Q: How does OHCA promote affordable, high-quality health care for Californians? The Office of Health Care Affordability: Sets a cost growth target to slow the growth of health care costs from insurers, health plans, hospitals, large physician organizations, and other health care entities to make care more affordable for Californians over time. Prioritizes preventative care […] The post The Office of Health Care Affordability – FAQ appeared first on Health Access.
Q: How does OHCA promote affordable, high-quality health care for Californians?
The Office of Health Care Affordability:
- Sets a cost growth target to slow the growth of health care costs from insurers, health plans, hospitals, large physician organizations, and other health care entities to make care more affordable for Californians over time.
- Prioritizes preventative care by setting a benchmark for primary care, measuring primary care spending to improve preventive care, and working toward goals for behavioral health in community settings.
- Monitors existing measures of equity and quality in our care, as well as
workforce stability. - Works toward the goal of lowering costs while also improving health outcomes and promoting health equity.
Q: What was the Health Care Affordability Board’s process to determine what the cost growth target included?
The process involved extensive academic research, broad stakeholder engagement, and more than a year of public meetings about the cost growth target. This followed years of legislative debate about how to control health care costs and design the target provisions in the law. OHCA’s deliberation over the cost growth target included:
- 13 public OHCA board meetings.
- Extensive academic research
- Health Care Advisory Committee input which includes consumers, hospitals, providers and health plans.
- Hundreds of public comments, the majority in support of the approach the Board adopted.
Q: What is the cost growth target, and what factors is it based on?
Cost growth targets are annual benchmarks, established by OHCA, that determine the rate at which a health care entity’s spending may increase each year. The Health Care Affordability Board approved a 3.5% cost growth target starting in 2025 (a non-enforcement year). This rate is based on median income growth in the last 20 years so that health care spending can’t grow faster than consumers’ wages. According to the UC Berkeley Labor Center, if this cost growth target had been implemented 3 years ago, cumulative average family premiums savings would have been more than $5,800 over three years. Cost growth targets—with the proper enforcement mechanisms in place—can slow rising premiums, deductibles, copays and coinsurance, making health care more affordable for consumers.
Here is the phased timeline for the cost growth target:
- 2025: 3.5% (data collection only, non-enforcement year)
- 2026: 3.5% (first enforceable year, progressive enforcement for this year starts as early as 2027 for health plans and 2028 for hospitals)
- 2027: 3.2%
- 2028: 3.2%
- 2029: 3.0%
Q: Why is the cost growth target not based on the historic cost of care, inflation, or GDP?
The goal of OHCA is to reduce health cost growth, which for many years has outpaced the growth of the economy, inflation, and wages, contributing to worsening affordability. If the cost growth target was based on the historic cost of care, OHCA would not improve affordability; it would institutionalize unsustainable cost growth. Historically, health care spending has grown 6-7% annually while Californian’s wages were growing at only half of that rate. The cost growth target does not require the health care system to cut spending; it requires it to slow how much its spending increases annually, so more consumers can afford the care they need.
Q: Who and what does the cost growth target apply to?
Health insurers, large physician organizations, and hospitals will have their health care cost growth measured against the target only for individuals and patients for which they are accountable.
For example:
- Health insurers will be held accountable for the total per person health care spending for their enrolled members, which includes payments to doctors, hospitals and drug companies as well as administrative costs and profits.
- Hospitals and large physician organizations (with more than 25 physicians) will be held accountable for the total cost of care they directly provide to patients, which includes administrative costs and profits of hospitals and large doctor groups.
Performance will be measured separately for 1) Medicare, 2) Medi-Cal, and 3) commercial insurance sold to individuals and employers for their workers and dependents. Health care cost growth performance is adjusted to account for differences in and changes to the age and sex for attributed individuals, ensuring no entity is getting penalized for a change in the population they serve, for example a growing aging population.
Q: Will the cost growth target reduce access and quality of care?
The cost growth target will not reduce access to and quality of care. In fact, it’s the opposite: slowing health care costs means consumers can better afford to get the care they need when they need it, rather than skipping and delaying care. Making care more affordable will increase access to care. Today, high deductibles, copays and coinsurance prevent consumers from getting the care they need.
Slowing cost growth will not decrease quality. Other states with long-standing cost growth programs, including Massachusetts, Rhode Island, and Oregon, have not experienced decreased quality of care, worse outcomes or reduced equity. In Rhode Island, some quality measures have even improved. Safeguards for maintaining quality and equity are built into the cost growth process through monitoring existing state measures because improving quality and equity is part of
OHCA’s mission.
Q: Will growth targets force hospitals to cut wages or staff?
OHCA is required to monitor workforce stability and training needs, to ensure that high quality health care jobs are available. The law also includes a first-in-the-nation provision requiring an adjustment for frontline organized labor costs, and labor costs may be an enforcement consideration for health care entities without a collective bargaining agreement. Health care worker labor unions support OHCA.
Q: Why did OHCA target seven hospitals for lower cost growth targets and designate them as high-cost hospitals?
A: OHCA identified seven (7) hospitals (out of over 400 hospitals in the state) to meet a more aggressive target. These high-cost hospitals were found by OHCA staff and independent researchers to have:
- Nearly double the commercial prices compared to other hospitals (351% versus 198% Medicare-to-Commercial payment ratio). Medicare already accounts for cost-of-living in its provider payments, so providers in areas with a higher cost of living are already getting paid more by Medicare and then are still charging nearly 4 times that. This measure included both inpatient and outpatient care.
