Health Care Cost Growth Benchmark
More than ten 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 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
Chapter 224 defines three multi-year targets for THCE growth.
- From 2013 through 2017, the benchmark must be set equal to the growth rate of potential growth state product (PGSP), or 3.6%.
- From 2018 through 2022, the HPC must set the benchmark equal to PGSP minus 0.5% (or 3.1% in 2018). During this time period, the HPC has limited authority to modify the benchmark back up to PGSP if it determines, after consideration of data, information, and testimony, that an adjustment is reasonably warranted. Click here for more information on the process of establishing the 2018 benchmark.
- For 2023 and beyond, the benchmark will again be set equal to PGSP.
CHIA reports annually on the Commonwealth’s performance against the benchmark. Massachusetts met the benchmark in 2013 with THCE growth of 2.3%, but exceeded the benchmark in both 2014 and 2015 with growth of 4.1% and 4.2%, respectively.