Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care. Existing law exempts a health care service plan from the requirements of the act if the plan is operated by a city, county, city and county, public entity, political subdivision, or public joint labor management trust that satisfies certain criteria, including that the plan requires providers to be reimbursed solely on a fee-for-service basis.

Existing law authorizes the Director of the Department of Managed Health Care, no later than May 1, 2021, to authorize 2 pilot programs, one in northern California and one in southern California, under which providers approved by the department may undertake risk-bearing arrangements with a voluntary employees beneficiary association (VEBA) with enrollment of more than 100,000 lives, notwithstanding the fee-for-service requirement described above, or a trust fund that is a welfare plan and a multiemployer plan with enrollment of more than 25,000 lives, for independent periods of time beginning no earlier than January 1, 2022, to December 31, 2025, inclusive, if certain criteria are met. Existing law requires the association or trust fund and each health care provider participating in each pilot program to report to the department information regarding cost savings and clinical patient outcomes compared to a fee-for-service payment model, and requires the department to report those findings to the Legislature no later than January 1, 2027. Existing law repeals these provisions on January 1, 2028.

This bill would instead authorize the director to authorize one pilot program in southern California, under which providers approved by the department may undertake risk-bearing arrangements with a VEBA, as specified above, if certain criteria are met. The bill would extend that repeal date to January 1, 2030. The bill would extend the period of time authorized for the pilot program to operate from December 31, 2025, to December 31, 2027. The bill would extend the deadline for the department to report the findings to the Legislature from January 1, 2027, to January 1, 2029.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care. Existing law exempts a health care service plan from the requirements of the act if the plan is operated by a city, county, city and county, public entity, political subdivision, or public joint labor management trust that satisfies certain criteria, including that the plan requires providers to be reimbursed solely on a fee-for-service basis.

Existing law authorizes the Director of the Department of Managed Health Care, no later than May 1, 2021, to authorize 2 pilot programs, one in northern California and one in southern California, under which providers approved by the department may undertake risk-bearing arrangements with a voluntary employees beneficiary association (VEBA) with enrollment of more than 100,000 lives, notwithstanding the fee-for-service requirement described above, or a trust fund that is a welfare plan and a multiemployer plan with enrollment of more than 25,000 lives, for independent periods of time beginning no earlier than January 1, 2022, to December 31, 2025, inclusive, if certain criteria are met. Existing law requires the association or trust fund and each health care provider participating in each pilot program to report to the department information regarding cost savings and clinical patient outcomes compared to a fee-for-service payment model, and requires the department to report those findings to the Legislature no later than January 1, 2027. Existing law repeals these provisions on January 1, 2028.

This bill would instead authorize the director to authorize one pilot program in southern California, under which providers approved by the department may undertake risk-bearing arrangements with a VEBA, as specified above, if certain criteria are met. The bill would extend that repeal date to January 1, 2030. The bill would extend the period of time authorized for the pilot program to operate from December 31, 2025, to December 31, 2027. The bill would extend the deadline for the department to report the findings to the Legislature from January 1, 2027, to January 1, 2029.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care. Existing law exempts a health care service plan from the requirements of the act if the plan is operated by a city, county, city and county, public entity, political subdivision, or public joint labor management trust that satisfies certain criteria, including that the plan requires providers to be reimbursed solely on a fee-for-service basis.

Existing law authorizes the Director of the Department of Managed Health Care, no later than May 1, 2021, to authorize 2 pilot programs, one in northern California and one in southern California, under which providers approved by the department may undertake risk-bearing arrangements with a voluntary employees beneficiary association (VEBA) with enrollment of more than 100,000 lives, notwithstanding the fee-for-service requirement described above, or a trust fund that is a welfare plan and a multiemployer plan with enrollment of more than 25,000 lives, for independent periods of time beginning no earlier than January 1, 2022, to December 31, 2025, inclusive, if certain criteria are met. Existing law requires the association or trust fund and each health care provider participating in each pilot program to report to the department information regarding cost savings and clinical patient outcomes compared to a fee-for-service payment model, and requires the department to report those findings to the Legislature no later than January 1, 2027. Existing law repeals these provisions on January 1, 2028.

This bill would instead authorize the director to authorize one pilot program in southern California, under which providers approved by the department may undertake risk-bearing arrangements with a VEBA, as specified above, if certain criteria are met. The bill would extend that repeal date to January 1, 2030. The bill would extend the period of time authorized for those pilot programs the pilot program to operate from December 31, 2025, to December 31, 2027. The bill would extend the deadline for the department to report the findings to the Legislature from January 1, 2027, to January 1, 2029.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care. Existing law exempts a health care service plan from the requirements of the act if the plan is operated by a city, county, city and county, public entity, political subdivision, or public joint labor management trust that satisfies certain criteria, including that the plan requires providers to be reimbursed solely on a fee-for-service basis.

Existing law authorizes the Director of the Department of Managed Health Care, no later than May 1, 2021, to authorize 2 pilot programs, one in northern California and one in southern California, under which providers approved by the department may undertake risk-bearing arrangements with a voluntary employees beneficiary association with enrollment of more than 100,000 lives, notwithstanding the fee-for-service requirement described above, or a trust fund that is a welfare plan and a multiemployer plan with enrollment of more than 25,000 lives, for independent periods of time beginning no earlier than January 1, 2022, to December 31, 2025, inclusive, if certain criteria are met. Existing law requires the association or trust fund and each health care provider participating in each pilot program to report to the department information regarding cost savings and clinical patient outcomes compared to a fee-for-service payment model, and requires the department to report those findings to the Legislature no later than January 1, 2027. Existing law repeals these provisions on January 1, 2028.

This bill would extend that repeal date to January 1, 2030. The bill would extend the period of time authorized for those pilot programs to operate from December 31, 2025, to December 31, 2027. The bill would extend the deadline for the department to report the findings to the Legislature from January 1, 2027, to January 1, 2029.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 2063

Author:(Maienschein)

As Amended Ver:June 17, 2024

Majority vote

SUMMARY

Extends the sunset for a pilot program authorized by the Department of Managed Health Care (DMHC) to operate from December 31, 2025 to December 31, 2027. Existing law authorizes 2 pilot programs, one in northern California and one in southern California, under which providers approved by the DMHC may undertake risk-bearing arrangements with a voluntary employees' beneficiary association (VEBA) with enrollment of more than 100,000 lives, or a trust fund that is a welfare plan and a multiemployer plan with enrollment of more than 25,000 lives, for independent periods of time beginning no earlier than January 1, 2022, to December 31, 2025, if certain criteria are met. Extends the deadline for DMHC to report the pilot program findings to the Legislature from January 1, 2027 to January 1, 2029.

Senate Amendments

Delete references to a pilot program in northern California and trust fund to narrow the pilot authorization to the one existing pilot that is in process.

COMMENTS

1. California's regulation of health insurance. The business of health insurance in California is subject to a complex patchwork of federal and state regulations. Different rules apply depending on whether insurance coverage is purchased directly by individuals or on behalf of a group, as in job-based health insurance. There are essentially three relevant regulatory frameworks for health insurance and they are DMHC, the California Department of Insurance, and the federal Department of Labor for regulation of self-insured employee health benefit plans.

The Employee Retirement Income Security Act of 1974 (ERISA) prohibits states from enforcing state laws relating to private sector employee benefit plans established by employers or other sponsors in order to provide health coverage. In general, ERISA requirements for employee health benefit plans are less far-reaching than the state regulations that apply to insurance carriers. Since self-insured employee benefit plans are subject only to ERISA, consumers covered by self-insured plans can have fewer consumer protections than those covered through fully insured plans that are required to comply with California's consumer protection laws.

An arrangement established pursuant to a collective bargaining agreement may be a single employer or multiemployer plan. A Taft-Hartley trust is a multiemployer plan that, in addition to being established or maintained under or pursuant to one or more collective bargaining agreements, also meets criteria outlined in the Labor-Management Relations Act of 1947 (referred to as the Taft-Hartley Act). Plans established or maintained under or pursuant to collective bargaining agreements may be governed by both the Taft-Hartley Act and ERISA. VEBAs are authorized participants in this bill's pilot program.

1. DMHC Licensure Requirements.
   1. Risk Arrangements. According to a 2018 State Health and Value Strategies report, the California Knox-Keene Health Care Service Plan Act (KKA) is the legal framework through which health care entities in the state are governed. The long-standing practice of providers accepting financial risk in California, and the bankruptcies of large provider groups in the 1990s, led DMHC to adopt prescriptive regulations governing health plans and provider risk bearing organizations (RBOs). The KKA requires licensure by DMHC of health plans that accept global risk, defined as risk for both institutional and professional services, for the provision of health care services. The primary forms of risk arrangements include capitation, risk pools, withholds and stop-loss arrangements. Capitation is a set amount of money received by or paid to a provider on a per member per month basis rather than on the level of health care services provided. DMHC is also authorized to exempt entities from KKA requirements under certain circumstances.
   2. Risk Regulations. DMHC finalized regulations seeking to clarify the level of financial risk that would trigger health plan licensure. The regulations proposed different categories of licensure, including "full" and "restricted." Traditional health insurance plans would be required to obtain a full license to operate. Entities that accept global risk as a subcontractor to a fully-licensed health plan could obtain a restricted license. A restricted licensee would not be subject to rules concerning marketing and enrollment. Entities that have a small market share and/or operate in well-served areas could be granted an exemption from California's licensure requirements as those dynamics reduce the risk of disrupting the delivery of care in the event of insolvency.
   3. RBOs. An entity in California that only takes financial risk within the scope of its professional license (e.g., primary care capitation) is required to register as an RBO. DMHC retains limited oversight of RBOs; most of the direct oversight is delegated to the health plans with which RBOs contract. RBOs are required to submit quarterly and annual reports to DMHC so the DMHC can evaluate their financial condition. The pilot program in this bill authorizes RBOs to contract with VEBAs.
2. AB 1124 pilot program. AB 1124 (Maienschein), Chapter 266, Statutes of 2020, authorizes DMHC, to establish two pilot programs that allow healthcare providers to undertake risk-bearing arrangements. According to the author, the two pilot programs were expected to begin no later than May 1, 2021, with a sunset date of January 1, 2028. However, due to COVID-19, the pilot program experienced a two-year delay. This bill extends the sunset date of the AB 1124 pilot program from January 1, 2028, to January 1, 2030. It introduces a two-year pilot program extension, allowing approved applicants, like VEBA, to continue their direct contracting program without any unnecessary interruptions. The author states that securing approval for the extension is imperative, especially considering that as of January 1, 2024, 5,000 members enrolled, and disrupting the process prematurely could lead to adverse outcomes. According to DMHC, Southern California Schools VEBA was authorized to participate in the pilot program located in southern California on December 10, 2021, for implementation effective January 1, 2022.

