California Health Care Affordability Board discusses methodology for statewide spending target


Hannah Saunders


California’s Health Care Affordability Board (HCAB) met last month to discuss an overview of draft decisions for a baseline spending report, and introduced methodology considerations for the statewide spending target. The board’s purpose is to reduce the rate of cost growth across California’s healthcare sector. 

The Office of Health Care Affordability (OHCA) will measure healthcare spending for California residents including claims payments and consumer out-of-pocket spending like copays, coinsurance, and deductibles. Aggregate healthcare spending data will be collected from commercial carriers with 40,000 or more members, and Medi-Cal and Medicare. 

OHCA will collect spending data through geographic regions used by Covered California in their rating regions. CJ Howard, assistant deputy director of OHCA, spoke about the board’s spending measurement during the meeting.

“With regard to confidence intervals—I know that’s a topic that we’ve discussed here—we do plan to collect the standard deviations to enable the calculation of confidence intervals [between] the provider and payer entity. This also helps us assess variability and spending,” Howard said. 

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Howard noted that age and gender data will be collected to enable demographic adjustments when measuring year-to-year spending growth at payer and provider entities. 

“All of these decisions need to be promulgated by way of regulations. We have a data submission guide that’ll be enacted through regulation.”

— Howard

Within the first couple of months of 2024, OHCA will submit the proposed final regulations to the Office of Administrative Law. By spring 2024, regulations will go into effect and initial data collection is expected to occur in September. 

Howard said the first annual report with attached enforcement mechanisms for lowering costs, with data from 2023-2024, will be released in 2026. HCAB is required to establish a statewide healthcare spending target for the 2025 calendar year, and each year thereafter, according to Howard.

The statewide target is intended to promote predictable and sustainable rates of change in per capita total healthcare expenditures, will be based on a target percentage with considerations of economic indicators or population-based measures, and will promote sustainability of the healthcare workforce and improved affordability. 

“The board shall establish specific targets by healthcare sector, including fully integrated delivery systems, geographic regions, and individual healthcare entities—as appropriate—inclusive of fully-integrated delivery systems.”

— Howard

Several other states have adopted healthcare spending targets to slow growth in spending—including Massachusetts, Oregon, and Washington. Michael Bailit, president of Bailit Health, spoke on how other states are addressing cost issues.

“When doing this, they all looked at historical spending in their state across three different markets—the trend rates for commercial, Medicaid, and Medicare,” Bailit said. 

Bailit said all eight states that have set healthcare spending targets set multi-year targets, in which California also has that option. He explained how it takes two years to gather and report on information, for which the spending target impact cannot be assessed until two years later. 

“Our statute that we’re working with says that statutes shall consider economic indicators and population-based measures. Population-based measures is not something that other states have considered, so this is going to be uniquely Californian—at least so far, uniquely.”

— Bailit

Possible economic and population-based indicators include California’s gross state product, California’s potential gross state product, the median family income of Californians, the average wage of Californians, the median age, and inflation as measured by the consumer price index.

“We support a medium wage or median family income as an indicator for setting the target spending rate with, as was just mentioned, a focus on median rather than on average. We believe this would go a long way towards ensuring that the rate is actually reflecting affordability,” said Travis West from the California Nurses Association.

This month, the board will review historic trends in commercial, Medi-Cal, and Medicare markets where data is available. The board will then share historic and forecasted data—when available—on the growth rates of economic and population-based indicators.