An Assessment of State Health Policy Options to Lower Health Care Prices in the Commercial Sector

Executive Summary

The increasing cost of health care in the commercial market is burdening more families with high premiums and out-of-pocket costs, hindering access to timely medical care, and forcing difficult tradeoffs on other essentials. Because commercial sector prices are subject to fewer constraints and more susceptible to market conditions, commercial physician rates, for example, are about 25 percent higher, on average, than Medicare rates. The ability of employers and insurers to negotiate lower prices is often limited by greater market power of providers and competition to offer attractive plans to enrollees, including those with diverse medical needs, that typically prefer broad networks. Absent significant reforms to reverse these trends, pervasive medical debt will continue to exacerbate health disparities rooted in systemic inequities.

Due in part to the divided Congress and competing policy priorities, major federal reforms to significantly limit or curb the growth of health care provider prices in the commercial sector are unlikely in the near term. States facing different dynamics, challenges, and needs can serve as laboratories for innovative solutions to improve health care affordability in the commercial sector. Moreover, state actions can guide federal efforts that can be scaled across the country. In our paper, we analyze three state policy options to regulate commercial health care prices: (1) caps on the level or growth of prices; (2) hospital global budgets; and (3) total cost growth benchmarks.

Policies that cap commercial prices tend to establish maximum amounts on provider payments or constrain their annual growth. The effectiveness of caps on lowering commercial prices primarily depends on three design features: (1) what providers or services would be subject to the cap, which could be based on provider’s network status or geographic location, type of plan, or type of health care services; (2) size of the caps relative to current payment rates; and (3) how the cap is enforced. In order to overcome political pushback, these programs usually include compromises that diminish their overall effectiveness. For example, because regulating provider payments is politically challenging, states tend to only apply price caps on relatively narrow segments of the market through public option plans (e.g., Colorado, Nevada in 2026, and Washington) and public employee benefit plans (e.g., Montana, North Carolina and Oregon). Only Delaware and Rhode Island have implemented caps on price growth. Though proposals to cap the level or growth of prices have not primarily focused on advancing health equity, price reductions resulting from such caps could improve affordability of coverage and, by extension, more equitable access to medical care.

Hospital global budgets are a policy in which states establish prospectively set annual budgets for all services rendered in the inpatient and outpatient hospital settings. Operating under a fixed budget, hospitals are incentivized to increase care coordination, reduce unnecessary utilization, and invest in prevention services. Overall, global budgets in Maryland, Pennsylvania, and Vermont have proven effective in putting downward pressure on commercial provider prices by capping the total amount in which hospitals are reimbursed. Global budgets, with or without all-payer rate setting, can result in lower commercial prices. Global budgets also succeed in advancing health equity through population health investments. While the models are focused on the hospital setting, participating providers are financially incentivized to invest in care coordination and preventive care services to lower the total cost of care for the population served.

States can also establish programs that set targets for the amount that overall health care costs may grow each year. These programs bring together payers and providers to collect data and tackle growing costs in a systemwide approach. The degree to which states hold entities accountable for meeting targets over time influences the effectiveness of these programs. So far, cost growth benchmark programs in the following states have demonstrated mixed results: California, Connecticut, Delaware, Massachusetts, Nevada, New Jersey, Oregon, Rhode Island, and Washington.

In our assessment, no single policy option ranks superior across all criteria: political feasibility, administrative feasibility, effectiveness, and health equity. Though capping the level or growth of prices most directly targets prices paid to providers, it is arguably the most politically challenging. Hospital global budget and total cost growth benchmarks offer states greater flexibility to strike the balance between effectiveness and political feasibility. Building strong enforcement mechanisms into the program that holds providers and commercial insurers accountable is critical to optimizing cost-containment policies. Regarding administrative feasibility, variations of provider price regulation necessitate common building blocks that serve as the foundation for each of the policy options in our paper. Lastly, the development and implementation of policies regulating provider prices should seek to eliminate health inequities.

Purpose

In previous work, we examined state bills during the 2021-2022 legislative session on reforms seeking to lower health care prices for their residents. We sought to provide a comprehensive view of state-level activity to identify emerging trends for cost control initiatives and inform continued work in these areas. We focused our analysis on key approaches to controlling health care costs, which we divided across two broad categories: (1) coverage pathways, including basic health program buy-in, Medicaid buy-in, public option, and single payer; and (2) cost containment pathways, including affordability studies, value-based insurance, anticompetitive contracting, affordability boards, health care spending targets, and subsidy programs. We continue to identify and analyze new state initiatives that intend to constrain commercial prices, with special focus on implementation of state public option programs.

The purpose of this memo is to assess the potential impact and viability of three state policy options, prioritized from our previous report and ongoing tracking of these initiatives, that seek to apply downward pressure on commercial health care prices: (1) caps on the level or growth of prices, (2) hospital global budgets; and (3) total cost growth benchmarks. Preceding this analysis, we delve into the policy and political context surrounding price regulation. Lastly, we offer consideration for policymakers and stakeholders to consider in pursuing state actions to constrain health care prices and improve affordability.

Background

Affordability is a key concern for privately insured patients who face increasingly high prices for health care services. Commercial sector prices are subject to fewer constraints and more susceptible to market conditions. The pervasiveness of private health insurance in the United States, with over half of the population enrolled in plans sponsored by employers (about 54 percent) or purchased by individuals (about 10 percent) in 2021, underscores the importance of effective and sustainable policies to lower health care prices.

Compared with Medicare, which sets prices based on laws and regulations, commercial insurers negotiate prices with providers. In its literature review of studies published in 2005 and subsequent years, the Congressional Budget Office (CBO) found commercial physician rates were about 25 percent higher, on average, than Medicare rates. The ability of employers and insurers to negotiate lower prices is often limited by various factors. In general, providers have greater market power than employers in a given area. Employers and insurers also seek to offer competitive plans to enrollees, including those with diverse medical needs, that typically prefer broad networks. The association between higher provider prices and increases in premiums and out-of-pocket costs, narrowed benefits, and slower wage growth for employees places some, but generally insignificant, downward pressure on provider prices.

Unaffordable health care costs are a significant barrier to accessing timely health care. Many people with private insurance do not have enough liquid assets (e.g., checking and savings accounts) to meet deductibles and out-of-pocket costs. Among single-person privately-insured households in 2019, 45 percent did not have enough liquid assets to pay $2,000 for the typical employer plan deductible, and 62 percent could not pay $6,000 for a high deductible plan. About 40 percent of U.S. adults say they have delayed or skipped medical care due to cost.

