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

Multiple states have established benchmarks for health care spending growth. Since 2021, spending growth has exceeded most states' benchmarks, prompting concerns about unsustainable growth. However, these benchmarks largely do not adjust when economywide inflation changes. I collected data on states' benchmark-setting processes, targets, and reported health care spending and identified a set of six states that reported data on per capita spending growth in both 2022 and 2023. Meeting benchmark spending targets for these years would have required real (inflation-adjusted) per capita health care spending to decline by an average of 1.6 percent per year. The same nominal spending benchmark targets would have allowed real spending growth of 1.9 percent per year if inflation had stayed at its historical average. Actual real spending growth was only 0.7 percent per year. Consistent with this, health care as a share of gross domestic product for these states remained stable, at 10.9 percent in 2021 and 10.7 percent in 2023. These findings suggest that nominal spending benchmark designs can generate misleading performance signals, which can be reduced by adopting inflation-shock adjustment protocols and routinely reporting both nominal and real spending performance.