States' Role in Cost Containment

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It comes as no surprise that the reason many Americans lack insurance coverage is the direct result of the rising cost of health care. As health care expenditures continue to increase, so do insurance premiums. There are numerous factors contributing to dramatic increases in health care costs. Some of the major factors include an increase in the intensity of services, the availability of more expensive drugs and technological services, the aging population, and rising administrative costs.[1] Health insurance costs have consistently risen over time while the percentage of employers offering coverage has steadily declined. In response, most payers are refining and developing new strategies to address underlying drivers of health costs.

Between 1999 and 2008, the cost of health insurance premiums have risen 119 percent, while wages have only grown 34 percent.[2]At the same time, deductibles and cost-sharing for those who are insured have also been on the rise. Despite paying more than twice as much for health coverage, Americans are buying less comprehensive protection against health care costs. In addition, as a result of rising costs and increasing enrollment, Medicaid now consumes approximately 22 percent of state budgets on average.[3] 
There is a great deal of innovation occurring in states, both in terms of coverage and cost containment. State policy leaders are engaged in market-wide cost-containment initiatives while also focusing on managing skyrocketing costs in their public programs. States have been aggressive in containing costs in the Medicaid program because it accounts for a growing portion of their budgets. In addition to addressing the growth in health care costs that all payers are experiencing, public programs must also deal with increases in enrollment, particularly during economic downturns. States continue to focus on cost-containment strategies that encourage more cost-effective use of services but, at times, have to rely on more traditional strategies that reduce eligibility, cut benefits, or reduce payments to providers. 
While states are continuously implementing and modifying cost control mechanisms, the reality is that there still has been little success in addressing underlying costs of health care. Nonetheless, while addressing costs will be far more challenging than improving coverage or quality, states will continue to explore new strategies. In fact, the increasing focus on chronic care management holds potential.

[2]According to data collected in the Kaiser/HRET Survey of Employer-Sponsored Health Benefits. See
[3]Fiscal Year 2007 State Expenditure Report. June 2008. National Association of State Budget Officers.