Moreover, medical debt jeopardizes financial security and often forces difficult tradeoffs on other essentials. Over 25 percent of adults with employer-sponsored insurance said they cut spending on food, clothing, and household items to pay for health-related items, and 20 percent reported taking on additional credit card debt. People with lower incomes, people with worse health status, Black Americans, and people living in Medicaid non-expansion states are more likely to have significant medical debt, defined as $250 in unpaid medical bills. People with unaffordable medical expenses are more likely to delay or skip needed care, which exacerbates health disparities rooted in systemic inequities.

Federal Policy Landscape

The CBO identified three policy approaches that Congress could consider pursuing to reduce the prices that commercial health insurers pay providers: (1) capping the level or growth of prices; (2) promoting competition among providers; and (3) promoting price transparency. Those options are briefly summarized in Table I.

Capping the Level or Growth of Prices

Price-cap policies, in CBO’s estimation, are the most effective, but they are also the most contentious and are unlikely to advance under the divided 118th Congress. The Biden Administration also has not championed federal price caps in the commercial market and, instead, has prioritized enforcement of the No Surprises Act (NSA) enacted in 2020, which protects consumers from certain out-of-network medical bills.

NSA is expected to reduce the number of surprise medical bills and associated out-of-pocket costs that could lead to medical debt. Additionally, the new financial protections may impact in-network rates and network participation by providers, explains the Office of the Assistant Secretary for Planning and Evaluation (ASPE). Whether changes to the negotiation dynamics between plans and providers will result in more providers joining plan and issuer networks or going out-of-network remains to be seen. NSA may also affect provider decisions regarding consolidation, quality of care, and provider supply that could in turn have implications for prices and access to care. An initial score by CBO estimates NSA will result in smaller payments to some providers that would reduce premiums by between 0.5 percent and 1 percent. As discussed further below, the Administration also supports price-cap policies at the state level through section 1332 waiver authority.

Despite the lack of consensus and support for price-cap policies and other forms of price regulation, Congress included provisions in NSA to support state all-payer claims database (APCD), which the Catalyst for Payment Reform describes as a prerequisite to inform price regulation policies. An APCD is a repository of medical claims data from public and private payers that allow states to monitor health care costs, utilization, and quality. To date, 31 states have mandatory or voluntary APCDs that are operational or in development, potentially laying the groundwork for a national APCD in the future.

NSA authorized $2.5 million over three years for each state to establish or enhance an APCD, though grants have not yet been distributed. NSA also established the State All Payer Claims Databases Advisory Committee, which delivered a report with recommendations for the Secretary of Labor on developing a standardized reporting format for the voluntary reporting by self-funded group health plans to state APCDs, and to help in developing guidance on how states may collect data from such plans.

Promoting Competition

In contrast, the 118th Congress has shown an appetite for incremental measures to promote competition and price transparency. The bipartisanship surrounding these proposals is a promising sign that they could advance in an otherwise fraught political environment.

Both Congress and the Biden Administration have worked on promoting competition in health care, especially by addressing provider consolidation. The House Education and Workforce Committee, Energy and Commerce Committee, and Ways and Means Committee have all held hearings on consolidation and transparency in the health care market in the first half of 2023. On May 24, 2023, the Energy & Commerce (E&C) Committee advanced six bills to lower costs and increase price transparency to the full House. President Biden made increasing competition one of the goals of his administration with the Executive Order on Promoting Competition in the American Economy. Broadly, the EO establishes a White House Competition Council and directs agencies to cooperate in their oversight of proposed mergers, acquisitions, and joint ventures. President Biden’s EO also directs the Federal Trade Commission (FTC) and Department of Justice (DOJ) to review and revise hospital merger guidelines. The FTC and DOJ jointly launched a public inquiry on ways to modernize federal merger guidelines to better detect and protect illegal, anticompetitive merger deals in all types of markets. Additionally, DOJ is partnering with the HHS Office of the Inspector General (OIG) to protect consumers from collusion, ensure compliance with existing laws, and promote competitive health care markets.

Promoting Price Transparency

As for price transparency, lawmakers in the 118th Congress are keen to strengthen existing requirements for hospitals and health insurers. The PATIENT Act of 2023 (H.R. 3561), advanced by the House E&C Committee, includes key policy changes to address concerns regarding usability of data and noncompliance. Key provisions include standardizing hospital and insurer reporting requirements to facilitate price comparisons; significantly increasing the penalty for hospitals that fail to comply from $2,007,500 to $5 million; and requiring HHS to publish a list of noncompliant hospitals.

State Policy Landscape

With budgetary incentives to control health care costs, states have explored a variety of policies that range from more passive efforts, such as transparency requirements, to directly regulating reimbursement rates. Below we present an overview of current state policies addressing these objectives

Capping the Level or Growth of Prices

There are currently nine states (California, Connecticut, Delaware, Massachusetts, Nevada, New Jersey, Oregon, Rhode Island, and Washington) that have implemented cost-growth benchmark programs that aim to limit how much a states’ health care spending can grow each year. Each state has an entity or entities that are responsible for monitoring the state’s overall health care market, including cost growth, and recommending benchmark targets for spending. Once the targets have been set, health care entities that exceed their allowable cost growth must either implement a performance improvement plan or pay a penalty.

States have also begun to explore coverage options and policies that have lower associated reimbursement rates than traditional commercial insurance. Colorado and Washington have both implemented public option programs, in which Colorado requires premium reductions that it expects to translate to lower reimbursement rates, while Washington caps provider reimbursement at 160 percent of Medicare. Maryland currently operates an all-payer global budget, in which the state sets hospital payment rates for all payers. Maryland’s model has generated $781 million in estimated aggregate savings from 2019 to 2021.

Promoting Price Transparency

Between 2020 and 2022, 14 states enacted price transparency laws. These policies ranged from requiring insurers and hospitals to make public payment amounts and charge master information for certain services, similar to the federal requirements, to requiring state commissions to publish information related to state health care spending amounts.

States have also begun to explore policies to mandate compliance with the federal laws or increase state reporting requirements. These policies include Arizona and Colorado laws to require compliance with the federal reporting requirements, while Indiana enacted legislation requiring hospitals to continue to post pricing information if the federal requirements are repealed.

Promoting Price Competition

As there is some evidence that consolidation is linked to increased prices, states have also aimed to address potentially anticompetitive mergers and acquisitions between hospital systems and insurers and other contracting practices. On the provider side, 40 states have laws in place that address provider mergers, with varying levels of regulation. On the less aggressive end, states require advanced notification of proposed mergers, while more aggressive states require notification, review, and approval of such mergers. States have also enacted laws to address anticompetitive provisions in provider contracts, including non-compete, all-or-nothing, anti-steering, gag, and exclusive contracting clauses.

