California gives its largest managed-care organization a special deal
February 14, 2022
Kaiser Health News reported on a deal signed by California and Kaiser Permanente with regards to Medi-Cal enrollment. The agreement raised questions because the terms were negotiated privately and not offered to other Medi-Cal insurers. The agreement has some interesting facets, mostly stemming from Kaiser's dual role as both an insurer and a provider, and also from Kaiser's size in the state.
Half of Medi-Cal insurers subcontracted care for a subset of their patients to Kaiser, which is not only an insurer, but also a provider. Those insurers enjoyed a small markup on Kaiser's services, but this new deal allows Kaiser to enroll those patients (formerly customers of competing insurers) as its own. Additionally, Kaiser is allowed to limit enrollment to its previous patients, a special term that other insurers do not get to enjoy. The ability of Kaiser to limit enrollment has raised questions of whether or it it can effectively game the actuarial odds for its own benefit.
State leadership cited the risk of losing Kaiser's participation altogether if the state did not grant Kaiser's request for special terms. Given Kaiser's size and that they are reportedly losing money on Medi-Cal, the state might not have had great alternatives. This situation highlights a challenge with having only a few large healthcare providers that serve much of the state's needs.
Regardless, the optics for this no-bid contract are not great, given that other insurers had to undergo a bidding process, the governor's no-bid contracts during the earlier parts of the pandemic, and Kaiser's previous partnership with the governor.