Top 4 Policy Strategies To Diminish State Healthcare Spending

State policymakers have a few tools at their disposal as they try to lower state healthcare spending, according to a Commonwealth Fund report.

First, states can support greater competition between insurers on the state health insurance market.

Both insurer competition and provider competition influence healthcare spending and price growth, the researchers pointed out in a model.

Price transparency is one way that states attempt to incentivize greater competition. However, when applied in an employer setting, this approach did not prove to lower healthcare spending among employees.

States can also take more direct action against antitrust violations and anti-competitive practices. Additionally, they could encourage reference pricing strategies among insurers—which has been a suggested strategy for pharmaceuticals—as well as tiered or narrow provider networks, which can lead to lower healthcare spending.

Second, states can take a direct approach to limit spending and price growth.

Some states have adopted global budget models, which fix prices for certain services. To avoid having to establish thousands of service prices, states that have used this approach often adopt Medicare or other external metrics as their benchmarks.

However, limiting spending growth does not necessarily mean that states have to actively prohibit price growth. Instead, they can disincentivize it. For example, by mandating price transparency and directing providers to publicly post their prices, states can disincentivize providers from posting extreme prices, thereby lowering healthcare spending.

Third, states can target low-value care spending in order to reduce healthcare costs overall. 

“Low-value care can be defined as ‘services that provide little or no benefit to patients, have potential to cause harm, incur unnecessary cost to patients, or waste limited healthcare resources,’ and contributes to over $345 billion annually in wasteful health spending,” the Center for Value-Based Insurance Design (VBID) site states, citing an article from the Journal of General Internal Medicine.

Key organizations that are at the forefront of this effort to diminish low-value care spending have published lists of low-value care services to guide state and payer efforts in this area. However, the Commonwealth Fund researchers recommended implementing commissions that are specifically designed to help identify and develop strategies around low-value care.

Certain value-based reimbursement models and accountable care organizations reward providers and payers for increasing high-value care spending, which is thought to have the downstream effect of reducing low-value care spending.

Finally, states may implement more holistic strategies to reducing healthcare spending.

“Holistic strategies are designed to influence spending overall, as opposed to particular components such as prices or utilization,” the researchers explained.

Holistic approaches to achieving lower healthcare spending may include total cost of care payment models or episodes of care payment models.

By leveraging advanced payment models in Medicaid or state-sponsored health insurance that take a holistic approach to healthcare spending, states could influence the commercial payer industry to adopt the same strategy. If successful, this approach could have a broader influence on the state’s healthcare spending.

States may also implement penalties for exceeding certain healthcare spending limits, such as requiring providers to submit a plan for improving healthcare spending strategies.

States can also focus on lowering healthcare spending through insurers, with tactics such as employing total cost of care models. However, this holistic strategy is not flawless, the researchers noted. When there is a power imbalance and providers have greater leverage, it can be harder for insurers to negotiate for lower healthcare spending. 

Also, while these holistic approaches may be effective in theory, consumers may become dissatisfied with some strategies, particularly narrow networks and utilization management. 

Plus, regulating insurers may not have the widespread impact that states hope to achieve since so many employers have turned to self-funded models.

As states fight rising prices, they can adapt these strategies to help reduce healthcare spending.