New California Rule to Hold Down Health Care Costs
Industry News
Thursday, May 09 2024
(By Kristen Hwang) You won’t notice it right away, but a new California state agency took a major step this week toward reining in the seemingly uncontrollable costs of health care. The Office of Health Care Affordability approved the state’s first cap on health industry spending increases, limiting growth to 3% by 2029.
This means that hospitals, doctors and health insurers will need to find ways to cut costs to prevent annual per capita spending from exceeding the target. Between 2015 and 2020, per capita health spending in California grew more than 5% each year, according to federal data. A board appointed by Gov. Gavin Newsom and the Legislature on Wednesday approved the new regulations in a 6-1 vote.
Health and Human Secretary Dr. Mark Ghaly, who chairs the board, said the regulations recognize that Californians are struggling every day to pay for health care and the state has a role in helping them. “We have a place in making sure it becomes more affordable,” Ghaly said. Hospitals, doctors and insurers battled over the regulations for months, arguing that rising inflation and labor costs would make the target impossible to achieve. An earlier proposal would have moved more aggressively to cap costs.
The final version gives the industry time to rein in spending. Ghaly said he is confident health care industry leaders will be able to find solutions to meet the new target. “When that happens, it’s going to be great for Californians.”
How does it work?
Increased health spending most often translates to higher out-of-pocket costs for consumers in the form of premiums, deductibles and copays. The annual spending benchmark would require health care providers to limit spending growth to 3.5% next year, decreasing to 3% by 2029. Providers — including hospitals, doctors groups and health insurers — will have to submit spending data to the state to demonstrate that they are complying with the cap.
The affordability office also has authority to enforce penalties, including performance improvement plans and fines, for organizations that exceed the benchmark. It will not enforce penalties until 2029. Assemblymember Jim Wood, a Democrat from Ukiah, at the meeting urged the board to send a clear message to Californians that the state is taking affordability seriously. Wood spearheaded the legislation that created the office in 2022. “It is not an exaggeration to say that people are deciding whether to get food on the table or get their medicines,” Wood said. “This is not an exercise. This is an effort to impact the real life experiences of people in California.”
To Read More, Click Here
This means that hospitals, doctors and health insurers will need to find ways to cut costs to prevent annual per capita spending from exceeding the target. Between 2015 and 2020, per capita health spending in California grew more than 5% each year, according to federal data. A board appointed by Gov. Gavin Newsom and the Legislature on Wednesday approved the new regulations in a 6-1 vote.
Health and Human Secretary Dr. Mark Ghaly, who chairs the board, said the regulations recognize that Californians are struggling every day to pay for health care and the state has a role in helping them. “We have a place in making sure it becomes more affordable,” Ghaly said. Hospitals, doctors and insurers battled over the regulations for months, arguing that rising inflation and labor costs would make the target impossible to achieve. An earlier proposal would have moved more aggressively to cap costs.
The final version gives the industry time to rein in spending. Ghaly said he is confident health care industry leaders will be able to find solutions to meet the new target. “When that happens, it’s going to be great for Californians.”
How does it work?
Increased health spending most often translates to higher out-of-pocket costs for consumers in the form of premiums, deductibles and copays. The annual spending benchmark would require health care providers to limit spending growth to 3.5% next year, decreasing to 3% by 2029. Providers — including hospitals, doctors groups and health insurers — will have to submit spending data to the state to demonstrate that they are complying with the cap.
The affordability office also has authority to enforce penalties, including performance improvement plans and fines, for organizations that exceed the benchmark. It will not enforce penalties until 2029. Assemblymember Jim Wood, a Democrat from Ukiah, at the meeting urged the board to send a clear message to Californians that the state is taking affordability seriously. Wood spearheaded the legislation that created the office in 2022. “It is not an exaggeration to say that people are deciding whether to get food on the table or get their medicines,” Wood said. “This is not an exercise. This is an effort to impact the real life experiences of people in California.”
To Read More, Click Here