Manatt Spotlights

The Manatt State Cost Containment Update
 

In each edition, Manatt will feature “deep dive” topics that share new cross-cutting benchmarking program developments as states seek to evolve and advance their cost growth benchmarking programs to meet new regulatory and landscape needs. In this issue, Manatt examines recent program changes in the following areas:

  • Accountability: As payers and providers exceed set health care cost growth targets, there is a growing interest in how to hold outliers accountable. Massachusetts and Oregon are pursuing varying approaches to advancing accountability.
  • Consumer Affordability: Beyond addressing aggregate spending, states are focusing on how consumers bear the burden of rising health care costs. Massachusetts and Connecticut are leveraging important tools to better understand how rising health care costs impact consumers.

A PDF version of our October Spotlight is available here.

Accountability

The takeaway. State cost growth benchmarking programs are building on their market reporting to more rigorously define unjustified spending growth and what actions states should take to address entities driving such growth.

What it is. State cost growth benchmarking programs collect health care data that can help policymakers, regulators and stakeholders better understand the cost centers and cost drivers in their markets. Programs include a cost growth benchmark that annual health care cost growth should not exceed. States have a continuum of mechanisms for holding payers and providers accountable for unjustified spending above benchmarks, as illustrated in Figure 1. Where spending exceeds benchmarks, states are discussing two issues: First, how do we identify cases where the excess spending merits more aggressive action than public transparency? Second, what kind of escalating actions are appropriate to address unjustified spending above the benchmark?

Figure I. The Continuum of Benchmarking Accountability Mechanisms

What it means. Three states exceeded their cost growth benchmarks during 2019: Delaware, Massachusetts, and Rhode Island – by 4.0, 1.2, and 0.9 percentage points, respectively.1,2,3 While all three programs have largely relied on public transparency to support cost growth containment, the tactic alone has not been a powerful enough deterrent to keep overall cost growth beneath established thresholds, spurring reviews of how excessive cost growth is identified and can be responded to.

States are exploring strategies to better understand cost drivers and refine the methods they use to identify unjustified or excessive cost growth. For example, Massachusetts has traditionally assessed entity accountability to the cost growth benchmark on a “health status”-adjusted basis, generally holding entities accountable for factors over which they have more influence: health service utilization (by working with individuals to identify conditions and health needs earlier) and health service prices (by negotiating contracts that hold service spending growth beneath required levels and steering patients to more appropriate, lower-cost service settings where possible). But cost growth due to the changing health of members (i.e., illness burden and expected resource use) has been largely exempt from measurement, with payers providing health status-adjusted growth rates in their reporting.

However, recent analyses by the Massachusetts Health Policy Commission (HPC) identified unexplained inflation in payer-provided health status adjustment values – potentially caused by changing methodologies, upcoding of health status indicators, or broader improvements in health status indicators (i.e., stronger identification of previously observed but not recorded population health concerns) – and likely indicating chronic and continual underassessment of cost growth against which individual payers and providers should be held accountable. The HPC is assessing whether to modify health status adjustment methodology requirements or base future payer/provider accountability against unadjusted cost growth measures.  

Figure II. Total Unadjusted Spending Growth in Massachusetts, 2013-20194

Oregon, similarly grappling with the question of when excess spending should spur enforcement, has proposed a different approach. The Oregon Implementation Committee Recommendations Report recommended statistical criteria for determining whether payers and providers in Oregon would be subject to certain accountability measures.5 These include:

  • In any given year, per capita cost growth exceeds the cost growth benchmark with 95% confidence; or
  • Across two consecutive years, per capita cost growth exceeds the benchmark in both years with 80% confidence; or,
  • For three out of five consecutive years (each independently assessed), per capita cost growth exceeds the cost growth target with 80% confidence.

Entities that “unreasonably” exceed the cost growth target during any performance year with statistical certainty for one or more markets would be automatically subject to a performance improvement plan (PIP). Connecticut’s Cost Growth Benchmark Technical Team has similarly recommended incorporating into its own cost growth benchmark a statistical methodology for determining entity accountability.6

Oregon’s HB 2081 builds on the accountability recommendations articulated in the Recommendation Report.7 This includes charging the Oregon Health Authority (OHA) with adopting rule criteria for imposing financial penalties for entities that exceed the cost growth target “without reasonable cause” in three out of five calendar years beginning in 2026, as part of the “escalating accountability mechanism” recommended by the Implementation Committee. The law does not specify the financial penalty amount, but does specify that it must be based on “the degree to which the provider or payer exceeded the target and other factors,” including but not limited to:

(a) The size of the provider or payer organization;
(b) The good faith efforts of the provider or payer to address health care costs;
(c) The provider’s or payer’s cooperation with the authority or the department;
(d) Overlapping penalties that may be imposed for failing to meet the target, such as requirements relating to medical loss ratios; and
(e) A provider’s or payer’s overall performance in reducing cost across all markets served by the provider or payer.

