By Sabrina Corlette, Karen Davenport, and Emma Walsh-Alker

The high and rising cost of health care is reducing people’s access to critical services, suppressing workers’ income, and reducing business competitiveness. Many state employee health plans (SEHPs) are the largest commercial health care purchaser in their state, making them uniquely situated to tackle health care costs and exert pressure on insurers and providers. In 2021 we released findings from the first comprehensive, nationwide survey of SEHP administrators regarding plan offerings and states’ cost containment strategies. On June 28, 2023, we released an update on these plans’ progress in the last two years, as well as the impact of recent federal policy changes.

In the two years since our last report, states have enjoyed flush budgets and healthy rainy-day funds while health care utilization has remained below pre-pandemic levels. But these good times for SEHP administrators will not last forever and SEHPs, like other payers, expect costs to increase. SEHPs are also subject to new federal requirements promoting greater transparency of health care transactions under the Consolidated Appropriations Act of 2021 (CAA) and protections for covered workers from unexpected out-of-network billing under the No Surprises Act (NSA).

In a survey of 50 SEHP administrators and follow up interviews in 11 states, we learned about states’ challenges and successes implementing a wide range of cost containment strategies. While only a handful of SEHPs report being able to quantify the savings generated by any of these strategies, a few initiatives emerged as promising candidates for cost savings. Below are some key findings from our study:

Spaghetti at the Wall: SEHPs Try Multiple Strategies to Constrain Cost Growth

As they did in 2021, SEHPs report that prescription drug and hospital prices are the top drivers of cost growth for their plans. However, as in 2021, SEHPs’ strategies remain primarily focused on prescription drug costs and enrollee utilization of services, rather than hospital prices. Of the top five cost containment strategies being pursued by states, only one (Centers of Excellence) has the potential to affect hospital pricing. Although no single cost containment strategy surfacedas a magic bullet, promising efforts included reference pricing, tiered network plans, and multi-payer purchasing initiatives.

Accountability for Third-Party Vendors

All but four states in our survey use a third-party administrator (TPA) to help with plan and network design, customer service, and/or claims processing. While most SEHPs report that they rely exclusively on their TPA to negotiate with providers and manage plan networks, less than half of states (21) report that they include cost containment targets for TPAs during their procurement processes. Thirty-two SEHPs report that their TPA contracts include accountability mechanisms if their TPAs fail to curb cost growth. However, in interviews a few SEHP administrators reported that they are taking on more network design in-house or have plans to do so, out of frustration with what they perceive as foot-dragging, inability to create customized approaches, or even active resistance to cost containment by their TPA vendors.

Data: More Availability but Limited Capacity to Use It

Since publication of our 2021 report, federal rules requiring plans and hospitals to publicly post price data, as well as a prohibition on gag clauses in provider-payer contracts, went into effect. SEHPs report that these policy changes have somewhat improved their access to claims and price data, but significant barriers constrain translating improved access to data into more aggressive cost containment strategies.

Limited Attention to Limits on Surprise Billing

As plan sponsors, SEHPs are responsible for implementing the federal No Surprises Act. However, 34 SEHPs reported not knowing, as of late 2022, whether any out-of-network providers had filed billing disputes against their TPAs or insurers, and only three SEHPs had a sense of how many disputes had been resolved. No SEHP reported that the NSA was influencing their network design strategies.

Looking Ahead

SEHPs broadly report a commitment to maintaining coverage affordability for their plan members. They continue to pursue multiple strategies to constrain cost growth. However, more SEHPs need to systematically measure the impact of their cost containment strategies, in order to assess what is, or is not, working. SEHP administrators find their evaluation efforts hindered by challenges accessing and using claims and pricing data, and while they report a desire to use this data to inform network and plan design, they are not yet well-situated to do so.

Effective cost containment strategies for SEHPs require tradeoffs, and SEHPs must balance the competing demands of stakeholders. Mitigating potential backlash often involves injecting greater complexity and administrative overhead (and cost) into the initiative’s design and implementation. SEHPs also report frustration that their TPA vendors are often not agile or willing partners in their cost control efforts.

SEHP administrators are bracing for rising prices and a tightening fiscal picture. Identifying and expanding on cost containment strategies that effectively target primary cost drivers, generate minimal “member friction,” and that do not require considerable administrative overhead is challenging for SEHPs. However, several SEHP administrators are demonstrating that it is possible to implement strategies that hold promise for reducing provider price inflation while also minimizing stakeholder pushback.

Download the full report here.

Access an interactive state map and downloadable data tables here.