Anger about the U.S. health system is likely to spill over in the coming months, which may unlock the door for states to tackle a top concern of Americans: high health care costs.
In 2026, the cost of private health insurance premiums will rise dramatically. Preliminary information suggests a 9 percent increase for employer-sponsored health insurance and 18 percent median increase for individually purchased health insurance. This is three to nine times higher than general inflation. The employer insurance cost growth is the highest in fifteen years. At the same time, about 20 million working Americans will lose enhanced premium tax credits for private health insurance marketplace coverage that have been effective and efficient. This loss alone will nearly double out-of-pocket premiums, with an average increase of 93 percent.
It will not get better in 2027 when new barriers to private and Medicaid coverage begin. It is also not an accident: federal rule change uncertainty, limited action on drug costs, legislative actions, and legislative inaction to extend current premium tax credits are largely to blame for private premium increases. So too are organizations charging the highest prices in the world, contributing to six in ten Americans worrying that they cannot afford health care.
Why State Action Is Likely
States will be under enormous pressure to act in the coming month for three reasons. First, while state officials are not primarily responsible, they are often held accountable for health care cost price hikes. Public Law 119-21, formerly called the One Big Beautiful Bill Act (OBBBA), is estimated to lower federal health spending by $1 trillion over the next ten years, mostly by reducing the number of people receiving federally subsidized health coverage as well as shifting program costs to states. Moreover, while the federal government funds 100 percent of the cost of health insurance marketplaces, state governments are under pressure to find ways to mitigate the impending harm.
Second, states will have to act—regardless of the public’s health cost concerns—to implement new OBBBA requirements. Some states must reduce Medicaid state-directed payments and find alternatives to provider taxes to fund Medicaid. Others that run state-based marketplaces must adopt strict new limits on open enrollment, special enrollment periods, and re-enrollment. All states must start to implement work requirements for Medicaid and food assistance in 2026. All states must also fill budget holes that will result from policies like a lower federal matching rate for emergency Medicaid services.
And, third, states must submit a plan and application by November 2025 to qualify for rural health transformation funds included in OBBBA. This five-year, $50 billion program will award states at least $100 million per year starting in 2026. Some claim the intent is to support rural hospitals hit hard by the legislation, but the funds’ uses are flexible with the Trump administration emphasizing system changes.
Why States Are Likely to Tackle Health Care Prices
State governments have fewer options than the federal government to reform health care. For example, states have rarely been permitted to align Medicare policy within their borders with Medicaid and commercial payment policy. Additionally, a 1974 law restricts states’ ability to regulate self-funded health plans.
States’ options were further constrained by the OBBBA. By shifting costs to states, the law limits states’ ability to use revenue to backfill the reduced federal tax credits from its failure to extend current premium tax credits. The law also tightens the budget rules for Medicaid demonstration waivers, for example.
At the same time, state officials can do what federal officials have failed to do in 2025: lower high health care prices. The 119th Congress and Trump administration constrained rather than expanded Medicare drug price negotiations. They have shown more deference to insurance companies than their enrollees, allowing them to offer substandard plans, overcharge in Medicare Advantage, and hide the high premium increases on the horizon.
This confluence of change is happening as Americans are frustrated with health costs. They rank cost as the biggest problem and name greed as preventing them from affording needed health care. This is backed up by facts. In the United States, hospital prices have risen faster than most other prices. A recent study found that commercial insurance payments for hospital inpatient and outpatient services were 246 percent of Medicare fees, compared to 124 percent for professional services. This is not simply because of rising operating costs: high hospital prices are correlated with high profits. These profits are not shared across the health care workforce: even in nonprofit hospitals, the wage gap between chief executive officers and other staff (including nurses and other frontline workers) have widened. About four in ten Americans have some form of medical debt.
Why Action to Set Hospital System and Insurer Price Ceilings Is Likely
States have the authority and options to lower certain health system and insurer prices. Specifically, they can legislatively cap the level and growth rate of what providers—in particular, hospital systems—charge for health care. Setting maximums as a multiple of Medicare rates (for example, no more than 250 percent of Medicare’s payment rate) allows for competition below these price ceilings while reining in excessive prices not needed to cover the cost of patient care. This policy, sometimes called reference pricing, has been done directly in some states, such as Maryland and Washington. It can also be done indirectly through public health insurance options. Colorado, for example, curbed indirectly excessive health system prices through premium growth caps, with a fallback authority to regulate such prices as needed. Price ceilings were recently embraced by Republicans in Congress whose OBBBA capped state-directed Medicaid payments at 100 to 110 percent of Medicare rates. And capping the price of insulin has bipartisan federal and state support. This type of policy does not require significant resources to implement and can be enforced through existing mechanisms (for example, state licensing agencies).
