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Statewide Health Care Spending Target Approval is Key Step Towards Improving Health Care Affordability for Californians

WHAT YOU NEED TO KNOW: In support of California’s efforts to reduce health care costs, the Office of Health Care Affordability’s Board approved a statewide health care spending target of 3 percent to be phased in over time.

SACRAMENTO – Today, the Department of Health Care Access and Information (HCAI) is announcing that the Office of Health Care Affordability’s Board has approved a statewide health care spending target of 3 percent. The spending target will be phased in over time, initially starting at 3.5 percent for 2025 and 2026, the target will be lowered to 3.2 percent for 2027 and 2028 before ultimately reaching 3 percent for 2029 and beyond.

“Making quality health care affordable is a top priority for our administration,” said Governor Newsom. “This action is a crucial first step forward in our efforts to reign in outrageous heath care costs and make health care more affordable.”

“High health care costs are forcing many Californians to skip needed medical care and go into debt,” said HCAI Director Elizabeth Landsberg. “As California’s spending target phases in, we expect to see consumer premiums, deductibles and copays to become more affordable.”

“This is a crucial step toward reining in health care costs over time and encouraging the health care industry to engage in much-needed change,” said California Health and Human Services Agency Secretary Dr. Mark Ghaly, who chairs the Health Care Affordability Board. “California’s spending target is another step in Governor Newsom’s efforts to make health care more affordable, accessible and equitable for all Californians.”

WHY THIS MATTERS: High health care costs affect access and equity. According to the California Health Care Foundation, more than half of Californians report skipping care in the past year due to cost, and within this group nearly half say skipping care made their condition worse. Additionally, more than one in three Californians reported having medical debt in 2023, with more than half of Californians who are Black, speak Spanish, or have low incomes reporting having medical debt. Overall health care spending has been increasing at a rapid clip in California: It was up about 30 percent between 2015 and 2020, reaching $10,299 per person and $405 billion overall. Today’s action will begin the process of reigning in such large increases.

WHAT IT DELIVERS: The spending target is rooted in consumer affordability and based on the average growth rate of median household income from 2002-2022. It is a signal that health care spending should not grow faster than the incomes of California families.

The spending target will apply to health care entities, including health plans, provider organizations (with at least 25 physicians) and hospitals. Beginning with the Calendar Year 2026 target, OHCA can begin taking progressive enforcement action against health care entities that exceed the spending growth target. Progressive enforcement approaches include technical assistance, requiring an explanation at public meetings, imposing performance improvement plans, and ultimately, if warranted, assessing financial penalties.

BIGGER PICTURE: The Office of Health Care Affordability was created by Governor Newsom in 2022. OHCA’s goal is to drive toward a lower cost, high value system. The spending growth targets are paired with approaches to promote system performance including:

  • Increasing primary care and behavioral health spending which has been shown to improve health outcomes and lower overall health spending.
  • Adopting alternative payment models that reward quality.

The spending target is part of broader Governor Newsom efforts to address affordability, expand access and improve quality of health care. California has expanded Medi-Cal for income-eligible undocumented immigrants, starting first with children and now to all eligible adults. Expanding Medi-Cal and improving access strengthens the financial resilience of Californians and their families. Through California Advancing and Innovating Medi-Cal – or CalAIM – California is addressing how social drivers of health, like access to housing and food, affect people’s health, and improving quality and equity in our Medi-Cal programs.