In the insurance market, 49 states have established competitive standards against which potential insurance mergers are evaluated. If the merger is likely to substantially lessen competition in the market or create a monopoly, insurance commissioners have authority to deny the merger.

Scope of Assessment

Our assessment focused on policy approaches that directly regulate commercial sector prices paid to providers for three main reasons. First, price regulation can yield more substantial price reductions compared to policies that promote price transparency and policies that promote competition, which place indirect downward pressure on price negotiations, and instead, target consumer behavior and provider market power, respectively. Second, while federal action to further promote price transparency and provider competition is gaining bipartisan momentum in the divided Congress, meaningful price regulation at the federal level, beyond implementation of NSA, does not seem to be politically tenable in the current environment. Lastly, a number of states have pursued different approaches to price regulation that provide evidence and lessons learned that could inform other state and federal efforts. Accordingly, we analyze policy options that regulate prices paid to providers through caps on the level or growth of prices, hospital global budgets, and total cost control benchmarks.

Criteria

We used an array of criteria to assess proposals that intend to address commercial health care prices. These criteria are described in brief here and our analysis applying these factors to potential price regulation proposals is provided further in the paper.

Political Feasibility

The political feasibility of potential policies is important to determine whether the proposals could realistically be implemented nationwide. We considered the legislative and regulatory history of the policy options, including whether they have been supported by Democrats, Republicans, or both.

Administrative Feasibility

Innovative payment policies can require significant financial and time investments by states. The administrative feasibility of policy options will determine whether states can implement the policy options effectively. We assessed feasibility by considering what administrative or market infrastructure must be in place, including any necessary waivers, and how a state could finance the policy. When possible, we considered the experiences of states that have implemented or designed similar policies.

Effectiveness

We based the effectiveness of the policy options primarily on the impact of the policies on negotiated rates for providers. Options that put downward pressure on provider prices both directly and indirectly were considered more effective. We considered the impact of policies on affordability of health care in the context of lowering out-of-pocket costs and improving access to care under the health equity criterion.

Health Equity

We used the Health Coverage Equity Framework developed by The Century Foundation to analyze the health equity implications of our policy options. The Framework is built around five pillars that aim to connect and comprise essential elements for any program aimed at advancing health equity through health care policy. These pillars are summarized below:

Affordability: Policies should include meaningful pathways for driving down health care costs.
Sustainability: Short-term solutions can be helpful, but meaningful solutions will be able to last over time.
Accountability: Policymakers must be held accountable for advancing health equity.
Comprehensiveness: Affordable health care options must be comprehensive, including for individuals with high needs and complex conditions.
Inclusivity: Marginalized communities must be included in the development, implementation, and evaluation of policies and programs.

Policy 1: Capping the Level or Growth of Price

Description

Policies that cap commercial prices tend to set a ceiling on price negotiations for health care services. Lawmakers have two approaches for price caps that could be implemented independently or together: (1) establishing maximum amounts that providers could receive from commercial insurers for specific services or groups of services; and (2) constraining the growth of prices by limiting the rate that prices negotiated between providers and commercial insurers may increase on an annual basis.

The level of price caps for services could be pegged to a public fee schedule – for example, setting the price as a multiple of Medicare rates. Alternatively, price caps could be based on existing commercial rates, such as a percentile of the commercial price distribution in the market. Commercial-based price caps could be adjusted to account for geographic differences. A cap on the annual growth of prices could be set as a fixed percentage or be based on a benchmark of economic or price growth, such as the consumer price index. Under both approaches, providers and insurers can negotiate prices as they otherwise would, provided they agree to rates below the price cap and/or increases to rates that comply with the price growth cap.

Political Feasibility

Like other policies to directly regulate provider reimbursement in the commercial market, capping the level or growth of prices is politically challenging. However, price caps have been implemented in Colorado, Nevada (in 2026), and Washington through public option plans; and in Montana, North Carolina, and Oregon through public employee benefit plans. Price growth caps have been implemented in Delaware and Rhode Island. These efforts have been primarily led by Democratic state lawmakers.

Hospitals, expectedly, are strongly opposed to capping prices for care. In response to a study by RAND Corporation finding that regulating prices, by either setting or capping prices, could significantly reduce hospital spending, the American Hospital Association criticized the think tank for “ignor[ing] the unique role of hospitals and health systems and dismiss[ing] rising costs and market concentration in the commercial health insurance industry.” Hospitals and insurers likewise oppose proposals for a public option.

Administrative Feasibility

Instituting caps on provider prices and price growth will require infrastructure to support the establishment, implementation, and enforcement of price caps. As noted by the Catalyst for Payment Reform (CPR), prerequisite policies potentially include an all payers claims database (APCDs) to allow states to monitor quality, utilization trends, and costs in the health care system; a designated body to advise implementing agencies on how to cap provider prices; and state-specific goals to guide the price caps.

The feasibility and complexity of designing caps on the level or growth of provider prices depends on the source used to define the cap. CPR identifies three benchmarking sources, each with its own tradeoffs:

Medicare prices: This straightforward option sets the cap at multiples of Medicare rates, which are established federally for most hospital services. However, this option preserves Medicare pricing distortions and not all services are covered by Medicare.
Service-level commercial prices: This option entails plotting the distribution of commercial service-level prices locally. The cap is set at a multiple of a percentile rate of the commercial price distribution for a given service. Though this option avoids carrying over Medicare’s flaws, it requires significant analysis of pricing data for all services at the local level. The analysis is also subject to sampling error.
Relative Value Units (RVUs) or Diagnostic Related Groups (DRGs): This option entails calculating the distribution of local commercial prices for inpatient care, based on relative value units or diagnostic related groups. The cap is set at a multiple of a percentile rate of the commercial price distribution at the local level for a given service. This method also requires significant data and analysis, but the use of standardized units of pricing makes it less cumbersome than the prior option.

Regardless of the chosen methodology, states will need to invest time and resources monitor and enforce compliance with the price-cap policies. The Commonwealth Fund recommends states monitor: (1) hospital financials for evidence of providers gaming the system; (2) spending and spending growth to assess progress towards state-specific goals; (3) quality of care, access to care, and patient experience; (4) provider participation rates to determine if caps are narrowing provider networks; and (5) spending data and insurer-provider contracts to enforce compliance.

Effectiveness

Capping the level or growth of prices paid by commercial insurers to hospitals can be an effective strategy for containing health care costs. In CBO’s estimation, caps on prices and price growth applied in all markets nationally can yield moderate to large price reductions (more than 5 percent), compared to policies that promote competition (up to 3 percent) and policies that promote price transparency (up to 1 percent). The effectiveness of caps on lowering commercial prices depend on three design features: (1) what providers or services would be subject to the cap, which could be based on provider’s network status or geographic location, type of plan, or type of health care services; (2) size of the caps relative to current payment rates; and (3) how the cap would be enforced.

