Your browser doesn't support JavaScript. Please upgrade to a modern browser or enable JavaScript in your existing browser.
Skip Navigation U.S. Department of Health and Human Services
Agency for Healthcare Research Quality
Archive print banner

This information is for reference purposes only. It was current when produced and may now be outdated. Archive material is no longer maintained, and some links may not work. Persons with disabilities having difficulty accessing this information should contact us at: Let us know the nature of the problem, the Web address of what you want, and your contact information.

Please go to for current information.

Health Care Costs: Why Do They Increase? What Can We Do?

Monitoring Costs


Scott Leitz, M.A., Director, Health Economics Program, Minnesota Department of Health, St. Paul, MN.

Gino A. Nalli, M.P.H., Assistant Research Professor, Edmund S. Muskie School, University of Southern Maine, Portland, ME.

Philip F. Cooper, Ph.D., Senior Economist, Center for Cost and Financing Studies, Agency for Healthcare Research and Quality, Rockville, MD.

Monitoring changes in health expenditures, insurance premiums, and other cost indicators is fundamental to sound policymaking. States need this information to assess the potential impact of new proposals and evaluate current programs. This session looked at the different approaches of two States, Minnesota and Maine, for collecting and using cost data and related information. This session also described how States can use findings from the insurance component of AHRQ's Medical Expenditure Panel Survey (MEPS).

In the late 1980s Minnesota became concerned about health insurance premium increases and the level of health care expenditures. Minnesota's 1992 health care reform law, the MinnesotaCare Act, included a key provision to focus on slowing the rate of growth of health spending by 10 percent per year.

Scott Leitz, M.A., explained that early efforts went toward establishing a consistent baseline health expenditure estimate. In subsequent years, the State began calculating rates of growth, refining definitions, and analyzing sublevels of data (e.g., commercial vs. public programs). As a result, Minnesota now has a consistent State-level data set. This allows for comparison between Minnesota and the Nation, and gives policymakers a State-specific set of unbiased data on which to base decisions.

Estimating health spending has helped Minnesota better understand its overall health care market. Data on health expenditure estimates, including health plan enrollment, self-insured expenditures and enrollment, and premium revenue are submitted by all insurers.

The Health Economics Program (HEP) of the Minnesota Department of Health (DOH), provides neutral analysis of health expenditures and premium changes. The program also supports broader studies of health plan enrollment trends, the uninsured, and other health policy topics. Program data and analyses are used by the legislature, interest groups, and others. This neutrality has helped build trust among legislators and stakeholders. The HEP is funded from a mix of sources, including the general fund, tobacco settlement funds, and provider taxes.

Minnesota's health expenditure estimates are used to:

  • Inform legislators on the status of the health care market.
  • Measure the potential effects of pending bills on health care costs and expenditures for issues such as patient protection, mental health parity, and prescription drugs.
  • Determine administrative costs.
  • Understand the costs associated with mandated benefits.
  • Evaluate figures and analyses provided by interest groups.

Leitz offered some lessons learned thus far, including:

  • Being viewed as unbiased is critical to the building of trust at the legislature.
  • Constructing estimates of health spending and an understanding of State markets is a large undertaking, but is doable.
  • Interacting with other States is critical.

According to Leitz, challenges ahead for Minnesota include:

  • Continually refining what is collected, analyzed, and reported it in order to provide current, relevant information in a changing health care world.
  • Continuing to educate legislators on the value of data in decisionmaking.
  • Striking a balance at HEP as both neutral purveyors of information and advocates for certain policy changes.

Gino Nalli, M.P.H., explained the methods and policy applications for determining personal health expenditures in Maine. In response to a turbulent environment involving several health plans in Maine in early 2000 and dramatically rising premiums, Governor Angus King established a Blue Ribbon Commission to identify cost elements, determine cost allocations and shifting, and identify strategies for stabilizing costs. The Commission used a population-based approach, using data segmented by services and principal insurance arrangements. Both state-specific and national data sources were used. State-specific data sources included Medicaid, Medicare, and large employers. National data sources included other private insurers, out-of-pocket expenditures, uninsured, and trend rates.

