State health officials have proposed a no-bid contract that will allow Kaiser Permanente to expand its Medi-Cal coverage area, triggering anger from other health insurance plans and questions from a key legislator.

The proposed contract, which would begin in 2024, allows Kaiser Permanente to skip a bidding process required for other commercial insurers to participate in Medi-Cal, the state’s health insurance program for low-income residents.  The bidding process for all other insurers starts Wednesday.

As first reported by Kaiser Health News, the state’s special deal with Kaiser Permanente has raised concerns among other Medi-Cal plans. They say Kaiser Permanente is getting special treatment that bypasses state procedures and allows it to cover only certain portions of the population.

Nonprofit local health plans, which cover the majority of Medi-Cal enrollees, estimate that Kaiser’s expansion could strip them of up to 30% of their members in some counties.

“Offering a statewide, no-bid contract on a silver platter to a commercial plan undercuts the local public health infrastructure while paving a path for large-scale corporate health plan expansion in Medi-Cal,” Linnea Koopmans, chief executive officer of the Local Health Plans of California, said in a statement. Her organization represents 16 local health plans, which will not have to bid for a contract since they are nonprofits.

The contract would have to be approved by the Legislature and federal officials before it would be implemented.

Sen. Richard Pan, a Sacramento Democrat who chairs the Senate Health Committee, said the state’s move raises many questions. Because local Medi-Cal plans usually report to counties and public boards as well as the state, he wants to know whether Kaiser will engage in a similar process to answer to the local communities they serve.

Pan also has questions about how the state’s payments to Kaiser and other health plans will reflect the potential differences in their mix of patients they end up serving.

“If the counties are concerned and they start calling their legislators there might be a lot of questions about this,” Pan said. “Kaiser Permanente is a good system, and I’m not saying this is a bad idea, but there are a lot of things here we have to understand.”

As part of the agreement, Kaiser Permanente will only have to cover three main groups of people: existing Kaiser members, foster youth and people who are dually eligible for Medi-Cal and Medicare, which covers seniors and people with disabilities, according to officials at the state’s Department of Health Care Services.

One of the biggest concerns of the other health insurers is that if Kaiser is only responsible for certain types of patients, then the sickest and most costly patients could be left to them.

Health plans say that allowing Kaiser to limit its enrollment to certain people could mean that their population will be healthier, less costly and easier to manage.

State officials, however, pointed out that Kaiser would have to serve people on both Medicare and Medi-Cal, known as dual eligibles, which are among the most complex patients because they have disabilities or are 65 and older. “So this is definitely not a low-risk population, and similarly with foster youth,” said Michelle Baass, director of the state’s Department of Health Care Services, said in a call with reporters.

Kaiser’s Medi-Cal enrollment is expected to grow by 25% under the contract, serving 32 counties.

“The reason we’re proposing to enter into this situation with Kaiser is that they are a unique plan partner, they are both a plan and a provider and are bound by their physical capacity,” Baass said.

Baass said Kaiser’s unique structure does not allow it to build out a network of providers like other health plans can. “We know they provide our highest performing plans in terms of quality and consumer satisfaction and want to recognize that and their unique situation,” she said.

But Koopmans said “Kaiser’s claims of capacity limitations rings hollow considering they have capacity for Covered California, Medicare, and private industry. Apparently, in Medi-Cal they just don’t have capacity for the people with the most need.”

Dr. Bechara Choucair, Kaiser’s chief health officer, said “the goal is not for Kaiser Permanente to compete with the safety net but to support it. We are not competing with other Medi-Cal plans for members, nor are we seeking to turn a profit off Medi-Cal enrollment.”

Choucair said Kaiser has participated in Medi-Cal for decades despite incurring losses from it every year.  “It’s one of the many ways we work to help improve access to health care for people who otherwise cannot afford the care they need,” he said.

Among the people who would be allowed to join Kaiser’s Medi-Cal plan are those who were Kaiser members but lost their job-sponsored health insurance and are new to Medi-Cal, state health officials explained. This provision would allow them to keep their doctors.

Health advocates say the agreement is concerning given Medi-Cal’s expanded role under the state’s CalAIM initiative, which is supposed to help address social issues for vulnerable populations such as  homelessness.

“We urge the department to require Kaiser to do more in Medi-Cal, including further diversifying future enrollment,” said Kiran Savage-Sangwan, executive director of the California Pan-Ethnic Health Network.

Medi-Cal insurance plans have to meet certain standards of transparency, quality, access and equity set by the state health department.