According to the Author

Labor union trusts cannot utilize value-based payment mechanisms with the provider networks in their self-funded plan networks. This results in higher health care costs that could be avoided. Independent, impartial research on health care cost drivers and delivery system reform conducted by the U.C. Berkeley School of Public Health and the Integrated Healthcare Association consistently show that the solution to rising health care costs is to increase the percentage of health care that is delivered through clinically integrated providers that share the financial risk with health plans, government and employer payers. The author concludes that to date, this kind of health care financing and delivery model has been used in the fully-insured employer-sponsored HMO, Medicare Advantage and Medi-Cal Managed Care market segments.

Arguments in Support

California Schools VEBA, sponsor of this bill, writes that over 5,000 members are enrolled in this pilot and the extension in this bill is imperative to prevent avoidable disruptions in care and to the direct contracting pilot programs approved by the DMHC. California Schools VEBA is a 501(c)(9) non-profit trust that currently services more than 90 participating employers and over 150,000 members, throughout Southern California. In 2019, the VEBA Resource Center was launched to help members assess, identify and remove barriers to achieving optimal health and provide quality health care for its members and lower costs for their employers. America's Physician Groups writes that the Office of Health Care Affordability (OHCA) recently released a draft provider alternative payment model standard for review and adoption by California's Health Care Affordability Board. The standard supports the very purpose of the pilot; to move away from a costly, fragmented fee-for-service payment model to one that emphasizes pay-for-quality patient care outcomes.

Arguments in Opposition

The California Association of Health Plans, the Association of California Life and Health Insurance Companies, and America's Health Insurance Plans, write that this arrangement sets a dangerous precedent and does not provide the important consumer protections that licensed health plans must extend to their enrollees under the KKA. It bears reminding that the DMHC promulgated regulations in October 2019 to address concerns regarding the financial solvency of existing RBOs. As of September 2023, there were 18 RBOs that were on Corrective Action Plans for failure to meet financial solvency requirements. Furthermore, the DMHC, in four years, has not taken any meaningful steps to enact the program. California's KKA licensed health plans are tightly regulated and comply with a wide array of requirements that protect the market and health service consumers. Among other things, fully licensed health plans must meet stringent financial solvency requirements, ensure timely access to care, implement consumer grievance processes, and participate in independent medical reviews. The opposition concludes that considering the enactment of the OHCA and its ongoing work to lower health costs, plus given the state's deficit, there is no compelling need to eliminate the critical role of fully licensed health plans in order to continue exploring pilot projects.

FISCAL COMMENTS

According to the Senate Appropriations Committee, the DMHC anticipates consulting costs of $175,000 in 2027-28 and $175,000 in 2028-29, to review clinical patient outcomes reported by the pilot participant (Managed Care Fund).

VOTES:

ASM HEALTH: 15-0-1

YES: Bonta, Aguiar-Curry, Arambula, Wendy Carrillo, Flora, Haney, Jones-Sawyer, Maienschein, McCarty, Joe Patterson, Rodriguez, Sanchez, Santiago, Schiavo, Weber

ABS, ABST OR NV: Waldron

ASM APPROPRIATIONS: 14-0-1

YES: Wicks, Sanchez, Arambula, Bryan, Calderon, Wendy Carrillo, Mike Fong, Grayson, Haney, Hart, Jim Patterson, Pellerin, Ta, Villapudua

ABS, ABST OR NV: Dixon

ASSEMBLY FLOOR: 72-0-8

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Essayli, Flora, Mike Fong, Vince Fong, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

ABS, ABST OR NV: Cervantes, Megan Dahle, Dixon, Friedman, Gabriel, Holden, Mathis, Luz Rivas

SENATE FLOOR: 40-0-0

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

UPDATED

VERSION: June 17, 2024

CONSULTANT: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0004138

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 2063

Author:(Maienschein)

As Amended Ver:June 17, 2024

Majority vote

SUMMARY

Extends the sunset for a pilot program authorized by the Department of Managed Health Care (DMHC) to operate from December 31, 2025 to December 31, 2027. Existing law authorizes 2 pilot programs, one in northern California and one in southern California, under which providers approved by the DMHC may undertake risk-bearing arrangements with a voluntary employees' beneficiary association (VEBA) with enrollment of more than 100,000 lives, or a trust fund that is a welfare plan and a multiemployer plan with enrollment of more than 25,000 lives, for independent periods of time beginning no earlier than January 1, 2022, to December 31, 2025, if certain criteria are met. Extends the deadline for DMHC to report the pilot program findings to the Legislature from January 1, 2027 to January 1, 2029.

Senate Amendments

Delete references to a pilot program in northern California and trust fund to narrow the pilot authorization to the one existing pilot that is in process.

COMMENTS

1. California's regulation of health insurance. The business of health insurance in California is subject to a complex patchwork of federal and state regulations. Different rules apply depending on whether insurance coverage is purchased directly by individuals or on behalf of a group, as in job-based health insurance. There are essentially three relevant regulatory frameworks for health insurance and they are DMHC, the California Department of Insurance, and the federal Department of Labor for regulation of self-insured employee health benefit plans.

The Employee Retirement Income Security Act of 1974 (ERISA) prohibits states from enforcing state laws relating to private sector employee benefit plans established by employers or other sponsors in order to provide health coverage. In general, ERISA requirements for employee health benefit plans are less far-reaching than the state regulations that apply to insurance carriers. Since self-insured employee benefit plans are subject only to ERISA, consumers covered by self-insured plans can have fewer consumer protections than those covered through fully insured plans that are required to comply with California's consumer protection laws.

An arrangement established pursuant to a collective bargaining agreement may be a single employer or multiemployer plan. A Taft-Hartley trust is a multiemployer plan that, in addition to being established or maintained under or pursuant to one or more collective bargaining agreements, also meets criteria outlined in the Labor-Management Relations Act of 1947 (referred to as the Taft-Hartley Act). Plans established or maintained under or pursuant to collective bargaining agreements may be governed by both the Taft-Hartley Act and ERISA. VEBAs are authorized participants in this bill's pilot program.

1. DMHC Licensure Requirements.
   1. Risk Arrangements. According to a 2018 State Health and Value Strategies report, the California Knox-Keene Health Care Service Plan Act (KKA) is the legal framework through which health care entities in the state are governed. The long-standing practice of providers accepting financial risk in California, and the bankruptcies of large provider groups in the 1990s, led DMHC to adopt prescriptive regulations governing health plans and provider risk bearing organizations (RBOs). The KKA requires licensure by DMHC of health plans that accept global risk, defined as risk for both institutional and professional services, for the provision of health care services. The primary forms of risk arrangements include capitation, risk pools, withholds and stop-loss arrangements. Capitation is a set amount of money received by or paid to a provider on a per member per month basis rather than on the level of health care services provided. DMHC is also authorized to exempt entities from KKA requirements under certain circumstances.
   2. Risk Regulations. DMHC finalized regulations seeking to clarify the level of financial risk that would trigger health plan licensure. The regulations proposed different categories of licensure, including "full" and "restricted." Traditional health insurance plans would be required to obtain a full license to operate. Entities that accept global risk as a subcontractor to a fully-licensed health plan could obtain a restricted license. A restricted licensee would not be subject to rules concerning marketing and enrollment. Entities that have a small market share and/or operate in well-served areas could be granted an exemption from California's licensure requirements as those dynamics reduce the risk of disrupting the delivery of care in the event of insolvency.
   3. RBOs. An entity in California that only takes financial risk within the scope of its professional license (e.g., primary care capitation) is required to register as an RBO. DMHC retains limited oversight of RBOs; most of the direct oversight is delegated to the health plans with which RBOs contract. RBOs are required to submit quarterly and annual reports to DMHC so the DMHC can evaluate their financial condition. The pilot program in this bill authorizes RBOs to contract with VEBAs.
2. AB 1124 pilot program. AB 1124 (Maienschein), Chapter 266, Statutes of 2020, authorizes DMHC, to establish two pilot programs that allow healthcare providers to undertake risk-bearing arrangements. According to the author, the two pilot programs were expected to begin no later than May 1, 2021, with a sunset date of January 1, 2028. However, due to COVID-19, the pilot program experienced a two-year delay. This bill extends the sunset date of the AB 1124 pilot program from January 1, 2028, to January 1, 2030. It introduces a two-year pilot program extension, allowing approved applicants, like VEBA, to continue their direct contracting program without any unnecessary interruptions. The author states that securing approval for the extension is imperative, especially considering that as of January 1, 2024, 5,000 members enrolled, and disrupting the process prematurely could lead to adverse outcomes. According to DMHC, Southern California Schools VEBA was authorized to participate in the pilot program located in southern California on December 10, 2021, for implementation effective January 1, 2022.

According to the Author

Labor union trusts cannot utilize value-based payment mechanisms with the provider networks in their self-funded plan networks. This results in higher health care costs that could be avoided. Independent, impartial research on health care cost drivers and delivery system reform conducted by the U.C. Berkeley School of Public Health and the Integrated Healthcare Association consistently show that the solution to rising health care costs is to increase the percentage of health care that is delivered through clinically integrated providers that share the financial risk with health plans, government and employer payers. The author concludes that to date, this kind of health care financing and delivery model has been used in the fully-insured employer-sponsored HMO, Medicare Advantage and Medi-Cal Managed Care market segments.

Arguments in Support

California Schools VEBA, sponsor of this bill, writes that over 5,000 members are enrolled in this pilot and the extension in this bill is imperative to prevent avoidable disruptions in care and to the direct contracting pilot programs approved by the DMHC. California Schools VEBA is a 501(c)(9) non-profit trust that currently services more than 90 participating employers and over 150,000 members, throughout Southern California. In 2019, the VEBA Resource Center was launched to help members assess, identify and remove barriers to achieving optimal health and provide quality health care for its members and lower costs for their employers. America's Physician Groups writes that the Office of Health Care Affordability (OHCA) recently released a draft provider alternative payment model standard for review and adoption by California's Health Care Affordability Board. The standard supports the very purpose of the pilot; to move away from a costly, fragmented fee-for-service payment model to one that emphasizes pay-for-quality patient care outcomes.

