The cost of healthcare in the U.S. has skyrocketed over the past fifty years, a problem that’s become unsustainable for many Americans. Massachusetts has been trying to tackle the issue by holding hospitals, doctors and insurance companies responsible for spending – and other states, including Rhode Island, are following their lead. Alex Olgin is a reporter-producer for the health policy podcast, Tradeoffs, which recently released an episode examining these efforts to curb costs. She spoke with our morning host Luis Hernandez about what Massachusetts and Rhode Island are doing, and what impact these programs have had.
This interview has been edited for length and clarity.
TRANSCRIPT:
Luis Hernandez: So Alex, in your podcast, you pointed out that healthcare costs for individuals and communities have grown it seems almost exponentially over the last few decades. But can we point to something and say why?
Alex Olgin: Yeah, it's crazy. And there are actually several reasons why this is happening. I would say retail pharmacy drugs spending has shot up, hospital inpatient spending shot up. Paying for physicians is much more expensive, like doctor's office visits, is much more expensive. And as to why this is happening, I would say that there – ever since the Affordable Care Act went into law in 2013-2014, there has been a rise in high deductible health plans, which really just put consumers much more on the hook for these high prices. And so they're feeling it a lot more than they may have in the past. But health spending nationally has gone up also, for more people getting medical services, but really, it just, a lot of comes a lot of it comes down to prices. … You know, we're not that much sicker than European countries, we just pay a lot more for health care.
Hernandez: So the state of Massachusetts started to tackle this even before that, going back to 2012. What, what has that state been doing? And what kind of impact has it had?
Olgin: So what the state has been doing is, they tied health care cost growth year to year to the state's overall economic growth. And the plan was to say to insurance companies and hospitals and physicians, like, we got to get this in check. We're not saying we should get rid of your profits or that you shouldn't grow, but you shouldn't be growing at these crazy high rates, because it's just making it unaffordable for consumers. And so they would analyze whether or not the health insurance companies, hospitals, and physicians met these targets. And in the beginning, they were doing a pretty good job meeting the targets. … One of the reasons that was the case is because they wanted to avoid public embarrassment. And so when they were going into negotiations with insurance companies, they were keeping their rates to the target, or, you know, below the target. But it started to fade a little bit when they realized, you know what, there aren’t that many consequences. Now, to be fair, there have been a lot of changes. Inflation's a lot higher. The pandemic has sort of set things all off. And so that is why, in the past couple years, they haven't met the targets as much. But one of the insurance executives that testified before the commission in the past couple years has said, look, when hospitals go into rate negotiations with us, they no longer see this target as what we need to meet. They say it's unrealistic, and it's unaffordable.
Hernandez: So numerous other states look to Massachusetts to really, to copy the idea. And Rhode Island, of course, is one of them. And I wonder, you know, what do these efforts look like in Rhode Island right now?
Olgin: So Rhode Island is doing a couple things. It is implementing this cost growth target. It's kind of new, there's only been one year of data, which is 2020, which is really off because of the pandemic. But Rhode Island has been doing something also in addition to the cost growth target for years, that has actually made a sizable difference. The health insurance commissioner for the state has this extra authority to approve insurance company rates. And they have these standards to make them affordable. And so they actually limit how much hospitals can charge through the insurance companies. And all kinds of analyses have shown that that's actually had a really significant impact on lowering spending, something like lowering it 8% over several years. And that's compared to if they hadn't done that.
Olgin: That's a good question. I think that some policy experts and organizations would argue that it's not enough of a deterrent. Some other states, like Oregon and California, which have implemented similar programs have upped those penalties. So they can charge organizations that go past the target, the, like the amount they've gone past the target, or they can penalize them in relative comparison to their size. … So that's one thing. And then … providers, hospitals have not really faced this kind of scrutiny by state governments, and – on their rates. And so there is some argument that hospitals are just, they don't want the bad press, they're more aware of this. So even if there isn't a huge financial deterrent, some people I spoke with in my reporting have said they are going to be – they're going to want to avoid the public embarrassment, the bad press, and they're going to want to keep their prices more in check.
Hernandez: We talked about the drug industry, we talked about hospital costs, but you mentioned insurance, and I wondered, what is the role insurance companies play in this, you know, in the price hikes? What part do they play? And how is, again, how is this issue in Massachusetts dealing with them?
Olgin: They play a huge role because, like I said, especially for commercial, for private insurance, people that get their insurance through their employer. They, those rates are negotiated by insurance companies – and how much they increase premiums, a lot depends on how much prices are increased and how those negotiations go. And like, especially in Rhode Island, insurers have a huge role, because that is how the local government in Rhode Island is regulating prices, is through insurance companies. So they have a big role to play in Rhode Island. And actually the cost, the annual hearings that happen in Rhode Island where they analyze whether or not organizations meet this spending target, they analyze it through insurance companies. And they break it down and say, which insurance company met the target, which exceeded it?
Hernandez: You know, since all of this started, have costs really gone down since Massachusetts, launched this, this commission and started working on this? I mean, have we seen a reduction in costs?
Olgin: So here's the thing that's not that sexy about this is that it's not supposed to bring costs down, it's supposed to slow how fast they grow. So I think realistic expectations are not that costs are going to go down. And it, as a consumer you're like, well then how am I going to see this in my bills if they're just going up less fast? These cost growth target programs are a starting point. The policy experts I spoke with say these alone are not going to be enough to lower prices. You have to do things in addition to it, implement policies on top of that to actually lower prices.
Hernandez: Fantastic, Alex, I really appreciate it. Thank you so much.
Olgin: Thank you.
Click here to listen to the Tradeoffs podcast's recent episode, "States' Uphill Battle to Stop Runaway Health Care Costs."
