States such as California, Massachusetts and Connecticut have adopted caps on health spending to curb rising premiums and out-of-pocket costs. The One Big Beautiful Bill Act — projected to cut Medicaid funding by more than $900 billion over a decade and increase the uninsured by roughly 10 million — may prompt hospitals to raise commercial prices to offset lost revenue. California has set multi-year growth caps and faces a lawsuit from the California Hospital Association challenging those limits. Regulators, analysts and patients worry that Medicaid cuts, weaker competition, and possible hospital closures could undermine affordability goals.
New Federal Law Threatens State Health-Spending Caps and Could Push Hospital Prices Higher
Medical bills are spread out on the kitchen table of a cancer patient.
As federal policymakers debate whether to renew temporary subsidies that help millions buy coverage, a deeper problem persists: those subsidies do not address the underlying unaffordability of health care. Several states — including California, Massachusetts and Connecticut — have adopted caps on health spending to rein in rising premiums, deductibles and out-of-pocket costs. Now, hospitals and other providers say a recent federal law, the One Big Beautiful Bill Act, complicates those state efforts.
Federal Law, Medicaid Cuts And The Risk Of Higher Prices
The One Big Beautiful Bill Act, signed in July, is projected to reduce federal Medicaid spending by more than $900 billion over the next decade and could increase the number of uninsured Americans by roughly 10 million, according to analysts. Hospitals warn that those changes will leave them with both fewer Medicaid dollars and more uncompensated care — a combination that they say will pressure them to raise commercial prices to make up lost revenue.
State Spending Caps And The Legal Fight
States have taken different approaches to rein in spending growth. California's Office of Health Care Affordability adopted a five-year statewide target that begins at 3.5% growth in 2025 and falls to 3.0% by 2029. For seven designated "high-cost" hospitals, the office set stricter limits — starting at 1.8% in 2026 and declining to 1.6% in 2029. Only California and Oregon currently have explicit authority to impose financial penalties when entities exceed targets.
The California Hospital Association filed a lawsuit in October seeking to overturn the state's caps. The association argues the targets don't properly account for genuine cost pressures — including an aging and sicker patient population, rising labor and technology costs, seismic retrofitting expenses, and federal policy changes such as the One Big Beautiful Bill Act — and that the affordability office rushed its targets in a way that could undermine access, quality and equity.
Industry, Regulators And Analysts Weigh In
Supporters of spending caps argue that unchecked hospital prices are a major driver of overall health spending and that state-level oversight is one of the few systemwide levers available to constrain 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 Bailit Health.
Hospital groups counter that the caps risk forcing service cuts, longer wait times and reduced access — claims reflected in press statements and the legal complaint. Analysts warn that reduced Medicaid funding and an increase in uninsured patients could further weaken smaller or rural hospitals, prompting closures, service reductions or consolidation — moves that would further increase market concentration and, potentially, commercial prices.
Real-World Impact: One Patient's Story
Some patients already feel severe financial consequences. In early 2020, Estevan Rodriguez, a bartender in Monterey County, had surgery for a staph infection that generated nearly $168,000 in charges. Insurance covered most costs, but Rodriguez was left with a $5,665 balance that he repaid over two years at just over $200 per month. He cut subscriptions, switched to cheaper services, used food banks and worked more — sacrificing time with his children to cover medical debt.
Community Hospital of the Monterey Peninsula — listed by California's affordability office as one of seven "high-cost" hospitals in the state — says questions about its designation should be directed to the California Hospital Association. The affordability office's analysis attributed high local prices primarily to limited market competition rather than higher operating costs or superior quality.
What Comes Next?
Whether states will allow hospitals to raise commercial prices to offset federal Medicaid cuts remains unsettled. Affordability boards must consider mitigating factors, including federal and state policy changes, when evaluating performance against targets. Some board members have expressed skepticism about permitting higher commercial rates as a justification for exceeding caps.
The outcome — through litigation, regulatory decisions, or future state and federal policy changes — will shape whether spending caps effectively restrain rising health costs or whether providers will succeed in pushing those costs onto employers and private consumers.
Reporting note: This article was first published by KFF Health News, a national newsroom producing in-depth journalism about health issues and part of the nonpartisan Kaiser Family Foundation (KFF).
