By Sabrina Corlette and Karen Davenport

High and rising health care costs for commercial insurance in the United States are attributed in large part to the high and rising prices for hospital care. These high prices are a result of increasing consolidation among hospitals and health systems, which use their market power to demand higher reimbursement rates from commercial health insurers. 

States have pursued a range of strategies to try to constrain health care prices. Two challenges for states seeking to constrain rising provider prices in the commercial insurance markets have been (1) enforcing industry adherence and (2) ensuring that savings are passed on to consumers. An “enhanced” form of premium rate review addresses both challenges. In a new report published in partnership with the Milbank Memorial Fund and supported by the Peterson Center on Healthcare, we provide a roadmap for states to design, build support for, implement, and maintain a successful enhanced rate review program.

While all states operate a traditional rate review program, few consider whether insurance companies are doing a good job securing the best possible prices from their contracted providers. While in theory, insurers should be negotiating with providers over reimbursement rates, in practice, consolidation in the health care system often means that health systems can demand – and get – prices well above the actual cost of delivering services.

Drawing on the lessons from states that have successfully implemented such programs and generated significant savings for consumers, the report provides a step-by-step guide to:

• Identifying program goals;
• Socializing the program with stakeholders and gaining legislative authority, if needed;
• Planning and addressing the concerns of plans, providers, and other key healthcare actors;
• Ensuring cross-agency coordination;
• Building and maintaining program capacity; and
• Sustaining the program and stakeholder engagement over time.

Health care costs in the United States are on an unsustainable trajectory. Our employer-based system of health insurance coverage—upon which most Americans under age 65 rely—is under increasing stress, burdened by high premiums and deductibles, depressed wages, and reduced competitiveness. Despite the urgent need for action, federal lawmakers are unlikely to enact cost containment measures in the near term. Enhanced rate review is one of several innovative state strategies to improve affordability for consumers. It has been proven to work in Rhode Island, and it is showing promise in Colorado. 

Our new state roadmap is intended to help states work through the policy and programmatic considerations necessary, within each state’s unique market and political environment, to build and maintain an effective and impactful enhanced rate review program.

Download the full report here.