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The Article first appeared on KFF Health News.
As Congress debates whether to extend ephemeral federal grants has helped millions Although many Americans buy health insurance, a crucial fact is sometimes overlooked: These subsidies are merely a band-aid to cover the often prohibitive costs of health care.
California, Massachusetts, Connecticut and five other states have established caps on health care spending to curb the severe financial pressure felt by many families, individuals and employers who face rising premiums, deductibles and other health-related expenses each year.
Hospitals and other health care providers are citing Republicans’ One Big Beautiful Bill Act, signed by President Donald Trump in July, as another reason to question those limits.
The law is expected to reduce federal spending on Medicaid by more than $900 billion over a decade, which mathematically should facilitate ensure that the entire health system adheres to the upper limits. However, the law is also expected to enhance an estimated number of uninsured Americans, mostly Medicaid recipients 10 million people. Health care analysts expect hospitals and other providers to raise prices to cover the double burden of lost Medicaid revenue and the cost of caring for an influx of up-to-date, uninsured patients.
Whether regulators in some states will allow providers to justify higher prices and exceed spending caps is unclear. Only California and Oregon can penalize providers financially if they do not achieve their goals.
“Are we going to say, ‘That’s OK’? Or are we going to say, ‘Well, you exceeded the goal. We’re still going to punish you for it’?” said Richard Pan, a former state lawmaker and board member of the California Office of Health Care Affordability. “That hasn’t been decided yet.”
The California Hospital Association, the industry’s main state lobbying group, filed a lawsuit asked a federal court in October to strike down spending caps because he said they did not take into account the full cost pressures facing hospitals. These pressures include an aging, sicker population; The increasing costs of work; exorbitant advances in medical technology; high capital expenditures for the required seismic retrofitting; and changes in federal policy, including the One Big Beautiful Bill Act. The hospital group’s lawsuit also alleged that by prematurely setting ill-advised cost-cutting goals, the state Office of Affordability undermines its other essential mission of improving access, quality and equity in health care.
The California Office of Affordability laid out a plan last year Five-year goal to limit statewide spending growth, starting at 3.5% in 2025 and falling to 3% by 2029. The annual caps apply to a broad range of healthcare entities, including hospitals, medical groups, insurers and other payers.
Earlier this year, significantly lower spending growth caps were introduced – starting at 1.8% in 2026 and falling to 1.6% by 2029 – for seven “expensive” hospitals.
“Spending caps set by politically appointed bureaucrats could force cuts that cause many Californians to travel further for care, face longer emergency room wait times, experience more overcrowding and lose access to essential services,” Carmela Coyle, president and CEO of the hospital association, said in an October press release.
The California Attorney General’s Office, which will represent the affordability agency, has not yet filed a response to the hospital group’s complaint or responded to a request for comment.
The resistance of the hospitals
California isn’t the only state taking a close look at hospital prices, which are widely viewed as a… Main driver the health costs.
“States, armed with information indicating that payments to hospitals are a factor that goes well beyond affordable commercial premiums, have begun to take increasingly targeted measures focused on commercial hospital prices,” said Michael Bailit, founder of the Needham, Massachusetts-based consulting firm Bailit healthwhich has advised several states, including California, on ways to curb health care spending. “It is not surprising that the hospital industry resists such government measures.”
In its lawsuit, the California Hospital Association said the affordability agency’s own report shows that pharmaceutical and insurance companies are largely responsible for the high costs.
Hospitals in some states with cost growth limits, including Connecticut And Massachusettshave raised objections similar to those raised in the California lawsuit. They could follow their counterparts in California if their lawsuit is successful, said Peter Lee, who ran California’s Affordable Care Act marketplace Covered California over a decade and is now a senior scholar at the Clinical Excellence Research Center at Stanford Medicine.
Lee said the work of the California Office of Affordability and similar agencies in other states is pretty much the only systemwide effort being made to reduce health care costs. They’re basically saying, “Look, healthcare is taking money away from education, it’s taking money away from the environment, it’s taking money away from everything in the public sector, and in the private sector it’s taking money away from wages,” he said. “‘We don’t know how you as a health system are going to do it, but it’s your job to not only deliver quality but also reduce costs. That’s the goal.'”
Of course, achieving the cost savings that California and the other states are seeking is not an uncomplicated path. Ultimately, it will be a matter of persuading huge, deep-pocketed players who compete fiercely for healthcare dollars to adopt a different mindset and cooperate instead to drive down costs. And in many cases that will lead to lower revenue.
But as many people know all too well, the status quo continues to spell financial trouble for millions.
In early 2020, Estevan Rodriguez, a bartender at California’s Monterey Beach Hotel, underwent surgery for a staph infection in his leg. The bill came to nearly $168,000. His insurance paid most of it, but he still owed $5,665, which took him two years to pay, or more than $200 a month. “For some people it might not be a lot, but for me it was a lot,” Rodriguez said.
He said he canceled his Hulu subscription, switched to a cheaper cell phone and got cheaper car insurance. He started going to food banks instead of the grocery store, he said, and had much less time with his children because he was constantly working to pay the hospital bill.
Monterey Peninsula Community Hospitalwhere Rodriguez underwent surgery is one of seven hospitals designated as high-cost by the California Affordability Agency. A Studying in the office attributed Monterey County’s high hospital prices to a lack of competition in the market, “rather than higher operating costs or better quality of care.”
The Monterey hospital referred a request for comment on its “costly” rating to the California Hospital Association. CHA spokesman Jan Emerson-Shea declined to comment beyond the language of the lawsuit and Coyle’s press release.
Reduced competition
Health care analysts fear the One Big Beautiful Bill Act will further reduce competition in the marketplace by straining already struggling hospitals and causing some to discontinue services, merge with larger health systems or close. One study estimates 338 rural hospitals Threatened with closures nationwide.
Less competition, as well as fewer Medicaid dollars and an enhance in uninsured patients, will only enhance the incentive for health systems with the necessary market power to enhance their commercial prices, resulting in higher premiums for employers and individuals.
“We expect commercial prices to continue to rise as health care providers, particularly hospitals, look to maintain or increase revenue,” said Rachel Block, program officer at the Milbank Memorial Fund, a foundation focused on health equity.
This, in turn, could pose a challenge for state regulators tasked with monitoring compliance with health spending growth targets.
The California Affordability Board must consider mitigating factors, including changes in federal and state laws. But some of its board members expressed skepticism about whether hospitals could offset Medicaid losses through higher commercial prices.
“There is a lot of talk about using HR 1 and other federal policies as an excuse to raise prices for commercial payers,” said Ian Lewis, an affordability bureau board member and policy director for UNITE HERE Local 2, a Bay Area hotel workers union, at the agency Board meeting in Julyrelated to the One Big Beautiful Bill. “No more blood can be squeezed from this stone.”
KFF Health News is a national newsroom that produces in-depth journalism on health issues and is one of KFF’s core operating programs – an independent source of health policy research, polling and journalism. Find out more about KFF.
This story was originally produced by State borderwhich is part of States Newsroom, a nonprofit news network that includes West Virginia Watch, and is a 501c(3) public charity supported by grants and a coalition of donors.
