Kaiser’s secret deal with the state exposes two problems

The news that California proposes to give Kaiser Permanente a no-bid direct contract to participate in Medi-Cal across the state has raised a ruckus because the deal was reached in secret in the governor’s office. There was no transparency or input from stakeholders who have a vested interest in the outcome, and other commercial health plans will have to bid in an open procurement process to participate in Medi-Cal.

The proposed deal also gives Kaiser the ability to continue to choose who in Medi-Cal it takes as members, which no other plan, public or commercial, has the privilege of doing. The state and Kaiser call this continuity of coverage. The rest of us call it cherry-picking. 

Let’s take a look behind the curtain and see why this deal sidesteps the bigger issue – the chronic underfunding of Medi-Cal – and leaves the other public and commercial plans holding the bag.

Kaiser says it loses $1.8 billion a year on their 900,000 Medi-Cal members. That’s close to $2,000 per member. It is not because Kaiser is inefficient. It is a very well organized, vertically integrated system. It’s because of the consistently low reimbursement rates provided by the federal and state government for the Medi-Cal program.

Unlike other Medi-Cal plans, Kaiser can control who and how many get into their plan, which is mainly a relatively healthy population of individuals who were recently covered by Kaiser. The other Medi-Cal managed care plans and their networks of mostly safety net providers take anyone who qualifies for Medi-Cal. They have to provide more care with fewer resources for a sicker population.

Medi-Cal members also come with a host of other challenges with social determinants, a polite way of saying obstacles to good health. Poverty, language barriers, education limits and racism are among the circumstances we call social determinants.

Those barriers make Medi-Cal beneficiaries the most vulnerable population segment. Yet, the Medi-Cal program receives much lower reimbursement rates than Medicare or commercial plans. Kaiser illustrates the problem this presents perfectly. Even a highly integrated system cannot afford to take care of the lowest risk Medi-Cal members without incurring a financial loss.

If Kaiser can’t break even when providing care for Medi-Cal members, it is clear evidence of the long-term underfunding of Medi-Cal. How is this secret deal with the state going to make Medi-Cal any better?

As CEO of L.A. Care Health Plan, the largest public Medi-Cal Managed Care Plan in the state, we have no quarrel with Kaiser. We offer it as an option to our own employees. Kaiser has been a subcontracted “Plan Partner” for 25 years, along with two other commercial plans. We have had a harmonious and collaborative arrangement with all three of our subcontracted Plan Partner health plans. 

The state, through its closed door proposal, has now created a competitor out of Kaiser rather than a collaborator. It has provided no real increase in capacity for Medi-Cal members and has left safety net providers with even fewer resources than before.

Are we as a society OK with our poorest and most vulnerable individuals and families getting the fewest resources? 

The persistent underfunding of Medi-Cal that this Kaiser deal has brought to light is an example of the systemic racism that has been in place for many years. Giving Kaiser a direct contract won’t solve this problem, so I call upon California legislators to reject this sweetheart deal, and instead focus on increasing our statewide investment in the entire Medi-Cal and safety net system, so all Medi-Cal members can benefit, not just those who happen to fit Kaiser’s requirements.