce the utilization of low-value care. The second challenge is designing a system that encourages, or forces, those changes. States have a wide variety of legislative and regulatory tools at their disposal, such as sharing data analytics, regulating prices, or preventing mergers and consolidation, which often lead to an increase in prices.
Health policy commissions also can play an important part in helping states achieve their health spending goals. Massachusetts and Maryland, for example, rely on a state commission to support their policy goals. In some cases, commissions may support strategies implemented through existing state agencies. In other cases, they may have the authority to directly implement strategies to constrain health care spending.
Commissions are well suited to serve as a deliberative forum for policy goals. A commission can consider data points and analysis alongside expert and stakeholder input and guide state lawmakers and regulators in implementing optimal state policy. The appropriate structure of a state policy commission will depend on available resources and the mix of strategies that states choose to pursue.
This report discusses various approaches states can take to control spending across all payers and describes how state commissions can support those goals. We focus on reducing overall spending, as opposed to strategies designed for specific patient populations, such as Medicaid beneficiaries or state employees. We consider ways to improve competition, lower prices, reduce use of low-value care, and limit spending or premiums. We look at the role state commissions may play in supporting these strategies, offer thoughts about how commissions might be structured, and discuss the impact of the authority they could be given. For example, Massachusetts, along with a few other states, rely on “soft authority,” while others, such as Maryland, endow commissions with strong regulatory powers.
Part I. Strategies for Controlling Health Spending
Health care spending is determined by prices and utilization and both of those, in turn, reflect a wide range of market features, such as the extent of provider and insurer competition and local practice patterns. Premiums reflect that spending and any insurer markup, which also reflects insurer competition (Exhibit 1). For this reason, one strategy to control spending focuses on improving either provider or insurer competition. More proximate, yet narrow strategies target high prices or utilization of health care services. The broadest direct strategies focus on spending itself. In each case, policy tools may range from soft encouragement to incentives and regulations with varying degrees of enforcement.