Improving Value

State Health Spending Targets

As healthcare spending has continued to rise faster than wages and the rest of the economy, a few states have established health spending targets—also known as benchmarks—to limit spending growth over time. Spending benchmarks can be mandatory or voluntary, can focus on total spending or segments of spending (such as hospital spending) and may be accompanied by quality benchmarks to ensure that efforts to reduce spending growth do not negatively impact health outcomes.

While evidence from Massachusetts indicates that even voluntary targets can reign in healthcare spending growth,¹ mandatory targets may be even more impactful. Complementary quality benchmarks that can be used to assess unintended consequences of cost containment efforts are also advised.

Massachusetts’ Experience

Massachusetts was the first state to create an annual cost growth benchmark by which to monitor total per capita healthcare spending.² 

“Total” expenditures include:

• All categories of medical expenses and all non-claims related payments to providers;
• All patient cost-sharing amounts, such as deductibles and copayments; and
• The net cost of private health insurance.

If the annual growth of total healthcare expenditures across all payers (public and private) exceeds the benchmark—set at 3.6 percent from 2013-2017 and 3.1 percent beginning in 2018—the state’s Health Policy Commission can require healthcare entities to implement Performance Improvement Plans and submit to strict monitoring.³ Well-publicized annual hearings surface information about cost-drivers and priorities for the coming year.

Massachusetts met its cost growth benchmark in the first year of implementation, but did not successfully contain spending growth in 2014 and 2015.⁴ Spending growth fell below the benchmark again in 2016 and 2017 (at 3.0 and 2.8 percent above the previous year, respectively).⁵  

Massachusetts’s spending growth was also well below the national rate (approximately 4 percent in 2017). Observers estimate that slower spending growth in the commercial sector resulted in employers and consumers paying roughly $7.2 billion less from 2013 to 2018 than they would have paid if the state’s spending growth had matched the national average.⁶  

The state continues to refine its approach—a bill introduced in 2019 would increase investments in high-value primary care and behavioral health services by requiring providers and insurers to spend 30% more on these services between until 2022.⁷ The legislation was still being considered as of mid-2020. 

Although Massachusetts has not established quality benchmarks, the state uses patient experience data to track the relationship between cost and quality.

Other State Approaches

Delaware became the first state to set both a healthcare spending growth target and implement a suite of associated quality and population health measures in 2018.⁸ Quality benchmarks examine emergency department utilization; opioid and tobacco use; and various indicators of cardiovascular health. The state does not have enforcement mechanisms, instead relying on increased transparency; public dialogue; and engagement with consumers, legislators, and employers to hold reporting entities accountable. 

Rhode Island’s benchmark, also established in 2018, builds on a history of evaluating healthcare spending and affordability in the state. In 2010, the Rhode Island Office of the Health Insurance Commissioner implemented healthcare “affordability” standards for commercial insurers, which reduced per capita health spending.⁹ Officials believe that the state’s previous actions, as well as its small size, may provide a unique advantage when it comes to further containing healthcare spending growth.¹⁰ 

As part of its All-payer Accountable Care Organization model authorized by the federal government,¹¹ Vermont is required to limit healthcare spending growth, which includes most medical services and procedures, to 3.5 percent per year. The goal of this agreement is to align state spending increases with the projected growth of Vermont’s economy.¹² The all-payer model, managed by OneCare Vermont,¹³ initially covered only 30% of the state’s population, with a goal to cover a majority of patients by 2022. So far, Vermont has struggled to meet its cost growth target.¹⁴ 

States with Healthcare Spending Targets (as of August 2020)

State (Year Established)	Mandatory or Voluntary Target?	Enforcement Mechanism	Accompanying Quality Benchmarks?
Massachusetts (2012)	Voluntary	Performance Improvement Plans	No
Vermont (2016)	Voluntary	Performance Improvement Plan; CMS can withdraw waiver	Yes
Delaware (2018)	Mandatory	None	Yes
Rhode Island (2018)	Mandatory	None	No
Oregon (2019)*	Mandatory	TBD	TBD
Connecticut (2020)*	Mandatory	Performance Improvement Plans	Yes
Washington (2020)*	Mandatory	None	TBD