Using a public option as a vehicle to implement price caps is an imperfect approach with potentially unintended consequences on the commercial market and administrative complexity and costs, among other issues. Still, public option models in the commercial market have become increasingly popular, due in part to potential design variations to meet state-specific needs. Because state public option programs in Colorado and Washington are relatively new and Nevada’s public option program is not yet implemented, the financial impact of their price caps is uncertain. For these reasons, we closely examine the design choices and implementation of the Colorado Option and Washington’s Cascade Select to discern the effectiveness of price caps on containing health care costs, albeit narrowly.

Further below, we present analysis of price caps in public employee benefit programs (Montana, North Carolina, and Oregon) and price growth caps in state-regulated insurance products (Delaware and Rhode Island) – all of which report substantial savings. Lastly, we model projections of national proposals to cap prices across the commercial market showing potentially significant savings.

Effectiveness of State Public Option Programs

Public option programs in Colorado and Washington seek to place downward pressure on provider prices by regulating the prices that participating insurers can accept. Therefore, the effectiveness of a price cap in a public option program hinges on participation requirements for insurance carriers and providers. A key difference between the programs is their approach to carrier participation, which affects the degree to which providers are required to participate in public option plans and are therefore subject to price caps.

All carriers offering a plan on Colorado’s individual and small group markets are required to offer the Colorado Option, whereas only insurance carriers selected through a competitive bidding process offer Cascade Select in Washington. Though statewide availability of Cascade Select has improved since 2021, the program is not available in five counties in plan year 2023. Consequently, some Washington residents are not able to benefit from savings achieved through the price caps.

Provider participation in Washington’s Cascade Select, initially voluntary, became mandatory in plan year 2023, though an existing loophole in the new law and implementing regulations has diminished the mandate’s effectiveness. Hospitals that participate in Medicaid or a public employees benefit or school employees benefit program are required to contract with at least one carrier offering Cascade Care Select, as long as the hospital received a good faith offer from a carrier. However, the state’s Health Care Authority (HCA) is aware that some providers have refused to contract with additional carriers because new rules only require that they contract with one Cascade Select carrier. HCA intends to monitor the impact of the new requirements on availability and accessibility.

Washington also requires reimbursement floors: primary care physicians may not be paid less than 135 percent of Medicare and rural critical access hospitals or sole community hospitals must receive no less than 101 percent of Medicare. Noncompliant hospitals may be investigated and face sanctions for failure to contract with public option plan. Early analysis of data from HCA reveals that one carrier’s rates exceeded the aggregate cap for all quarters in 2021; three other carriers met the cap and one carrier had insufficient data for analysis. How carriers’ performance will translate to savings in Washington is unclear.

In Colorado, providers are only required to participate in the public option if their participation is deemed necessary for insurance carriers to meet enhanced network adequacy and premium rate reduction requirements. The premium reduction requirement for carriers serves as a proxy price cap for providers. Carriers and providers have the opportunity to negotiate reimbursement rates, provided the agreed upon rates allow carriers to meet the network adequacy requirement and the premium reduction requirement, which is 5 percent in plan year 2023. For plan year 2024, if an insurance carrier is unable to meet these requirements, then a public hearing is convened, which could result in a decision requiring a hospital to accept state-specified rates. Colorado may impose fines and/or suspend the license of hospitals that refuse to accept state-specified reimbursement rates. The Insurance Commissioner vacated all public hearings initially scheduled, because insurance carriers and hospitals were able to negotiate rates that allow carriers to meet the network adequacy and the 10 percent premium rate reduction requirements for plan year 2024. Although the amount of savings that price caps in Colorado and Washington’s public option programs will generate is not yet known, implementation thus far makes clear that policies intended to maximize and enforce participation of insurance carriers and providers in public option plans would likely increase potential savings.

Effectiveness of State Public Employee Benefit Programs
Evaluations of price caps in public employee benefit programs demonstrate the potential effectiveness of such policies. Researchers estimate that Oregon’s cap on hospital payments in state employee plans saved the state $107.5 million over the first 27 months of the program. Most of the savings were generated by reductions in outpatient prices because all hospitals were previously reimbursed for outpatient services at prices greater than the state’s cap. Nearly all hospitals were previously reimbursed for inpatient services at prices below the cap. An independent evaluation of the price cap in Montana’s state employee health plan estimated savings of $47.8 million from state fiscal year (SFY) 2017 to SFY 2019, including $30.3 million in inpatient savings and $17.5 million in outpatient savings. Over that time, the price cap generated per member per month savings ranging from $55.06 to $62.50 for inpatient services, and $29.07 to $41.84 for outpatient services.
North Carolina’s price cap in the state health plan was estimated to generate $166 million in savings for the state plan and over $34 million in savings for plan members – under half the savings first estimated. The state initially contemplated a lower price cap, 177 percent, but added adjustments to alleviate concerns from rural hospitals. A formal evaluation of the state’s price cap program is not yet available.
Additional evaluations of price growth caps for commercial insurers have suggested potential efficacy of the approach in reducing costs. In 2010, Rhode Island instituted price inflation caps on annual contract renewals between commercial insurers and private hospitals and clinics, in conjunction with payments based on diagnosis-related groups rather than specific services. Rhode Island also required commercial insurers to make investments in primary care coordination. A study found that the price controls, rather than reduced utilization, lowered total spending growth. In Delaware, state-regulated insurance carriers are required to limit price increase to 5.5 percent in 2023 for each of the three categories of non-professional medical services – inpatient hospital, outpatient hospital, and other medical services. In subsequent years, the price growth cap will increase by the regional Core Consumer Price Index (CPI), which is averaged over the previous two years, plus one percent. The Office of Value-Based Health Care Delivery estimates the price growth caps saved $2 million to $12 million in 2023.
Effectiveness of National Proposals
Lastly, model projections of national proposals to cap prices across the commercial market show potentially significant savings. RAND researchers estimate that limiting out-of-network payments to 125 percent of Medicare payments would reduce nationwide hospital spending by $108 billion to $124 billion, and payment limits at 200 percent of Medicare would reduce spending by $56 billion to $94 billion. In a separate RAND study, researchers estimate that capping prices at 100 to 150 percent of Medicare rates for all Medicare payers could yield a $61.9 billion to $236 billion reduction in hospital spending, which would lead to 1.7 percent to 6.5 percent reduction in national health spending. Health economists estimate a three-pronged proposal – entailing rate caps on commercial hospital prices set at five times the 20th percentile of commercial in-network rates, annual price growth caps, and investments in federal and/or state agencies to administer the regulations and conduct oversight – would save $38 billion, which would reduce commercial health spending by about 3.2 percent and total health care spending by about 1.0 percent. This analysis does not quantify the impacts on access to care or other unintended consequences of such potentially sharp reductions in payment.

