California Joins Growing Number of States Committing to Improve Health Care Affordability

Focus Area:
Sustainable Health Care Costs
Peterson-Milbank Program for Sustainable Health Care Costs

On June 30, California passed a law creating an Office of Health Care Affordability responsible for collecting data, analyzing drivers of health costs, developing policies to address rising costs, and establishing and enforcing annual statewide cost growth targets. With Governor Newsom’s signature, the Golden State joins Delaware, Rhode Island, and Connecticut, which adopted new statutory and funding support for their existing cost growth target programs during their 2022 legislative sessions, and five other states — Massachusetts, New Jersey, Nevada, Oregon, and Washington — that are implementing health care cost growth targets.

By creating much-need transparency around health care spending, California is taking an important step toward ensuring all Californians can afford the health care they need — instead of allowing more and more costs to fall on the state’s 29 million residents.

The new office will be guided by an appointed Health Care Affordability Board, with input from an advisory committee. California’s board members cannot be representatives of health insurers or providers subject to the growth target. Furthermore, the office has the authority to require performance improvement plans and to impose fines on health insurers and providers that fail to meet the target — a critical step toward a more transparent, affordable, and sustainable health care system.

In addition to setting the health care cost growth target by 2025, the office and board will set targets designed to increase primary care and behavioral health investment, promote greater use of alternative payment models for health care, and help strengthen California’s health care workforce.

Governors and legislators are taking this action to address the burden of rising health insurance premiums, cost sharing, and medical debt on households. As of 2020, more than 8% of Californians reported that they skipped care because of costs. Although every sector of the economy is currently facing increased costs due to inflation, these health care costs trends existed before and will persist after today’s economic trends.

These pioneering states are following a model first developed by Massachusetts to gather, analyze, and publish data on health care cost growth trends across all health insurance types and health providers. Without such an overview of health care spending, it is difficult to identify where the fastest cost growth is occurring, and which stakeholders are most affected by it. State health care cost growth targets, accompanied by in-depth analysis of health care cost factors, offer insight into health care spending that can lead to policy or market-based actions designed to make health care more affordable.

Six of these states’ cost growth target programs are supported with technical assistance through the Peterson-Milbank Program for Sustainable Health Care Costs. The program also facilitates inter-state learning on governance, reporting, communications, and more.

“Bottom line, health care is too expensive, its growth rate is unsustainable, and we have to do something,” said California Assemblymember and sponsor Jim Wood in a press release. “This is my most important work to date. The creation of OHCA has been a true partnership with Governor Newsom and his administration, my colleagues in the Assembly and Senate as well as a collaboration of many stakeholders including the health care entities that will be required to provide data as well as the people who are paying for and receiving care.”

Adoption of these measures in California and a growing number of other states sends a clear signal that many policymakers believe state leadership is necessary to make health care affordable and that doing so will require knowledge and will — not piecemeal solutions, shifting the burden to other parties, or wishful thinking. More and more state legislators want to put the complicated world of health care spending under a microscope to gain a shared understanding of the sources of escalating health care costs as well as the solutions.