California’s next governor will take office in January 2027 facing a health care affordability crisis that has resisted solutions for decades. Six in ten Californians report skipping or delaying care due to cost. For years, more than 8 in 10 Californians have said they want state leaders to prioritize making care more affordable.
This problem bleeds across economic and social lines to include the insured and higher earners. Workers with employer coverage have seen their premiums grow faster than their wages and inflation. Getting an unexpected medical bill is Californians’ top financial concern, above paying for food and rent.
Medi-Cal enrollees face federal cuts and eligibility rollbacks that will push many off coverage. How much coverage California and counties can provide for them depends largely on what it costs. When health care costs outpace state and local budgets, the same dollars cover fewer people and benefits. Slowing health care cost growth is part of how we preserve as much ground as we can under H.R. 1.
The 25% Solution
Research has highlighted “the 25% problem,” the fact that 25 cents of every health care dollar doesn’t help patients become healthier or get better care. Much of that money gets eaten up by administrative waste, inflated prices, and treating serious illnesses that could’ve been prevented with good primary good.
What follows are ten actions, organized around four goals, that the next administration and legislature could take to start to solve the 25% problem and improve health care affordability. These recommendations were informed by new policies emerging in other states and our listening project, Worried Sick, through which we talked to hundreds of Californians and surveyed thousands more. People described skipping medication, carrying debt for years, and their deep anger that more was not being done to help them. They also told us what they thought about various policy solutions.
The 25% Problem: Why Is Health Care So Expensive?
How did we get here? We broke down the primary causes of California’s health care affordability crisis, showing how 25 cents of every health care dollar doesn’t go toward improving patient health.
In addition, we have ongoing talks with partners in advocacy, industry, and state government to understand what’s possible in the current political and fiscal environment.
What Made the Cut
Every action on this list can be done by California — by exercising existing regulatory authority, making changes to state law, or using its purchasing power. Several require adequate staffing and enforcement, and some may require modest General Fund commitments. All ten are important, but we’ve noted the highest priority.
Goal: Rein in Excessive Prices and Restore Competition
1. Support the Office of Health Care Affordability’s full authority to limit how much health care companies increase costs over time. (Top priority)
In 2022, California established a first-of-its-kind Office of Health Care Affordability (OHCA), with the regulatory power to set goals for overall health care cost growth, limit how much health care companies can increase costs each year, and to fine companies that don’t comply. The next governor and state policymakers should protect and build on OHCA.
This is the top priority because OHCA is the only body in state government with authority over total health care cost growth, and it is already under pressure from the industries it regulates.
Californians told us through Worried Sick that they want government to do more to protect them from high health care costs. They appreciate that OHCA isn’t run by politicians but independent experts and has the “teeth” to levy fines to hold companies accountable. But they are wary of health care industry lobbyists watering down laws or regulations designed to make care more affordable.
2. Cap payments to hospitals under state health care contracts.
Right now, large hospitals and health systems can charge insurers multiple times what they are paid by Medicare for the exact same procedure. Those differences are not explained by other factors, including better quality of care. These excessive prices push up premiums and out-of-pocket expenses for patients.
In response, some states are capping what they pay hospitals, linked to a reasonable Medicare benchmark. California is a large purchaser of health care and could explore such a cap under its contracts for public employees and retirees (CalPERS) or Covered California enrollees.
3. Don’t allow extra fees or different prices for the same service, just because of where it is delivered.
Some large health systems are buying up doctor’s offices and clinics and then charging “facility fees” — basically, hospital prices — for the same care at those same offices and clinics.
Some states are banning facility fees or considering “site neutral payments,” under which payers pay the same amount for certain services, regardless of where they are delivered. California could do the same.
Worried Sick participants were supportive of efforts to keep hospitals and health systems from charging excessive prices. A ban on facility fees was among the most popular policies we talked to them about.
4. Prohibit contract terms that unfairly limit competition and patients’ choices.
Large health plans, hospital systems, and provider groups function as near monopolies in many parts of California and can use contract terms to further restrict or ward off competition and inflate revenue and profits. This consolidation reduces choice and leads to higher costs for patients with little to no improvement in quality.
Some states explicitly prohibit various anti-competitive contracting practices. In California v. Sutter Health, Sutter was ordered — and eventually agreed — to stop using certain anti-competitive contracts. California could require that the fair contracting practices established under that lawsuit be applied to all health systems.
Worried Sick participants frequently expressed the belief that a lack of competition hurts patients. Many connect the fact that large companies hold significant market leverage to the need for more government regulation to protect patients from unfair prices.
Goal: Protect Consumers from Unreasonable Premium Increases and Prevent Medical Debt
5. Give the California Department of Managed Health Care the power to reject unreasonable premium increases.
Today, California’s Department of Managed Health Care (DMHC) can review a premium increase, require the insurer to justify it, and tell consumers when its actuaries find the increase unreasonable. Then the increase takes effect anyway. DMHC has no authority to stop it. DMHC’s review also does not ask whether the new premium is affordable for the people paying it.
Other states have empowered their insurance regulators to do more, such as rejecting unreasonable rate hikes. California could do the same along with giving DMHC the authority to assess if premiums are affordable for consumers.