Hospitals services comprise both a large share and a rapidly rising component of national health expenditures. States could apply price ceilings to specific hospital system services (for example, imaging), all services, and/or particular market segments. Specifically, three different market segments could offer different types of relief. The narrowest approach, used in nine states, would apply price ceilings for hospital system services only for the state employee health plan. The cost savings from this approach would accrue to state budgets (as well as state employees) and could help fill Medicaid or budget gaps created by the OBBBA.
A broader approach would be to limit the hospital system prices charged to state-regulated plans that individuals and small businesses buy. These types of plans are the ones experiencing the largest premium increases. This approach could lower such increases, especially among health plans with relatively low enrollment and limited negotiating power with large and for-profit health systems. Coupled with state innovation waivers, depending on their design, this state-regulated plan approach could also allow states to reinvest reduced federal premium tax credit costs.
The least targeted but most widely beneficial option for states would be to limit the amounts charged by hospital systems to all commercial payers, including self-funded employer plans (for example, Vermont’s Green Mountain Care Board). Currently, self-funded plans pay higher prices than fully regulated plans. Such savings could be used for premium reductions or leveraged for lower cost sharing or additional restrictions on prior authorization.
Regardless of its scope, such a proposal could be tailored to protect services and hospitals that are important for accessible, high-quality care. Several states set price ceilings at higher rates for rural than urban hospitals. States can set floors as well as ceilings to promote access to key services like primary care.
And, starting in 2026, states can use rural health transformation funds to complement legislation that focuses on prices. Such funds can be used for purposes beyond those typically supported by insurance reimbursement. For example, states could fund regional service plans, transportation, and bricks and mortar infrastructure to address concerns about hospital closures. They can develop innovative payment systems to keep the low-volume but high-value services open. The application for the funds requires a comprehensive plan. Alongside cost pressures, the rural hospital transformation fund could catalyze comprehensive state action.
Conclusion
At a time of escalating health care prices, people should not expect much help from Washington, D.C. This president did not run to lower health care costs. The 119th Congress could have tackled health prices in its major budget reconciliation bill, but did not. While rumors persist for bipartisan legislation on health in the fall of 2025, this Congress has been less productive than past ones.
This leaves states to heed the increasingly urgent call for health cost relief. States are on the front lines of the most immediate impact of the law and rule changes: premiums are spiking. State funding is limited, prices are high, options are available, and funds for rural health transformation are on the way. While predicting outcomes is difficult, the opportunity and imperative for state health reform in 2026 is strong.
Tags: Health care Marketplace, health care costs, medicare, inflation
The Chance for States To Tackle High Health Prices
Anger about the U.S. health system is likely to spill over in the coming months, which may unlock the door for states to tackle a top concern of Americans: high health care costs.
In 2026, the cost of private health insurance premiums will rise dramatically. Preliminary information suggests a 9 percent increase for employer-sponsored health insurance and 18 percent median increase for individually purchased health insurance. This is three to nine times higher than general inflation. The employer insurance cost growth is the highest in fifteen years. At the same time, about 20 million working Americans will lose enhanced premium tax credits for private health insurance marketplace coverage that have been effective and efficient. This loss alone will nearly double out-of-pocket premiums, with an average increase of 93 percent.
It will not get better in 2027 when new barriers to private and Medicaid coverage begin. It is also not an accident: federal rule change uncertainty, limited action on drug costs, legislative actions, and legislative inaction to extend current premium tax credits are largely to blame for private premium increases. So too are organizations charging the highest prices in the world, contributing to six in ten Americans worrying that they cannot afford health care.
Why State Action Is Likely
States will be under enormous pressure to act in the coming month for three reasons. First, while state officials are not primarily responsible, they are often held accountable for health care cost price hikes. Public Law 119-21, formerly called the One Big Beautiful Bill Act (OBBBA), is estimated to lower federal health spending by $1 trillion over the next ten years, mostly by reducing the number of people receiving federally subsidized health coverage as well as shifting program costs to states. Moreover, while the federal government funds 100 percent of the cost of health insurance marketplaces, state governments are under pressure to find ways to mitigate the impending harm.
Second, states will have to act—regardless of the public’s health cost concerns—to implement new OBBBA requirements. Some states must reduce Medicaid state-directed payments and find alternatives to provider taxes to fund Medicaid. Others that run state-based marketplaces must adopt strict new limits on open enrollment, special enrollment periods, and re-enrollment. All states must start to implement work requirements for Medicaid and food assistance in 2026. All states must also fill budget holes that will result from policies like a lower federal matching rate for emergency Medicaid services.
And, third, states must submit a plan and application by November 2025 to qualify for rural health transformation funds included in OBBBA. This five-year, $50 billion program will award states at least $100 million per year starting in 2026. Some claim the intent is to support rural hospitals hit hard by the legislation, but the funds’ uses are flexible with the Trump administration emphasizing system changes.