Arguments in Opposition

The California Association of Health Plans, the Association of California Life and Health Insurance Companies, and America's Health Insurance Plans, write that this arrangement sets a dangerous precedent and does not provide the important consumer protections that licensed health plans must extend to their enrollees under the KKA. It bears reminding that the DMHC promulgated regulations in October 2019 to address concerns regarding the financial solvency of existing RBOs. As of September 2023, there were 18 RBOs that were on Corrective Action Plans for failure to meet financial solvency requirements. Furthermore, the DMHC, in four years, has not taken any meaningful steps to enact the program. California's KKA licensed health plans are tightly regulated and comply with a wide array of requirements that protect the market and health service consumers. Among other things, fully licensed health plans must meet stringent financial solvency requirements, ensure timely access to care, implement consumer grievance processes, and participate in independent medical reviews. The opposition concludes that considering the enactment of the OHCA and its ongoing work to lower health costs, plus given the state's deficit, there is no compelling need to eliminate the critical role of fully licensed health plans in order to continue exploring pilot projects.

FISCAL COMMENTS

According to the Senate Appropriations Committee, the DMHC anticipates consulting costs of $175,000 in 2027-28 and $175,000 in 2028-29, to review clinical patient outcomes reported by the pilot participant (Managed Care Fund).

VOTES:

ASM HEALTH: 15-0-1

YES: Bonta, Aguiar-Curry, Arambula, Wendy Carrillo, Flora, Haney, Jones-Sawyer, Maienschein, McCarty, Joe Patterson, Rodriguez, Sanchez, Santiago, Schiavo, Weber

ABS, ABST OR NV: Waldron

ASM APPROPRIATIONS: 14-0-1

YES: Wicks, Sanchez, Arambula, Bryan, Calderon, Wendy Carrillo, Mike Fong, Grayson, Haney, Hart, Jim Patterson, Pellerin, Ta, Villapudua

ABS, ABST OR NV: Dixon

ASSEMBLY FLOOR: 72-0-8

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Essayli, Flora, Mike Fong, Vince Fong, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

ABS, ABST OR NV: Cervantes, Megan Dahle, Dixon, Friedman, Gabriel, Holden, Mathis, Luz Rivas

UPDATED

VERSION: June 17, 2024

CONSULTANT: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0004138

 THIRD READING  

Bill No: AB 2063

Author: Maienschein (D)

Amended: 6/17/24 in Senate

Vote: 21

SENATE HEALTH COMMITTEE: 10-0, 6/12/24

AYES: Roth, Nguyen, Glazer, Gonzalez, Grove, Hurtado, Limón, Menjivar, Rubio, Wiener

NO VOTE RECORDED: Smallwood-Cuevas

SENATE APPROPRIATIONS COMMITTEE: 6-0, 8/15/24

AYES: Caballero, Jones, Ashby, Becker, Seyarto, Wahab

NO VOTE RECORDED: Bradford

ASSEMBLY FLOOR: 72-0, 5/21/24 - See last page for vote

SUBJECT: Health care coverage

SOURCE: America’s Physician Groups

California Schools VEBA

DIGEST:

This bill extends, from January 1, 2028 to January 1, 2030, the authority for one pilot program in southern California under the Department of Managed Health Care for a voluntary employees’ beneficiary association to contract with health care providers using risk-based payment arrangements.

ANALYSIS:

Existing law:

1. Establishes the Department of Managed Health Care (DMHC) to regulate health plans (health plans) under the Knox-Keene Health Care Service Plan Act (Knox-Keene Act). [Health and Safety Code (HSC) §1340, et seq.]
   
2. Permits the DMHC director to exempt from the Knox-Keene Act any class of persons or plan contracts if they find the action to be in the public interest and not detrimental to the protection of subscribers, enrollees, or persons regulated under the Knox-Keene Act, and that the regulation of the persons or plan contracts is not essential to the purposes of the Knox-Keene Act. [HSC §1343]
   
3. Makes it unlawful for any person to engage in the business as a health plan in California or receive advance or periodic consideration in connection with a plan from or on behalf of persons in California unless such person has first secured from the director a license as plan or is exempted, as specified. Establishes requirements for licensure. [HSC §1349 and §1351]
4. Exempts from the Knox-Keene Act a health plan, including a self-insured reimbursement plan that pays for or reimburses any part of the cost of health care services, operated by any city, county, city and county, public entity, political subdivision, or public joint labor management trust that satisfies specified criteria including that providers are reimbursed solely on a fee-for-service basis, so that providers are not at risk in contracting arrangements. [HSC §1349.2]
5. Requires every contract between a health plan and a risk-bearing organization (RBO) to include specified provisions related to the RBOs administrative and financial capacity including reporting requirements, auditing, and corrective actions. [HSC §1375.4]
6. Authorizes, until January 1, 2028, the DMHC director to authorize one pilot program in northern California and one pilot program in southern California whereby approved providers may undertake risk-bearing arrangements with a voluntary employees’ beneficiary association (VEBA) with enrollment of greater than 100,000 lives or a trust fund that is a welfare plan and a multiemployer plan with enrollment of greater than 25,000 lives if specified criteria are met, including, in part:
   1. The VEBA or trust fund has entered into a contract with one or more health care providers under which each provider agrees to accept risk-based or global risk payment from the VEBA or trust fund;
   2. Each risk-bearing provider is registered pursuant to existing law and applicable DMHC regulations, if the provider accepts professional capitation and is delegated the responsibility for processing and payment of claims;
   3. Each global risk-bearing provider holds, or will obtain in conjunction with the pilot program application, a limited or restricted license;
   4. Each risk-bearing provider continues to comply with applicable financial solvency standards and audit requirements, including financial reporting on a quarterly basis, during the pilot;
   5. The VEBA or trust is responsible for providing basic health care services, prescription drug benefits, continuity of care, network adequacy and timely access to care, as well as other requirements;
   6. The VEBA or trust submits an application for DMHC to select up to two qualified participants for the pilot program, including the contract of each health care provider that has entered into a contract under the pilot; and,
   7. The VEBA or trust fund and each participating health care provider agree to collect and report to DMHC, in each year of the pilot, in a manner and frequency determined by DMHC, information regarding the comparative cost savings when compared to fee-for-service payment, performance measurements for clinical patient outcomes, and enrollee satisfaction. Authorizes DMHC to require additional information. [HSC §1343.3]
7. Requires the participating VEBA or trust fund to appoint an ombudsperson, and if an enrollee is not satisfied with a result refer the enrollee to the DMHC grievance and appeal process, which is binding on the VEBA or trust fund. [HSC §1343.3]
   
8. Requires the global and risk-bearing providers participating in the pilot to be approved by DMHC. Requires DMHC to retain the right to disapprove any pilot program at any time, as specified. [HSC §1343.3]
   
9. Requires DMHC, after the termination of both pilot programs and before January 1, 2027, to submit a report to the Legislature regarding the costs and clinical patient outcomes of the pilot programs compared to fee-for-service payment models, including data on enrollee satisfaction, consumer and provider grievances, appeals, and independent medical reviews. [HSC §1343.3]

This bill:

1. Limits the authority of the pilot project to one pilot program in southern California whereby providers may undertake risk-based arrangements with a VEBA with enrollment of greater than 100,000 lives, notwithstanding existing law.
   
2. Extends the pilot project sunset date from December 31, 2025 to December 31, 2027.
3. Extends the DMHC report deadline from January 1, 2027 to January 1, 2029.
4. Extends the sunset on the statute from January 1, 2028 to January 1, 2030.

Comments

Author’s statement. According to the author, labor union trusts cannot utilize value-based payment mechanisms with the provider networks in their self-funded plan networks. This results in higher health care costs that could be avoided. Independent, impartial research on health care cost drivers and delivery system reform conducted by the U.C. Berkeley School of Public Health and the Integrated Healthcare Association consistently show that the solution to rising health care costs is to increase the percentage of health care that is delivered through clinically integrated providers that share the financial risk with health plans, government and employer payers. To date, this kind of health care financing and delivery model has been used in the fully insured employer-sponsored HMO, Medicare Advantage and Medi-Cal Managed Care market segments.

1. Risk-based contracting. The Centers for Medicare and Medicare Services (CMS) describes risk-based contracting as arrangements where participants agree to be held financially responsible (take financial risk) for the quality and cost of health care services provided to beneficiaries. The structure is intended to incentivize participants to improve quality and lower costs through care coordination and preventive care. Upside risk is one-sided where participants who are successful at lowering costs may be eligible to receive payments. Participants are unsure of financial gains. In downside risk, participants are uncertain about potential financial losses. Two-sided risk establishes uncertainty in both financial gains and losses.
   
2. Risk Bearing Organizations (RBOs). An RBO is a physician-owned provider group that, in its contracts with health plans, pays claims and assumes financial risk for the cost of all health care services (inpatient and outpatient) for each enrolled person assigned to the RBO by accepting a fixed monthly payment (also referred to as “capitation”). RBOs are subject to financial solvency requirements and regular financial reporting. As part of DMHC’s financial oversight responsibilities, DMHC actively monitors RBOs to make sure they can meet their financial obligations to consumers and purchasers. According to DMHC’s most recently published Annual Report, at the end of 2023 there were 210 registered RBOs. In 2023, DMHC conducted 27 claims and provider dispute examinations of RBOs, and 21 were required to file a corrective action plan to address claims processing deficiencies. In response to deficiencies, RBOs remediated provider claims in the amount of $333,238, including additional payments, interests, and penalties.

1. Global risk regulations. On October 27, 2017, DMHC noticed intent for rulemaking to clarify licensure requirements for health plans, specifically requiring licensure for a person who accepts global risk (both institutional/hospital and professional risk) for services to subscribers or enrollees receiving “advance or periodic consideration” from or on behalf of subscribers or enrollees. The proposed regulation also set out requirements for a restricted license for entities that do not market directly to consumers or employers, but otherwise meet the statutory definition of a health plan. In addition, the proposed regulation stated specific criteria DMHC may apply in considering a request for exemption from licensure requirements. On October 8, 2018, the Office of Administrative Law rejected the regulation on the basis of clarity and incorrect procedure. The regulation was approved after four revisions and four comment periods on March 5, 2019, and took effect on July 1, 2019.

