By: Abigail Knapp and Sabrina Corlette
Families, employers, and state budgets alike are straining under the weight of rising health care costs. As the prices for health care services continue to climb, these increases are passed on to consumers in the form of higher premiums, deductibles, and other forms of cost sharing. Higher health care prices are not only squeezing household budgets, but also slowing wage growth and undermining the economic competitiveness of small businesses. As states look for strategies to curb health care spending, cost-growth benchmarks have emerged as a useful but incomplete approach. These benchmarks are policy tools designed to measure and limit the rate of health care spending growth within a state, typically tying spending growth targets to a rate aligned with state economic and income growth. They also enable states to collect and analyze spending data, helping policymakers identify and target the drivers of health care spending growth. While benchmarks lay the groundwork for cost oversight, states must pair them with more direct regulation and pro-competition reforms to meaningfully improve affordability.
Impact and Limitations of Cost-Growth Benchmarks
Setting a cost-growth benchmark alone has proven largely insufficient to contain spending growth. The health care industry in many states with cost-growth benchmarks frequently exceeds its annual targets. Health care entities in Connecticut have exceeded their benchmark each year since the benchmark was implemented and entities in Delaware have exceeded the benchmark every year except 2020, a year in which COVID-19 social distancing mandates depressed the use of health care services. Oregon, Rhode Island, and Connecticut recently recorded their highest growth rates since the implementation of their benchmarks, with increases of 5.2 percent, 7.8 percent, and 7.9 percent, respectively. Rampant provider consolidation and the financial interests of insurers, providers, and “middleman” industries (such as revenue cycle management companies, claims re-pricers, pharmacy benefit managers, and others) also continue to push spending upward, diminishing the constraining effects of voluntary benchmarks. As such, several states have adopted enforcement mechanisms for their cost-growth benchmarks, exerting greater pressure on health care entities to bring down spending. States can take two general approaches to enforcement:
- Direct enforcement: Performance improvement plans (PIPs) and financial penalties for entities exceeding the benchmark.
- Indirect enforcement: Integration of cost growth targets into other oversight processes, such as certificate of need approvals, transaction reviews, and hospital budget reviews.
Even in states with relatively strong and established enforcement authority, the health care industry continues to exceed growth rate targets. In Massachusetts, if the Health Policy Commission (HPC) finds that a health care entity’s spending was unreasonably high, the HPC can require the entity to develop a PIP. The HPC monitors the entity’s progress and evaluates whether the entity has met its goals. As a last resort, the HPC may assess a civil penalty of up to $500,000. Despite these accountability mechanisms, the health care industry has exceeded the benchmark almost every year since the targets were set, with spending growth rising even more sharply in the years following the COVID-19 pandemic. An evaluation of the state’s benchmark program found that while the benchmark initially motivated entities to control cost growth, the influence of the benchmark has diminished over time, partly due to minimal consequences for entities that have exceeded the benchmark. More fundamentally, cost-growth benchmarks are inherently forward-looking, constraining how fast spending grows over time, but they do not directly address already high prices.
To be effective, cost-growth benchmarks need to be coupled with broader, more systemic cost containment initiatives. Some states are doing just that: Oregon enforces PIPs for entities that exceed the benchmark and will begin assessing financial penalties in 2026, but also employs other cost containment measures, including transaction oversight and reference pricing for its state employee health plan. Beginning this year, the California Office of Health Care Affordability (OHCA) must take action against entities that exceed the state’s benchmark, including PIPs and escalating financial penalties. However, the California Hospital Association filed suit against OHCA in October 2025, asking the court to declare the benchmarks unlawful and prohibit the agency from applying the cost targets to hospitals.
Moving Beyond Enforcement
To effectively constrain health care cost growth and deliver more affordable health care to consumers, states will likely need to pair cost-growth benchmarks with more direct price regulation and/or pro-competition reforms. Like Oregon, several other states have implemented reference pricing for their state employee health plans (SEHPs). Research has estimated that implementing a SEHP payment cap at 200 percent of Medicare rates could have saved the plans $7.1 billion nationwide in 2022. Vermont and Indiana will begin implementing hospital price caps across their commercial markets in 2027 and 2029, respectively, with Indiana’s reference pricing approach focused on the state’s largest, high-cost non-profit hospitals. Rhode Island limits the amount by which insurers can increase their rates for hospital services, which has led to an average 9.1 percent reduction in hospital prices in the commercial market relative to comparison states. Other states are prohibiting anti-competitive contract restrictions and strengthening hospital transaction oversight to rein in high prices. Connecticut bans several anti-competitive contracting tactics in payer–provider contracts, and also has the authority to review certain hospital mergers and acquisitions and conduct post-transaction monitoring.
It’s also crucial to incorporate equity considerations into cost containment policies. Without intentional planning, efforts to reduce health care spending may result in an underinvestment in historically marginalized communities, such as communities of color and rural areas, as well as in certain care settings, services and essential providers, such as primary care, psychiatric care, and maternal health. A cost-growth benchmark alone, without tailored regulatory approaches, is a blunt instrument and often lacks meaningful equity considerations. However, states can use targeted price regulation, transaction review, and other more direct, systemic reforms to slow price growth in wealthy, high-priced settings while preserving access to care.
Conclusion
State implementation of cost-growth benchmarks can pave the way for containing health care prices and improving affordability in important ways: establishing oversight bodies, collecting spending growth data, conducting analyses to identify cost drivers, and more. However, the evidence shows that a voluntary cost containment target for today’s health care industry is insufficient to deliver affordability to consumers. As states attempt to bring costs down for consumers, cost-growth benchmarks should be coupled with price regulation approaches and/or constraints on anti-competitive practices to more effectively impact health care spending and affordability.