Health Equity

Though proposals to cap the level or growth of prices have not primarily focused on advancing health equity, price reductions resulting from such caps could improve affordability of coverage and, by extension, access to medical care. As discussed below, public option programs can serve as a vehicle for price regulation that can be coupled with policies explicitly designed to advance health equity. The Century Foundation’s report examining how state public option programs advance health equity provides additional analysis of these points. Below, we focus on our health equity analysis on caps on price caps and price growth.

Affordability. Capping the level or growth of prices can reduce health care spending of insurers, which can translate into lower premiums in the commercial market. CBO estimates that most reductions in health care spending – 85 percent to 90 percent for employer-based plans, and nearly 100 percent of reductions in individual plans – would be passed along as a reduction in premiums for individuals. In Washington, Cascade Select plans offer the lowest-premium coverage option in most counties in 2023. On average, premium rates for Cascade Select decreased by three percent compared to all plans on the Washington Health Benefit Exchange, which increased by over eight percent that year. Because price caps ultimately reduce provider revenue, if excessive, they may decrease margins to a financially unsustainable point that requires hospitals to reduce its staff capacity, which may lower the quality of care, or close entirely and therefore reduce access to care.

Sustainability. Policies to cap prices or growth of prices can be instituted through different mechanisms relying on existing authorities or requiring legislation, depending on the type of plan. For example, states may require price caps when negotiating contracts with carriers offering public employee benefit plans, as was done in Montana and North Carolina. States may also use their regulatory authority over fully insured plans to require such caps. Only Delaware and Rhode Island have thus far leveraged this authority to impose price growth caps on insurers. Instituting pricing-related caps through legislation increases the sustainability of such policies. Colorado’s approach, in particular, highlights advantages of packaging price caps with other reforms to lower prices across the health care system. By setting provider reimbursement floors, Colorado challenges insurers to meet premium rate reduction requirements through different avenues, such as negotiations with pharmaceutical manufacturers, rather than solely reducing provider reimbursement rates.

Accountability. Coupling price caps with strong enforcement mechanisms can promote accountability. In the case of price caps implemented as part of public option programs, strong participation requirements also ensure insurance carriers and hospitals are held accountable. Hospitals in Colorado and Washington that refuse to accept capped prices are subject to sanctions, and hospitals in Colorado could have their license suspended.

Comprehensiveness. Current price cap policies broadly apply to all health care services. Notably, caps in Colorado and Washington are coupled with adjustments or floors for certain services, such as primary care, and certain providers, such as hospitals serving a high proportion of beneficiaries dually eligible for Medicaid and Medicare. Additionally, both states provide benefits in standardized plans that more generously cover high-value services. For example, Colorado Option plans are required to offer reduced out-of-pocket costs for primary care visits, mental/behavioral health visits, prenatal and postnatal visit, and substance use disorder benefits. In Washington, Cascade Select plans are required to align with select recommendations by the Bree Collaborative, a statewide public-private consortium charged with improving quality, health outcomes, and cost effectiveness of care in Washington. In plan year 2021, Cascade Select plans were required to implement recommendations on the following topics: avoidable readmissions, behavioral health integration, low back pain, opioid use disorder, and total knee and hip replacement.

Inclusivity. Policies to cap prices and price growth have generally not centered inclusivity in their design. However, both Colorado and Washington have formal processes for engaging stakeholders through the Colorado Option Advisory Board and Cascade Care Stakeholder Workgroup. These forums provide an opportunity for stakeholders representing a range of perspectives to provide input on the design of the public option plans, including price cap policies.

Policy 2: Hospital Global Budgets

Description

However, states can customize their global budget approach to best address their overall policy objectives. Such policy options could include establishing reimbursement rates to match the global budget, making provider and payer participation voluntary, or requiring investments in population health.

In the following sections, we will examine the following global budgets models that have recently been implemented through the Center for Medicare and Medicaid Innovation (CMMI). While each has distinct policies goals, the models all incorporate budgets administered and overseen by states and various levels of population health investment.

The Maryland All-Payer Model (APM), which operated from 2014 through 2018 and transitioned the state’s hospital payment structure to an all-payer, annual, global hospital budget;
The Maryland Total Cost of Care (TCOC) Model, which began in 2019 and iterates on the APM by holding the state accountable for the total cost of care across provider settings;
The Vermont All-Payer Accountable Care Organization Model (VTAPM), which started in 2017, and encourages Vermont payers and providers to participate in ACO programs; and
The Pennsylvania Rural Health Model (PARHM), which pays participating rural hospitals on a global budget with the aim of financially supporting such hospitals’ investment in high-quality primary and specialty care that addresses the specific needs of the communities they serve.

Overall, global budgets have been found to be effective in putting downward pressure on commercial provider prices by capping the total amount in which hospitals are reimbursed. Global budgets with and without all-payer rate setting can result in lower commercial prices than commercial prices employed outside of such arrangements.

Global budgets also encourage advancing health equity through population health investments. While the models are focused on the hospital rate setting, participating providers are financially incentivized to invest in care coordination and preventive care services to lower the total cost of care for the population served.

Political Feasibility

As global budgets impact stakeholders across the health care sector and transform the way both hospitals and insurers operate, it is typically more difficult to garner broad political support for them at the state level. Global budgets have been successfully implemented and currently operate in Maryland, Pennsylvania, and Vermont, but these efforts and more recently introduced legislation are primarily led by Democratic state lawmakers with little Republican support.

However, global budgets do have some industry support. The American Hospital Association has expressed support for the policy due to global budgets’ ability to provide predictable, stable payments, while increasing consumer access to a broader network of providers. Additionally, compared to other policy options that eliminate the role of commercial payers, such as single-payer programs, private insurers maintain more discretion to execute their own strategies under a global budget. Employers may also be supportive of global budgets for their potential to decrease overall health care spending in employee health plans.

Administrative Feasibility

In order to implement a global budget, the Catalyst for Payment Reform asserts that states typically need: (1) insight into historical spending, potentially through an APCD; (2) a process for determining and establishing cost growth benchmarks; and 3) an independent state body responsible for setting and updating the annual budget.

When setting a budget, states may choose to do so based on historical spending trends or a capitated model that aim to distribute resources based on relative needs of the population served. If a state chooses to include rate setting as a part of its global budget, this process presents an additional level of administrative complexity given significant data requirements. Finally, states must also pursue section 1332 and 1115 waivers in order to waive the Medicare payment rules for hospitals and Medicaid program requirements.