The law also sets new financial penalties of up to $500 per day for entities that fail to report cost growth data and/or fail to develop and implement a PIP if required.

Even in states with accountability measures already incorporated into their benchmarking programs, holding specific entities accountable for exceeding cost growth has not been widespread. For example, while Massachusetts’ HPC has the authority to impose PIPs and financial penalties of up to $500,0008 under Chapter 224 of the Acts of 2012, it has not yet exercised either option, though it has indicated an increasing willingness to do so.9 Notably, the HPC’s 2021 Annual Cost Trends Report puts forth a recommendation that demonstrates a willingness to increase accountability and address excessive provider price increases by establishing price caps for the highest-priced providers in the state.10


1 Delaware’s per capita cost increased from $7,814 in 2018 to $8,424 in 2019, or 7.8% – more than twice as high as the 3.8% target. Available here: https://news.delaware.gov/2021/04/01/state-releases-first-health-care-benchmark-trend-report-for-201/#:~:text=Latest%20Step%20in%20Effort%20to,Quality%20of%20Care%20in%20Delaware&text=The%20per%2Dcapita%20cost%20increased,high%20as%20the%203.8%25%20target.

2 From 2018 to 2019, the per capita growth in total health care expenditures in Massachusetts was 4.3%, exceeding the health care cost growth benchmark of 3.1% set by the HPC. Available here: https://www.mass.gov/info-details/health-care-cost-growth-benchmark.

3 Rhode Island’s per capita health care spending grew 4.1% between 2018 and 2019, exceeding the state’s 3.2% health care cost growth target. Available here: http://www.ohic.ri.gov/documents/2021/April/Cost%20Trends/steering%20committee%20meeting%202021%204-29%20for%20sharing.pdf.

4 “The Next Evolution of Healthcare Cost Growth Benchmarking Models,” NAHDO 36th Annual Conference. Presented September 28, 2021. Chart sources: Massachusetts CHIA TME databooks.

5 “Oregon Implementation Committee Recommendations Report,” Oregon Health Authority. January 25, 2021. Available here: https://www.oregon.gov/oha/HPA/HP/HCCGBDocs/Cost%20Growth%20Target%20Committee%20Recommendations%20Report%20FINAL%2001.25.21.pdf.

6 Cost Growth Benchmark Technical Team February 21, 2021, Meeting Notes, stating “the Technical Team recommended that OHS perform calculations of statistical significance when reporting benchmark performance to ensure the accuracy of findings,” Connecticut Office of Health Strategy. Available here: https://portal.ct.gov/-/media/OHS/Cost-Growth-Benchmark/CGB-TT-Information/CGB--TT-Meetings-2021/February-22-2021/CT-OHS---Technical-Team-Meeting---Minutes-2021-2-22.pdf.

7 House Bill 2081. Available here: https://olis.oregonlegislature.gov/liz/2021R1/Downloads/MeasureDocument/HB2081/Enrolled.

8 Under Chapter 224 of the Acts of 2012, if the HPC determines a health care entity has willfully neglected to file a PIP, failed to file an acceptable PIP in good faith, failed to implement the PIP in good faith, or knowingly failed to provide or falsified information required by the HPC, the HPC may assess a civil penalty to the health care entity of up to $500,000 as a last resort. Available here: https://malegislature.gov/laws/sessionlaws/acts/2012/chapter22%204.

9 “As premiums rise, Health Policy Commission mulls adding accountability measures,” MetroWest Daily News. July 15, 2021. Available here: https://www.metrowestdailynews.com/story/news/2021/07/15/massachusetts-family-health-insurance-premiums-21-424-average-2019/7977321002/.

10 2021 Annual Cost Trends Report, Massachusetts Health Policy Commission. September 2021. Available here: https://www.mass.gov/doc/2021-health-care-cost-trends-report/download

Consumer Affordability

The takeaway. States are increasingly interested in understanding not only what is driving health care cost growth, but also how consumer costs are being impacted by that growth. States, however, should proceed carefully in developing new measures for consumer cost growth, ensuring that data is collected and reported with appropriate context.

What it is. Beyond addressing aggregate health care cost growth, states are increasingly turning their attention to understanding who is ultimately bearing the burden of rising health care costs. In particular, states are exploring new strategies to better understand and address the increases in consumer cost-sharing (e.g., deductibles, coinsurance, copays) that make access to care challenging even for consumers who have health coverage.

