Strategies
As states consider and pursue strategies to address hospital prices, important policy design and implementation decisions include how to allocate generated savings. The scale of savings, and where they are realized, will vary based on which hospital pricing policy or policies states pursue. Some strategies can reduce hospital spending during initial implementation (e.g., hospital price caps), while others produce less visible but still real savings by reducing spending growth over time (e.g., hospital price growth caps).
States can choose to allocate savings from hospital pricing policies to further state health policy goals. Examples include:
| Question | Answers |
|---|---|
| State policy priorities | Allocation strategies should be driven by state needs and policy priorities (e.g., reducing premiums for consumers, state budget concerns, addressing underinvestment in primary care and behavioral health). |
| Potential for impact | The pricing strategy or strategies states choose – and the strategy design will determine the total amount of savings potentially available for allocation. Evaluations of where savings can have a meaningful impact, informed by modeling of both projected savings and the application of different allocation strategies, can shape state decisions regarding investment. |
| Implementation burden | States should assess the operational and financial requirements associated with potential allocation strategies. Some (e.g., designing and implementing programs to support financially distressed hospitals) require more state effort than others (i.e., a primary care rate floor requirement for commercial insurers). |
| Statutory authorities | State decisions will be shaped by agency authorities, including whether and how allocation strategies are described in legislation or delegated to regulation. |
| Political considerations | Allocation strategies that invest a portion of savings towards a perceived public good can be a valuable tool to increase a policy’s appeal to certain policymakers, industry, and the public. |
State and School-Based Employee Health Plan Price Cap
In the initial years of implementation, the Oregon Educators Benefit Board (OEBB) and Public Employees’ Benefit Board (PEBB) realized actual savings under the hospital payment cap as the cap rebased OEBB and PEBB rates at the impacted hospitals. OEBB and PEBB fully insured premium rates increased less than they otherwise would have, and self-insured premium equivalent rates similarly had smaller increases, with the actual dollar savings accruing to reserves. Since implementation, the policy has also moderated the rate of hospital payment growth for OEBB and PEBB, since the cap limits how much rates can increase each year (i.e., rates near the payment ceiling can’t increase more than Medicare’s annual increase). This has helped OEBB and PEEB meet a 3.4% limit on annual benefits cost and premium growth, which was included as a complementary affordability measure in the final legislation that instituted price caps. The price cap policy requires that insurers determine the PEBB/OEBB member’s cost sharing based on the actual reimbursement amount, which helps to ensure that savings are passed on to members. Furthermore, if self-insured insurers exceed the cap, the insurers must return any overpayments to PEBB/OEBB, which goes directly into the claims reserve fund to cover future costs for the plan. For fully insured plans, any overpayments must be provided to PEBB/OEBB as a credit to fully insured premium rates. For further details on Oregon’s policy and relevant state authorities, see the Price Caps strategy page.
Hospital Price Cap in the Commercial Market
In 2025, Vermont’s General Assembly passed Act 68, requiring the Green Mountain Care Board (GMCB) to implement reference-based pricing for Vermont hospitals through provider rate-setting authority, to be phased in over several years starting in 2027. As part of the legislation, GMCB is required to work with Vermont’s Department of Financial Regulation to ensure that limits on hospital charges and payments under the policy are passed on to consumers in the form of lower commercial premiums. For a more detailed description of Vermont’s reference-based pricing authority, see the Price Caps strategy page. For state authorities governing Vermont’s hospital price cap, see the Price Growth Caps strategy page.
State Employee Health Plan Price Cap
New Mexico passed legislation in 2025 authorizing hospital price caps in the state employee health plan, with savings designated to offset enhanced financial support for state employees facing high health care costs. This support includes premium assistance for lower-income state employees, with eligibility based on total household income or salary level. The Health Care Authority’s program guidance specifies that the agency will monitor compliance to ensure that savings are achieved throughout the fiscal year. For further details on New Mexico’s policy and relevant state authorities, see the Price Caps strategy page.
State and School-Based Employee Health Plan Price Cap
Washington’s 2025 legislation limiting how much public and school employee plans pay for hospital inpatient and outpatient services also established minimum payment levels for primary care and behavioral health services delivered in the community to at least 150% of the Medicare rate. For further details on Washington’s price cap and relevant state authorities, see the Price Caps strategy page.
State Insurance Regulation/Rate Review
The Rhode Island Office of the Health Insurance Commissioner (OHIC) uses premium rate review examinations as a mechanism to monitor and enforce insurer compliance with a set of affordability standards, which include a hospital price growth cap equal to the Consumer Price Index plus 1%. OHIC’s rate review authority allows it to approve, disapprove, or modify proposed premium increases, which enables OHIC to directly push back on premium increases if an insurer does not comply with the price growth cap or other rate review criteria. For example, OHIC can modify hospital unit cost trends in the rate filing to achieve lower rates. This policy has resulted in direct, real-time consumer savings in form of lower premiums or premium increases. For further details on Rhode Island’s policy and relevant state authorities, see the Price Growth Caps strategy page.