The Urban Institute asserts that while the upfront requirements for establishing a global budget may be administratively complex and burdensome, once a budget is established, global budgets are relatively straightforward for hospitals to administer and are less susceptible to fraud.

Effectiveness

Hospital global budgets create financial incentives to move away from the existing fee-for-service (FFS) payment structure toward value-based care through care coordination and population health investments. The overarching goal of each global budget is to limit the hospital expenditure growth and to decrease Medicare spending. In line with the focus of this paper, this section will examine the effectiveness of global budgets in putting downward pressure on commercial prices.

The impact of the global budget on commercial rates is largely driven by how it is structured. Under traditional global budgets, hospitals are still receiving different payments rates from different payers, which typically leads to commercial payers having higher rates than public payers. However, the budget constraints do have an impact of reducing the commercial payment rates compared to commercial rates outside of global budgets. Additionally, harmonizing hospital rates across payers usually yields lower commercial rates, as compared to rates in the state prior to the global budget and in states without global budgets.

In the VTAPM, while hospital budgets and ACO benchmarks are annually reviewed and approved, commercial payers remain in fee-for-service arrangements with participating hospitals. When examining the payer differential for the 2018 performance year, the state found that the ACO received a 5 percent higher benchmark payment rate for commercial members than for Medicare members. While this analysis examines risk-adjusted benchmark payment rates, this payer differential in Vermont is much lower than commercial hospital rates outside of global budgets. For comparison, in an analysis of national average commercial and Medicare hospital service rates, the CBO estimates that commercial prices averaged 240 percent of Medicare fee-for-service prices for outpatient services and 182 percent of Medicare fee-for-service prices for inpatient services between 2010 and 2020.

Under the Maryland All-Payer Model and the Maryland TCOC Model, the Maryland Health Services Cost Review Commission (HSCRC) sets the same payment rate for services across all payers. This results in an averaging effect in which commercial reimbursement rates are lower and Medicare and Medicaid rates are higher than what they would have been without the budget. When rates for inpatient admissions under the Maryland All-Payer Model, commercial payments were 11 to 15 percent lower in Maryland than in a matched comparison group. Overall, estimated commercial payments for inpatient admissions were $3.3 billion lower in Maryland over the course of the model.

Global budgets with all-payer rate setting have also been found to beneficially address market distortions that have resulted in high commercial prices. Research has found that, because global budgets with all-payer rate setting eliminate price variations across the different types of payers, they may reduce differences in negotiating leverage between providers and payers, and may reduce price discrimination and cost shifting between the payers.

Models with voluntary commercial payer participation (Vermont and Pennsylvania) faced challenges with reaching scale targets that would be beneficial to global budget’s population health goals. In the Vermont Model, 66 percent of the state’s commercial market is already participating in the model, but the remainder of the market is highly fragmented, which may impede full commercial participation. Without full participation, stakeholders assert that moving toward more advanced payment models and generating meaningful payment reform in the commercial ACO initiative would be difficult. In the PARHM, five commercial payers participated in 2020 but they experienced challenges associated with level of financial and administrative resources required for Model participation. These barriers may impede full commercial participation, which may impact global budget success.

Health Equity

While equity has not been explicitly evaluated in these hospital global budget programs, there are inherent aspects of the policy that may lend themselves to advancing equity in health care systems, namely its population health initiatives and investments. As global budgets are intended to capture all costs of a defined population, hospitals have a financial incentive to improve population health in order to lower overall health care utilization and spending. States may also choose to require hospitals to include certain initiatives within their global budget programs to further advance the goals of population health.

Using the Health Coverage Equity Framework, we provide illustrative examples how global budgets advance the following pillars of health equity:

Affordability: While commercial affordability has not been explicitly evaluated in implemented global budgets, decreased utilization of inpatient services may indirectly reduce consumer health care costs. As hospitals have a financial incentive to avoid unnecessary inpatient hospitalization under global budgets, commercially insured consumers may financially benefit from lower-cost health care services provided in lower-cost settings. Under the Maryland All-Payer Model, inpatient admissions declined for the commercially insured population and payment per admission grew by 7.7 percent less for commercial admissions than for the comparison group after 4 years of the model. The other models do not explicitly address commercial inpatient admissions, but each has also resulted in lower rates of inpatient admissions and emergency department visits.

Sustainability: Each of the models has made significant long-term investments into population health with the goal of reducing the total cost of care for participating consumers. Below we describe such initiatives by model:

One Care, the organizing ACO in the VTAPM, has provided funding for a number of programs and initiatives within the model including: 1) care coordination for consumers identified as high- and very high risk; 2) a community-based primary prevention that emphasizes healthy lifestyles; and 3) an innovation fund that supports innovative evidence-based approaches for mental health, vulnerable populations, chronic conditions, and technology in rural settings.
The MD TCOC Model is inclusive of non-hospital costs and includes a care design program, care transformation initiatives and the Maryland Primary Care Program.

Accountability: Under the global budgets currently being implemented, each state requires hospitals to proactively address population health needs. Such initiatives include the following:

Hospital Transformation Plan: Under the PARHM, hospitals are required to develop and receive approval for its hospital transformation plan. Hospitals must provide a service area description that features the area’s population health statistics and social determinants of health, as well as their proposed care delivery redesign. The plans are intended to focus on preventive care and services tailored to the needs of the local population, including addressing rural health disparities and investments in population health management.
Outcomes-Based Credits and Measures: In the Maryland TCOC model, hospitals are provided outcome-based credits for reductions in diabetes incidence, which aims to incentivize the investment of diabetes prevention services. Additionally, as part of the Statewide Integrated Health Improvement Strategy, hospitals have goals related to reduce mean adult body-mass index (BMI) and reduce overdose mortality rates.
Population Health Measure Performance Report: The Maryland All-Payer model requires hospitals to submit an annual report demonstrating their performance along various population health measures.

Comprehensiveness: While the hospital global budget models are primarily focused on the hospital setting, each includes additional programs or initiatives that span across health care setting and services, which may provide consumers increased access and care coordination. Below we highlight several of the programs employed by the Maryland models:

The Chronic Care Improvement Program, which provided hospitals the option to partner with primary care physicians and other community-based providers to improve care coordination and care management outside of the hospital setting.
The Hospital Care Improvement Program, which allows hospitals to partner with hospital-based specialists to improve care coordination after a hospital admission.
The Care Redesign Program, which provides participating hospitals the opportunity to partner with and provide incentives and resources to certain providers and suppliers in exchange for their performance of activities and processes that intend to improve quality of care.

