As health care gets more expensive, California looks to limit cost increases

Editor's note: The audio story above aired on CapRadio April 23, before the Office of Health Care Affordability's vote to approve the new spending target. The text story below has been updated and has the most up-to-date information.

Prices for health care — everything from monthly insurance premiums, doctor’s visits and stitches — have gone up over the years, becoming a bigger cost burden for Californians. That leads many to postpone or skip needed care. 

To rein in costs, California formed the Office of Health Care Affordability in 2022, and on Wednesday the board voted to phase-in a statewide spending target. The target will limit spending growth by payers — including individuals, employers, and governments —  to 3.5% next year, steadily decreasing to 3% by 2029.

The plan was supported by consumer advocates and denounced by industry groups, who stated it was unrealistic and could lead to cuts to patient care. 

“This is a crucial step toward reining in health care costs over time and encouraging the health care industry to engage in much-needed change,” said California Health and Human Services Agency Secretary Dr. Mark Ghaly, who chairs the Health Care Affordability Board.

Over the past 20 years, health care spending has grown an average of 5.4% every year. Meanwhile, median household income has grown an average of 3% a year.

“When I started 10, maybe 11, 12 years ago in Monterey, I paid $67 a month for me and my child,” Jen Villa, a high school teacher in Monterey, shared during a board meeting of the Office of Health Care Affordability in March. “Fast forward until now, I pay $508.” 

At the meeting, Villa shared that she has diverticulitis, a condition where parts of the digestive tract become inflamed or infected. 

“I don't go to the hospital because I can't afford the copay,” she said. “I don't go to the doctors because I can't afford the medicine. I go to the panadería and asked the guy for not even a pack, just a slip of penicillin for 20 bucks to hold me over until my pain goes away.”

Beginning in 2026, the office plans to enforce the spending cap by progressively holding health care entities accountable. 

“Progressive enforcement approaches include technical assistance, requiring an explanation at public meetings, imposing performance improvement plans, and ultimately, if warranted, assessing financial penalties,” the Department of Health Care Access and Information stated in a press release. 

Laurel Lucia researches health care affordability at the UC Berkeley Labor Center, which advocates for working families. She says an enforceable statewide spending target puts downward pressure on the health care system. 

“This shifts the kind of burden of responsibility more towards health care entities to figure out how to slow that spending growth,” she said.

Lucia said health care could use more incentives to spend resources effectively.

“There's a lot of waste in our health care system right now and there are opportunities to reduce administrative spending or increase the use of preventive care.” she said.

Anthony Wright with the nonprofit Health Access supported the 3% recommendation.

“From the point of view of many payers and patients in our healthcare system, this is a relatively modest goal. But we have to start somewhere,” he said.

Eight states — including Massachusetts, Washington, and Oregon — have set similar spending targets and seen more moderated growth.

“People might debate whether our speed limit should be 55 or 65, but I think they but I think they recognize that it's important to have a speed limit,” Wright said. 

Carmela Coyle is the CEO of the California Hospital Association, which was opposed to the 3% target. She said inflation is tracking higher than that, at 3.4%. Plus, more people are getting insured, and the state’s population is aging — both factors that will drive up spending. 

“The real question we then need to ask is, what is the impact on a California's ability to access the care they need when they need it, and what's the impact on quality?” she said.

In documents to the board, the CHA has said they’d likely blow past the 3% target and need a longer timeline to lower costs. 

“The office is charged by law to do more than limit spending,” Coyle said in a statement released by CHA after the vote. “It’s imperative that the board analyze the impact of its decision on patients and create a process to reconsider future targets to protect access to equitable, quality care for every Californian.”

Californians may not see lower costs for their health care any time soon, but the office's intention is for spending to not continue to outpace people’s budgets. Ghaly says he hopes the move will result in better health outcomes. 

“The push here is around a high value system, he said. “Not just a cheap, less costly system, but one that gives us a chance to focus on proven strategies to provide lower cost but very important care — like primary care.”

The Office of Health Care Affordability will continue to meet monthly to work on its state-mandated charges which include assessing consolidation in the health care market, and improving workforce stability.