SACRAMENTO, Calif. — California doctors, hospitals and health insurance companies will be limited to 3% annual price increases starting in 2029, under a new rule approved Wednesday by state regulators as part of the latest attempt to rein in the ever-increasing costs of medical care in the United States.
The money Californians spend on health care has increased about 5.4 percent each year over the past two decades. Democrats who control California’s government say that’s too much, especially since most people’s incomes have only increased 3 percent a year during the same period.
The 3 percent cap, approved Wednesday by the Health Care Affordability Board, would be phased in over five years, starting with 3.5 percent in 2025. Board members said the cap would likely not be implemented until after end of the decade.
A new state agency, the Office of Health Care Affordability, will gather data to enforce the rule. Service providers who do not comply are subject to fines.
“We want to be aggressive,” said board chairman Dr. Mark Ghaly, while acknowledging that the cap “really translates into a major challenge” for the health care industry.
The vote is only the beginning of the process. Regulators will later decide how the cost target will be applied to the state’s different health care sectors. And enforcement will be gradual, with several chances for suppliers to avoid fines.
California’s health care industry has supported the idea of a statewide cost target, but has argued that a 3% cap is too low and will be nearly impossible to achieve. In December, the Center for Medicare and Medicaid Services said the cost of practicing medicine in the United States would increase 4.6% this year alone.
The council based the goal on the average annual change in median household income in California between 2002 and 2022, which was 3%. Dr. Tanya W. Spirtos, president of the California Medical Association that represents doctors, wrote a letter to the board emphasizing that the figure is “artificially low” because it includes the years of the Great Recession, when Income fell dramatically. She said a better indicator would be to look at the past 10 years, when median household income increased by an average of 4.1% per year.
Hospitals say much of what they charge is beyond their control. More than half of hospital spending goes on worker salaries, and many of these are set through collective bargaining agreements with unions. Additionally, a new state law taking effect this year will gradually increase the minimum wage for health care workers to $25 an hour.
More than half of California’s 425 hospitals are losing money and many rural facilities are at risk of closing, prompting the state Legislature to approve an emergency loan program last year.
Carmela Coyle, president and CEO of the California Hospital Association, said that when it comes to hospital finances, “the fat is already gone.” She said hospitals routinely perform complex, life-saving procedures, including quadruple bypass surgeries.
“We are wrong if we think this is cheap or can be done cheaply,” she said.
Health care spending in the United States has more than doubled over the past two decades, reaching $4.5 trillion in 2022, according to the Centers for Medicare. & Medicaid Services. Eight other states have set statewide cost targets for their health care sectors. What makes California’s cap different, experts say, is both the staggering size of the state’s health care sector and its plan to enforce the limit through fines.
Health care providers could exceed the cap if they have a good reason, including giving raises to health care workers. These questions remain to be resolved and will be considered on a case-by-case basis.
California has significantly expanded access to health insurance in recent years, including using taxpayer dollars to provide deep discounts to some middle-income earners and providing free coverage to all low-income adults, regardless of their immigration status. State lawmakers have resisted more ambitious measures, including a single-payer system.
“Making quality health care affordable is a top priority for our administration,” Democratic Gov. Gavin Newsom said in a statement released by his office. “This action is a crucial first step forward in our efforts to control skyrocketing health care costs and make health care more affordable.
Wednesday’s vote was the state’s first foray into tackling California’s health care costs, which reached $405 billion in 2020, or $10,299 per person — the 22nd highest in the nation. Yet costs have increased significantly for people who receive health insurance through their jobs. In 2006, only 6 percent of California workers had deductibles of $1,000 or more. In 2020, it was 54%.
“We currently have a system where incentives are not aimed at getting the most cost-effective service,” said Anthony Wright, executive director of Health Access California, who advised the board on the new cost limit. “This is an attempt to introduce that incentive into a market that is more about getting bigger than getting better.”
ABC News
