The One Big Beautiful Act complicates the state’s efforts to make health care affordable

Treatment bills are spread out on the kitchen table of a cancer patient in Salem, Virginia (Photo by Don Petersen/The Associated Press)

This article appeared for the first time KFF Health News.

While Congress debates whether to extend the short-lived federal grants they have helped millions Americans purchase health insurance, a key reality is sometimes overlooked: These subsidies are merely a band-aid to cover often unaffordable health care costs.

California, Massachusetts, Connecticut and five other states set limits on health care spending in an attempt to stem the intense financial pressures felt by many families, individuals and employers who face yearly increases in premiums, deductibles and other health-related expenses.

Hospitals and other health care providers are citing the Republicans’ One Big Beautiful Act, signed by President Donald Trump in July, as another reason to question these restrictions.

The bill is expected to reduce federal spending on Medicaid by approximately over $900 billion over ten years, which mathematically should facilitate the entire healthcare system meet the cap requirements. However, the law is also expected to boost the number of uninsured Americans, mostly Medicaid beneficiaries, by an estimated amount 10 million people. Health care analysts predict that 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.

It’s unclear whether regulators in some states will allow providers to justify higher prices and exceed spending limits. Just California and Oregon can penalize suppliers financially if they fail to meet targets.

“Are we going to say, ‘It’s OK?’ said Richard Pan, a former state legislator and board member of the California Office of Health Care Affordability. “It hasn’t been decided yet.”

The California Hospital Association, the state’s main industry lobbying group, filed a lawsuit in October, he asked a state court to lower spending limits that he says do not account for all the cost pressures hospitals face. These pressures were found to include an aging and sicker population; the rising costs work; costly advances in medical technology; huge investment outlays for necessary seismic modernization; and changes in federal policy, including the One Big Beautiful Bill Act. In the lawsuit, the hospital group also argued that the state Office of Affordability, by imposing ill-conceived cost-cutting targets, undermines its other key mission of improving health care access, quality and equity.

Last year, the California Office of Affordability found that: five-year goal limit spending growth statewide, starting at 3.5% in 2025 and decreasing to 3% by 2029. The annual limits apply to a wide range of health care providers, including hospitals, medical groups, insurers and other payers.

Earlier this year, it imposed much lower caps on spending growth – starting at 1.8% in 2026 and falling to 1.6% by 2029 – for seven “expensive” hospitals.

“Spending maximums set by politically appointed bureaucrats could force cuts that cause many Californians to travel further for care, face longer emergency room wait times, increased overcrowding and loss of 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 affordability agency, has not yet sent a response to the hospital group’s complaint or responded to a request for comment.

Hospital response

California isn’t the only state taking a closer look at hospital prices, which are widely considered… main controller health care costs.

“States, armed with information showing that hospital payments are a driver of something far beyond affordable commercial premiums, have begun to take increasingly targeted actions focusing on commercial hospital pricing,” said Michael Bailit, founder of the Needham, Mass.-based consulting firm Bailit’s healthwhich has advised many states, including California, on ways to reduce health care spending. “It is not surprising that the hospital industry would oppose such state actions.”

In its lawsuit, the California Hospital Association said the Office of Affordability’s own report found that pharmaceutical and insurance companies were largely responsible for the high costs.

Hospitals in some states with caps on cost increases, including Connecticut AND Massachusettsexpressed concerns similar to those raised in the California lawsuit. If their lawsuit is successful, they could follow the lead of their California counterparts, said Peter Lee, who led California’s Affordable Care Act marketplace, Covered California, for over a decade and it is now senior scholar at Stanford Medicine’s Center for Clinical Excellence Research.

Lee said the work of the California Office of Affordability and similar agencies in other states is actually the only systemwide effort undertaken to lower 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 everyone 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 it, but your job is not only to ensure quality, but also to lower costs. That’s the goal.'”

Of course, achieving the savings that California and other states are seeking is not uncomplicated. Ultimately, this will require persuading huge, financially powerful players who compete fiercely for health care funds to adopt a different mindset and instead work together to reduce costs. And in many cases this will mean lower revenues.

But the status quo, as many people know, means continued financial problems for millions.

In early 2020, Estevan Rodriguez, a bartender at the Monterey Beach Hotel in California, underwent surgery for a staph infection in his leg. The bill was almost $168,000. His insurance covered most of the amount, but he still owed $5,665, which took him two years, or over $200 a month. “It may not be much for some people, but for me it’s a lot,” Rodriguez said.

He said he canceled his Hulu subscription, switched to a cheaper cell phone and bought cheaper car insurance. He started going to food banks instead of the grocery store, he said, and spent much less time with his children because he was constantly working to pay off his hospital bill.

Monterey Peninsula Community Hospitalwhere Rodriguez had surgery is one of seven hospitals designated as high-cost hospitals by the California Office of Affordability. AND learning in the office attributed Monterey County’s high hospital prices to a lack of market competition, “rather than higher operating costs or superior quality of care.”

The Monterey hospital referred a request for comment on its “high cost” designation to the California Hospital Association. CHA spokesman Jan Emerson-Shea declined to comment beyond the language of the lawsuit and Coyle’s press release.

Reduced competition

Health care analysts fear that the One Big Beautiful Bill Act would further reduce competition in the market by putting pressure on already frail hospitals, leading to some hospitals closing, merging with larger health care systems or shutting down. It is estimated that one of the studies 338 rural hospitals risk of closure across the country.

Less competition, in addition to fewer Medicaid dollars and an boost in the number of uninsured patients, will only strengthen the incentive for health care systems with the requisite 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, seek to maintain or increase their revenues,” said Rachel Block, program officer at the Milbank Memorial Fund, a foundation focused on health equity.

This, in turn, could pose a challenge to state affordability regulators tasked with overseeing compliance with growth targets for health care spending.

The California Office of Affordability is required to consider mitigating factors, including changes in federal and state regulations. However, some board members expressed skepticism about allowing hospitals to offset Medicaid losses with higher commercial prices.

“There’s a lot of talk about using H.R. 1 and other federal policies as an excuse to raise prices for commercial payers,” Ian Lewis, a board member of the Office of Affordability and chief policy officer of UNITE Here Local 2, the Bay Area hospitality workers’ union, said at the agency’s headquarters July board meetingreferring to the One Big Beautiful Bill. “There is no more blood to squeeze from this stone.”

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