Nationally, from 2010 to 2020, the average premiums for families with employer health coverage increased by 55% and average deductibles among all covered workers increased by 111%, as health plans frequently cost more to cover less.1 Health care spending continues to consume a greater share of employee wages, which have only grown by 27% over the same period.2 Further, trends show that enrollment in high deductible health plans (HDHPs) has increased significantly since the passage of the Affordable Care Act (ACA), and these plans are shown to be associated with a significant reduction in preventive care and office visits, which in turn leads to a reduction in both appropriate and inappropriate care for consumers.3 Additionally, while HDHP enrollment has increased steadily over time across all racial and income groups, studies show that Hispanic and Black HDHP enrollees are significantly less likely to have a health savings account (HSA) to offset the costs of such high deductibles compared with their non-Hispanic White counterparts.4 These trends indicate not only that consumers are increasingly bearing the burden of overall health care system spending growth, but also that shifting costs onto consumers is not necessarily an effective strategy for reducing overall spending growth and has significant implications for health access and equity.

What it means. Benchmarking programs offer an important opportunity for states to build on established reporting capabilities and authorities in order to gather additional information on consumer affordability and examine its impacts. For example, Massachusetts collects supplemental reporting on consumer premiums and out-of-pocket (OOP) costs as part of its cost growth benchmark in order to identify trends and changes over time. In the 2021 Annual Report on the Performance of the Massachusetts Health Care System, the state reported that member cost-sharing and premiums increased at a faster rate than wages and inflation between 2017 and 2019, and the percentage of members that had an OOP maximum of at least $5,000 increased from 35.5% in 2017 to 43.9% in 2019.5

Oregon’s Implementation Committee Recommendations Report also recommended the state’s annual health care cost trend report discuss the market’s performance relative to the cost growth target as well as its implications for consumers, including:6

  • Premium growth;
  • Benefit levels;
  • Consumer OOP spending;
  • Quality of care (process, outcome, patient experience);
  • Access to care; and
  • Health care disparity and health care inequity.

Oregon has also recommended annual reporting of other potential unintended consequences, including employer spending, clinician satisfaction, workforce impacts, and consolidation impacts.

Both Washington and Connecticut have proposed embedding consumer affordability into their benchmarking design, tying a portion of benchmark value to median wage growth. Washington’s Health Care Transparency Board is proposing a 30/70 hybrid of the state’s potential gross state product (PGSP) and historical median wage, which would yield a benchmark value of 3.2% for 2022 and 2023.7 Connecticut is using a 20/80 weighting of PGSP and median income, with an add-on factor that grades down over time from 2021 to 2025, yielding a benchmark value of 3.4% in 2021, 3.2% in 2022, and 2.9% for 2023-2025.8 By incorporating wages into the statewide benchmark, these states are reinforcing that health care costs should not be growing faster than consumer finances and the state economy. 

Additionally, the Connecticut Office of Health Strategy (OHS) and the Office of the State Comptroller (OSC) have developed a companion measure to the state’s cost growth benchmark reporting – a Healthcare Affordability Index to measure the impact of health care costs (including premiums and OOP costs) on a household’s ability to afford basic needs.9 The Index establishes an affordability threshold for families’ health care spending of approximately 7%-11% of their household expenses, depending on family size.10 This tool was developed to help policymakers understand the impact of health care cost growth on households, and shows that as of June 2021, approximately 18% of households in Connecticut with working adults face costs that exceed the target for affordability.11 When paired with results from the state’s cost growth benchmark reporting process, Connecticut will have greater insight into not only how overall health care spending is trending over time but also how much of this cost is falling directly to consumers, and how many consumers are facing potentially untenable costs.

What happens next. With increasing interest in monitoring consumer cost burden within cost growth benchmarking programs, states are considering how to:

  • Incorporate a consumer cost growth measures into their cost growth benchmark data collection and reporting processes;
  • Build consumer income growth data into their benchmark threshold; and/or
  • Build separate “companion” data collection and reporting processes to assess consumer affordability.

For example, in Massachusetts, consumer advocates recently introduced the More Affordable Care (MAC) Act (H. 1247/S. 782),12 which, among other provisions, seeks to create a health care consumer cost growth benchmark for OOP and premium cost growth, in which payers and providers accountable to the statewide benchmark would further be held accountable to a cost growth target for consumer premiums and OOP spending. The state legislature recently held a hearing for the MAC Act, which is now pending a committee recommendation.

