CHIA: Mass. healthcare costs escalate to unsustainable levels
Image I Courtesy of State House News Service
The CHIA report shows an 8.6% jump from 2022 to 2023.
Health care costs in Massachusetts surged at unsustainable levels in 2023, adding more pressure to already-strained household budgets, according to new state data.
Total health care expenditures per capita grew to $11,153 from 2022 to 2023, an 8.6% leap that was the second-largest increase since officials began tracking the annual change a decade earlier, the Center for Health Information and Analysis reported Wednesday.
The 2023 rate was more than double the 3.6% benchmark that policymakers set as the goal for keeping health care cost growth within a reasonable range. That benchmark is up for debate at a hearing on Thursday.
"For 2023, we are seeing unsustainable cost growth trends persist, putting increasing pressure on residents, employers, and the system as a whole, emphasizing the urgent need for bold and systemic solutions," said CHIA Executive Director Lauren Peters.
The growth rate in 2023 trailed only the 9% increase from 2020 to 2021, when health care spending rebounded after plummeting during the first year of the COVID-19 pandemic.
From 2021 to 2022, total health care spending per capita grew 5.8%. At the time, that was the second-highest rate behind the pandemic-impacted outlier.
The sharp change will increase pressure on Beacon Hill to rein in health care costs, especially as affordability more broadly -- from housing prices to energy bills -- remains a central concern.
During a series of hearings about health care costs earlier this year, before CHIA published its 2023 data, officials warned about pocketbook impacts from rising health insurance costs.
Matthew Veno, executive director of Group Insurance Commission, which oversees insurance for 460,000 state employees and retirees, said the GIC has seen "pretty significant increases" in premiums in recent years.
"So when we are facing rising pressures on affordability, rising underlying costs of health care, that has a significant burden on the state budget," he said. "And whenever we talk about health care, we should always talk in terms of tradeoffs. The dollars that we spend to provide essentially the same benefit going forward inhibits our ability to make progress in other areas, most notably health equity, behavioral health, but also to relieve the pressure as much as we can on our members who pay a significant portion of their premium, but also on the state budget."
CHIA said pharmacy spending and new MassHealth supplemental payments to hospitals drove growth in 2023. Net of rebates, pharmacy spending increased $1 billion or 10% year over year, and MassHealth administered about $1.5 billion in new payments to hospitals designed to support quality and health equity efforts, the report said.
But the effects spilled down to individual patients, too. Between 2021 and 2023, premiums grew 12.1% and health insurance member cost-sharing grew 12.9%, both higher than the 9.7% statewide increase in wages and salaries over the same span, according to CHIA.
A bit more than two in five Massachusetts residents reported facing a health care affordability issue in the past 12 months, and the rate was even higher among certain demographic groups such as Hispanic residents (58.2%) and non-Hispanic Black residents (48.7%), CHIA said.
Hospital finances improved somewhat from fiscal year 2022 to fiscal year 2023, the latest full budget cycle covered by CHIA's new report, while remaining tight. Across the state, the median acute hospital operating margin grew from -1.3% in hospital fiscal 2022 to 0.2% in hospital fiscal 2023.
Just more than half of acute care hospitals reported positive operating margins in HFY 2023, CHIA said.
Massachusetts Health and Hospital Association President Steve Walsh said the new data prove "how rapidly healthcare is changing in the commonwealth."
"Given the staggering pressures our healthcare providers are under, it is remarkable that 2023 hospital spending still managed to mirror the state's overall economic growth," Walsh said. "There were serious costs associated with keeping patient care afloat for patients, most of which torpedoed hospital finances and still exist today -- including fast-rising supply and pharmaceutical expenses, caring for sicker people in need of longer hospital stays, and taking sole responsibility for the state's growing health safety net shortfalls."
State analysts, watchdogs and lawmakers will discuss the new CHIA data at a hearing Thursday, where the Health Policy Commission and the Legislature's Health Care Financing Committee will consider adjusting the cost growth benchmark moving forward.
Like Walsh, Dr. Hugh Taylor, president of the Massachusetts Medical Society, called on policymakers to rethink their approach.
"While the establishment of a target benchmark and collection and sharing of health care cost data was a well-intentioned practice at the time of its inception, a longitudinal approach, which could look at multi-year averages of growth, would capture more salient trends and allow for a more nuanced analysis of necessary growth of smaller entities," Taylor said. "Due to the rigidity of the current benchmark formula, it cannot account for the real time-challenges facing the health care system or evaluating the value of investment. The benchmark formula needs to be revisited in order to account for both real-time economic factors, such as labor costs, the evolving federal landscape, and patient needs that impact the overall cost of the system."
Lora Pellegrini, president of the Massachusetts Association of Health Plans group that represents insurers, said the financial burden of health care costs is growing at an "unsustainable pace."
"High healthcare premiums are a direct result of these underlying cost drivers. For too long, the responsibility for controlling healthcare costs has fallen primarily on the health plans, while other stakeholders – particularly providers and pharmaceutical companies – have faced little accountability," Pellegrini said. "Without cost containment measures applied across the entire health care sector, premium expenses will continue to rise at unsustainable levels. MAHP and our member plans believe we are at a critical juncture. The state must take decisive action to ensure that all entities within the health care ecosystem share the responsibility for managing costs, fostering a system that is both affordable and sustainable for employers and consumers."
In January, Veno said the GIC was "experiencing significant budget shortfalls" midway through fiscal 2025, and was more than $100 million over budget.
"This is the largest variance that we've seen in at least a decade, and this is consistent across all of our plans, and is driven primarily by rising provider prices and a couple of other topics," he said. He added, "We don't know where this is going to head. My concern is that it is a persistent and steady trend going forward."
Under questioning from Insurance Commissioner Michael Caljouw, Veno later added, "We're looking at a 10 and a half percent increase for fiscal '26."
Veno identified medical innovation, increased inpatient care utilization and drug prices, including a surge in weight loss drugs, as among the factors driving up prices. He cited a "steady trend" of 10% increases in pharmacy benefit costs, and projected a 14% increase in the "active spend" on pharmacy benefits at the GIC for fiscal 2026, which begins July 1.
Health care providers are demanding higher prices in negotiations with insurers, Veno said. He gave the example of a provider demanding a 50% increase in rates over three years. "It was a hard first position," he said. "It was not simply expanding the field of negotiation. And what we've also seen is a willingness on the providers to terminate contracts if they don't get the rate increases that they're seeking."
"I would say, over the last year, it's been relatively non-stop that these rate negotiations have gotten extremely contentious," Veno added. "We frequently see and hear about double digit increased demands from providers and a very aggressive posture."
Caljouw, who has been hosting the health care cost sessions, said Massachusetts was at a "uniquely challenging moment."
"It's certainly a national issue in terms of scope, but the regional impacts and the impacts directly on individual purchasers, whether they're businesses or individuals, is real and felt," Caljouw said in January.
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