More states are trying price caps to tackle healthcare affordability

Across Republican- and Democratic-leaning states, a surprising bipartisan idea is taking off: hospital price caps. Indiana and Vermont just passed different kinds of legislation to limit how much people with private insurance pay for hospital care.

With affordability dominating the discussion this election year, price caps are one of the few concrete levers states have to ease healthcare-related burdens.

Owen Foster sees Vermont’s costly healthcare problem from two sides. In 2021, a family member had big bills for cancer treatment and medicines.

“The overall numbers just were jaw-dropping,” Foster said, “I couldn't believe it, $100,000 for this, $80,000, $50,000.”

His insurance did cover most of it. Foster also chairs the Green Mountain Care Board, one of the most powerful regulators in Vermont. State lawmakers have tasked it with setting caps on care and some drugs given at hospitals, and making sure those prices are reflected in insurance premiums. But striking a balance between affordability and hospital viability is tricky.

“We have a large proportion of our hospitals classified as vulnerable by the rating agencies,” he said. “That keeps me up, because we have to lower the prices, but the hospitals don't have much bandwidth to absorb that.”

Vermont, Delaware and Indiana are all using the same benchmark: Medicare. The federal health insurance program for people over 65 has standard and transparent prices, and the states are setting caps at a multiple of Medicare rates.

It’s a tested theory; one early experiment in Oregon that limited state employee healthcare prices to double Medicare rates saved the state $107 million in two years.

“Price caps are absolutely the new hot thing,” said Kelsey Wulfkuhle, senior state advocacy manager United States of Care. She said the caps mark a shift from how lawmakers had been tackling affordability over the last 15 years.

“State governments, and the federal government continue to subsidize that care to help to try to make it more affordable for people,” she said, “I think state legislators are recognizing the need to interrupt that cycle.”

Vermont’s law, which goes into effect in 2027, is sweeping with caps on prices for care and certain drugs at hospitals for the entire private health insurance market.

“It’s a very big change,” said Michael Del Trecco, president of the Vermont Hospital Association.

To respond to caps, Del Trecco said his 14 member hospitals are working to cut costs. They’ve banded together to buy supplies and are sharing some doctors to save money. Del Trecco is optimistic that primary or maternity care might actually see a pay bump, when a cap is determined.

“I could see those going up,” he said, “But I see more downward pressure in this discussion than upward mobility.”

Indiana’s law is more targeted, only applying to employers who chose to cut out the insurer and buy healthcare directly from a hospital.

Mike Schroyer, president of Baptist Health Floyd Hospital in southern Indiana, is also concerned about the cap. His costs for pharmaceuticals, doctors, equipment, construction and supplies keep going up.

“My supply costs over the last two years have gone up 29% alone,” Schroyer said.

Meanwhile federal Medicaid cuts have led to a spike in unpaid care in the emergency room.

“We are getting slammed in trying to keep the cost of healthcare down,” he said, “It's all these other entities that are hammering us at the same time.”

That said, the cost limits are growing in popularity across states, as well as with health economists.

“As an economist, and one who focuses on competition and antitrust enforcement, I have long been eager to see the market work its magic,” said Leemore Dafny at Harvard Business School, who was formerly deputy director for healthcare and antitrust at the Federal Trade Commission.

That magic is less potent now that 3 in 4 hospital markets are highly concentrated.

“I came to the conclusion that it was not going to work in a whole set of markets where the providers were so heavily consolidated already,” Dafny said.

With health costs a top concern for voters across the country, states are watching Indiana and Vermont closely to see if price caps are a fix or just another experiment.