State Strategies for Slowing Health Care Cost Growth in the Commercial Market

Introduction

The American public has become increasingly concerned about rising health care costs. State policymakers also have become more focused on the issue of rising costs in the commercial market. In less than 20 years, from 2000 to 2019, premiums for employer-sponsored health insurance have more than tripled, far outpacing inflation; in 37 states, premium contributions and deductibles now consume 10 percent or more of the median income. High health care cost growth directly affects business profitability and worker wages, too. Meanwhile, rising health care costs for state employees, dependents, and retirees squeeze out other state budget priorities, such as education and social services.

In general, states have less power to address cost growth in the commercial health care market than they do in public programs like Medicaid that are directly funded by and administered by the state. Nonetheless, state policymakers have explored and implemented a range of cost-control strategies in recent years. Their experiences, along with ongoing research and evaluation, can inform the next wave of policy innovation.

In this brief, we provide practical guidance to state policymakers seeking to contain health care cost growth in the commercial market. We present an overview of 10 potential strategies, which we discuss in greater depth in the accompanying profiles. For each one, we describe:

• key design and implementation considerations
• empirical evidence on the strategy’s potential to reduce health care cost growth
• the potential impact on health equity, including consequences for economically and socially marginalized groups
• contextual features, such as health care market conditions, state analytical and regulatory capacity, and stakeholder dynamics, that might make the strategy particularly attractive to certain states
• possible unintended consequences or limitations.

Strategy Identification and Selection

To develop this set of options, we surveyed the peer-reviewed and grey literature and drew upon recent work by health economists at the Urban Institute, 1% Steps for Health Care Reform, and the American Enterprise Institute. We also examined recent state laws affecting health care cost growth and supplemented our research with our team’s knowledge of current state activity on cost containment.

To select strategies for inclusion, we first employed “gating” criteria to determine whether a strategy should be given further consideration. These focused on whether the strategy:

• has been shown to reduce health care cost growth in the commercial market, or whether a strong argument exists that it could reduce cost growth
• could be implemented in a way that does not negatively affect low-income populations, including those served by Medicaid, or people of color.

A second set of criteria was applied to the group as a whole to ensure that the final list of strategies, even while parsimonious, would provide states with a diverse array of options. These criteria addressed whether the strategies:

• would appeal to states with a range of political dispositions
• could be applied in a variety of geographic settings
• would cover the leading drivers of high health care costs and cost growth
• could be implemented by states with varying levels of resources.

Proposed Strategies

We identified the following 10 strategies for states to address health care cost growth in the commercial market. They are grouped by the resource requirements needed for implementation, with the most resource-intensive strategies listed first. Each strategy in the list links to a detailed overview providing information on design and implementation, evidence of impact, equity considerations, and other topics.

1. Implement a health care cost growth target. Establish a target, or benchmark, for per capita health care cost growth; measure performance against that target; hold entities accountable for meeting the target; and implement cost growth mitigation strategies to attain it.
2. Promote adoption of population-based provider payment. Encourage or require increased adoption of advanced alternative payment methodologies, particularly those that move provider payment toward meaningful risk sharing.
3. Cap provider payment rates or rate increases. Set a limit on prices paid or restrict provider price increases in state-regulated markets.
4. Contain growth in prescription drug prices. Establish prescription drug affordability boards, upper payment limits, international reference pricing, or penalties for “excessive” prices.
5. Improve oversight of provider consolidation. Reinforce states’ ability to review and disapprove mergers and prohibit anticompetitive contracting terms to counter the impact of health care consolidation on provider prices.
6. Strengthen health insurance rate review. Use the insurance rate review process as a lever for health care cost containment.
7. Adopt advanced benefit designs. Promote strategies that encourage consumers to choose lower-cost providers, such as reference-based benefit design and “smart shopper” programs.
8. Promote use of community paramedicine. Enable emergency medical service providers to provide a range of services to patients without transport to an emergency department (ED) to reduce unnecessary emergency and inpatient care.
9. Improve behavioral health crisis systems. Expand behavioral health crisis services to reduce use of more costly ED and inpatient services, and leverage multipayer support for these programs.
10. Reduce administrative waste. Address product choices and administrative processes that contribute to waste by, for example, streamlining plan choices, health care utilization review, and billing functions.

As a whole, these strategies address a range of cost drivers and present options that could be attractive to many states. They also have been implemented or considered in different state environments.

