For years, Connecticut lawmakers and elected officials have been laboring to understand — and curtail — rapidly rising healthcare costs.

They first gathered data to measure annual growth in healthcare spending and established benchmark growth rates. The intent was for insurers and healthcare providers to hew to the benchmark rate or lower, but there was no way to enforce it.

That’s starting to change. Connecticut lawmakers this year approved penalties for providers when growth of the cost of care at their hospitals exceeds the state’s benchmarks — although critics say the penalties are not severe enough. 

State officials negotiated the corrective actions and penalties directly with healthcare providers, and their enforcement will be implemented gradually. Beginning in 2029, the state will have the option to request a corrective plan from hospitals whenever annual spending growth exceeds 3.9%. Hospitals failing to bring the cost of care under control could then be required by the state to make a community health investment of a maximum of $400,000, with the amount depending on the hospital’s size.

Comptroller Sean Scanlon said the policy could make a meaningful difference in the lives of Connecticut residents. Scanlon served as one of the lead negotiators for the state on the tax agreement reached with hospitals earlier this year that contains the new affordability measure.

“Everyday, regardless of where I am and who I’m talking to, people are complaining to me about the high cost of healthcare and the high cost of insurance,” Scanlon said. “If we can keep our healthcare [cost growth] under 4% every year, we’d be doing incredible work and saving millions and millions of dollars for people.”

Cathryn Vaulman, a spokesperson for Gov. Ned Lamont, said the policy builds on the governor’s record of addressing healthcare costs, which has also included canceling $540 million medical debt for nearly 300,000 residents and providing state subsidies in the wake of vanishing federal aid for Affordable Care Act, or ACA, plans.

“This innovative policy approach will make healthcare more affordable by taking meaningful corrective action — not just a penalty — when hospital costs grow too fast,” Vaulman wrote in an emailed statement.

But policy analysts who study cost containment have doubts about how effective the new penalties will be. At the same time, sweeping federal policy changes to Medicaid, Medicare and Affordable Care Act plans could result in more uninsured patients seeking care — further driving up costs for providers.

Connecticut has agreed to send hospitals more than $1.6 billion in additional funding over the next five years to help offset expected losses from federal programs. Whether that will be enough to help them keep annual cost growth at or below the state’s benchmark target remains unclear.

The cost growth benchmark

Connecticut has for years set a maximum target for annual per-person healthcare spending growth, but it hasn’t been effective in controlling costs. Healthcare spending has continued to grow, exceeding the benchmark each year it’s been measured. 

Between 2023 and 2024, the most recent period reported by the state, total healthcare spending per person across commercial, Medicaid and Medicare plans grew by 7.9%, nearly doubling the established benchmark rate of 4.0%.

(“Healthcare spending” encompasses all the dollars flowing through Connecticut’s healthcare economy, and goes well beyond what the state spends. It includes spending by commercial plans, Medicaid and Medicare in areas like hospital services, doctor’s visits and prescription drugs.)

The results aren’t surprising. Research has shown that merely measuring healthcare cost growth without any enforcement doesn’t do much to rein in spending. Scanlon said that’s why the measures laid out in the new agreement with the hospital industry are critical.

Beginning in 2028, the state will measure hospitals against a new, hospital-specific “hospital payment growth benchmark.” The following year, hospitals that fail to keep cost growth at or below 3.9% could be required to submit a plan for how to bring costs under control. 

Hospitals that fail to bring costs down according to the agreed plan can be required to make an investment in a community health initiative of up to $400,000, depending on the size of the hospital. The Department of Social Services will approve the investment, which will ensure the funds go towards community health directly, Scanlon said.

“It’s got to be narrowly focused on actually making a difference when it comes to population health,” he said. “No 5Ks, no stadiums, no Little League teams.”

The governor’s budget office will work with the hospitals to develop the hospital payment benchmark in advance of 2028. In the past, hospitals have been critical of the cost growth benchmark because it incorporates factors that are not entirely in their control, and because the targets have, in some years, been unrealistically low.