Californians support the state stepping in to stop unreasonable premium increases, especially when they are outpacing inflation, although many, understandably, want their premiums to go down, not just grow more slowly.
6. Prevent medical debt by strengthening existing statewide hospital financial assistance programs.
Four in ten Californians carry medical debt, and hospital bills are the largest source of that debt. California and federal laws require hospitals to provide financial assistance, but programs can be hard to access: Less than 40% of Californians with medical debt report even seeking out financial assistance programs.
These programs must become easier for patients to find and enroll in, especially as hospitals see more uninsured in the coming years under H.R. 1. There are positive developments to monitor, enforce, and learn from: Under AB 1312, hospitals must proactively screen and enroll certain types of patients into financial assistance starting in July 2027 (rather than relying on patients to apply). The Los Angeles County Medical Debt Coalition is establishing best practices for financial assistance programs.
7. Expand financial assistance programs to other providers and settings.
Hospital bills are the leading, but not the only, source of medical debt. While emergency physicians are subject to California’s financial assistance laws, other hospital-based providers are not. And patients need protection from crippling bills in other settings.
California could expand financial assistance requirements to apply to hospital-based providers like radiologists, pathologists, and hospitalists as well as large medical groups and outpatient surgical centers.
Worried Sick participants expressed a strong desire for preventive measures that kept people from going into medical debt in the first place. While interventions like medical debt forgiveness were appreciated, they were described as “band aids” if not coupled with preventive measures.
Goal: Use New Tools and Technology to Reduce Administrative Waste and Increase Efficiency
8. Require and support all California providers and health plans to adopt electronic prior authorization practices.
Tens of billions of health care dollars are lost each year in California because of administrative waste. Prior authorization serves an important function, but when implemented poorly, it eats up time and money for providers and patients alike.
The US Centers for Medicare & Medicaid Services require that all Medicaid, Medicare, and ACA exchange health plans take steps to be able to electronically approve prior authorization requests right at the point of care (e.g. a doctor’s office), thereby reducing administrative errors, delays, and costs. California can build on this by requiring and supporting health plans and providers in the state as they adopt electronic prior authorization systems.
9. Require standardized claims and billing system rules across all health plans and health systems.
The Health Insurance Portability and Accountability Act (HIPAA) established national standards for electronic health care transactions, but left substantial room for variation in implementation. A doctor’s office contracting with five health plans may face five different sets of billing rules. That means five different workflows and exponentially more staff time spent on paperwork instead of patients.
California could eliminate this variation by requiring all payers and providers to standardize electronic eligibility, claims, payment, and acknowledgment transactions. It could also standardize certain administrative provisions by creating a model administrative contract template.
Many Worried Sick participants cited personal experiences with billing errors, redundant tests, and miscommunication between providers as examples of administrative waste that eats up their time and money. They are generally supportive of using new tools and technologies to reduce paperwork and administrative delays, but some are wary of privacy breaches and technology like AI replacing human judgement.
Goal: Focus More On Preventive and Primary Care To Prevent Serious (And More Expensive) Health Conditions Later
10. Shift health care spending into primary care.
Right now, billions of health care dollars are spent on emergency room and hospital visits for problems that could have been caught earlier at a regular check-up. Yet our country spends only 5 cents of every health care dollar on this kind of primary and preventive care. When more resources go toward these services, patients get better quality of care and hospitalizations drop.
Like other states, California has set goals to increase the share of health care spending devoted to primary care. The next administration should continue advancing OHCA’s 10-year primary care investment benchmark. But we should go further by ensuring that spending has reached frontline primary care providers and expanded patients’ access to care.
Most Californians we talked to through Worried Sick believe it’s cheaper to keep people healthy than to treat them once they are seriously ill. A strong majority of those surveyed think that shifting more resources to primary care will help make care more affordable.
What These Choices Cost
None of these recommendations are free. Health care spending is someone’s revenue. Slowing its growth means hospitals, physician groups, drug companies, and insurers will earn less than they otherwise would, and health care is one of California’s largest employers. Those effects are real and they will be felt.
The risk is not evenly distributed. Large systems can absorb tighter margins. Rural hospitals and safety-net providers often cannot, and several are already operating close to the edge. Cost containment that ignores this will close the doors patients most depend on.
That argues for how these policies are designed, not whether California pursues them. For example, OHCA’s spending targets already allow for differentiated treatment of providers serving high-need populations. The alternative is what California is doing now, which is letting costs rise until families drop coverage and we all suffer the consequences.
What’s Next?
Health care affordability has been a problem in California for decades. The next few years could be harder still. In 2027, accelerating commercial market costs will start to collide with federal cuts to Medi-Cal and rising uninsured rates.
The next governor and legislature can act before that happens. These 10 recommendations are feasible now. They can make a meaningful difference for many Californians struggling to afford care. And, they are by no means the only solutions out there.
In the coming months, CHCF will hold events to facilitate dialogue around health care affordability and the way forward. Get the latest by signing up for CHCF updates and selecting “consumer affordability” as one of your topics of interest.