According to DMHC’s statement of reasons, existing law requires a health plan to assume “full financial risk” for the provision of covered health care benefits to enrollees or subscribers. However, “full financial risk” is not defined. As a result, provider groups that contract with health plans or other organizations to provide health care services assume at least some degree of both professional and institutional risk. These provider groups otherwise meet the definition of a health plan by arranging for health care services for enrollees and accepting at least a portion of global risk. Without a clear definition of what types and levels of risk may be assumed, entities that meet the definition of a health plan may be operating without a license. This is a violation of the law, which makes it unlawful to receive advance or periodic consideration in connection with a health plan without first securing a license or an exemption. In 2015, the California Court of Appeal, Second District, held that “the level of financial risk under a capitation agreement that causes a ‘risk bearing organization’ … to become a ‘health care service plan’ … is precisely the type of regulatory determination involving complex economic policy that should be made by DMHC…” (Hambrick v. Healthcare Partners Medical Group, Inc., (2015) 238 Cal.App.4th 124, 149). Regulation is necessary to set the level of assumption of financial risk that triggers a requirement to obtain licensure. Additionally, there are entities that contract only with other health plans to provide services to that health plan’s enrollees and subscribers that do not pose as great a risk to the stability of the health care delivery system because their overall impact on the health care market is limited. However, they still meet the definition of a health plan under the Knox-Keene Act. The regulation provides a separate “restricted license” for these entities, thereby limiting the confusion these entities have about the need for a license and the type of regulation that will be incurred.

The regulations require any person who assumes global risk to obtain a license to operate a health plan. Existing law requires the DMHC director to exempt any person from these regulations when the Director finds it is in the public interest and not detrimental to the protection of subscribers, enrollees, or persons regulated under the Knox-Keene Act.

1. Existing AB 1124 pilot. AB 1124 (Maienschein, Chapter 266, Statutes of 2020) created the pilot authority that is proposed to be extended under this bill. The pilot authorized by AB 1124 allows for a provider to accept risk or global risk payments from specified health care purchasers that are not licensed health plans. Health plans are regulated by DMHC and must comply with the Knox-Keene Act, which includes requirements to ensure delegated contractors (including risk-bearing providers who are registered as RBOs) also follow Knox-Keene Act requirements for timely payments and consumer protections. RBOs are not regulated by DMHC, but are monitored for financial solvency based on their role accepting global risk from health plans. DMHC confirms that only one pilot has been authorized. DMHC indicates that on December 10, 2021, California Schools VEBA (Cal-VEBA) in San Diego (a cosponsor of this bill) was authorized to participate in the AB 1124 pilot program effective January 1, 2022 subject to two conditions: a) Submission of executed provider contracts to demonstrate compliance with the requirements that risk-bearing providers have met specified requirements, and b) the collecting and reporting of information required in the law. According to DMHC, executed contracts were submitted on April 1, 2022. In August of 2022, Cal-VEBA informed the DMHC of its plan to “go-live” January 1, 2024. Additional documents, including revised provider contracts were sent to DMHC as late as October of 2023. Updated documents including Evidence of Coverage documents were submitted through December 2023. On January 29, 2024, DMHC informed Cal-VEBA of its need to review the updated Evidence of Coverage document. On May 22, 2024, Cal-VEBA submitted updated exhibits, schedules of benefits, formulary lists and financial statements. DMHC is currently reviewing those documents and anticipates comments by June 21, 2024. Cal-VEBA indicates it has 5,000 members in the pilot.
   
2. VEBAs. DMHC describes VEBA as a tax-advantaged vehicle for funding certain employee benefits, including health care coverage. Employees can participate in the VEBA based on their common employment-related bond, such as a common employer, coverage under one or more collective bargaining agreements, or membership in a labor union. A VEBA may be, but is not always, associated with an employee welfare benefit plan under the federal Employee Retirement Income Security Act (ERISA).
   

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, DMHC anticipates consulting costs of $175,000 in 2027-28 and $175,000 in 2028-29, to review clinical patient outcomes reported by the pilot participant (Managed Care Fund).

SUPPORT: (Verified 8/7/24)

America’s Physician Groups (co-source)

California Schools VEBA (co-source)

American Federation of Teachers Guild Local 1931

California Federation of Teachers AFL-CIO

Sharp Community Medical Group

Sharp Rees-Stealy Medical Group

Sweetwater Union High School District

OPPOSITION: (Verified 8/7/24)

America’s Health Insurance Plans

Association of California Life and Health Insurance Companies

California Association of Health Plans

ARGUMENTS IN SUPPORT: Cosponsor, Cal-VEBA writes that this bill allows healthcare providers, like itself to continue their direct contracting programs without any unnecessary interruptions. Cal-VEBA is a 501c(9) non-profit trust that delivers health care for education, municipal, and public agency employees. Cal-VEBA currently serves more than 70 participating employers and over 150,000 members, throughout Southern California. Over 5,000 members have enrolled in the pilot. The extension in this bill is imperative to prevent avoidable disruptions in care. According to the American Federation of Teachers Guild, Local 1931 the two pilot programs were expected to launch no later than May 1, 2021. However due to COVID-19, the pilot was authorized to start by DMHC on January 1, 2024. The extension provides an adequate time frame to reasonably assess the programs’ financial and quality impacts. Cosponsor, America’s Physician’s Groups writes this bill allow for the full-anticipated scope of a four-year pilot. Sharp Community Medical Group writes that the group and their providers are care partners in the pilot and provide high-quality care at low costs to patients through alternative payment models like the risk-bearing arrangement outlined in the pilot projects authorizing statute.

ARGUMENTS IN OPPOSITION: The California Association of Health Plans, Association of California Life and Health Insurance Companies, and America’s Health Insurance Plans write that this arrangement sets a dangerous precedent and does not provide important consumer protections that licensed health plans must extend to their enrollees under the Knox-Keene Act. Opponents point out that DMHC promulgated regulations in October 2019 to address concerns regarding the financial solvency of existing RBOs, and as of September 2023, there were 18 on corrective action plans for failure to meet financial solvency requirements. In four years, DMHC has not taken any meaningful steps to enact the program. California’s Knox-Keene Act licensed health plans are tightly regulated and comply with a wide array of requirements that protect the market and health care services for consumers. Among other things, fully licensed health plans must meet stringent financial solvency requirements, ensure timely access to care, implement consumer grievance processes, and participate in independent medical reviews. Considering the enactment of the Office of Health Care Affordability and its ongoing work to lower health costs, plus given the state's deficit, there is no compelling need to eliminate the critical role of fully licensed health plans in order to continue exploring pilot projects. While opponents appreciate efforts to promote innovation in health care, they do not believe it should be done by allowing some entities to avoid the licensing requirements that fully licensed health plans currently follow when they deliver health coverage in California.

ASSEMBLY FLOOR: 72-0, 5/21/24

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Essayli, Flora, Mike Fong, Vince Fong, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Cervantes, Megan Dahle, Dixon, Friedman, Gabriel, Holden, Mathis, Luz Rivas

Prepared by: Teri Boughton / HEALTH / (916) 651-4111

8/18/24 8:51:20

**** END ****

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

AB 2063 (Maienschein) - Health care coverage

Bill Summary:

AB 2063 would make changes to existing pilot programs for a voluntary employees’ beneficiary association or trust fund to contract with health care providers using risk-bearing arrangements.

Fiscal Impact:

The Department of Managed Health Care (DMHC) anticipates consulting costs of $175,000 in 2027-28 and $175,000 in 2028-29, to review clinical patient outcomes reported by the pilot participant (Managed Care Fund).

Background:

Current law authorizes one pilot program in northern California and one pilot program in southern California whereby approved providers may undertake risk-bearing arrangements with a voluntary employees’ beneficiary association (VEBA) with enrollment of greater than 100,000 lives or a trust fund that is a welfare plan and a multiemployer plan with enrollment of greater than 25,000 lives if specified criteria are met, including:

• The VEBA or trust fund has entered into a contract with one or more health care providers under which each provider agrees to accept risk-based or global risk payment from the VEBA or trust fund;
• Each risk-bearing provider is registered pursuant to existing law and applicable DMHC regulations if the provider accepts professional capitation and is delegated the responsibility for processing and payment of claims;
• Each global risk-bearing provider holds, or will obtain in conjunction with the pilot program application, a limited or restricted license;
• Each risk-bearing provider continues to comply with applicable financial solvency standards and audit requirements, including financial reporting on a quarterly basis, during the pilot;
• The VEBA or trust fund is responsible for providing basic health care services, prescription drug benefits, continuity of care, network adequacy and timely access to care, as well as other requirements;
• The VEBA or trust fund submits an application for DMHC to select up to two qualified participants for the pilot program, including the contract, as specified, of each health care provider that has entered into a contract under the pilot; and,
• The VEBA or trust fund and each participating health care provider agree to collect and report to DMHC, in each year of the pilot, in a manner and frequency determined by DMHC, information regarding the comparative cost savings when compared to fee-for-service payment, performance measurements for clinical patient outcomes, and enrollee satisfaction.

Current law requires DMHC, after the termination of both pilot programs and before January 1, 2027, to submit a report to the Legislature regarding the costs and clinical patient outcomes of the pilot programs compared to fee-for-service payment models, including data on enrollee satisfaction, consumer and provider grievances, appeals, and independent medical reviews.

Proposed Law:

Specific provisions of the bill would:

• Limit authority to one pilot program in southern California whereby providers may undertake risk-bearing arrangements with a VEBA.
• Extend the pilot project sunset date from December 31, 2025 to December 31, 2027.
• Extend the DMHC report deadline from January 1, 2027 to January 1, 2029.
• Extend the sunset on the statute from January 1, 2028 to January 1, 2030.

-- END --

SENATE COMMITTEE ON HEALTH

Senator Richard Roth, Chair

BILL NO: AB 2063

SUBJECT: Health care coverage

SUMMARY:

Extends, from January 1, 2028 to January 1, 2030, the authority for pilot programs under the Department of Managed Health Care for a voluntary employees’ beneficiary association or trust fund to contract with health care providers using risk-based or global payment arrangements.

Existing law:

1. Establishes the Department of Managed Health Care (DMHC) to regulate health plans (health plans) under the Knox-Keene Health Care Service Plan Act (Knox-Keene Act). [HSC §1340, et seq.]
   
