Health Care Cost Growth Benchmark
Nine years ago the Massachusetts state legislature enacted Chapter 58 of the Acts of 2006, a law designed to provide near universal health insurance coverage for state residents. Today, over 400,000 additional Massachusetts residents have health insurance coverage, giving Massachusetts the highest rate of insurance coverage in the nation.
Following the passage of Chapter 58, health care policy efforts in Massachusetts focused on enhancing the transparency of the state’s health care system and identifying health care cost drivers. While Massachusetts is a national leader in innovative and high-quality health care, it is also among the states with the highest health care spending. The rapid rate of growth in health care spending has contributed to a crowding-out effect for households, businesses, and government, reducing resources available to spend on other priorities.
Given these trends, the state enacted Chapter 224 of the Acts of 2012, a new law with the ambitious goal of bringing health care spending growth in line with growth in the state’s overall economy by establishing the health care cost growth benchmark, a statewide target for the rate of growth of total health care expenditures.
What is the measure of Total Health Care Expenditures?
Total health care expenditures (THCE) is a per-capita measure of total state health care spending growth. THCE includes three components:
- All medical expenses paid to providers by private and public payers, including Medicare and Medicaid (MassHealth);
- All patient cost-sharing amounts (for example, deductibles and co-payments); and
- The net cost of private insurance (for example, administrative expenses and operating margins for commercial payers).
THCE is calculated on a per capita basis to control for increases in health care spending due to population growth. The inclusion of public and private payers in the measure is intended to reduce the likelihood of “cost-shifting” among different payer types and ensure that gains are shared with both public and private purchasers.
The Commonwealth’s THCE is measured annually by the Center for Health Information and Analysis (CHIA). This data is then used to measure the state’s health care expenditures against growth of the Commonwealth’s economy.
Measuring Performance: Health Care Cost Growth Benchmark
Aiming for sustainable growth, Chapter 224 sets the 2013-2017 benchmark at the growth rate of potential gross state product of the Commonwealth (PGSP). For 2013-2015, consistent with the PGSP, the health care cost growth benchmark has been set at 3.6%.
In September 2014, the Center for Health Information and Analysis released the first report measuring the Commonwealth’s performance under the 2013 health care cost growth benchmark. CHIA found that statewide health care spending increased to $50.0 billion ($7,550 per resident) and that THCE in the Commonwealth increased by 2.3%, or 1.3% below the 2013 benchmark.
In September 2015, CHIA’s second report found that the Commonwealth’s THCE exceeded the benchmark in 2014, with 4.8% growth. CHIA hypothesizes that several factors contributed to the Commonwealth surpassing the benchmark in 2014, including increased spending due to expanded MassHealth enrollment and prescription drug costs.