Hospitals can’t, for example, control if, in a given year, more people seek care or the people who seek care are sicker — both factors that can drive up healthcare spending, said Paul Kidwell, senior vice president for the Connecticut Hospital Association.

Kidwell said collaboration between the state and the industry on how to measure will ensure that the resulting data achieves the shared goal of understanding what drives up costs.

“The plans that could be required if a hospital doesn’t meet the benchmark can be a useful tool if everyone understands what the data says,” Kidwell said.

Penalties ‘proportional to the struggle’

Healthcare economists and researchers expressed skepticism that Connecticut’s new measures would be all that effective in reducing costs. 

The repercussions for exceeding the benchmark just aren’t strong enough, said Zack Cooper, a health economist at Yale University and director of its Health Care Affordability Lab.

“$400,000 to a big hospital system — say to Hartford or to Yale — probably could be found if you shook some mattresses hard enough,” Cooper said. “That to me just doesn’t feel particularly scaled or proportional to the struggle that residents are feeling day to day with healthcare costs.”

Cooper said several states have put in place initiatives to address the cost of care and hospital pricing. 

Maryland has the most direct hospital price-setting policies in the country. The state establishes what hospitals can charge and also sets a maximum for the amount of revenue they can earn in a year. 

An independent analysis found that the model achieved “significant, mostly favorable effects on utilization, spending, and quality-of-care outcomes” but added that increases in outpatient spending — such as an annual physical or routine bloodwork that occurs in a doctor’s office — “could present a risk to the model’s goal of reducing the total cost of care.”

Economist Sherry Glied agreed with Cooper that Connecticut’s proposed policy would have a “very modest impact on healthcare costs” because the penalties “are not extremely high by hospital standards.”

But Glied said other states have had mixed results with price controls, and she’s not convinced the U.S. is prepared to take on the kind of changes that would be necessary to meaningfully reduce healthcare spending. 

In many European countries, for example, where healthcare spending is lower, hospitals have a much higher rate of shared bedrooms, whereas U.S. hospitals are likely to have more single bedrooms, said Glied.

“If we’re going to make [hospitals] spend less money, they’re going to do less of something. And most people don’t want them to do any less of anything,” she added.

In response to criticisms from policy analysts that Connecticut’s new policy doesn’t go far enough, Scanlon said the measure “delivers meaningful progress within the constraints of the political realities.”

“It’s a negotiation,” he said. “My desire would have been for a stronger penalty, but we compromised and got to a place that could pass this bill.”

He said he’s open to stricter enforcement measures in the future, but he wants to see how the solution reached in collaboration with the hospitals goes first.

“If this proves that it’s not compelling them to constrain their costs in the way that I hope that it does, then we’re gonna figure something else out. But it hasn’t even started yet,” he said.

The wider picture

State policymakers now face increasing pressure to contain healthcare spending growth in the wake of recent and pending federal changes that threaten to drive up the number of people without health coverage, which can increase the cost of care for the system overall.

As a result of House Resolution 1 — commonly referred to as the One Big Beautiful Bill Act — 110,000 Connecticut residents are at risk of losing their Medicaid-funded HUSKY D coverage unless they can demonstrate compliance with new work and community engagement requirements, according to estimates from the state Department of Social Services. 

The expiration of COVID-era federal subsidies for ACA plans and changes to Medicare as a result of H.R. 1 could also lead to more people losing health coverage.

Coverage loss can drive up the cost of care in two key ways.

Research has shown that people without insurance are more likely to delay or skip care, and doing so can lead to the need for costlier care in the future. Hospital leaders have also said that reductions in government Medicaid payments force them to negotiate increased payments from commercial insurers, which could result in higher premiums for those with private coverage.

Scanlon said the new tax agreement between the state and hospitals, which took effect in July and provides the industry with over $1.6 billion in extra payments from the state over the next five years, is intended to help address those challenges.

“We want to support our hospitals and we want to have a good working relationship with them, but we also need them to support our affordability agenda and to try to be good partners with us in that,” he said.