2. Permits the DMHC director to exempt from the Knox-Keene Act any class of persons or plan contracts if they find the action to be in the public interest and not detrimental to the protection of subscribers, enrollees, or persons regulated under the Knox-Keene Act, and that the regulation of the persons or plan contracts is not essential to the purposes of the Knox-Keene Act. [HSC §1343]
   
3. Makes it unlawful for any person to engage in the business as a health plan in California or receive advance or periodic consideration in connection with a plan from or on behalf of persons in California unless such person has first secured from the director a license as plan or is exempted, as specified. Establishes requirements for licensure. [HSC §1349 and §1351]
4. Exempts from the Knox-Keene Act a health plan, including a self-insured reimbursement plan that pays for or reimburses any part of the cost of health care services, operated by any city, county, city and county, public entity, political subdivision, or public joint labor management trust that satisfies specified criteria including that providers are reimbursed solely on a fee-for-service basis, so that providers are not at risk in contracting arrangements. [HSC §1349.2]
5. Requires every contract between a health plan and a risk-bearing organization (RBO) to include specified provisions related to the RBOs administrative and financial capacity including reporting requirements, auditing, and corrective actions. [HSC §1375.4]
6. Authorizes, until January 1, 2028, the DMHC director to authorize one pilot program in northern California and one pilot program in southern California whereby approved providers may undertake risk-bearing arrangements with a voluntary employees’ beneficiary association (VEBA) with enrollment of greater than 100,000 lives or a trust fund that is a welfare plan and a multiemployer plan with enrollment of greater than 25,000 lives if specified criteria are met, including, in part:
   1. The VEBA or trust fund has entered into a contract with one or more health care providers under which each provider agrees to accept risk-based or global risk payment from the VEBA or trust fund;
   2. Each risk-bearing provider is registered pursuant to existing law and applicable DMHC regulations, if the provider accepts professional capitation and is delegated the responsibility for processing and payment of claims;
   3. Each global risk-bearing provider holds, or will obtain in conjunction with the pilot program application, a limited or restricted license;
   4. Each risk-bearing provider continues to comply with applicable financial solvency standards and audit requirements, including financial reporting on a quarterly basis, during the pilot;
   5. The VEBA or trust is responsible for providing basic health care services, prescription drug benefits, continuity of care, network adequacy and timely access to care, as well as other requirements;
   6. The VEBA or trust submits an application for DMHC to select up to two qualified participants for the pilot program, including the contract of each health care provider that has entered into a contract under the pilot; and,
   7. The VEBA or trust fund and each participating health care provider agree to collect and report to DMHC, in each year of the pilot, in a manner and frequency determined by DMHC, information regarding the comparative cost savings when compared to fee-for-service payment, performance measurements for clinical patient outcomes, and enrollee satisfaction. Authorizes DMHC to require additional information. [HSC §1343.3]
7. Requires the participating VEBA or trust fund to appoint an ombudsperson, and if an enrollee is not satisfied with a result refer the enrollee to the DMHC grievance and appeal process, which is binding on the VEBA or trust fund. [HSC §1343.3]
   
8. Requires the global and risk-bearing providers participating in the pilot to be approved by DMHC. Requires DMHC to retain the right to disapprove any pilot program at any time, as specified. [HSC §1343.3]
   
9. Requires DMHC, after the termination of both pilot programs and before January 1, 2027, to submit a report to the Legislature regarding the costs and clinical patient outcomes of the pilot programs compared to fee-for-service payment models, including data on enrollee satisfaction, consumer and provider grievances, appeals, and independent medical reviews. [HSC §1343.3]

This bill:

1. Extends the pilot project sunset date from December 31, 2025 to December 31, 2027.
2. Extends the DMHC report deadline from January 1, 2027 to January 1, 2029.
3. Extends the sunset on the statute from January 1, 2028 to January 1, 2030.

FISCAL EFFECT:

According to the Assembly Appropriations Committee, the DMHC estimates costs of $175,000 in each fiscal year 2027-28 and 2028-29 to review clinical patient outcomes and to prepare the final report to the Legislature (Managed Care Fund).

PRIOR VOTES:

COMMENTS:

1. Author’s statement. According to the author, labor union trusts cannot utilize value-based payment mechanisms with the provider networks in their self-funded plan networks. This results in higher health care costs that could be avoided. Independent, impartial research on health care cost drivers and delivery system reform conducted by the U.C. Berkeley School of Public Health and the Integrated Healthcare Association consistently show that the solution to rising health care costs is to increase the percentage of health care that is delivered through clinically integrated providers that share the financial risk with health plans, government and employer payers. To date, this kind of health care financing and delivery model has been used in the fully insured employer-sponsored HMO, Medicare Advantage and Medi-Cal Managed Care market segments.
   
2. Risk-based contracting. The Centers for Medicare and Medicare Services (CMS) describes risk-based contracting as arrangements where participants agree to be held financially responsible (take financial risk) for the quality and cost of health care services provided to beneficiaries. The structure is intended to incentivize participants to improve quality and lower costs through care coordination and preventive care. Upside risk is one-sided where participants who are successful at lowering costs may be eligible to receive payments. Participants are unsure of financial gains. In downside risk, participants are uncertain about potential financial losses. Two-sided risk establishes uncertainty in both financial gains and losses.
   
3. Risk Bearing Organizations (RBOs). An RBO is a physician-owned provider group that, in its contracts with health plans, pays claims and assumes financial risk for the cost of all health care services (inpatient and outpatient) for each enrolled person assigned to the RBO by accepting a fixed monthly payment (also referred to as “capitation”). RBOs are subject to financial solvency requirements and regular financial reporting. As part of DMHC’s financial oversight responsibilities, DMHC actively monitors RBOs to make sure they can meet their financial obligations to consumers and purchasers. According to DMHC’s most recently published Annual Report, at the end of 2022 there were 208 registered RBOs. In 2022, DMHC conducted 24 claims and provider dispute examinations of RBOs, and 17 were required to file a corrective action plan to address claims processing deficiencies. In response to deficiencies, RBOs remediated provider claims in the amount of $238,627, including additional payments, interests, and penalties. At the February 2024 meeting of DMHC’s Financial Solvency Standards Board, 18 RBOs were reported to be on corrective action plans.
   
4. Global risk regulations. On October 27, 2017, DMHC noticed intent for rulemaking to clarify licensure requirements for health plans, specifically requiring licensure for a person who accepts global risk (both institutional/hospital and professional risk) for services to subscribers or enrollees receiving “advance or periodic consideration” from or on behalf of subscribers or enrollees. The proposed regulation also set out requirements for a restricted license for entities that do not market directly to consumers or employers, but otherwise meet the statutory definition of a health plan. In addition, the proposed regulation stated specific criteria DMHC may apply in considering a request for exemption from licensure requirements. On October 8, 2018, the Office of Administrative Law rejected the regulation on the basis of clarity and incorrect procedure. The regulation was approved after four revisions and four comment periods on March 5, 2019, and took effect on July 1, 2019.

According to DMHC’s statement of reasons, existing law requires a health plan to assume “full financial risk” for the provision of covered health care benefits to enrollees or subscribers. However, “full financial risk” is not defined. As a result, provider groups that contract with health plans or other organizations to provide health care services assume at least some degree of both professional and institutional risk. These provider groups otherwise meet the definition of a health plan by arranging for health care services for enrollees and accepting at least a portion of global risk. Without a clear definition of what types and levels of risk may be assumed, entities that meet the definition of a health plan may be operating without a license. This is a violation of the law, which makes it unlawful to receive advance or periodic consideration in connection with a health plan without first securing a license or an exemption. In 2015, the California Court of Appeal, Second District, held that “the level of financial risk under a capitation agreement that causes a ‘risk bearing organization’ … to become a ‘health care service plan’ … is precisely the type of regulatory determination involving complex economic policy that should be made by DMHC…” (Hambrick v. Healthcare Partners Medical Group, Inc., (2015) 238 Cal.App.4th 124, 149). Regulation is necessary to set the level of assumption of financial risk that triggers a requirement to obtain licensure. Additionally, there are entities that contract only with other health plans to provide services to that health plan’s enrollees and subscribers that do not pose as great a risk to the stability of the health care delivery system because their overall impact on the health care market is limited. However, they still meet the definition of a health plan under the Knox-Keene Act. The regulation provides a separate “restricted license” for these entities, thereby limiting the confusion these entities have about the need for a license and the type of regulation that will be incurred.

The regulations require any person who assumes global risk to obtain a license to operate a health plan. Existing law requires the DMHC director to exempt any person from these regulations when the Director finds it is in the public interest and not detrimental to the protection of subscribers, enrollees, or persons regulated under the Knox-Keene Act.

1. Existing AB 1124 pilot. AB 1124 (Maienschein, Chapter 266, Statutes of 2020) created the pilot authority that is proposed to be extended under this bill. The pilot authorized by AB 1124 allows for a provider to accept risk or global risk payments from specified health care purchasers that are not licensed health plans. Health plans are regulated by DMHC and must comply with the Knox-Keene Act, which includes requirements to ensure delegated contractors (including risk-bearing providers who are registered as RBOs) also follow Knox-Keene Act requirements for timely payments and consumer protections. RBOs are not regulated by DMHC, but are monitored for financial solvency based on their role accepting global risk from health plans. DMHC confirms that only one pilot has been authorized. DMHC indicates that on December 10, 2021, California Schools VEBA (Cal-VEBA) in San Diego (a cosponsor of this bill) was authorized to participate in the AB 1124 pilot program effective January 1, 2022 subject to two conditions: a) Submission of executed provider contracts to demonstrate compliance with the requirements that risk-bearing providers have met specified requirements, and b) the collecting and reporting of information required in the law. According to DMHC, executed contracts were submitted on April 1, 2022. In August of 2022, Cal-VEBA informed the DMHC of its plan to “go-live” January 1, 2024. Additional documents, including revised provider contracts were sent to DMHC as late as October of 2023. Updated documents including Evidence of Coverage documents were submitted through December 2023. On January 29, 2024, DMHC informed Cal-VEBA of its need to review the updated Evidence of Coverage document. On May 22, 2024, Cal-VEBA submitted updated exhibits, schedules of benefits, formulary lists and financial statements. DMHC is currently reviewing those documents and anticipates comments by June 21, 2024. Cal-VEBA indicates it has 5,000 members in the pilot.
   
