California insurers sought data on hospital cost growth in relation to benchmarks governed by the state’s new health care affordability initiative.

As California’s Office of Health Care Affordability (OHCA) began implementing statewide cost growth benchmarks, a key challenge emerged: how to define the hospital sectors that would be subject to these targets. The state’s goal is to limit annual health care spending growth to 3 percent by 2029, but as of early 2025, OHCA had not yet determined how to segment the hospital industry for benchmarking purposes. The Association of California Life and Health Insurance Companies (ACLHIC) sought to proactively inform this process by identifying meaningful ways to define hospital sectors and evaluate historical cost trends.

NORC conducted a data-driven analysis of hospital spending patterns to identify potential sector definitions aligned with OHCA’s policy goals.

We partnered with ACLHIC to analyze hospital-level spending data from the California Health and Human Services Agency (CalHHS) to inform sector definitions relevant to California’s health care cost growth benchmarks. Using CalHHS’s Hospital Annual Financial Disclosure Reports from 2017 and 2023, NORC examined historical spending across a variety of hospital characteristics, including rurality, hospital service area (HSA), ownership status (i.e., profit status), size, and trauma designation.

Our analysis addressed questions such as:

• Which geographic areas experienced the highest hospital cost growth?
• How do ownership models and hospital size relate to cost trends?
• Are certain hospitals or hospital types driving disproportionate year-over-year growth?

NORC synthesized findings into a chart pack featuring key findings, data visualizations, and policy-relevant insights. This deliverable supports ACLHIC’s engagement with OHCA and contributes to broader discussions on structuring cost accountability in California’s hospital sector.