State board approves a phased-in 3-percent medical spending increase target.

The California Office of Health Care Affordability Board voted 6-1 on Wednesday, April 24, to set a 3-percent cap on spending increases for hospitals and medical facilities. It will be phased in over five years, with a 3.5-percent cap in 2025 and 2026, then lowered to 3.2 percent in 2027 and 2028, and then finally 3 percent in 2029 and beyond.

In doing so, California joins the ranks of several other states that have set medical spending caps, in an effort to slow the rise in costs passed on to consumers, universally considered to be unaffordable for many.

“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 HCA board, in a statement released after the vote.

Ghaly chaired the meeting in Sacramento, where the committee debated whether to approve the staff-recommended 3-percent target beginning in 2025, or some other formula. The one that ultimately won was Ghaly’s recommendation of phasing in the cap.

“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,” according to a statement by the California Department of Health Care Access and Information.

Steve McDougall of Salinas, who was representing the California Federation of Teachers at the meeting in Sacramento, says it’s a good step for the state, but medical costs in Monterey County are still way over the average compared to other regions. (McDougall also serves on the executive committee of the Municipalities, Colleges, Schools Insurance Group, aka MCSIG, a collective that provides health insurance to public employees in 27 organizations, including school districts.)

“When this enforcement period finally comes to fruition it will be a new day for all commercial insurance payers throughout California. It is long overdue,” McDougall says. “Unfortunately we needed something for Monterey County like this over a decade ago.

“MCSIG projects rate increases of 15.9 percent and with no new money in the state budget for education, teachers are going to take a pay cut next year because their insurance is going up,” he adds.

Starting in 2026, the Office of Health Care Affordability can begin taking “progressive enforcement action” against health care entities, including health plans, provider organizations with at least 25 physicians and hospitals, that exceed the spending growth target.

Progressive enforcement could include technical assistance, imposing performance improvement plans and ultimately assessing financial penalties.