California AB 2063 Extends Risk-Bearing Arrangement Pilot Program
On September 28, 2024, Governor Newsom approved Assembly Bill 2063. The provisions of the bill were originally enacted as AB 1124 in 2020, amends section 1343.3 of the Health and Safety Code regarding risk-bearing arrangement pilot programs. These programs, according to the bill’s author, Assemblyman Brian Maienschein, are a solution to increasing health care costs through shared financial risks.
Background
The California Department of Managed Health Care (DMHC) regulates the licensure process in the state under the Knox-Keene Health Care Service Act of 1975 (KKA). Entities required to obtain a licensure through the DMHC are those that accept “global risks” or, those who are paid a fixed amount upfront to cover all healthcare needs of their patients, including professional (doctor) and institutional (hospital) care. This is in contrast with fee-for-service insurance plans and are primarily applied to health maintenance organizations (HMOs) and managed care plans. These types of plans pay the physicians a fixed amount per patients that remains constant regardless of the care needed. This type of health plan is meant to incentivize proactive care that helps keep patients healthy while simultaneously avoiding unneeded treatments. KKA was integral in providing California residents with mandatory services, consumer protection, sufficient volumes of providers, and financial stability when receiving care through an HMO or a managed plan. State licensing of global risk health plans seek to ensure the organizations serving residents are held accountable for the level of safety and reliability of the care they provide.
In contrast, Risk-Bearing Organizations (RBOs) also assume the financial risk for the health care service of their patients but only for professional care. As such, these organizations are exempt from strict oversight and are instead regulated by the health plans they contract with. These entities are slightly monitored by the DMHC via annual reports detailing their financial standing. To clarify the specific level of risk that would require licensure, the DMHC proposed separate categories of licenses to distinguish between global risk and RBO health plans, knowns as full and restricted licenses.
Legislative History
In 2019, Assemblyman Maienschein proposed AB 1249, a bill similar to AB 2063, that sought to address financial solvency of RBOs due to high levels of these organizations on “Corrective Action Plans” as a result of failing to comply with state requirements. However, Governor Newson vetoed the bill due to concerns of its undermining the KKA and thusly consumer protections. In 2020, AB 1124 was proposed in place of 1249 with language requiring coverage of unpaid claims to ease concerns of solvency. 1124’s proposal would allow for DMHC licensing exemptions for two state pilot programs, one in the south and one in the north. These programs would bypass the full licensure requirement because of their risk-sharing arrangement with voluntary employee beneficiary associations (VEBA). A VEBA is a tax-exempt trust that funds employee benefits that is typically used in public, unionized sectors where employers manage the fund to cover benefits paid out. Additionally, the bill required annual reporting of financial saving and health outcomes. AB 1124 was approved by Governor Newsom in September 2020 and was set to be implemented January 1, 2022 to December 31, 2025.
AB 2063
Like AB 1124, 2063 proposes to pilot a value-based program in place of a fee-for-service plan in attempts to improve patient health outcomes while reducing health care plan costs. The pilot program is partnership between California Schools VEBA and America’s Physician Groups and is aimed at helping reduce health care costs for southern California educators. 2063 differs from its predecessor in the timeline and locale of the program. Instead of two pilot programs, 2063 only allows for one pilot program which will take place in San Diego. Furthermore, COVID 19 delayed implementation of the program as outline in AB 1124 so the updated authorization will extend the sunset of the program from January 2028 to January 2030.
Currently, over five thousand California Schools members are enrolled in the program. Preliminary data has found savings of over $1 million. Furthermore, rate of cost increases, over a five-year period, for the HMO RBO enrolled in the program were substantially below that of traditional fee-for-service health plans at 3.12% and 9.93%, respectively. Proponents of the pilot program also point to the plan’s congruence with the Office of Health Care Affordability (OHCA) alternative payment model that has been adopted by the California Health Care Affordability Board. The pilot program’s emphasis on a “pay-for-quality” outcome in place of the traditional fee-for-service model.
However, the bill faced opposition from a variety of state health care associations due to concerns with lacking consumer protections. Groups such as The California Association of Health Plans, the Association of California Life and Health Insurance Companies, and America's Health Insurance Plans point to the historical underpinnings of DMHC’s regulations in 2019 and concerns regarding solvency. Opponents suggest, despite OHCA’s alternative payment model, that the state lacks compelling data to do away with full licensures and recommend the state continue to explore alternative programs. At an Assembly hearing in June, the California Association of Health Plans spoke in opposition to AB 2063 because of concerns about allowing new risk-bearing arrangements for providers outside the scope of Knox-Keene licensed health plans that are tightly regulated and require compliance.
The legislation successfully passed the legislature in August, and was approved by the Governor on September 28th.
The Source will be sure to keep you updated on all updates and outcomes resulting from AB 2063’s implementation.