*Oregon’s Health Care Cost Growth Target Implementation Committee will present its recommendations to the Oregon Health Policy Board in September 2020. If approved, the recommendations will go into effect in 2021.¹⁵ Connecticut’s spending benchmark takes effect in 2021 and includes yearly targets to increase primary care spending to 10% of total healthcare spending by 2025. Accompanying quality benchmarks will be developed in 2022.¹⁶ Washington State’s benchmark will be established in August 2022 and will go into effect in 2023.¹⁷

Benchmarks pertaining to particular segments of healthcare spending, like hospital spending targets in Maryland and Pennsylvania,¹⁸ are omitted from the table above because they do not target all forms of healthcare spending. Nevertheless, use of these models can surface promising practices for other states to emulate.

Notes

1. Bartlett, Jessica, "Mass. Kept Health Care Cost Growth to 3.1% in 2018," Boston Business Journal (Oct. 8, 2019). 

2. Massachusetts Health Policy Commission, Health Care Cost Growth Benchmark (accessed on Aug. 13, 2020). 

3. While no Performance Improvement Plans have been publicly announced to date, the Health Policy Commission (HPC) has privately engaged payers and providers to bettwe understand the factors driving their cost growth and discuss how cost-driving factors will be addressed in the next reporting period. According to the HPC, these "informal channels" have resulted in meaningful changes in payer and provider behavior. See: Ario, Joel, Kevin McAvey and Kyla Ellis, Implementing a Statewide Healthcare Cost Benchmark: How Oregon and Other States Can Build on the Massachusetts Model, Manatt Health, Washington, D.C. (December 2019). 

4. Total health spending in Massachusetts grew 2.4 percent in 2013, 4.2 percent in 2014 and 4.8 percent in 2015. See: Center for Healt Information and Analysis, Performance of the Massachusetts Health Care System, Boston, MA (October 2019). 

5. Ibid.

6. Waugh, Lisa and Douglas McCarthy, How the Massachusetts Health Policy Commission is Fostering a Statewide Commitment to Contain Health Care Spending Growth, The Commonwealth Fund, New York, NY (Mar. 5, 2020). 

7. The General Court of the Commonwealth of Massachusetts, An Act to Improve Health Care by Investing in Value (accessed on Aug. 13, 2020). 

8. Walker, Karen Odom, "Can a Small State Improve Both Healthcare Costs and Health Outcomes? Lessons from Delaware," Health Affairs Blog (June 6, 2019). 

9. Baum, Aaron, et al., "Healthcare Spending Slowed After Rhode Island Applied Affordability Standards to Commercial Insurers," Health Affairs, Vol. 38, No. 2 (February 2019). 

10. Pearson, Elsa, and Austin Frakt, "Healthcare Cost Growth Benchmarks in 5 States," JAMA Forum (June 4, 2020). 

11. Centers for Medicare & Medicaid Services, Vermont All-Payer ACO Model (accessed on Aug. 13, 2020). 

12. Jickling, Katie, "Vermont Healthcare Spending Projected to Exceed 3.5 Percent Growth Target," VT Digger (Dec. 13, 2019). 

13. OneCare Vermont is an Accountable Care Organization that collects money from Medicaid, Medicare and insurance companies and then disburses payments to doctors and hospitals on a flat per patient basis. 

14. Jickling (Dec. 13, 2020). 

15. Oregon Health Authority, Sustainable Healthcare Cost Growth Target (accessed on Aug. 13, 2020). 

16. Milbank Memorial Fund, How Connecticut is Moving to Control Healthcare Costs (accessed on Aug. 13, 2020). 

17. Washington State Hospital Association, Washington State Healthcare Cost Transparency Board Formation (accessed on Aug. 13, 2020).

18. Centers for Medicare & Medicaid Services, Pennsylvania Rural Health Model (accessed on Aug. 13, 2020).