Addressing Unsustainable Healthcare Costs

The rising cost of healthcare weakens the entire system and crowds out other public health investments.

The United States spends significantly more on healthcare compared to other nations, but we don’t have better healthcare outcomes. What’s more, rising healthcare spending is a key driver of America’s unsustainable national debt and high healthcare costs also make it harder to respond to public health crises like the COVID-19 pandemic.

As healthcare spending grows, there is less funding for housing, nutrition and income security, which are also critical for the health of populations. Furthermore, the unsustainable rise in the cost of healthcare is a key driver of America’s fiscal imbalance, contributing to poorer outcomes and threatening the future of critical programs like Medicare and Medicaid.

The Peterson Center on Healthcare is working with key stakeholders in state and local governments to support initiatives that offer promise for reducing the rate of cost growth to ensure that people—regardless of where they live, have access to affordable, quality care for many years to come.

Healthcare Spending at the State Level

The Peterson-Milbank Program for Sustainable Health Care Costs advances state-based efforts to make healthcare more affordable for residents, employers and states. The program supports efforts to set and track healthcare spending targets in five participating states: Connecticut, New Jersey, Oregon, Rhode Island and Washington, helping ensure costs don’t rise faster than the economy, state revenues or wages.

State healthcare cost growth targets, accompanied by in-depth analysis of healthcare cost factors, offer insight into healthcare spending that can lead to policy or market-based actions designed to make healthcare more affordable.

To support these statewide efforts, the Milbank Memorial Fund provides working capital and, in partnership with Bailit Health, technical assistance for healthcare experts to collaborate with participating states to develop and implement a work plan, facilitate stakeholder convenings and create mechanisms that foster cross-state learning and collaboration on cost growth initiatives.

Building on this promising initial work, the second phase of the program, which runs through 2024, will support the identification and implementation of solutions to mitigate cost growth at the state level.

On June 30, 2022, Governor Gavin Newsom approved California’s 2022–2023 budget, which includes the creation of an Office of Health Care Affordability that will establish an annual cost growth target. California's program builds on the state-led model supported by the Peterson-Milbank program. Prior to the start of the program, about 3% of the U.S. population lived in a state with a cost growth target. Now, one in five Americans live in a state with a cost growth target—an important tool in making the healthcare system more affordable and sustainable for years to come.

The Peterson-Milbank Program for Sustainable Health Care Costs is an outgrowth of the Rhode Island Healthcare Cost Trends Project, which the Center launched in 2018 with the State of Rhode Island and Brown University. The objective of this project was to analyze spending data to improve healthcare performance and provide assistance in setting a total healthcare cost growth target for Rhode Island.

This collaboration established the groundwork for public reporting of state-wide healthcare spending and performance by engaging a Steering Committee of stakeholders, including payers, providers, employers and community representatives, led by state and industry leaders. Later phases of the project focused on leveraging analytics and reporting to drive action on healthcare cost growth and performance in the state. Rhode Island joined the Peterson-Milbank program in 2022.

Massachusetts’ Experience With State Cost Containment

Massachusetts was the first state in the nation to try to contain healthcare costs by setting an annual cost growth rate benchmark. It also established several mechanisms to hold payers and providers accountable for keeping health spending growth below the benchmark. Eight states—including those in the Peterson-Milbank Program for Sustainable Health Care Costs—have adopted programs that share many features of the Massachusetts initiative.

The Center and Gates Ventures partnered with research firm Mathematica to conduct an evaluation that examined stakeholder experiences with Massachusetts’ accountability mechanisms and drew lessons for other states.

The study found that the state deployed its accountability tools effectively during its initial years of operation. The benchmark influenced contract negotiations between payers and providers and increased providers’ willingness to participate in accountable care organizations, both of which helped to constrain spending growth.

The findings, highlighted in Heath Affairs, raise several considerations for states seeking to tackle healthcare costs, including the importance of building a transparent, trusted source on healthcare cost growth.

News