OCA baseline report: California health spending rose 8.2% in 2023; admin costs and profits drew scrutiny

OCA staff presented key findings from its inaugural baseline report to the advisory committee on June 16: total statewide health care expenditures (THCE) rose from about $377.6 billion in 2022 to $408.6 billion in 2023, an 8.2% increase; per‑capita THCE rose from $9,676 to $10,847 (an 8.4% increase). Breakdowns by market: The report showed 2023 shares and growth by major market: commercial spending rose 5.8% to $127.8 billion (about 31% of statewide THCE), Medicare (non‑dual) grew 6.0% to $112.6 billion (28% share), and Medi‑Cal grew 6.5% to $134.1 billion (33% share). Dual‑eligible spending reported separately rose 35% year over year, from $6.5 billion to $8.8 billion, driven in part by changes in how dual‑eligible services were reported. Per‑member measures and drivers: Total medical expense (TME) per member per year increased most rapidly in the commercial market (roughly 5% growth PMPY), while Medi‑Cal TME PMPY rose more slowly (about 1.2%). Service categories contributing most to recent TME growth included retail pharmacy, outpatient hospital services and capitation. Retail pharmacy spending growth was repeatedly cited in committee discussion as a key driver. Administrative costs and profits: A slide showing payer administrative costs and profits per member attracted substantial attention: OCA used medical loss ratio (MLR) filings (for large insurers) and department financial filings (for smaller Medicare Advantage payers) to estimate administrative cost & profit components. For example, commercial administrative costs and profits per member rose from $463 to $580 year over year (a 25% increase) and accounted for about 8% of commercial THC in 2023; Medi‑Cal managed care administrative costs and profits rose from ~$495 to $625 (about 15% of Medi‑Cal THC). Several committee members and a public commenter asked OCA to probe drivers of that increase and to explain reporting differences across markets. Data collection notes: OCA collected TME directly from commercial and Medicare Advantage payers (mandatory submitters) and worked with DHCS to capture Medi‑Cal managed care and fee‑for‑service spending. OCA noted the baseline report understates commercial administrative cost and profit spending because some self‑insured plans did not report admin/profit detail. OCA published an accompanying data book showing payer‑level figures, age and diagnosis adjustments, and formulas used to derive PMPY and per‑capita figures. Next steps: OCA staff said they will keep improving the baseline data (resolve classification of some DHCS spending, refine admin/profit reporting, and add subsequent years) and will use the validated baseline as the starting point for monitoring the statutory health care spending target.