The table below assesses each of the 10 strategies based on the cost driver that it addresses, the resource and analytic capacity needed to operationalize it, the degree of difficulty in enacting the strategy from a political and stakeholder perspective, and the political context in which the strategy might be successful. In addition, we make a broad assessment of their relative impact on slowing cost growth, dividing strategies into those with likely sizeable impact (++: on the order of magnitude of 1% or more of total health care spending), smaller but meaningful impact (+: on the order of magnitude of 0.1% of total health care spending), or unknown/highly variable impact (?). This assessment is described in greater detail in the appendix.

Additional Strategies for Consideration

In developing a concise list of strategies for this brief, we could not include several other worthy approaches. Many of these may still be of interest to state policymakers, and we expect that evidence and experience with these strategies will continue to expand and evolve. We briefly review these approaches below.

Several states have implemented initiatives to increase investment in primary care. Primary care is an essential component of health care and a key contributor to quality outcomes. Although observational studies have linked higher primary care spending to lower levels of health care spending, the key question for policymakers is whether increasing primary care spending at the state level would slow the growth of total health care spending. To date, causal evidence for increasing primary care spending to reduce spending growth is lacking. It is possible that primary care investment coupled with other interventions that transform care delivery could be beneficial, particularly over the longer term. Evaluation of current state efforts to increase primary care spending will be helpful for understanding the impact of these initiatives and what features are most important to health care cost containment in the long run.

Policymakers have expressed tremendous interest in addressing social factors that can contribute to poor health outcomes, particularly lack of housing, healthy food, and transportation. At the state level, many Medicaid programs have launched initiatives to encourage health plans and providers to screen for and address social needs. In the commercial market, social and economic factors can also affect how individuals access care, but there are fewer data on specific interventions and their potential for cost savings. Research to characterize effective interventions for a commercially insured population will be important for understanding potential cost savings and the time horizon in which those savings could be achieved.

Integrating primary care and behavioral health care has many benefits. It can help expand access to needed mental health services and can help decrease stigma and discrimination, while improving overall health outcomes. Integration also can help address the adverse outcomes faced by those with serious behavioral health conditions. Although there are promising models for achieving better outcomes and cost effectiveness through integration, the evidence for cost savings in a commercially insured population is less clear. Even though behavioral health integration could be part of broader payment and delivery system reforms, particularly given its positive effect on health outcomes, it is not included as a stand-alone strategy for cost containment in this brief.

Value-based insurance design, an approach to benefit design that modulates cost sharing to incentivize high-value care (for example, eliminating copayments for medications for treating diabetes) was not included in this brief. Although research suggests it has benefits in terms of outcomes and cost effectiveness, there is little evidence to date that it is cost saving.

Centers of excellence programs encourage enrollees to use specific providers for certain services. These programs generate savings primarily through lower prices (although they may provide some additional quality benefit by ensuring guideline-based care). As such, this strategy overlaps with the reference-based benefit design approach that is discussed in this brief.

Policymakers have also been interested in tackling low-value care. Specific forms of low-value care have been identified and studied (such as reducing unnecessary preoperative testing). However, successful strategies that states could implement to decrease low-value care more broadly have not been well studied, apart from approaches that address low-value care through alternative payment models.

Alternative sites of care (such as telehealth or urgent care centers) were not included. Although they might substitute for more costly sites of care, they also may increase utilization (and thus increase net costs). This effect makes it difficult to put them forward as cost-saving measures without further research and refinement.

Some policy organizations have advocated for changing scope of practice to increase use of nonphysician providers (such as nurse practitioners, physician assistants, and nurse anesthetists). Issues concerning scope of practice encompass many factors beyond cost containment. From a purely cost-containment perspective, the potential cost savings are difficult to generalize, as they would depend on provider supply, impact on utilization, and payment rates. Each state’s specific circumstances are likely to be different, making it difficult to create a generalized approach or strategy.

Finally, a handful of states have passed legislation enacting a public option, including Washington state. We do not include this as a separate strategy because the key lever for savings in the public option is constraining provider prices, which is already included in this brief.

Conclusion

Addressing health care cost growth in the commercial sector is not easy, but it is critically important to the health and economic security of Americans across the country. State policymakers have the opportunity to build on an array of strategies that are being pioneered and refined in states across the country. These strategies can serve as practical tools for tackling this important challenge.