- Spending levels so high that even when holding them to the lower target, it will still take 20 years for these entities to align their spending with other hospitals at the rate of the statewide target. i
- Higher than average prices for at least three out of five years.
High-cost hospitals have a direct impact on consumers, contributing to higher premiums and increased out-of-pocket costs across the state. The targets for high-cost hospitals were set by the OHCA Board at half the rate of the statewide target (1.8% in 2026, 1.7% in 2027 and 2028, and 1.6% in 2029) to support greater long-term cost convergence and prevent high-cost facilities—which have the highest prices and more resources to begin with—from continuing to outpace other hospitals’ prices and overcharge consumers.
Q: How will health care entities be held accountable to the spending target?
A: Starting as early as 2027 for health plans or 2028 for hospitals spending in 2026. OHCA is still determining the enforcement timeline for large physician organizations. The accountability process is as follows:
- Determine if an entity exceeds the target;
- Provide public notice the entity has exceeded the target;
- Provide the health care organization opportunity to provide additional information about why the target was exceeded.
- May Implement enforcement actions including:
1.1 Offer technical assistance;
1.2 Require public testimony from the insurer, hospital or large physician organization that exceeded the target;
1.3 Approve and monitor performance improvement plans (PIPs) to bring the entity back into compliance with the target; and
1.4 Assess administrative penalties if the entity fails to comply with the “performance improvement plan” and the target continues to be exceeded.
Q: Will OHCA offer waivers for exemption from the cost growth target?
A: At this time, OHCA has decided not to implement a broad waiver of enforcement for entities that go over the cost growth target. There is concern that offering a broad waiver would undermine enforcement of the target and the unique circumstances of each entity’s ability to meet it. The Director of the Department of Health Care Access and Information can consider on a case-by-case basis which entities will move forward in the enforcement process based on enforcement considerations. Once OHCA identifies which entities have failed to comply with the target, they will assess case by case factors, such as population characteristics, investment in primary care and impact on affordability. If OHCA decides not to move forward with enforcement based on those factors, they could stop there without proceeding to a performance improvement plan and penalty phase. This approach considers the unique circumstances each health care organization is in and how factors such as, but not limited to, H.R. 1 will impact different entities differently.
Q: How will hospitals slow spending while maintaining quality, access, and equity?
A: Hospitals can invest in activities that keep people healthy and out of the hospital, which is cheaper and better for patients. Specific practices could include:
- Shifting resources toward primary care and prevention services, early detection, behavioral health care, and chronic disease management.
- Modernizing administrative functions, such as improving data collection and streamlining billing, to free up resources that can be reinvested in preventive and coordinated care.
OHCA is intended to be transformative: it has already set goals for prevention, primary care, and equity and is working on behavioral health goals. Other countries invest more in primary care and behavioral health, and OHCA is shifting California toward this approach to improve the health of our state and all who reside in it.
Q: Will OHCA adjust targets in response to H.R.1?
A: OHCA is not adjusting the targets specifically in response to H.R.1 because OHCA’s cost growth target enforcement process is already required to consider the financial status of the hospital. Because millions of Californians are becoming uninsured, there will be less Medi-Cal reimbursement overall, due to the decreased number of people getting the care they need. As a result, hospitals will be less likely to exceed the cost growth target for Medi-Cal spending.
Hospitals are using H.R. 1 as an excuse to justify hiking up prices on consumers with commercial insurance and are asking for a higher commercial cost growth target. Research shows that underpayment or loss of payment from Medi-Cal and Medicare does not explain hospitals’ high prices, market power does. If a hospital does increase prices because of H.R. 1, they should only do so to spend on increasing charity care and discounted care to help patients, not to increase their profits, and this could be considered in target enforcement if the hospital can document increased spending on charity care. Each year, after a required period of public input, the cost growth target can be adjusted based on changing factors.
Q: Will cost growth targets lead to further concerns for financially distressed or rural hospitals?
A: OHCA is part of HCAI, which manages the Distressed Hospital Loan program and collects financial data about hospitals, so is very aware of financial status of hospitals. The OHCA law requires that enforcement consider the financial capacity of the hospital, health plan, insurer or physician organization, including the larger system if it is part of one as well as reserves and other measures. Thus, OHCA will consider if increased spending is needed to maintain access to care in the community.
Q: How will OHCA’s cost growth target impact Madera Community Hospital?
A: Madera is different than other hospitals that are financially struggling because it closed and will be reopening—so it makes sense it would increase spending significantly this year. Health Access recommends OHCA consider a waiver of enforcement for the first few years after a hospital re-opens to maintain access to care in the area.
Q: How does OHCA’s enforcement process account for factors outside of an entity’s control?
A: The Board is developing “enforcement considerations” before reporting on which entities exceed the target. Examples of factors outside an entity’s control include changes in state or federal law, population mix, high-cost drugs, inflation, labor cost pressures, federal policy changes such as Medicaid cuts, and catastrophic events.
Endnotes
- Health Care Affordability Board Meeting. (2025, April 22).
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