As Congress debates whether to extend the temporary federal subsidies that have of Americans buy health coverage, a crucial underlying reality is sometimes overlooked: Those subsidies are merely a band-aid covering the often unaffordable cost of health care.
California, Massachusetts, Connecticut, and have set caps on health care spending in a bid to rein in the intense financial pressure felt by many families, individuals, and employers who every year face increases in premiums, deductibles, and other health-related expenses.
Hospitals and other health care providers are citing Republicans One Big Beautiful Bill Act, signed by President Donald Trump in July, as one more reason to challenge those limits.
The law is expected to reduce federal Medicaid spending by over a decade, which mathematically should help the overall health care system meet the caps. But the law is also expected to increase the number of uninsured Americans, mostly Medicaid beneficiaries, by an estimated . 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 newly uninsured patients.
Whether regulators in some states will allow providers to justify higher prices and exceed the spending caps is unclear. Only can penalize providers financially if they fail to meet targets.
Are we going to say, Thats OK? Or are we going to say, Well, you exceeded the target. Were still going to penalize you for that? said Richard Pan, a former state lawmaker and a member of the California Office of Health Care Affordabilitys board. That has not yet been decided.
The California Hospital Association, the industrys main state lobbying group, in October asking a state court to strike down the spending caps, which it argued fail to account for all the cost pressures hospitals face. Those pressures, it said, include an aging, sicker population; the of labor; expensive advances in medical technology; large capital outlays on required seismic retrofitting; and changes in federal policy, including the One Big Beautiful Bill Act. The hospital groups lawsuit also asserted that the state affordability office, by hastily imposing ill-considered cost-cutting targets, was undermining its other key mission of improving health care access, quality, and equity.
Californias affordability office last year set a five-year target to cap statewide spending growth, starting at 3.5% in 2025 and declining to 3% by 2029. The annual caps apply to a wide range of health care entities, including hospitals, medical groups, insurers, and other payers.
Earlier this year, it imposed much lower spending growth caps starting at 1.8% in 2026 and declining to 1.6% by 2029 for .
The spending caps set by politically appointed bureaucrats could force cuts that result in many Californians traveling farther for care, facing longer emergency room wait times, experiencing more overcrowding, and losing access to critical services, Carmela Coyle, the hospital associations president and CEO, said in an October press release.
The California attorney generals office, which will represent the affordability agency, has not yet filed a response to the hospital groups complaint and did not respond to a request for comment.
Hospitals Pushback
California is not the only state taking a close look at hospital prices, which are widely considered a of health care costs.
States, armed with information that points to payments to hospitals as a driver of what is way beyond affordable commercial premiums, have begun to take increasingly targeted actions focused on commercial hospital prices, said Michael Bailit, founder of the Needham, Massachusetts-based consultancy , which has advised multiple states, including California, on ways to tame health care spending. It is not surprising that the hospital industry is going to oppose such state actions.
In its lawsuit, the California Hospital Association said the affordability offices own report showed that pharmaceutical and insurance companies are largely responsible for high costs.
Hospitals in some states with cost growth limits, including and , have expressed objections similar to the ones raised in the California lawsuit. They could follow their counterparts in California if their lawsuit succeeds, said Peter Lee, who led Californias Affordable Care Act marketplace, Covered California, for and is now a at Stanford Medicines Clinical Excellence Research Center.
Lee said the work of Californias affordability office and similar agencies in other states is just about the only systemwide effort being made to cut health care costs. They are basically saying, Look, health care is taking money away from education, it is taking money away from the environment, it is taking money away from everything in the public sector, and in the private sector it is taking money away from wages, he said. We dont know how you, the health system, are going to do it, but it is your job not just to provide quality but to lower costs. Heres the target.
To be sure, achieving the cost savings that California and those other states are seeking is no easy lift. It will ultimately require persuading large, financially powerful players that compete fiercely for health care dollars to adopt a different mindset and begin cooperating to reduce costs instead. And that, in many cases, will mean lower revenue.
But the status quo, as many people know all too well, means continued financial pain for millions.
In early 2020, Estevan Rodriguez, a bartender at Californias Monterey Beach Hotel, had 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, more than $200 every month. It may not be a lot to some people, but it was a lot to me, Rodriguez said.
He said he dropped his Hulu subscription, switched to a lower-cost cellphone, and got cheaper car insurance. He started going to food banks rather than the grocery store, he said, and had a lot less time with his kids, because he was constantly working to pay off the hospital bill.
, where Rodriguez had his surgery, is one of the seven hospitals identified by Californias affordability office as high-cost. A attributed high hospital prices in Monterey County to a lack of market competition rather than higher operating costs or superior quality of care.
The Monterey hospital referred a request for comment about its high-cost designation to the California Hospital Association. CHA spokesperson Jan Emerson-Shea declined to comment beyond the language of the lawsuit and Coyles press release statement.
Reduced Competition
Health care analysts worry the One Big Beautiful Bill Act will reduce market competition even further by stressing already weak hospitals, leading some to shut services, merge with larger health systems, or close. One study estimates are at risk of closing nationwide.
Less competition, in addition to fewer Medicaid dollars and an increase in uninsured patients, will only strengthen the incentive of health systems with the requisite market clout to raise their commercial prices, increasing premiums for employers and individuals.
We think commercial prices will continue to increase as health care providers, and hospitals in particular, will seek to preserve or increase their revenue, said Rachel Block, a program officer at the Milbank Memorial Fund, a foundation that focuses on health equity.
That in turn could pose a challenge to state affordability regulators tasked with overseeing compliance with growth targets for health care spending.
Californias affordability office is required to consider mitigating factors, including changes in federal and state laws. But some of its board members have expressed skepticism about letting hospitals offset Medicaid losses with higher commercial prices.
Theres a lot of talk about using HR 1 and other federal policies as an excuse to raise prices on commercial payers, Ian Lewis, an affordability office board member and policy director for UNITE HERE Local 2, a hospitality workers union in the Bay Area, said at the agencys , referring to the One Big Beautiful Bill. Theres no more blood to be squeezed from this stone.
