By any measure, the Affordable Care Act (ACA) – especially as implemented in California – met or exceeded expectations on expanding coverage to tens of millions of Americans. Paired with recent state budgetary actions by Gov. Gavin Newsom opening Medicaid access to low-income, undocumented adults, California enters an era of universal access to coverage with an uninsured rate of 7 percent – down from 7.7 percent in 2019 and compared with a 8.8 national rate.

Work remains, however, on making that coverage sustainably affordable – and tamping down surges in underlying costs of health care that tax the entire system. While the ACA’s coverage subsidies (especially following the Inflation Reduction Act’s extension and expansion of those premium tax credits) are a significant development, those subsidies are limited to premium and apply only for Marketplace enrollees. Rising premiums and out-of-pocket costs (such as deductibles and co-pays) remain pernicious, especially in the employer-sponsored health insurance sector, where (particularly small) employers and employees continue to pay the price for largely unchecked underlying cost growth.  Between 2010 and 2018, Californians with job-based coverage experienced a 45 percent increase in premiums – that’s more than twice the rate of wage growth over the same period.  Californians are forgoing needed health care and falling behind with medical bills because it all costs too much. This is unsustainable and our commitment puts it on a better path.

To stem the tide, an unprecedented coalition of consumer groups, labor unions, payers and employers (who often disagree on many things) – came together to support legislation, the California Health Care Quality and Affordability Act, designed to reduce the rate of cost growth across the entire health sector. The Act’s core reform is the creation of a new Office of Health Care Affordability, charged with tackling these complicated cost pressures head-on. The Office will set aggressive but achievable targets to align health care spending with growth in paychecks.  Insurers, hospitals, and providers will be given an opportunity to meet these targets by working together to achieve high value coverage with affordable costs.  However, if these targets are not met, the Office has the authority to impose increasingly robust penalties to ensure cost growth is not allowed to continue unchecked.

The Office will establish an overall health care cost growth target for per capita spending in California and have the authority to set specific targets by health care sector, including fully integrated delivery systems, geographic regions, and individual health care entities, as appropriate. Notably, the Office has tools to focus on the high-cost outliers disproportionately driving higher premiums for all Californians. It’s no secret that health care costs are often 30 percent higher in Northern California than Southern California — largely because of the market power of dominant hospital systems.  While payers have had to live within a budget for years because of the ACA’s Medical Loss Ratio rules, hospital providers will now have to do the same.

The legislation won’t just focus on costs, it will also align the system around core principles of higher quality and better value — particularly for primary care and behavioral health.  It also ensures that actors can’t meet targets by slashing their workforce or cutting investments that serve our communities. The Office will set model standards for alternative payment models that advance pay-for-value arrangements between providers and payers because we know that where the health system aligns on paying for the right things, we can getter better value for everyone.  Finally, the Office has new legal review authorities to review transactions and merger/acquisition activity in the health care sector – especially involving venture capital entities and provider consolidation practices we know are driving increases in costs – to consider cost and market impacts. 

The ultimate goal of health reform has always been universal coverage coupled with a commitment to affordability. Because of the stakeholder partnership leading to the Office’s creation, California is the first state in the nation to achieve a coherent framework to get us there.