2. VEBAs. DMHC describes VEBA as a tax-advantaged vehicle for funding certain employee benefits, including health care coverage. Employees can participate in the VEBA based on their common employment-related bond, such as a common employer, coverage under one or more collective bargaining agreements, or membership in a labor union. A VEBA may be, but is not always, associated with an employee welfare benefit plan under the federal Employee Retirement Income Security Act (ERISA).
   
3. Prior legislation. AB 1124 (Maienschein, Chapter 266, Statutes of 2020) authorizes two pilot programs that allow health care providers to undertake risk-bearing arrangements with a VEBA with enrollment of greater than 100,000 lives, or a trust fund that is a welfare plan and a multiemployer plan with enrollment greater than 25,000 lives.
   

AB 1249 Maienschein of 2019 would have allowed DMHC to authorize for five years similar pilots as authorized under AB 1124. AB 1249 was vetoed by Governor Newsom, who stated:

“This bill would authorize a pilot program that would exempt risk-bearing provider groups taking on global risk from full licensure under the Knox-Keene Act. This proposed pilot project would undermine the fundamental purpose of the Knox-Keene Act by permitting such entities to operate in the State without providing the strong consumer protections guaranteed under the Act.”

1. Support. Cosponsor, Cal-VEBA writes that this bill allows healthcare providers, like itself to continue their direct contracting programs without any unnecessary interruptions. Cal-VEBA is a 501c(9) non-profit trust that delivers health care for education, municipal, and public agency employees. Cal-VEBA currently serves more than 70 participating employers and over 150,000 members, throughout Southern California. Over 5,000 members have enrolled in the pilot. The extension in this bill is imperative to prevent avoidable disruptions in care. According to the American Federation of Teachers Guild, Local 1931 the two pilot programs were expected to launch no later than May 1, 2021. However due to COVID-19, the pilot was authorized to start by DMHC on January 1, 2024. The extension provides an adequate time frame to reasonably assess the programs’ financial and quality impacts. Cosponsor, America’s Physician’s Groups writes this bill allow for the full-anticipated scope of a four-year pilot. Sharp Community Medical Group writes that the group and their providers are care partners in the pilot and provide high-quality care at low costs to patients through alternative payment models like the risk-bearing arrangement outlined in the pilot projects authorizing statute.
2. Opposition. The California Association of Health Plans, Association of California Life and Health Insurance Companies, and America’s Health Insurance Plans write that this arrangement sets a dangerous precedent and does not provide important consumer protections that licensed health plans must extend to their enrollees under the Knox-Keene Act. Opponents point out that DMHC promulgated regulations in October 2019 to address concerns regarding the financial solvency of existing RBOs, and as of September 2023, there were 18 on corrective action plans for failure to meet financial solvency requirements. In four years, DMHC has not taken any meaningful steps to enact the program. California’s Knox-Keene Act licensed health plans are tightly regulated and comply with a wide array of requirements that protect the market and health care services for consumers. Among other things, fully licensed health plans must meet stringent financial solvency requirements, ensure timely access to care, implement consumer grievance processes, and participate in independent medical reviews. Considering the enactment of the Office of Health Care Affordability and its ongoing work to lower health costs, plus given the state's deficit, there is no compelling need to eliminate the critical role of fully licensed health plans in order to continue exploring pilot projects. While opponents appreciate efforts to promote innovation in health care, they do not believe it should be done by allowing some entities to avoid the licensing requirements that fully licensed health plans currently follow when they deliver health coverage in California.
   
3. Amendments. If the Legislature chooses to extend the pilot, amendments should be adopted to narrow the pilot authorization to the one existing pilot that is in process. The author has agreed to accept amendments to limit the pilot.

SUPPORT AND OPPOSITION:

Support: America’s Physician Groups (cosponsor)

California Schools VEBA (cosponsor)

American Federation of Teachers Guild Local 1931

California Federation of Teachers AFL-CIO

Sharp Community Medical Group

Sharp Rees-Stealy Medical Group

Sweetwater Union High School District

Oppose: America’s Health Insurance Plans

Association of California Life and Health Insurance Companies

California Association of Health Plans

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 2063

Author:(Maienschein)

As Introduced Ver:February 1, 2024

Majority vote

SUMMARY

Extends the sunset for pilot programs authorized by the Department of Managed Health Care (DMHC) to operate from December 31, 2025 to December 31, 2027. Existing law authorizes 2 pilot programs, one in northern California and one in southern California, under which providers approved by the DMHC may undertake risk-bearing arrangements with a voluntary employees' beneficiary association (VEBA) with enrollment of more than 100,000 lives, or a trust fund that is a welfare plan and a multiemployer plan with enrollment of more than 25,000 lives, for independent periods of time beginning no earlier than January 1, 2022, to December 31, 2025, if certain criteria are met. Extends the deadline for DMHC to report the pilot program findings to the Legislature from January 1, 2027 to January 1, 2029.

Major Provisions

COMMENTS

1. California's regulation of health insurance. The business of health insurance in California is subject to a complex patchwork of federal and state regulations. Different rules apply depending on whether insurance coverage is purchased directly by individuals or on behalf of a group, as in job-based health insurance. There are essentially three relevant regulatory frameworks for health insurance and they are DMHC, the California Department of Insurance, and the federal Department of Labor for regulation of self-insured employee health benefit plans.

The Employee Retirement Income Security Act of 1974 (ERISA) prohibits states from enforcing state laws relating to private sector employee benefit plans established by employers or other sponsors in order to provide health coverage. In general, ERISA requirements for employee health benefit plans are less far-reaching than the state regulations that apply to insurance carriers. Since self-insured employee benefit plans are subject only to ERISA, consumers covered by self-insured plans can have fewer consumer protections than those covered through fully insured plans that are required to comply with California's consumer protection laws.

An arrangement established pursuant to a collective bargaining agreement may be a single employer or multiemployer plan. A Taft-Hartley trust is a multiemployer plan that, in addition to being established or maintained under or pursuant to one or more collective bargaining agreements, also meets criteria outlined in the Labor-Management Relations Act of 1947 (referred to as the Taft-Hartley Act). Plans established or maintained under or pursuant to collective bargaining agreements may be governed by both the Taft-Hartley Act and ERISA. VEBAs and trust funds are authorized participants in this bill's pilot program.

1. DMHC Licensure Requirements.
   1. Risk Arrangements. According to a 2018 State Health and Value Strategies report, the California Knox-Keene Health Care Service Plan Act (KKA) is the legal framework through which health care entities in the state are governed. The long-standing practice of providers accepting financial risk in California, and the bankruptcies of large provider groups in the 1990s, led DMHC to adopt prescriptive regulations governing health plans and provider risk bearing organizations (RBOs). The KKA requires licensure by DMHC of health plans that accept global risk, defined as risk for both institutional and professional services, for the provision of health care services. The primary forms of risk arrangements include capitation, risk pools, withholds and stop-loss arrangements. Capitation is a set amount of money received by or paid to a provider on a per member per month basis rather than on the level of health care services provided. DMHC is also authorized to exempt entities from KKA requirements under certain circumstances.
   2. Risk Regulations. DMHC finalized regulations seeking to clarify the level of financial risk that would trigger health plan licensure. The regulations proposed different categories of licensure, including "full" and "restricted." Traditional health insurance plans would be required to obtain a full license to operate. Entities that accept global risk as a subcontractor to a fully-licensed health plan could obtain a restricted license. A restricted licensee would not be subject to rules concerning marketing and enrollment. Entities that have a small market share and/or operate in well-served areas could be granted an exemption from California's licensure requirements as those dynamics reduce the risk of disrupting the delivery of care in the event of insolvency.
   3. RBOs. An entity in California that only takes financial risk within the scope of its professional license (e.g., primary care capitation) is required to register as an RBO. DMHC retains limited oversight of RBOs; most of the direct oversight is delegated to the health plans with which RBOs contract. RBOs are required to submit quarterly and annual reports to DMHC so the DMHC can evaluate their financial condition. The pilot program in this bill authorizes RBOs to contract with VEBAs or a trust fund.
2. AB 1124 pilot program. AB 1124 (Maienschein), Chapter 266, Statutes of 2020, authorizes DMHC, to establish two pilot programs that allow healthcare providers to undertake risk-bearing arrangements. According to the author, the two pilot programs were expected to begin no later than May 1, 2021, with a sunset date of January 1, 2028. However, due to COVID-19, the pilot program experienced a two-year delay. This bill extends the sunset date of the AB 1124 pilot program from January 1, 2028, to January 1, 2030. It introduces a two-year pilot program extension, allowing approved applicants, like VEBA, to continue their direct contracting program without any unnecessary interruptions. The author states that securing approval for the extension is imperative, especially considering that as of January 1, 2024, 5,000 members enrolled, and disrupting the process prematurely could lead to adverse outcomes. According to DMHC, Southern California Schools VEBA was authorized to participate in the pilot program located in southern California on December 10, 2021, for implementation effective January 1, 2022.

According to the Author

Labor union trusts cannot utilize value-based payment mechanisms with the provider networks in their self-funded plan networks. This results in higher health care costs that could be avoided. Independent, impartial research on health care cost drivers and delivery system reform conducted by the U.C. Berkeley School of Public Health and the Integrated Healthcare Association consistently show that the solution to rising health care costs is to increase the percentage of health care that is delivered through clinically integrated providers that share the financial risk with health plans, government and employer payers. The author concludes that to date, this kind of health care financing and delivery model has been used in the fully-insured employer-sponsored HMO, Medicare Advantage and Medi-Cal Managed Care market segments.

Arguments in Support

California Schools VEBA, sponsor of this bill, writes that over 5,000 members are enrolled in this pilot and the extension in this bill is imperative to prevent avoidable disruptions in care and to the direct contracting pilot programs approved by the DMHC. California Schools VEBA is a 501(c)(9) non-profit trust that currently services more than 90 participating employers and over 150,000 members, throughout Southern California. In 2019, the VEBA Resource Center was launched to help members assess, identify and remove barriers to achieving optimal health and provide quality health care for its members and lower costs for their employers. America's Physician Groups writes that the Office of Health Care Affordability (OHCA) recently released a draft provider alternative payment model standard for review and adoption by California's Health Care Affordability Board. The standard supports the very purpose of the pilot; to move away from a costly, fragmented fee-for-service payment model to one that emphasizes pay-for-quality patient care outcomes.

