OCA baseline report: California health spending rose 8.2% from 2022 to 2023; insurers' administrative costs flagged as large growth driver

The Office of Health Care Affordability (OCA) released a baseline report showing California total health care expenditures (THCE) rose from $377,600,000,000 in 2022 to $408,600,000,000 in 2023, an increase of $31 billion (8.2%). Deputy Director Vishal Pagani reported THCE per capita rose from $9,676 in 2022 to $10,847 in 2023, an 8.4% increase.

Why it matters: OCA said the findings help establish a statewide baseline for monitoring health spending and for the Board’s affordability mandate. The report also highlighted that insurer administrative costs and profits—particularly in the commercial market—grew sharply and are a material contributor to recent spending increases, a trend hospital and consumer advocates urged OCA to investigate further.

Key numbers and trends: OCA’s staff reported market‑level changes between 2022 and 2023: commercial spending grew 5.8%, Medicare (non‑dual) grew 6.0% and Medi‑Cal grew 6.5%. On a per‑member basis, OCA reported commercial total health care spending per member per year rose about 6.4%, Medicare about 5.4% and Medi‑Cal roughly 2.9%. Pagani told the Board, “THCE per capita was roughly 9,676 in 2022, and $10,847 in 2023.”

Administrative costs: The baseline report and Board discussion flagged a pronounced increase in commercial administrative costs and profits—about a 25% year‑over‑year rise in the commercial market’s admin/profit component, according to OCA’s summary of the data. California Hospital Association and several board members said that rise merits additional scrutiny. Ben Johnson of the California Hospital Association told the Board, “CHA shared at the time that we could not replicate OCA’s data, and we still can’t,” and urged additional quality control and re‑review of OCA’s methodology.

Coding correction disclosed: OCA staff also disclosed a coding discrepancy that affected an early payment‑to‑cost ratio calculation used to identify high‑cost hospitals. Deputy Pagani explained staff found an omission of one hospital revenue center—therapeutic radiology—when Python‑generated output was compared with Stata replication. OCA re‑ran the calculation including all 75 revenue centers and reported the set of hospitals deemed “high cost” and the sector target value did not change. Pagani said the agency updated its website and added an appendix showing how the ratios changed after correction, and praised the staff for transparency.

Data sources and limits: The baseline report used claims, encounter and financial submissions from commercial plans, Medicare Advantage, CMS hospital cost reports and HCAI hospital financial disclosures. OCA noted that commercial administrative cost and profit spending is likely understated because self‑insured plans did not fully report administrative/profit data. OCA plans to publish a data book soon with demographically adjusted figures and payer‑level breakdowns.

What’s next: Board members asked OCA to (1) investigate the causes of the rapid growth in administrative costs and profits; (2) compare OCA spending estimates to other external estimates for validation; and (3) complete planned follow‑up publications (including a payer‑level data book and demographically adjusted results). OCA said it will continue validating submissions and working with reporting entities to improve completeness.

Context and caveats: OCA staff emphasized the baseline is an initial product that will be refined as additional data arrive and as the agency enhances quality control. Pagani said the agency remains committed to improving its methods and iterating on the results as more reporting occurs.

Ending: The Board received the baseline report as an informational item and invited public and stakeholder review; OCA said it would return with additional validation and a more detailed data book in coming weeks.