Why States Are Likely to Tackle Health Care Prices
State governments have fewer options than the federal government to reform health care. For example, states have rarely been permitted to align Medicare policy within their borders with Medicaid and commercial payment policy. Additionally, a 1974 law restricts states’ ability to regulate self-funded health plans.
States’ options were further constrained by the OBBBA. By shifting costs to states, the law limits states’ ability to use revenue to backfill the reduced federal tax credits from its failure to extend current premium tax credits. The law also tightens the budget rules for Medicaid demonstration waivers, for example.
At the same time, state officials can do what federal officials have failed to do in 2025: lower high health care prices. The 119th Congress and Trump administration constrained rather than expanded Medicare drug price negotiations. They have shown more deference to insurance companies than their enrollees, allowing them to offer substandard plans, overcharge in Medicare Advantage, and hide the high premium increases on the horizon.
This confluence of change is happening as Americans are frustrated with health costs. They rank cost as the biggest problem and name greed as preventing them from affording needed health care. This is backed up by facts. In the United States, hospital prices have risen faster than most other prices. A recent study found that commercial insurance payments for hospital inpatient and outpatient services were 246 percent of Medicare fees, compared to 124 percent for professional services. This is not simply because of rising operating costs: high hospital prices are correlated with high profits. These profits are not shared across the health care workforce: even in nonprofit hospitals, the wage gap between chief executive officers and other staff (including nurses and other frontline workers) have widened. About four in ten Americans have some form of medical debt.
Why Action to Set Hospital System and Insurer Price Ceilings Is Likely
States have the authority and options to lower certain health system and insurer prices. Specifically, they can legislatively cap the level and growth rate of what providers—in particular, hospital systems—charge for health care. Setting maximums as a multiple of Medicare rates (for example, no more than 250 percent of Medicare’s payment rate) allows for competition below these price ceilings while reining in excessive prices not needed to cover the cost of patient care. This policy, sometimes called reference pricing, has been done directly in some states, such as Maryland and Washington. It can also be done indirectly through public health insurance options. Colorado, for example, curbed indirectly excessive health system prices through premium growth caps, with a fallback authority to regulate such prices as needed. Price ceilings were recently embraced by Republicans in Congress whose OBBBA capped state-directed Medicaid payments at 100 to 110 percent of Medicare rates. And capping the price of insulin has bipartisan federal and state support. This type of policy does not require significant resources to implement and can be enforced through existing mechanisms (for example, state licensing agencies).
Hospitals services comprise both a large share and a rapidly rising component of national health expenditures. States could apply price ceilings to specific hospital system services (for example, imaging), all services, and/or particular market segments. Specifically, three different market segments could offer different types of relief. The narrowest approach, used in nine states, would apply price ceilings for hospital system services only for the state employee health plan. The cost savings from this approach would accrue to state budgets (as well as state employees) and could help fill Medicaid or budget gaps created by the OBBBA.
A broader approach would be to limit the hospital system prices charged to state-regulated plans that individuals and small businesses buy. These types of plans are the ones experiencing the largest premium increases. This approach could lower such increases, especially among health plans with relatively low enrollment and limited negotiating power with large and for-profit health systems. Coupled with state innovation waivers, depending on their design, this state-regulated plan approach could also allow states to reinvest reduced federal premium tax credit costs.
The least targeted but most widely beneficial option for states would be to limit the amounts charged by hospital systems to all commercial payers, including self-funded employer plans (for example, Vermont’s Green Mountain Care Board). Currently, self-funded plans pay higher prices than fully regulated plans. Such savings could be used for premium reductions or leveraged for lower cost sharing or additional restrictions on prior authorization.
Regardless of its scope, such a proposal could be tailored to protect services and hospitals that are important for accessible, high-quality care. Several states set price ceilings at higher rates for rural than urban hospitals. States can set floors as well as ceilings to promote access to key services like primary care.
And, starting in 2026, states can use rural health transformation funds to complement legislation that focuses on prices. Such funds can be used for purposes beyond those typically supported by insurance reimbursement. For example, states could fund regional service plans, transportation, and bricks and mortar infrastructure to address concerns about hospital closures. They can develop innovative payment systems to keep the low-volume but high-value services open. The application for the funds requires a comprehensive plan. Alongside cost pressures, the rural hospital transformation fund could catalyze comprehensive state action.
Conclusion
At a time of escalating health care prices, people should not expect much help from Washington, D.C. This president did not run to lower health care costs. The 119th Congress could have tackled health prices in its major budget reconciliation bill, but did not. While rumors persist for bipartisan legislation on health in the fall of 2025, this Congress has been less productive than past ones.
This leaves states to heed the increasingly urgent call for health cost relief. States are on the front lines of the most immediate impact of the law and rule changes: premiums are spiking. State funding is limited, prices are high, options are available, and funds for rural health transformation are on the way. While predicting outcomes is difficult, the opportunity and imperative for state health reform in 2026 is strong.
Tags: Health care Marketplace, health care costs, medicare, inflation