Arguments in Opposition

The California Association of Health Plans, the Association of California Life and Health Insurance Companies, and America's Health Insurance Plans, write that this arrangement sets a dangerous precedent and does not provide the important consumer protections that licensed health plans must extend to their enrollees under the KKA. It bears reminding that the DMHC promulgated regulations in October 2019 to address concerns regarding the financial solvency of existing RBOs. As of September 2023, there were 18 RBOs that were on Corrective Action Plans for failure to meet financial solvency requirements. Furthermore, the DMHC, in four years, has not taken any meaningful steps to enact the program. California's KKA licensed health plans are tightly regulated and comply with a wide array of requirements that protect the market and health service consumers. Among other things, fully licensed health plans must meet stringent financial solvency requirements, ensure timely access to care, implement consumer grievance processes, and participate in independent medical reviews. The opposition concludes that considering the enactment of the OHCA and its ongoing work to lower health costs, plus given the state's deficit, there is no compelling need to eliminate the critical role of fully licensed health plans in order to continue exploring pilot projects.

FISCAL COMMENTS

According to the Assembly Appropriations Committee, the DMHC estimates costs of $175,000 in each fiscal year 2027-28 and 2028-29 to review clinical patient outcomes and to prepare the final report to the Legislature (Managed Care Fund).

VOTES

ASM HEALTH: 15-0-1

YES: Bonta, Aguiar-Curry, Arambula, Wendy Carrillo, Flora, Haney, Jones-Sawyer, Maienschein, McCarty, Joe Patterson, Rodriguez, Sanchez, Santiago, Schiavo, Weber

ABS, ABST OR NV: Waldron

ASM APPROPRIATIONS: 14-0-1

YES: Wicks, Sanchez, Arambula, Bryan, Calderon, Wendy Carrillo, Mike Fong, Grayson, Haney, Hart, Jim Patterson, Pellerin, Ta, Villapudua

ABS, ABST OR NV: Dixon

UPDATED

VERSION: February 1, 2024

CONSULTANT: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0003152

Date of Hearing: May 1, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 2063

Author:(Maienschein) – As Introduced Ver:February 1, 2024

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill extends, from December 31, 2025, to December 31, 2027, the sunset on two pilot programs that allow health care providers to undertake risk-bearing arrangements with approved applicants, as specified.

FISCAL EFFECT:

The Department of Managed Health Care (DMHC) estimates costs of $175,000 in each fiscal year 2027-28 and 2028-29 to review clinical patient outcomes and to prepare the final report to the Legislature (Managed Care Fund).

COMMENTS:

The pilot programs addressed in this bill were established by AB 1124 (Maienschein), Chapter 266, Statutes of 2020. AB 1124 allows DMHC, no later than May 1, 2021 and until January 1, 2028, to authorize two pilot programs that allow health care providers to undertake risk-bearing arrangements with (1) a voluntary employees' beneficiary association (VEBA), as defined under federal and state law, with enrollment of greater than 100,000 lives, or (2) a trust fund that is a welfare plan, and a multiemployer plan, as defined in federal law, with enrollment greater than 25,000 lives, for independent periods of time, beginning no earlier than January 1, 2022, to December 31, 2025, inclusive, if certain criteria are met. AB 1124 requires the VEBA or trust fund and each health care provider participating in each pilot program to report to DMHC information regarding cost savings and clinical patient outcomes compared to a fee-for-service payment model.

According to the author:

In 2020, AB 1124 (Maienschein) authorized [DMHC] to establish two pilot programs that allow healthcare providers to undertake risk-bearing arrangements with approved applicants, like VEBA. The two pilot programs were expected no later than May 1, 2021, with a repeal date of January 1, 2028. However, due to COVID-19, the program experienced a two-year delay. [This bill] aims to rectify the issue by extending the sunset date of the AB 1124 pilot program from January 1, 2028, to January 1, 2030. It introduces a two-year pilot program extension, allowing approved applicants, like VEBA, to continue their direct contracting program without any unnecessary interruptions. Securing approval for the extension is imperative, especially considering that as of January 1, 2024, 5,000 members enrolled, and disrupting the process prematurely could lead to adverse outcomes.

This bill is sponsored by America’s Physician’s Groups (APG) and California Schools VEBA.

Analysis Prepared by: Allegra Kim / APPR. / (916) 319-2081

Date of Hearing: April 16, 2024

ASSEMBLY COMMITTEE ON HEALTH

Mia Bonta, Chair

ABPCA Bill Id:AB 2063

Author:(Maienschein) – As Introduced Ver:February 1, 2024

SUBJECT: Health care coverage.

SUMMARY: Extends the sunset for pilot programs for risk bearing organizations (RBOs) as described under 8) below of Existing Law and authorized by the Department of Managed Health Care (DMHC) to operate from December 31, 2025 to December 31, 2027. Extends the deadline for DMHC to report the pilot program findings to the Legislature from January 1, 2027 to January 1, 2029.

EXISTING LAW:

1. Establishes the DMHC to regulate health plans, and, which, among other duties, ensures the financial stability of health plans under the Knox-Keene Health Care Service Plan Act of 1975 (KKA). [Health and Safety Code (HSC) §1340, et seq.]

Licensure Requirements

1. Defines a health plan as:
   1. Any person who undertakes to arrange for the provision of health care services to subscribers or enrollees, or to pay for or to reimburse any part of the cost for those services, in return for a prepaid or periodic charge paid by or on behalf of the subscribers or enrollees; or,
   2. Any person, whether located within or outside of California, who solicits or contracts with a subscriber or enrollee in California to pay for or reimburse any part of the cost of, or who undertakes to arrange or arranges for, the provision of health care services that are to be provided wholly or in part in a foreign country in return for a prepaid or periodic charge paid by or on behalf of the subscriber or enrollee. [HSC § 1345]
      
2. Makes it unlawful for any person to engage in business as a health plan in California or to receive advance or periodic consideration in connection with a plan from, or, on behalf of persons in California, unless such person has first secured from the DMHC Director a license, then in effect, as a plan or unless such person is exempted, as specified. [HSC §1349]
   
3. Establishes requirements for applicants for KKA licensure as a health plan or specialized health plan including disclosure of provider contracts, a statement describing the plan, method of providing health care services and physical facilities, financial statements, marketing methods, service area, procedures and programs for internal quality review, and other provisions. [HSC § 1351]
   
4. Requires a health plan to demonstrate that it is fiscally sound and has assumed full financial risk on a prospective basis for the provision of covered health care services, as specified. [HSC § 1375.1]
5. Requires health plans, if a plan maintains capitation or risk sharing contracts, to ensure that each contracting provider has the administrative and financial capacity to meet its contractual obligations. Defines RBO as a professional medical corporation or other form of corporation controlled by physicians that delivers, furnishes or otherwise arranges for or provides health care services that does all of the following: a) contracts directly with a health plan or arranges for healthcare services for health plan enrollees; b) receives compensation for those services on any capitated or fixed periodic basis; and, c) is responsible for the processing and payment of claims made by providers for services rendered by those providers on behalf of health plans that are covered under the capitation or fixed periodic payment arrangement. [HSC §1375.4]
6. Permits the DMHC Director to exempt from the KKA any class of persons or plan contracts if the DMHC Director finds the action to be in the public interest and not detrimental to the protection of subscribers, enrollees, or persons regulated under the KKA, and that the regulation of the persons or plan contracts is not essential to the purposes of the KKA. Authorizes DMHC to exempt certain plans from the KKA, including a self-insured reimbursement plan that pays for or reimburses any part of the cost of health care services, operated by any city, county, city and county, public entity, policy subdivision, or public joint labor management trust that satisfies specified criteria. Exempts any county-operated pilot program contracting with the State Department of Health Care Services, as specified. [HSC § 1343]

Pilot Program

1. Allows the DMHC Director, no later than May 1, 2021, to authorize, until December 31, 2025, one pilot program in northern California, and one pilot program in southern California, whereby providers approved by the DMHC may undertake risk-bearing arrangements with a voluntary employees’ beneficiary association (VEBA), as defined, with enrollment of greater than 100,000 lives, or a trust fund that is a welfare plan, as defined, and a multiemployer plan, as defined, with enrollment of greater than 25,000 lives if all of the following criteria are met:
   1. The purpose of the pilot program is to demonstrate the control of costs for health care services and the improvement of health outcomes and quality of service when compared against a sole fee-for-service (FFS) provider reimbursement model;
   2. The VEBA or trust fund has entered into a contract with one or more health care providers under which each provider agrees to VEBA employees' beneficiary association or trust fund;
   3. Each risk-bearing provider is registered as a RBO, as specified, and applies if the provider accepts professional capitation and is delegated the responsibility for the processing and payment of claims;
   4. Each global risk-bearing provider holds or will obtain in conjunction with the pilot program application a limited or restricted license, as specified;
   5. Each risk-bearing provider continues to comply with applicable financial solvency standards and audit requirements, including, but not limited to, financial reporting on a quarterly basis, during the term of the pilot program;
   6. Require the VEBA or trust fund to be responsible for providing all of the following:
      1. Basic health care services;
      2. Prescription drug benefits;
      3. Continuity of care;
      4. Standards for network adequacy and timely access to care, including, but not limited to, access to specialty care;
      5. Language assistance programs;
      6. A process for filing and resolving consumer grievances and appeals, including, but not limited to, independent medical review;
      7. Prohibitions against deceptive marketing;
      8. Member documents that include a description of the benefit coverage, any applicable copays, how to access services, and how to submit a grievance; and,
      9. Mechanisms for resolving provider disputes, including an appeals process.
   7. Require the contract between the VEBA or trust fund and each health care provider to include all of the following:
      1. Provisions dividing financial responsibility between the parties and defining which party is financially responsible for services rendered, including arrangements for member care should a global or risk-bearing provider become insolvent;
      2. A delegation agreement;
      3. Requirements regarding utilization review or utilization management;
      4. Provisions stating the RBO, limited licensee, or restricted licensee, as applicable, has the organizational and administrative capacity to provide services to covered employees, and that medical decisions are rendered by qualified medical providers, unhindered by fiscal and administrative management, including the disclosure of the percentage of risk assumed in relation to its total risk-based business;
      5. Requirements regarding the submission of claims by providers and the timely processing of provider claims, including a guarantee that the VEBA or trust fund will indemnify any outstanding unpaid provider claim in the event of the insolvency of a participating provider to the pilot program;
      6. Require the health care provider to comply with the VEBA or trust fund's requirements for all of the following:
         1. Continuity of care;
         2. Language assistance; and,
         3. Consumer grievances and appeals, including, but not limited to, independent medical review.
      7. Prohibit the term of each contract between the VEBA or trust fund and a health care provider from exceeding the period of the pilot program;
      8. Require each VEBA or trust fund, participating in the pilot program, to submit an application to DMHC. Allows the DMHC to select up to two qualified participants for the pilot program; and,
      9. Specify that each health care provider that has entered into a contract with the VEBA or trust fund is a party to the pilot program application submitted to the DMHC. Requires the application to include a copy of each contract between the VEBA or trust fund and a participating health care provider.
2. Requires the VEBA or trust fund and each health care provider participating in the pilot program to agree to collect and report to the DMHC, in each year of the pilot program, in a manner and frequency determined by DMHC, information regarding the comparative cost savings when compared to FFS payment, performance measurements for clinical patient outcomes, and enrollee satisfaction. Authorizes the DMHC to require additional reporting, not subject to the Administrative Procedure Act.
3. Requires the participating VEBA or trust fund to report on a quarterly basis to the DMHC any complaint lodged by a participating enrollee in their respective pilot programs, along with a description of the response and resolution.
4. Requires the DMHC, after the termination of both pilot programs, and before January 1, 2027, to submit a report to the Legislature regarding the costs and clinical patient outcomes of the pilot programs compared to FFS payment models, including data on consumer and provider grievances, appeals, and independent medical reviews. Allows the DMHC to authorize a public or private agency to prepare the report.
5. Sunsets 8) to 11) above on January 1, 2028.