Inclusivity: Many of the sustainability initiatives also include components that are inclusive of collaboration with stakeholders and community-based organizations. Below are ways in which the programs engage a broad array of stakeholders:

Several hospitals participating in the PARHM engaged community-based organizations to facilitate transformation efforts that addressed behavioral health access, food insecurity, and avoidable emergency department utilization.
Within the Maryland TCOC Model, the state implemented a Regional Partnership Catalyst Grant program for hospitals that have partnered with community stakeholders to integrate an early intervention approach for people with substance use disorders.
The VTAPM includes funding for Blueprint Community Health Teams (CHTs) which support Patient-Centered Medical Homes (PCMHs) and manage patients’ complex illnesses across providers, as well as the Developmental Understanding and Legal Collaboration for Everyone Program (DULCE), which supports the health-related social needs of infants from birth to 6 months.

Policy 3: Total Costs Growth Benchmarks

Description

States can also establish programs that set targets for the amount that overall health care costs may grow each year. These programs bring together payers and providers to collect data and tackle growing costs in a systemwide approach. Some important considerations for designing a cost growth benchmark program are how to define or measure costs and how to determine the growth targets. Additionally, policymakers can choose to try to constrain costs more for providers with higher prices or adjust targets to promote state priorities like primary care. Massachusetts was the first state to develop a benchmarking program and eight states have since followed. Table III describes the basic design of these and other programs.

Political Feasibility

Cost growth targets appear to have the most potential for bipartisan support among the options we examined, although existing programs have largely been implemented by Democrats. Half of the programs were implemented through executive orders from Democratic governors. The four that were passed as legislation were supported by more Democrats than Republicans, but some Republicans did vote in favor of their passage.

In general, the political feasibility of cost growth benchmarks depends on the design of the program whereby programs more focused on transparency have more bipartisan support while programs that include enforcement penalties are more controversial. The benchmarks are fundamentally built on increasing the transparency of prices and spending in the health care market to then limit growth. Price transparency has been an area of bipartisan work and agreement in the 118th Congress, so policymakers from both parties may support collecting data and setting cost growth targets. However, Republicans are less likely to support programs that impose financial penalties or other repercussions on private entities that exceed the targets even though evidence suggests that financial penalties may be necessary to ensure entities adhere to their targets. As a result, the least effective programs appear to be the most politically feasible.

Administrative Feasibility

All of the policy options we considered require some common features with a relatively high administrative burden as prerequisites to implementation. These include the development of robust data infrastructure, most likely an APCD, and a health policy commission or other body responsible for developing methodology and analyzing data. The Peterson-Milbank Program for Sustainable Health Costs is working with Bailit Health to provide technical assistance to states developing targets for health care spending, and helps the states analyze and address the drivers of cost growth. Participating states include Connecticut, New Jersey, Oregon, Rhode Island, and Washington. The technical assistance offered by this program reduces the administrative burden, especially as states can model their program designs off of one another. To the extent that this model can be expanded, cost benchmark programs will be easier for other states to design and implement.

Once a specific body or commission has been given the responsibility to establish the benchmarks, it must begin data collection and develop the methodology to identify growth targets for different types of entities. The commission will have to decide how to define health care costs or spending, then how to collect and report data. The data can be reported in aggregate for all payers or could be reported at the market, payer, provider, or regional level. This data can also be used to identify major cost drivers that could be used to inform any secondary policy interventions. The commission then must decide how to determine the amount that costs will be allowed to grow each year and communicate those targets to stakeholders.

After implementation, the maintenance of a cost growth benchmark program will continue to require significant resources and administrative work. The state must collect and analyze data to determine if entities are in compliance, and, if they are not in compliance, if there are justifying circumstances. States must then hold noncompliant entities accountable by either publishing reports and requiring performance improvement plans or by imposing financial penalties

Effectiveness

So far, state cost growth benchmark programs have demonstrated mixed results. The longest running program is Massachusetts, where the average rate of cost growth was below the benchmark for three of the first seven years of the program and remained at or below the national average during those years, but the growth rate increased beginning in 2019. The initial success in Massachusetts spurred other states to begin developing their own benchmarking programs.

In general, the effectiveness of health care cost growth benchmarks depends significantly on the design of the program. First, whether the benchmarks actually influence provider prices and stakeholder behavior depends on whether states hold entities accountable for their targets over time. States use a continuum of regulation to limit cost growth from promoting public awareness of high-cost entities to performance improvement plans and financial penalties for entities that exceed benchmarks. Experts agree that stakeholder engagement is critical to support cross-sector participation and investment in program goals. However, engagement may not be sufficient to generate long-term compliance with the growth targets. Research shows that entities may initially comply with new benchmarks, but the impact on payer and provider behavior diminishes over time. States would need to build in continuous enforcement mechanisms and work with partners to maintain enough public attention on the targets to incentivize entities to comply with the targets. While including fines or other recourses for entities that exceed their targets would make benchmark programs more effective, these proposals face more pushback from industry stakeholders and are more politically contentious.

Several states do not include any enforcement mechanisms for their benchmarks. Instead, any direct impact on the health care market is through stakeholder awareness and buy-in, which is difficult to sustain and less effective than enforcement measures. These states intend to use the data collection and analysis from their benchmark programs to make recommendations for further policymaking, but relying on additional regulation or legislation to constrain health care cost growth makes the benchmarks more symbolic than effective, especially if the recommendations are never taken up. For example, a study on the effectiveness of the Massachusetts program noted that many of the recommendations and findings from the annual cost trends hearings and reports are not implemented.

Additionally, the benchmarks apply broadly to entities regardless of how costly they are to begin with. Policymakers could address this issue by adjusting the targets for different types of entities to allow higher cost growth for providers that have been historically underpaid while compensating with lower growth from high-cost entities. If all entities are directed to slow spending equally, safety net providers and other providers that are already underpaid may not be able to maintain services. At-risk entities include smaller and rural hospitals, independent physician practices, and behavioral health and primary care providers. An additional danger is that small or independent practices facing financial strain could sell to larger hospital systems. There is evidence that such consolidation may lead to higher prices and spending, counter to the goals of the program. States could address this potential limitation by building variability into their targets to provide more flexibility for providers at risk of closure and physicians who provide care that states want to incentivize.

As noted above, Massachusetts has the longest running cost growth benchmark program beginning in 2013 and is often the example used by researchers and policymakers. Initially, studies showed positive results as health spending growth stayed below the target rate for the first three years and stayed below the national average from 2013 to 2018. However, spending growth then exceeded the target for the next four years. Cost growth also exceeded benchmarks in Connecticut, Delaware, and Oregon, driven largely by commercial spending. Rhode Island had growth above the target in 2019, below the target in 2020, and at its target in 2021. However, with the exception of Rhode Island, growth against benchmarks in the other three states was first measured during the COVID-19 pandemic which may have impacted health care spending. The actual impact of these policies will become clearer as markets stabilize in the aftermath of the public health emergency and as five new states implement their programs.

