Hospital Payment Caps Could Save State Employee Health Plans Millions While Keeping Hospital Operating Margins Healthy

State employee health plans are consuming an ever-larger portion of state budgets because of rising health insurance premiums. Often the largest purchaser of commercial health insurance in their state, state employee health plans possess a unique opportunity to implement cost containment strategies. This study estimated potential savings from hospital payment caps among state employee health plans and the impact on commercial hospital operating margins. Using data from forty-six states and Washington, D.C., we estimated that payment caps set at 200 percent of Medicare rates would have saved state employee plans an average of $150.2 million per state in 2022 (0.35 percent of state expenditures), leading to aggregate savings of $7.1 billion nationally. Commercial hospital operating margins would remain healthy under this cap, falling from an average of 42.7 percent to 41.7 percent. Payment caps are a promising purchasing strategy for states to generate substantial reductions in health care spending.