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California’s Cap on Health Care Costs is the Nation’s Strongest
Industry News
Thursday, September 26 2024
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(September 18, 2024) By Kristen Hwang - California’s cap on health care costs is the nation’s strongest and most aggressive. It aims to limit how much consumers pay over time by first constraining how much the health care industry spends. Research suggests up to 30% of health spending is wasted on overtreatment and administrative inefficiencies.

By 2029, California hospitals, doctors and insurers cannot increase spending by more than 3% annually. This means they will need to find ways to cut costs to keep from exceeding the target. If they do exceed it, state regulators with the Office of Health Care Affordability have the authority to levy fines and other penalties “commensurate with the failure of the health care entity to meet the target,” according to state law. The law also has guardrails preventing health care entities from saving money by reducing services.

The cap, which was set in April, is modeled on the work of eight other states, including Massachusetts, that have tried to curtail runaway health spending. California went further by allowing the state to compel public testimony from health care facilities, require performance improvement plans and impose unlimited financial penalties on businesses that exceed the cost cap.

Massachusetts, by contrast, has ordered just one performance improvement plan and it has not levied a fine on any health care provider since it created its own cost control target in 2012. It also has the ability to fine facilities that spend too much, but regulators there say penalties are too small to be meaningful. Health insurance premiums there have climbed 43%, outpacing wage growth over nine years.

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