The Escalating Cost of Care: A California Crisis

For decades, California has expanded health insurance coverage, yet the benefits have been overshadowed by relentlessly rising costs. Nearly six in ten Californians (59%) reported postponing or skipping medical care in the past year due to financial constraints, and four in ten are burdened by medical debt.ⁱ This financial strain isn’t distributed equally; a recent survey revealed that 19% of Latino Californians spend over 25% of their monthly budget on healthcare, compared to just 6% of White respondents.ⁱⁱⁱ

The disparity highlights a troubling trend: healthcare costs are outpacing wage growth. Over the last two decades, median wages have increased by an average of 3%, while workers’ contributions to health insurance premiums have surged by 6.8%.^iv This widening gap is contributing to increased earning inequality and forcing difficult choices for families across the state.

Where Do Your Healthcare Dollars Go?

Breakdown of Average Premium Spending ($10,000)

Contrary to popular belief, the primary drivers of rising premiums aren’t insurance companies themselves. While insurers account for roughly 20% of the premium dollar for overhead and profits (15% for large employer plans)^v, the vast majority – 80% to 85% – goes directly to hospitals, physicians, and prescription drugs. This means escalating prices within these sectors are the key culprits behind higher premiums, deductibles, and copays.

Research indicates that much of this spending doesn’t translate to improved quality of care. A significant portion – estimated at 25% of California’s hospital and physician spending ($36.6 billion to $45.8 billion) – could be eliminated without negatively impacting patient outcomes.^vi The root causes include administrative inefficiencies, excessive profits, lack of competition, and insufficient investment in preventative care and primary care services.^vii

Introducing the Office of Health Care Affordability (OHCA)

The OHCA represents a collaborative effort by consumers, health equity advocates, unions, businesses, and even some health plans to address the affordability crisis head-on. Established in the 2022 state budget after five years of advocacy^viii, California joins nine other states with similar cost growth programs, learning from their experiences.

OHCA’s core mission is to transform the healthcare system by slowing cost growth while simultaneously improving quality and equity. This is achieved through three key strategies:

• Establishing cost growth targets and implementing enforcement mechanisms for non-compliance.
• Monitoring the impact on quality, equity, and the healthcare workforce, while setting benchmarks for spending on primary care and behavioral health.
• Reviewing healthcare mergers to assess their potential impact on consumers.

The OHCA is governed by the Health Care Affordability Board, appointed by the Governor, Assembly Speaker, and Senate Rules Committee. The Board holds monthly public meetings, providing opportunities for stakeholders to testify in person, online, or in writing. Input is also gathered from advisory committees and workgroups representing diverse perspectives.

The 3% Cost Growth Target: A Turning Point?

To curb rising costs, OHCA established a statewide cost growth target applicable to all healthcare entities, including hospitals, health plans, and large physician organizations. After extensive deliberation – including 27 full-day board meetings and broad stakeholder engagement – the Board approved a phased-in target, starting at 3.5% in 2025 and decreasing to 3.0% in 2028 and 2029.^ix

By linking the target to median income growth, OHCA aims to prevent healthcare spending from outpacing wages. Projections suggest this could save consumers thousands of dollars over the next decade. But will it be enough? And how will these targets be enforced?

Healthcare entities have flexibility in meeting the target. Currently, healthcare spending is increasing at 6%. By limiting hospital and physician group cost growth to 3.5%, OHCA hopes to exert downward pressure on premiums, deductibles, and copays. Strategies for achieving this include streamlining administration through data interoperability, adopting reasonable pricing, and investing in primary care, prevention, and chronic disease management.^x Success stories from states like Massachusetts and Rhode Island demonstrate that such approaches are feasible.^xi

Enforcement will begin in 2028, following a data collection period in 2025. OHCA will work with healthcare entities to develop performance improvement plans, with penalties for those failing to meet the target. Simultaneously, OHCA is prioritizing improvements in quality, equity, and workforce stability, setting benchmarks for primary care and behavioral health investment. Early evidence from other states suggests that cost control measures don’t necessarily compromise quality or access.^xiv

Ultimately, OHCA seeks to realign incentives within the healthcare system, eliminating wasteful spending and prioritizing patient well-being. It’s a response to the growing crisis of affordability that forces Californians to delay care, accumulate debt, and face poorer health outcomes. By slowing cost increases, OHCA aims to ensure that more Californians can access the care they need, when they need it.

Frequently Asked Questions About California’s Healthcare Affordability Efforts

1. What is the primary goal of the Office of Health Care Affordability (OHCA)? OHCA aims to slow the growth of healthcare costs in California while simultaneously improving the quality and equity of care for all residents.
2. How will the 3% cost growth target impact my health insurance premiums? The target is designed to limit the rate at which healthcare costs increase, potentially leading to lower premiums, deductibles, and copays for consumers.
3. What happens if healthcare entities don’t meet the cost growth target? OHCA will engage with entities to develop performance improvement plans, and penalties may be imposed for continued non-compliance.
4. Will slowing healthcare cost growth affect the quality of care I receive? OHCA is actively monitoring quality and equity metrics to ensure that cost control measures do not compromise patient care.
5. What role does primary care play in OHCA’s strategy? OHCA is prioritizing increased investment in primary care, with a goal of directing 15% of total medical spending to primary care by 2034.