No-bid Medicaid contract for Kaiser Permanente is now California law, but key details are missing

Reviewed by Emily Henderson, B.Sc.Jul 19 2022

[Editor's note: KHN is not affiliated with Kaiser Permanente.]

California lawmakers have approved a controversial no-bid statewide Medi-Cal contract for HMO giant Kaiser Permanente over the objection of county governments and competing health plans. But key details — including how many new patients KP will enroll — are still unclear.

On June 30, with little fanfare, Gov. Gavin Newsom signed the bill that codifies the deal, despite concerns first reported by KHN that KP was getting preferential treatment from the state that would allow it to continue enrolling a healthier pool of Medi-Cal patients, leaving other health plans with a disproportionate share of the program's sickest and costliest patients. Medi-Cal, California's version of Medicaid, the government-funded health insurance program for people with low incomes, covers nearly 14.6 million Californians, 84% of whom are in managed-care plans.

Now that the debate is over, opponents of the KP deal are looking ahead.

"We look forward to working with the state on implementing the statewide contract, and we will continue to advocate the value and importance of local plans in providing care to their communities," said Linnea Koopmans, CEO of Local Health Plans of California, which spearheaded the opposition.

Kaiser Permanente is a huge player in California's health insurance market, covering nearly a quarter of all Golden State residents. But its slightly less than 900,000 Medi-Cal enrollees are only about 7% of that program's total managed-care membership.

Kaiser Permanente has long been allowed to limit its Medi-Cal membership by accepting only people who have been KP members in the recent past — primarily in employer-based or Affordable Care Act plans — and their immediate family members.

Under the new law, the number of Kaiser Permanente enrollees in the program "would be permitted to grow by 25%" over the five-year life of the contract, starting from its level on Jan. 1, 2024, when the contract takes effect, said Katharine Weir-Ebster, a spokesperson for the Department of Health Care Services, which runs Medi-Cal. But that 25% figure is not in the text of the law — and the precise magnitude of the intended enrollment increase for KP remains unclear.

Currently, most of KP's Medi-Cal members are covered through subcontracts with local, publicly governed health plans around the state. Under the new law, those members would be covered directly by Kaiser Permanente under its statewide contract. Proponents say the change will increase efficiency, reduce confusion for consumers, and make Kaiser Permanente more accountable to the state.

Opponents have argued that having a national behemoth compete with local plans — especially in places such as Orange, Ventura, San Mateo, and Sonoma counties, where county-operated plans have been the sole Medi-Cal option — could weaken community control over health care and compromise the safety net system that serves California's most vulnerable residents.

The new law commits KP to increasing its footprint in Medi-Cal by accepting certain categories of new enrollees, including current and former foster care youths, kids who have received services from another child welfare agency, seniors who are eligible both for Medi-Cal and Medicare, and enrollees who fail to choose a health plan and are assigned one by default.

Nearly half of Medi-Cal enrollees in counties with more than one health plan are assigned by default, Weir-Ebster said. The law, however, doesn't specify how many default enrollees Kaiser Permanente will accept, saying only that the number will be based on KP's "projected capacity" in each county or region.

Another significant source of enrollment growth for Kaiser Permanente will be patients — and their family members — transferring out of KP commercial plans in counties where KP will be a Medi-Cal option for the first time.

Some prominent consumer advocacy groups argue that any increase in Kaiser Permanente's Medi-Cal population is a positive development, especially since the HMO gets high marks for the quality of its care.

"We think that system is something that more Medi-Cal members should have access to, and this bill is a step in that direction," said Kiran Savage-Sangwan, executive director of the California Pan-Ethnic Health Network, which advocates for equity in health care.

Kaycee Velarde, head of Medi-Cal contracting for KP, said via email that the deal will give more people "access to our high-quality Medi-Cal managed care plan" and allow for better collaboration with the state "to improve quality for a broader number of Medi-Cal enrollees."

But exactly how the new arrangement will work remains unclear.

The specifics — including the enrollment growth figure — are expected to be enshrined in a memorandum of understanding separate from the contract. That has raised some eyebrows, since MOUs are not typically binding in the same way contracts are. Nor is it clear when the details will come.

"Our expectation is that the Department of Health Care Services is developing the MOU," Velarde said. The department doesn't have an estimate of when a draft will be issued, Weir-Ebster said.

Many skeptics of the deal remain concerned about its impact on the safety-net population. The law says Kaiser Permanente will provide the "highest need" specialty services to non-KP members in certain areas of the state. But it does not specify which services or where they will be provided. Those details, expected to be in the MOU, have not yet been decided, Weir-Ebster said.

Leslie Conner, CEO of Santa Cruz Community Health, which runs three clinics in Santa Cruz County, said access to specialty care is a challenge for patients. "That's going to be a remaining problem that I hope Kaiser would work with the community to address," she said. "If we don't all figure it out together, there's going to be winners and losers, and, honestly, the losers are always the low-income people."

Lawmakers did make a small number of changes to the original bill intended to address opponents' concerns. One of them, aimed at local health plans' fear of having a sicker pool of Medi-Cal enrollees, says all Medi-Cal managed-care plans should be paid in "an actuarially sound manner" in line with the medical risk of their enrollees.

Another one directs the state to assess, before the contract begins, whether KP is adequately complying with behavioral health coverage requirements. The health care giant has come under fire in recent years for providing inadequate mental health services, and the state Department of Managed Health Care is investigating the HMO's mental health program after a sharp increase in complaints, said Rachel Arrezola, a department spokesperson.

Sal Rosselli, president of the National Union of Healthcare Workers, which has waged a pitched battle against KP over mental health care, said the provision in the new law to assess compliance is insufficient. The union had wanted KP to undergo an annual certification process that would have barred it from enrolling new Medi-Cal enrollees in any year it wasn't certified.

"Can you imagine any health plan would be granted such a large expansion of its Medi-Cal contract if it couldn't provide therapy for cancer or cardiac care?" Rosselli said.

Ultimately, KP's contract creates more choice for the Medi-Cal population, said Linda Nguy, a lobbyist with the Western Center on Law & Poverty. But the group, which advocates for people with low incomes, pledged to keep an eye on how the new law is rolled out.

"We will be monitoring it and certainly raising issues as things come up," Nguy said.

This story was produced by KHN, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.