BOSTON — Health care costs in Massachusetts have continued to rise sharply in 2023, creating more strain on household budgets. Fresh data reveals that the average spend per person jumped to $11,153—a substantial increase of 8.6%. This marks the second-largest rise since records began a decade ago.
The growth rate far exceeded the target set by policymakers, which aimed to keep health care spending increases at a more manageable 3.6%. According to Lauren Peters, Executive Director of the Center for Health Information and Analysis (CHIA), this rapid escalation hints at a need for serious reforms. “The trend is unsustainable and puts pressure on residents, businesses, and the entire system,” she said.
This year’s surge is almost on par with the 9% spike noted between 2020 and 2021, when spending temporarily ballooned after a decline during the early COVID-19 pandemic. From 2021 to 2022, the increase was somewhat lower at 5.8%—still a significant jump. The continuous rise in health care costs adds urgency for state officials to find solutions amidst general financial worries, including high housing and energy expenses.
In previous hearings, experts highlighted the financial impact of rising health insurance premiums. Matthew Veno, who oversees insurance for over 460,000 state employees, pointed out that recent years have seen significant premium hikes. He stressed that as health care costs climb, they burden state finances and hinder progress in other important areas, such as health equity.
Several factors contributed to the rising costs in 2023. Increased pharmacy expenses accounted for a substantial portion of the growth, with pharmaceutical spending up by $1 billion—or 10%—from last year. Additionally, Massachusetts initiated approximately $1.5 billion in supplementary payments to hospitals to bolster quality and equity initiatives.
For individuals, the repercussions are stark. From 2021 to 2023, premiums increased by 12.1%, and out-of-pocket costs for health insurance rose by 12.9%. Unfortunately, this growth outpaced general wage increases statewide, which were about 9.7% during the same period. Notably, 41% of Massachusetts residents faced health care affordability issues, a concern more pronounced among groups like Hispanic residents (58.2%) and non-Hispanic Black residents (48.7%).
The financial landscape for hospitals appears to be stabilizing slightly, with the median acute hospital operating margin shifting from -1.3% in the prior fiscal year to a marginally positive 0.2% in 2023. However, only slightly over half of acute care hospitals reported gaining positive margins.
Industry leaders are urging a reevaluation of the approaches used to manage these rising costs. Steve Walsh from the Massachusetts Health & Hospital Association highlighted that the changing landscape is affecting every aspect of health care. “Rising supply costs, more complex patient care needs, and funding shortfalls are making it especially tough on our hospitals,” he noted.
Dr. Hugh Taylor, president of the Massachusetts Medical Society, believes a new methodology for tracking spending is essential. He argues that the current benchmarks do not account for the evolving challenges health care providers face. “A more long-term perspective on cost trends is necessary to understand the true landscape,” he explained.
Lora Pellegrini, who represents health insurers, pointed out that health care premiums are soaring due to escalating costs driven mainly by providers and pharmacies. She emphasized that all stakeholders must share the responsibility for managing costs to ensure the health care system remains affordable.
Statistics from January 2023 indicate that budget shortfalls at the Group Insurance Commission had reached over $100 million, the largest deficit seen in a decade. Veno emphasized that if trends continue, a projected increase of 10.5% in fiscal year 2026 could occur, partly driven by rising provider rates and pharmaceutical costs.
With negotiations between insurers and providers growing increasingly contentious, rates are being pushed higher. Veno illustrated this by citing a demand for a 50% increase from a provider over three years. “The negotiation atmosphere is quite tense right now,” he added.
Insurance Commissioner Michael Caljouw acknowledged that Massachusetts faces a particularly difficult situation regarding health care costs, a problem that is being felt across the country. “The impact of these rising expenses is real and affects everyone—whether they are individual consumers or businesses,” he stated.
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