Last year, dozens of Connecticut residents and state officials confronted the insurance industry at a public hearing over its proposed annual rate hikes, which averaged more than 20% for individual health plans and roughly 15% for small group plans. The insurance companies said they had to raise rates or they’d lose money, pointing to the ballooning cost of health care services.
This year, for the first time, those health care providers had to respond to a similar grilling.
At a meeting late last month, the state Office of Health Strategy presented the findings of its first annual report on health care cost growth to Gov. Ned Lamont and several health care industry leaders. According to data collected and analyzed by OHS, Connecticut health care costs rose by nearly two times the governor’s 3.4% benchmark goal from 2020 to 2021.
Armed with that new data, the governor and members of the General Assembly are now bracing for a legislative confrontation pitting two of the state’s most powerful industries — insurance and health care — directly at odds.
“This is like a battle royale. I’m riveted,” said Ted Doolittle, the state health care advocate. “Health care economics and health care system studies show that the reason behind America’s and Connecticut’s internationally abnormal medical spending is the prices charged by providers,” Doolittle said. “This is where the discussion needs to be.”
As part of a broader effort to rein in health care costs for the state’s residents, Lamont and lawmakers have proposed regulating contracts between insurance companies and health care providers more closely. The legislation would give insurers more leverage in contract negotiations.
House Bill 6620, put forth by the legislature’s Insurance and Real Estate Committee, seeks to ban certain terms in contracts deemed “anti-competitive.” That includes clauses known as “all-or-nothing,” where a health care provider requires an insurer to contract with all its affiliated providers across all markets.
The bill also boosts insurance company efforts to steer patients to higher-quality, lower-cost health care by ranking providers in “tiers.” In contract language, health systems have taken to requiring they be included in insurers’ top tiers regardless of performance or prices; those clauses, known as “anti-tiering” or “anti-steering,” would be outlawed under the legislation.
The governor’s proposal, Senate Bill 983, goes a step further.
It proposes setting a price cap on how much hospitals can charge patients if they’re “out-of-network,” or if the patient’s insurance carrier doesn’t have a contract in place with the hospital.
That could drive down hospital prices across the board, experts said. By fixing the out-of-network rate, health care providers would essentially be forced to lower in-network rates as well, since it would make little sense to charge more to insured patients.
“A fixed and reasonable out-of-network rate can reduce in-network negotiated rates, encourage in-network participation and reduce overall spending by limiting the value of the option of staying out-of-network, which providers can use to increase their prices,” OHS Director Deidre Gifford wrote in testimony to the Insurance and Real Estate Committee.
The restrictions, Gifford wrote, would “assist in leveling the playing field between insurers and large health care systems.”
Paul Kidwell of the Connecticut Hospital Association said the health insurance industry doesn’t need the state’s help in negotiations.
“We negotiate — we think — fairly with the insurance companies and the insurance industry. We come to terms that support access to care,” Kidwell said. “We think it’s not appropriate that this state legislature or the state would put its thumb on the scale in favor of one party over another in that negotiation.”
Kidwell added that the hospitals are “open to conversations” about the proposal’s other provisions on all-or-nothing and anti-tiering clauses. He said lawmakers would need to be careful about how the rules get implemented, and he wanted to ensure lawmakers understand potential “unintended consequences” those policies could have for patient access to care.
In written testimony, several representatives for the insurance sector said the proposed contract restrictions have become necessary as the state’s top health systems acquire smaller hospitals and private practices.
“The Governor, his administration, and a bipartisan group of legislators have rightly zeroed in on the unit cost of care and whether services cost more than they should,” Susan Halpin, a lobbyist for the Connecticut Association of Health Plans, said in an emailed statement. “We have long said that premiums are simply a reflection of the underlying health care costs.”
Bills head to the floor
Both H.B. 6620 and S.B. 983 passed out of the Insurance and Real Estate Committee and await consideration on the floors of each chamber. The committee raised S.B. 983’s price cap on out-of-network care to 150% of Medicare before voting on it, setting a potential starting point for the next round of negotiations in the senate.
According to research presented to OHS’ Health Care Cabinet last year, using data from 2019 and 2020, most of Connecticut’s hospital systems could cover their costs if they charged a rate of 150% of Medicare to commercial patients.
Rep. Tammy Nuccio, R-Tolland, said the cap on out-of-network prices will not only reduce health care costs but will, in turn, bring down insurance rates. “They’re literally linked,” she said. “If you bring down the cost of health care, you’re also bringing down cost on the insurance side.”
Nuccio, who has worked in the insurance industry for 26 years and serves on the Insurance and Real Estate Committee, pointed to federal rules that require insurance companies to spend 80% to 85% of their revenue from premiums on health care. If companies don’t meet the target, they must send customers a rebate.
