California Approves 3 Percent Statewide Healthcare Spending Growth Target

April 29, 2024
Beginning with the 2026 target, the Office of Health Care Affordability can begin taking progressive enforcement action against healthcare entities that exceed the spending growth target

Like several other states, California is getting serious about trying to limit the growth of statewide healthcare spending. The California Department of Health Care Access and Information (HCAI)’s Office of Health Care Affordability’s Board has approved a statewide healthcare spending growth target of 3 percent. 

The spending target will be phased in over time. Initially starting at 3.5 percent for 2025 and 2026, the target will be lowered to 3.2 percent for 2027 and 2028 before ultimately reaching 3 percent for 2029 and beyond.

Other states are working on cost growth targets as well. In July 2022, when California enacted its legislation that involves setting cost targets, it became the 10th state attempting to rein in healthcare costs in this manner. In 2012, Massachusetts became the first state to enact a healthcare cost-growth benchmark, which set a target for annual rates of increase for all healthcare spending tied to growth in the state’s economy. It also established several mechanisms to hold payers and providers accountable for keeping spending growth below the benchmark.

Oregon has created a program that monitors healthcare costs in the state and works with healthcare systems, healthcare plans, consumer advocates and others to try to ensure that growth is in-line with wages, inflation and other economic indicators. The program sets a statewide target for the growth of annual per-person healthcare spending—a goal determined in collaboration with representatives of the healthcare system, that accounts for the impact of COVID-19 and historically high inflation. 


After working on total cost of care models previouslyl, Maryland and Vermont recently applied to participate in the Centers for Medicare and Medicaid Services’ States Advancing All-Payer Health Equity Approaches and Development (AHEAD) model. AHEAD is a state-level total cost of care (TCOC) model that seeks to drive state and regional healthcare transformation and multi-payer alignment. Under a TCOC approach, a participating state uses its authority to assume responsibility for managing healthcare quality and costs across all payers, including Medicare, Medicaid, and private coverage. 

According to the California Health Care Foundation, more than half of Californians report skipping care in the past year due to cost, and within this group nearly half say skipping care made their condition worse. Additionally, more than one in three Californians reported having medical debt in 2023, with more than half of Californians who are Black, speak Spanish, or have low incomes reporting having medical debt. 

Overall, healthcare spending has been increasing rapidly in California: It was up about 30 percent between 2015 and 2020, reaching $10,299 per person and $405 billion overall. 

Speaking during a Nov. 30, 2022, webinar put on by the California Health Care Foundation, HCAI Director Elizabeth Landsberg said, “First, OHCA will analyze data on healthcare cost drivers. Where are the big increases happening? Second, monitoring to track the future growth in healthcare costs. OHCA will set targets defining acceptable growth, and it has the authority to enforce these targets. Finally, assess market consolidation, a key driver of healthcare costs,” she said. “OHCA also is charged with setting and enforcing targets that are designed to increase primary care and behavioral health investment, promote, value-based payment and help ensure that California has the healthcare workforce to meet the needs of 40 million Californians.”

The spending target will apply to healthcare entities, including health plans, provider
organizations (with at least 25 physicians) and hospitals. Beginning with the Calendar Year 2026 target, the Office of Health Care Affordability can begin taking progressive enforcement action against healthcare entities that exceed the spending growth target. Progressive enforcement approaches include technical assistance, requiring an explanation at public meetings, imposing performance improvement plans, and ultimately, if warranted, assessing financial penalties.

“High healthcare costs are forcing many Californians to skip needed medical care and go into debt,” Landsberg said, in a statement. “As California’s spending target phases in, we expect to see consumer premiums, deductibles and copays to become more affordable.”

 

 

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