While Congress debates whether to extend the temporary federal grants that helped millions When Americans buy health insurance, they sometimes miss a crucial reality: These subsidies are merely a Band-Aid to cover the often unaffordable cost of health care.
California, Massachusetts, Connecticut and five other states have placed caps on health care spending in an attempt to curb the intense financial pressure experienced by many families, individuals and employers who face increases in premiums, deductibles and other health-related expenses each year.
Hospitals and other health care providers point to Republicans' One Big Beautiful Bill, signed into law by President Donald Trump in July, as another reason to challenge those restrictions.
The legislation is expected to reduce federal Medicaid spending by over 900 billion dollars more than ten years, which mathematically should help the entire healthcare system reach its limit. But the law is also expected to increase the number of uninsured Americans, mostly Medicare recipients, by about 10%. 10 million people. Health care analysts predict hospitals and other providers will raise prices to cover the double whammy of lost Medicaid revenue and the cost of caring for an influx of new uninsured patients.
It's unclear whether regulators in some states will allow providers to justify higher prices and exceed spending limits. Only California and Oregon may penalize suppliers financially if they fail to meet targets.
“Are we going to say, ‘Is that okay?’ Or are we going to say, ‘Well, you overshot the target. We will still punish you for this”? said Richard Pan, a former state legislator and board member of the California Health Care Affordability Authority. “It hasn't been decided yet.”
The California Hospital Association, the state's main lobbying group, filed a lawsuit asked a state court in October to overturn spending caps that it argued did not take into account all the cost pressures hospitals face. Those pressures, he said, include an aging and deteriorating population; That increase in value labor; costly advances in medical technology; large capital costs for the necessary seismic retrofitting; and changes in federal policy, including the One Big Beautiful Bill Act. The hospital group's lawsuit also argued that the state's Office of Health Affordability, by rushing to set wild cost-cutting targets, undermines its other key mission of improving access, quality and equity of health care.
The California Office of Accessibility last year established five year goal to cap statewide cost increases, starting at 3.5% in 2025 and declining to 3% by 2029. Annual limits apply to a wide range of healthcare organizations, including hospitals, medical groups, insurers and other payers.
Earlier this year, he introduced much lower caps on spending growth – starting at 1.8% in 2026 and falling to 1.6% by 2029 – for seven “expensive” hospitals.
“Cost caps set by politically appointed bureaucrats could lead to spending cuts that could cause many Californians to travel further for care, face longer wait times in emergency rooms, experience greater overcrowding and lose access to critical 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 accessibility agency, has not yet provided a response to the hospital group's complaint or responded to a request for comment.
Hospital refusal
California isn't the only state keeping a close eye on hospital prices, which many believe main driver health care costs.
“States, armed with information indicating that hospital payments are driving something far beyond available commercial premiums, have begun to take increasingly targeted actions targeting commercial hospital prices,” said Michael Baylit, founder of a consulting firm in Needham, Massachusetts. Beilit Healthwhich has advised several states, including California, on ways to reduce health care costs. “It is not surprising that the hospital industry would oppose such government action.”
In its lawsuit, the California Hospital Association said the affordability office's own report shows pharmaceutical and insurance companies are largely responsible for the high costs.
Hospitals in some states with caps on cost increases, including Connecticut And Massachusettsexpressed objections similar to those raised in the California lawsuit. They could follow the lead of their California counterparts if their lawsuit is successful, said Peter Lee, who led California's Affordable Care Act marketplace for Covered California. more than ten years and now is senior researcher at the Stanford Medicine Research Center for Clinical Excellence.
Lee said the work of the California Office of Affordability and similar agencies in other states is about the only system-wide effort to reduce health care costs. They're basically saying, 'Look, health care takes money away from education, it takes money away from the environment, it takes money away from everything in the public sector, and in the private sector it takes money away from wages,'” he said. “We don't know how you, the health care system, are going to do this, but your job is not just to ensure quality, but to reduce costs. That's the goal.”
Of course, achieving the cost savings that California and other states are seeking is not easy. Ultimately, it will be necessary to convince the large, financially powerful players who compete fiercely for health care dollars to adopt a different way of thinking and instead collaborate to lower costs. And this in many cases will mean a decrease in income.
But the status quo, as many people know all too well, means continued financial misery for millions of people.
In early 2020, Estevan Rodriguez, a bartender at California's Monterey Beach Hotel, underwent surgery for a staph infection in his leg. The bill totaled nearly $168,000. His insurance paid most of the amount, but he still owed $5,665, which took him two years to pay off, or more than $200 every month. “Maybe for some people it’s not a lot, but for me it was a lot,” Rodriguez said.
He said he canceled his Hulu subscription, upgraded to a cheaper cell phone and purchased cheaper car insurance. He began going to food banks rather than the grocery store, he said, and spent much less time with his children because he was constantly working to pay his hospital bill.
Monterey Peninsula Community Hospitalwhere Rodriguez had his surgery is one of seven hospitals designated as high-value by California's office of affordability. A in-office training attributed high hospital prices in Monterey County to a lack of market competition, “rather than higher operating costs or superior quality of care.”
Monterey Hospital referred a request for comment about its “high-cost” status to the California Hospital Association. CHA spokesman Ian Emerson-Shea declined to comment beyond the wording of the lawsuit and Coyle's press statement.
Reduced competition
Health care analysts are concerned that the One Big Beautiful Bill Act will further reduce market competition by putting a strain on already weak hospitals, leading some to discontinue services, merge with larger health systems or close. One study estimates 338 rural hospitals are under threat of closure across the country.
Less competition, as well as fewer Medicaid dollars and more uninsured patients, will only strengthen the incentives for health systems with the necessary market power to raise commercial prices, increasing premiums for employers and individuals.
“We believe commercial prices will continue to rise as health care providers, and hospitals in particular, look to maintain or increase their revenues,” said Rachel Block, program manager for the Milbank Memorial Foundation, a foundation that focuses on health equity issues.
This, in turn, could pose a challenge to government affordability regulators tasked with enforcing health care spending growth targets.
The California Office of Accessibility must consider mitigating factors, including changes in federal and state laws. But some board members expressed skepticism that hospitals would be able to recoup Medicaid losses through higher commercial prices.
“There's a lot of talk about using HR 1 and other federal measures as an excuse to raise prices for commercial payers,” Ian Lewis, an affordability office board member and policy director for UNITE HERE Local 2, a Bay Area hospitality workers union, said at the agency's conference. July board meetingmeaning “One Big Beautiful Bill”. “No more blood can be squeezed out of this stone.”
