Inflation Distorted State Health Care Spending Benchmarks: Nominal Growth Targets Called For Real Spending Cuts,...

Area of Science:

• Health Economics
• Public Health Policy
• Healthcare Finance

Background:

• Many states have implemented healthcare spending growth benchmarks.
• Since 2021, actual spending growth has frequently surpassed these benchmarks, raising alarms about fiscal sustainability.

Purpose of the Study:

• To evaluate the impact of inflation on state healthcare spending benchmarks.
• To assess whether current benchmarks provide accurate signals of healthcare spending performance.

Main Methods:

• Collected data on state benchmark-setting processes, targets, and reported healthcare spending.
• Focused on six states reporting per capita spending data for 2022 and 2023.
• Analyzed spending growth in both nominal and real (inflation-adjusted) terms.

Main Results:

• Meeting nominal benchmarks would have required an average annual decline of 1.6% in real per capita healthcare spending.
• If inflation had been at its historical average, the same nominal targets would have permitted 1.9% real spending growth annually.
• Actual real per capita healthcare spending grew by only 0.7% annually.
• Healthcare's share of GDP remained stable (10.9% in 2021, 10.7% in 2023) in the studied states.

Conclusions:

• Nominal healthcare spending benchmarks can produce misleading performance indicators due to unadjusted inflation.
• Incorporating inflation-adjustment protocols and reporting both nominal and real spending data can improve benchmark accuracy.
• Policy adjustments are needed to ensure benchmarks reflect true healthcare spending trends.