Experience from states suggests that cost growth benchmarks are best suited for states with certain characteristics. These characteristics include resolute state leadership, states that are willing to engage stakeholders over time to build support and buy-in for the program, and states that have strong partners that will support implementation and work with stakeholders. A study on the Massachusetts program found that in the first few years of the program, the benchmark influenced contract negotiations between payers and providers and the cost trend reports drew wide media coverage. However, the state did not impose any performance improvement plans until 2022 even though it conducted many private reviews of entities with excessive cost growth.

The experience in Massachusetts demonstrates the importance of enforcement mechanisms in the long run. The media attention helped impact contracting practices in the early years of the benchmarks, but cost growth picked back up once attention died down. To effectively limit costs, states need to empower the governing bodies to impose meaningful financial penalties and react to the drivers of costs that are uncovered. For example, the Massachusetts Health Policy Commission (HPC) that oversees the benchmark program specifically called out high provider prices as a reason for not meeting benchmarks in 2021 and 2022, but the HPC does not have the authority to implement any additional policies to constrain prices. Table IV shows the enforcement mechanisms for states that have implemented their benchmark programs, as well analysis of the impact of the benchmarks if available.

Health Equity

The health equity impact of cost growth benchmarks depends largely on whether the programs are designed to include equity as a goal. Several states include quality benchmarks or incentives along with cost growth benchmarks to ensure that patients are not negatively impacted, which may provide an opportunity to analyze the impact of benchmarks on different subpopulations. States should also consider how limiting cost growth may impact provider financial viability and access to services that have been underpaid, such as primary care clinics or community hospitals. It is especially important that the commissions, boards, or other bodies in charge of designing target programs and analyzing the data are inclusive of a wide array of stakeholder perspectives, especially representatives of historically underserved or marginalized communities.

Affordability: Theoretically, reducing overall health care spending will bring down the costs of care, including premiums and out-of-pocket spending. In order to fully understand the impact of benchmarks on the affordability of health care, states should directly measure changes in premiums, cost-sharing, plan benefit, and plan adoption. States could also develop a measure to show who is most directly bearing the burden of high health care costs. For example, Massachusetts implemented supplemental reports that capture data on affordability and plan changes. Oregon specifically tries to prevent negative impacts on quality and access by using alternative equitable measures and targets for smaller organizations. However, if entities do not abide by the growth targets, there will be a negligible if any impact on affordability.

Sustainability: The longevity of cost growth benchmarks depends on how they are developed and implemented. Benchmarks developed through legislation are more sustainable than those established through a governor’s executive order or other solely administrative action because they are harder to unwind. Additionally, the systemwide approach of total cost growth benchmarks may be more sustainable because they incorporate stakeholders from the entire market.

However, results from Massachusetts suggest that the public and political pressure to abide by cost growth targets diminishes over time, making the benchmarks themselves less effective over time. To make benchmark programs effective in the long run, states need to establish enforcement mechanisms with penalties that are salient enough to motivate compliance with the targets even after public pressure diminishes.

Accountability: Including health equity as an explicit goal of the program may foster accountability. For example, Connecticut specifically builds in a focus on health equity and will analyze the impacts of the target on groups that have been economically and socially marginalized. Massachusetts requires the commission that develops the targets to hear a briefing on health equity and the benchmarking program during the annual Health Care Cost Trends hearings. However, most programs that have been established so far do not mention health equity as an explicit goal.

Connecticut, Delaware, Massachusetts, New Jersey, and California include assessments of the quality of health care that could help illuminate health disparities if the data are collected and analyzed in such a way as to capture demographic and social differences. California specifically requires the office implementing the program to adopt a set of measures to assess both quality and equity. As states implement quality measurement requirements, they have the opportunity to more directly include equity as a goal of their programs.

An important component of accountability in the Health Equity Framework is whether a policy prepares for and addresses industry pushback. Cost growth benchmark programs rely heavily on industry cooperation to be effective, especially if they do not include enforcement penalties. States generally include industry input on the design of their programs, but they still need strategies to address pushback if they leverage fines on entities for exceeding their targets.

Comprehensiveness: Although cost growth benchmarks do not change coverage or eligibility policies, some states have built targets for high-value services like primary care into their overall goals. For example, a proposed policy in Massachusetts would establish a primary care and behavioral health expenditure target that would require entities to meet the investment requirements for those services while still meeting their overall cost growth benchmarks. Similarly, Connecticut has a primary care spending target that entities are supposed to meet. The goal of these policies is to shift existing health spending to higher value and traditionally underpaid services, which could benefit marginalized communities.

Inclusivity: Stakeholder support is crucial for the success of cost growth benchmark programs, so most states specify various councils or groups that are included in the development and monitoring of the targets. To advance equity, states could specifically require that representatives of historically marginalized communities are included in the development and ongoing implementation of the program.

Another aspect of inclusivity is the type of information that states choose to collect. Cost growth benchmark programs require a significant data collection and analysis infrastructure. States have the opportunity to use this robust infrastructure to collect demographic data to identify disparities in health care quality and access that could then be addressed.

Conclusion

The increasing cost of health care in the commercial market is burdening more families with high premiums and out-of-pocket costs and forcing difficult tradeoffs on other essentials. With significant federal actions to lower health care costs unlikely in the near term, state policy solutions, though not without their own challenges, offer opportunities for innovative reforms. Compared to policies promoting transparency and competition, regulating prices paid to providers can yield greater price reductions. We examined three state policy options that seek to apply downward pressure on commercial health care prices: (1) caps on the level or growth of prices, (2) hospital global budgets; and (3) total cost growth benchmarks.

Regarding administrative feasibility, variations of provider price regulation necessitate common building blocks that serve as the foundation for each of the policy options in our paper. Specifically, all states interested in regulating provider prices should invest time and resources in establishing or maintaining an all payers claims database to allow states to monitor quality, utilization trends, and cost in the health care system. This analysis could inform state-specific cost-containment goals and program design features. The Catalyst for Payment Reform and Commonwealth Fund provide implementation guides on state strategies for controlling health care costs. Lastly, the development and implementation of policies regulating provider prices should seek to eliminate health inequities by incorporating the five pillars of health equity identified by The Century Foundation: affordability, inclusivity, comprehensiveness, accountability, and sustainability.

With Support from Arnold Ventures