“Insurance companies are ridiculously regulated, but we’re only regulating that one piece, and we’re letting the driver, that 85%, go up,” Nuccio said. “As much as I don’t want more regulation — I’m going to have to sell this to people on my side of the aisle — when does the government step in to say this is a massive abuse of the people, and how do we help right that ship?”
Rep. Kerry Wood, a Rocky Hill democrat and co-chair of the Insurance and Real Estate Committee, said the out-of-network cap is “a laudable goal” but she said it may be difficult for smaller hospitals to cover their costs at state-set rates.
Wood led the effort behind the committee’s bill, H.B. 6620, which would ban anti-competitive clauses but did not include a price cap. And she’s led an array of other legislative efforts aimed at “cost containment” in health care.
“One of these things by itself is not going to move the needle, but if we’re able to push forward some of the bills, then we may start to see a shift,” she said. “We’re not going to reduce costs overnight, but we’re going to help slow the growth.”
Slowing growth starts with tracking data
In January 2020, Governor Ned Lamont signed an executive order tasking the Office of Health Strategy with establishing a benchmark annual growth rate for health care spending and tracking actual costs against that benchmark.
The cost growth benchmark was codified into law last year, and in its first report, OHS found that health care spending per person rose by 6% between 2020 and 2021, far exceeding the benchmark target of 3.4% for that year. Spending from private insurance plans drove most of the increase, jumping 19%, while Medicare and Medicaid spending rose more modestly.
OHS reported that Connecticut’s private health insurance costs rose more than those in other states that track health care spending. Massachusetts, for example, saw its commercial costs per member increase by only 11.6% over the same period. Hospital outpatient and inpatient expenses were among the top drivers of rising costs, according to the OHS report.
OHS Director Gifford has said the impact of rising health care costs on Connecticut residents is “stark,” noting that medical debt is a leading cause of personal bankruptcy. Testifying on S.B. 983, Gifford wrote, “During this session, we will have our first year of cost growth benchmark data to help refine our efforts — and now, we can begin to tackle this issue by empowering providers and consumers, freeing up competition in the healthcare industry, and taking steps to put money back into consumers’ pockets.”
Hospitals have cited unprecedented circumstances presented by the pandemic to explain the dramatic increase in spending. Many people put off regular checkups and specialist visits during the first year of the pandemic, leading to higher demand for services in 2021 and more acute conditions that had gone untreated. A report commissioned by the Connecticut Hospital Association found that the hospitals lost $164 million between 2019 and 2022.
The OHS report found that health care spending per capita declined between 2019 and 2020 but rebounded the following year. The average cost growth between 2019 and 2021 at the state level was 2.7%, actually falling under the 2021 benchmark.
Connecticut is one of nine states that uses a cost growth benchmark.
Natasha Murphy, director of health policy at the Center for American Progress, said that Connecticut’s reporting offers a particularly granular look at the data. “[In] some of the other states, there was a much more rudimentary process where it was really just reporting on whether they met the benchmark or not,” said Murphy. “The fact that Connecticut is able to do that off the bat, I think, is a huge benefit.”
Wood said over time, that data can help inform a broad range of policymakers’ discussions by identifying areas where Connecticut patients are seeking more or less care.
“I think that’s going to give us a lot more tools to help with rising costs, plugging holes in system … and investing in areas we are not,” she said.
Still, the state’s efforts in collecting the data have only just begun, Wood said. “I really wish we had five years of data. We only have one.”
Nuccio pointed out that there aren’t currently any consequences for health care providers who don’t meet the state’s benchmark goals.
"There’s nothing anybody can do about it, because there’s no teeth in it," she said.
In Massachusetts, organizations exceeding benchmarks have to submit a "performance improvement plan" that explains what contributed to the spending increases and lays out cost-saving measures they'll employ within 18 months. An organization can be fined up to $500,000 for non-compliance with its plan. In January 2022, Massachusetts required Mass General Brigham — its largest health system and private employer — to submit a performance improvement plan.
With this year's legislative session more than half over, lawmakers will have a lot to iron out in just a few weeks.
By May 1, OHS said, it will share which, if any, entities “significantly contributed to exceeding the 2021 cost growth benchmark.” By the end of June, the agency will hold a public hearing on the results of the report’s findings.
The General Assembly closes its 2023 session at midnight on June 7.
Doolittle said reaching a deal that helps patients is critical, but having the right numbers to start the conversation is just as important.
"For the first time, this establishes the principle that there should be a justification for those prices," he said. "It took 40 years to get into this medical spending crisis. It will take time to get out."