States face uphill battle against rising health care costs

Eight states have committed to slowing the rate of health care spending growth by setting statewide targets. However, of the five states that have shared performance data for 2022, only Rhode Island was able to meet its goal.

“These comprehensive spending data sets are a key element of these states’ efforts to rein in overall health spending growth,” according to research published in Health Affairs. “They are unique in that they include aggregate data from commercial, Medicaid and Medicare Advantage payers for all state residents. In short, we find that spending growth moderated in 2022 compared to 2021 but still exceeded targets in four out of the five states.”

This is how these states performed compared to target growth rates of between 3 and 3.3%:

• Rhode Island met its spending growth target of 3.2% and had the lowest rate of spending growth at 1.6%.
• Oregon’s spending grew 3.6%, only slightly exceeding its 3.4% target.
• Connecticut also slightly exceeded its 3.2% target, with spending growth at 3.4%.
• Delaware and Massachusetts significantly exceeded their targets, with 2022 spending growth of 6.3% and 5.8%, respectively.

Retail prescription drugs were the fastest-growing spending category in Connecticut, Delaware and Massachusetts and the second-fastest in Oregon and Rhode Island. Delaware and Massachusetts experienced double-digit increases in prescription drug spending at 19% and 10.5%, respectively.

“The underlying reasons for the state variation in growth rates are unclear,” the report said. “What is clear, however, is that prescription drugs’ rank as the service category with the greatest growth in 2022 is mirrored in commercial markets at the national level.”

By contrast, hospital inpatient spending dropped in four states and remained flat in one. Spending in this category dropped the most in Rhode Island, by 6.6%. It decreased 3.7% in Connecticut and 4.3% in Oregon. In Massachusetts and Delaware, spending remained relatively flat. However, spending on outpatient services increased or stayed flat.

The moderate spending growth seen in 2022 is unlikely to continue, researchers cautioned.

“The significant reimbursement increases that health care providers sought in their contract negotiations with health insurers following the period of high inflation in late 2021 through 2022 are likely to play out in the form of high spending growth in both 2023 and 2024,” the report said. “We have already seen premium jumps for commercial health insurance coverage nationally, with some states experiencing premium increases of more than 10% in 2024, even as wages have only grown 3.9%.”

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Researchers believe the results of the study underscore the need for states to continue to move this work forward.

“Now that these states have collected and analyzed several years of data to understand the drivers of health care spending and spending growth, the focus must turn to implementing policies that address high and rising spending and make health care more affordable,” the report concluded.