Further, in the Massachusetts HPC’s 2021 Annual Cost Trends Report,13 consumer affordability was emphasized as an urgent issue for state action. The HPC recommended the state strengthen accountability for consumer cost growth, including developing population-specific affordability standards; incorporating standards into rate review; supporting efforts to improve the consumer health plan shopping experience; and strengthening benefit design and advancing designs that may serve as alternatives to HDHPs.

While consumer benchmarks – like those proposed in Massachusetts – can provide states with a concrete metric to monitor the impacts of cost growth on consumer affordability, their operationalization and interpretation can present issues that should be considered in advance of implementation. For example, many state benchmarking programs are presently collecting aggregate “total” spending data from payers across various segmentations (e.g., market sector, line of business, geography) without distinction between payer- and consumer-paid amounts. Requiring further parsing of these amounts has the potential to double the size of existing payer data requests. Consideration should be given to both use cases and reporting burden before implementation. 

Further, measures of consumer burden should be presented with appropriate context to ensure proper interpretation. For example, many cost containment advocates have advanced benefit designs that incentivize consumer choice, including the adoption of consumer-directed HDHPs with HSAs and health reimbursement accounts (HRAs). Higher HDHP adoption, resulting in higher observed consumer spending, should be paired with consideration of:

  • Corresponding declines in premiums;
  • Potentially lower overall cost growth resulting from newly incented “price shopping” behavior (where observed); and
  • The limitations of state cost growth benchmarking programs’ data collection.

States – and the payers that provide them with data – typically do not have HSA/HRA reimbursement data, and to the extent that employers contribute to HRAs, collected data could potentially result in an overstatement of how much consumers are directly paying in OOP costs.

States seeking to address cost growth through a benchmarking program recognize that to address a problem is to first understand its scope. Being equipped with the right information is critical for ultimately developing strategies that can ensure containing cost growth does not come at the expense of consumer affordability or otherwise exacerbate health inequities. 


1 “2020 Employer Health Benefits Survey,” Kaiser Family Foundation. October 8, 2020. Available here: https://www.kff.org/report-section/ehbs-2020-summary-of-findings/.

2 “Average Family Premiums Rose 4% to $21,342 in 2020, Benchmark KFF Employer Health Benefit Survey Finds,” Kaiser Family Foundation. October 8, 2020. Available here: https://www.kff.org/health-costs/press-release/average-family-premiums-rose-4-to-21342-in-2020-benchmark-kff-employer-health-benefit-survey-finds/.

3 https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.2017.0610.

4 Ellison J., Shafer P., and Cole M.B. “Racial/Ethnic And Income-Based Disparities In Health Savings Account Participation Among Privately Insured Adults,” Health Affairs. November 2020. Available here: https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2020.00222.

5 “2021 Annual Report on the Performance of the Massachusetts Health Care System,” Massachusetts Center for Health Information Analysis. March 2021. Available here: https://www.chiamass.gov/assets/2021-annual-report/2021-Annual-Report.pdf.

6 “Oregon Implementation Committee Recommendations Report,” Oregon Health Authority. January 25, 2021. Available here: https://www.oregon.gov/oha/HPA/HP/HCCGBDocs/Cost%20Growth%20Target%20Committee%20Recommendations%20Report%20FINAL%2001.25.21.pdf.

7 The Washington Health Care Transparency Board recommended the state set its benchmark value using a 70/30 hybrid of the state’s historical median wage and PGSP, yielding a benchmark value of 3.2% beginning in 2023. Available here: https://www.hca.wa.gov/assets/program/hcctb-board-book-20210914.pdf.

8 “Cost Growth/Quality Benchmarks/Primary Care Target,” Office of Health Strategy. Available here: https://portal.ct.gov/OHS/Services/Cost-Growth-Quality-Benchmarks-Primary-Care-Target.

9 “Healthcare Affordability Index,” Connecticut Office of Health Strategy. Available here: https://portal.ct.gov/healthscorect/Affordability-Index?language=en_US.

10 The affordability target was based on the 2019 Connecticut Self-Sufficiency Standard report, which found that, depending on composition, households spend between 6% and 10% of their budget on health care costs, including premiums and OOP expenses.

11 “Healthcare Affordability Index Executive Summary,” Connecticut Office of Health Strategy. June 2021. Available here: https://portal.ct.gov/healthscorect/-/media/HealthscoreCt/CHAI-Executive-Summary-OHS_OSC_June_2021.pdf.

12 Senate Bill 782 (2021). Available here: https://malegislature.gov/Bills/192/S782

13 2021 Annual Cost Trends Report, Massachusetts Health Policy Commission. September 2021. Available here: https://www.mass.gov/doc/2021-health-care-cost-trends-report/download

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