Summary results for 1999 showed:

  • Personal health expenditures in Maine were in excess of $4.7 billion, over $3,700 per person.
  • Health expenditures represented 13.9 percent of Maine=s Gross Domestic Product (GDP) versus 12.3 percent for the United States.
  • Charity and bad debt were estimated at $163 million.
  • Out-of-pocket share of total expenditures for those with health care coverage was approximately 24 percent.

Nalli explained that the report provided insights to policymakers regarding:

  • The economic impact of health care in Maine.
  • The magnitude of Medicare and Medicaid expenditures.
  • Quantifying access and cost shifting issues related to the uninsured.
  • The degree to which the private insurance sector is at risk.

The report has served as a benchmark for a variety of recent initiatives, including modifying community rating arrangements and expanding Medicaid eligibility. However, Nalli said the Commission had difficulty identifying a manageable set of core issues and advancing a more integrated policy agenda.

Nalli shared that next steps for Maine include:

  • Establishing an objective, non-partisan information infrastructure.
  • Developing and tracking measures that focus on system performance.
  • Disseminating information on a regular basis to all stakeholders.

Philip Cooper, Ph.D. shared an AHRQ tool for assessing employer-sponsored health insurance, the Medical Expenditure Panel Survey—Insurance Component (MEPS-IC). The purpose of MEPS-IC is to ascertain the availability, access, and cost of health insurance, and the benefit and payment provisions of private health insurance.

According to Cooper, the household-linked sample includes a survey of employers and other sources of private health insurance, such as unions, associations, and health insurance companies. The data obtained includes:

  • Health insurance offered to employees.
  • Employee choices among health plans.
  • Premiums and employer/employee contributions.
  • Benefit and payment provisions.
  • Establishment characteristics (e.g., wage distribution, gender).

Cooper explained that health insurance studies can show:

  • What benefits employers offer.
  • The cost of health insurance (total, employee and employer).
  • How premiums differ among employers.
  • State estimates of availability and cost of employer-sponsored insurance.

Cooper illustrated that MEPS-IC can compare individual States with other States and the Nation, by year. For example, States can look at and compare:

  • Private-sector single/family coverage total premiums.
  • Private-sector single/family coverage employee contributions.
  • Percentage of private establishments that offer two or more plans.
  • Percentage of private establishments with fewer than 10 employees offering health insurance.

MEPS-IC includes data from 1996-1998 showing:

  • Private sector data by state and characteristics (e.g., industry).
  • Public sector data.
  • National tools for enrollees and cost of health insurance coverage.
  • Interactive analytical tools.

Additional information about MEPS-IC can be found on the MEPS Web site at

Additional Resources

Employee Benefits Research Institute (1999) EBRI Health Benefits Databook, 1st Edition, Washington, D.C., 1999.

Long SH, Marquis MS, Rodgers J. State Health Expenditure Accounts: Purposes, Priorities and Procedures, Health Care Financing Review 1999 Winter 21;2:25-45.

Long SH, Marquis MS The Uninsured Access Gap and the Cost of Universal Coverage Health Affairs 1994 Spring: 211-20.

MEDPAC Report to Congress: Medicare Payment Policy (2000) Out of pocket spending on health care by category for all beneficiaries, 1992-1996, adjusted for inflation. March. 41

Minnesota Department of Health: Health Economics Program. Mandated Health Insurance Benefits and Health Care Costs. 2001 Apr.

Minnesota Department of Health: Health Economics Program. Drivers of Health Care Spending Growth in Minnesota. 2001 Feb.

Minnesota Department of Health: Health Economics Program. Health Insurance Premium Trends. 1999 Jul.

Report of the Year 2000 Blue Ribbon Commission on Health Care: The Cost of Health Care in Maine, Executive Summary.

Young, R.A. (1995) Third party funding of health care services for the uninsured of Tarrant County, Texas Medicine 8:50-4.

      Previous Section Previous Section         Contents         Next Section Next Section

The information on this page is archived and provided for reference purposes only.

AHRQ Advancing Excellence in Health Care