FISCAL EFFECT: Unknown. This bill has not yet been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, labor union trusts cannot utilize value-based payment mechanisms with the provider networks in their self-funded plan networks. This results in higher health care costs that could be avoided. Independent, impartial research on health care cost drivers and delivery system reform conducted by the U.C. Berkeley School of Public Health and the Integrated Healthcare Association consistently show that the solution to rising health care costs is to increase the percentage of health care that is delivered through clinically integrated providers that share the financial risk with health plans, government and employer payers. The author concludes that to date, this kind of health care financing and delivery model has been used in the fully-insured employer-sponsored HMO, Medicare Advantage and Medi-Cal Managed Care market segments.
2. BACKGROUND.
   1. California’s regulation of health insurance. The business of health insurance in California is subject to a complex patchwork of federal and state regulations. Different rules apply depending on whether insurance coverage is purchased directly by individuals or on behalf of a group, as in job-based health insurance. There are essentially three relevant regulatory frameworks for health insurance and they are DMHC, the California Department of Insurance, and the federal Department of Labor for regulation of self-insured employee health benefit plans.

The Employee Retirement Income Security Act of 1974 (ERISA) prohibits states from enforcing state laws relating to private sector employee benefit plans established by employers or other sponsors in order to provide health coverage. In general, ERISA requirements for employee health benefit plans are less far-reaching than the state regulations that apply to insurance carriers. Since self-insured employee benefit plans are subject only to ERISA, consumers covered by self-insured plans can have fewer consumer protections than those covered through fully insured plans that are required to comply with California’s consumer protection laws.

An arrangement established pursuant to a collective bargaining agreement may be a single employer or multiemployer plan. A Taft-Hartley trust is a multiemployer plan that, in addition to being established or maintained under or pursuant to one or more collective bargaining agreements, also meets criteria outlined in the Labor-Management Relations Act of 1947 (referred to as the Taft-Hartley Act). Plans established or maintained under or pursuant to collective bargaining agreements may be governed by both the Taft-Hartley Act and ERISA. VEBAs and trust funds are authorized participants in this bill’s pilot program.

• 1. DMHC Licensure Requirements. According to DMHC's Annual Report, in 2022, 97 full service health plans licensed by the DMHC provided health care services to more than 29.7 million Californians. DMHC assesses and monitors health plan networks and delivery systems for compliance with the KKA, and evaluates compliance through onsite surveys of health plan operations performed every three years. Surveys examine health plan processes related to access, utilization management, quality improvement, continuity and coordination of care, language access and enrollee grievances and appeals.
     1. Risk Arrangements. According to a 2018 State Health and Value Strategies report, the KKA is the legal framework through which health care entities in the state are governed. The long-standing practice of providers accepting financial risk in California, and the bankruptcies of large provider groups in the 1990s, led DMHC to adopt prescriptive regulations governing health plans and provider RBOs. The KKA requires licensure by DMHC of health plans that accept global risk, defined as risk for both institutional and professional services, for the provision of health care services. The primary forms of risk arrangements include capitation, risk pools, withholds and stop-loss arrangements. Capitation is a set amount of money received by or paid to a provider on a per member per month basis rather than on the level of health care services provided. DMHC is also authorized to exempt entities from KKA requirements under certain circumstances.
     2. Risk Regulations. DMHC finalized regulations seeking to clarify the level of financial risk that would trigger health plan licensure. The regulations proposed different categories of licensure, including "full" and "restricted." Traditional health insurance plans would be required to obtain a full license to operate. Entities that accept global risk as a subcontractor to a fully-licensed health plan could obtain a restricted license. A restricted licensee would not be subject to rules concerning marketing and enrollment. Entities that have a small market share and/or operate in well-served areas could be granted an exemption from California's licensure requirements as those dynamics reduce the risk of disrupting the delivery of care in the event of insolvency.
     3. RBOs. An entity in California that only takes financial risk within the scope of its professional license (e.g., primary care capitation) is required to register as an RBO. DMHC retains limited oversight of RBOs; most of the direct oversight is delegated to the health plans with which RBOs contract. RBOs are required to submit quarterly and annual reports to DMHC so the DMHC can evaluate their financial condition. The pilot program in this bill authorizes RBOs to contract with VEBAs or a trust fund.

1. AB 1124 PILOT PROGRAM. AB 1124 (Maienschein), Chapter 266, Statutes of 2020, authorizes DMHC, to establish two pilot programs that allow healthcare providers to undertake risk-bearing arrangements. According to the author, the two pilot programs were expected to begin no later than May 1, 2021, with a sunset date of January 1, 2028. However, due to COVID-19, the pilot program experienced a two-year delay. This bill extends the sunset date of the AB 1124 pilot program from January 1, 2028, to January 1, 2030. It introduces a two-year pilot program extension, allowing approved applicants, like VEBA, to continue their direct contracting program without any unnecessary interruptions. The author states that securing approval for the extension is imperative, especially considering that as of January 1, 2024, 5,000 members enrolled, and disrupting the process prematurely could lead to adverse outcomes. According to DMHC, Southern California Schools VEBA was authorized to participate in the pilot program located in southern California on December 10, 2021, for implementation effective January 1, 2022.
2. SUPPORT. California Schools VEBA, sponsor of this bill, writes that over 5,000 members are enrolled in this pilot and the extension in this bill is imperative to prevent avoidable disruptions in care and to the direct contracting pilot programs approved by the DMHC. California Schools VEBA is a 501(c)(9) non-profit trust that currently services more than 90 participating employers and over 150,000 members, throughout Southern California. In 2019, the VEBA Resource Center was launched to help members assess, identify and remove barriers to achieving optimal health and provide quality health care for its members and lower costs for their employers. America’s Physician Groups writes that the Office of Health Care Affordability (OHCA) recently released a draft provider alternative payment model standard for review and adoption by California’s Health Care Affordability Board. The standard supports the very purpose of the pilot; to move away from a costly, fragmented fee-for-service payment model to one that emphasizes pay-for-quality patient care outcomes.
3. OPPOSITION. The California Association of Health Plans, the Association of California Life and Health Insurance Companies, and America’s Health Insurance Plans, write that this arrangement sets a dangerous precedent and does not provide the important consumer protections that licensed health plans must extend to their enrollees under the KKA. It bears reminding that the DMHC promulgated regulations in October 2019 to address concerns regarding the financial solvency of existing RBOs. As of September 2023, there were 18 RBOs that were on Corrective Action Plans for failure to meet financial solvency requirements. Furthermore, the DMHC, in four years, has not taken any meaningful steps to enact the program. California’s KKA licensed health plans are tightly regulated and comply with a wide array of requirements that protect the market and health service consumers. Among other things, fully licensed health plans must meet stringent financial solvency requirements, ensure timely access to care, implement consumer grievance processes, and participate in independent medical reviews. The opposition concludes that considering the enactment of the OHCA and its ongoing work to lower health costs, plus given the state's deficit, there is no compelling need to eliminate the critical role of fully licensed health plans in order to continue exploring pilot projects.
4. RELATED LEGISLATION.
   1. AB 2434 (Grayson) authorizes an association of employers to offer a large group health plan contract or insurance policy to small group employer members of the association, consistent with ERISA, if certain requirements are met, including that the association was established before January 1, 1966, and is the sponsor of a multiple employer welfare arrangement, and that the contract or policy includes coverage of employees of an association member in the engineering, surveying, or design industry. AB 2434 is pending in Assembly Health Committee.
   2. AB 2072 (Weber) deletes the sunset date of January 1, 2026, for the authorization of an association of biomedical industry employers to offer a large group plan to small group members of the association, thereby authorizing these plans and policies indefinitely. AB 2072 is pending in Assembly Health Committee.
5. PREVIOUS LEGISLATION.
   1. AB 1124 (Maienschein), Chapter 266, Statutes of 2020, authorizes the DMHC Director, no later than May 1, 2021, to authorize two pilot programs, one in northern California and one in southern California, under which providers approved by DMHC may undertake risk-bearing arrangements with a VEBA, or a trust fund. Repeals these provisions on January 1, 2028.
   2. AB 1249 (Maienschein) was substantially similar to AB 1124 and was vetoed by Governor Newsom who stated in part:

“This bill would authorize a pilot program that would exempt risk-bearing provider groups taking on global risk from full licensure under the KKA. This proposed pilot project would undermine the fundamental purpose of the KKA by permitting such entities to operate in the State without providing the strong consumer protections guaranteed under the KKA.”

REGISTERED SUPPORT / OPPOSITION:

Support

California Schools VEBA (sponsor)

America's Physician Groups
American Federation of Teachers Guild Local 1931
California Federation of Teachers AFL-CIO

Sharp Rees-Stealy Medical Group
Sweetwater Union High School District

Opposition

Association of California Life & Health Insurance Companies
California Association of Health Plans

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097