Gov. Jerry Brown and Democratic leaders are crafting an exception for Kaiser Permanente as they prepare to move 880,000 Healthy Families patients to lower-cost Medi-Cal as part of their budget agreement.

The provision would enable Oakland-based Kaiser to keep its 200,000 Healthy Families patients as Medi-Cal clients through a special contract with the state, according to Department of Health Care Services Director Toby Douglas. It would also allow Kaiser to avoid paying fees to county-based health plans that are typically required under Medi-Cal.

Healthy Families provides low-cost health care to children with family income ranging from the federal poverty threshold, $23,050 for a family of four, to 250 percent of that amount, $57,625. Under the budget deal, the state would shift all 880,000 Healthy Families children to Medi-Cal in three waves next year, starting in January.

Health care advocates have attacked the Healthy Families move, saying that it eliminates a successful program and forces children to switch pediatricians in Medi-Cal networks with worse access.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, said Thursday that Democrats agreed to dissolve Healthy Families as part of an overall deal to spare other programs such as welfare-to-work and subsidized child care from deeper cuts.

Health care insiders have privately groused about the Kaiser provision, considering it an unfair exception that other health plans did not receive.

Douglas contended that most Healthy Families children would maintain their current medical providers, known as "continuity of care." That would be much less likely if Kaiser were to leave the system and its 200,000 Healthy Families patients under the shift to Medi-Cal.

He noted that Kaiser has a closed model in which patients cannot access Kaiser providers if forced to use another insurer.

"Kaiser is a very unique health plan in California in that it is a health and hospital and physician system," Douglas said.

John Ramey, executive director of Local Health Plans of California, said the Kaiser provision would mean less money for public hospitals and safety net clinics that benefit from fees that Kaiser would otherwise pay.

"We are dismayed," Ramey said. "What's to keep the other Healthy Families plans from asking for the same deal? What's to keep Anthem Blue Cross from asking for this deal?"

Health care providers receive lower reimbursements in Medi-Cal than in Healthy Families, which advocates say has caused many doctors and pharmacists to stop accepting Medi-Cal patients.

Kaiser initially had concerns about a disruption in services for Healthy Families patients and a drop in state funding under the governor's plan, according to Christian J. Stenrud, Kaiser Permanente executive director for advocacy and public affairs.

Kaiser alone stands to receive $23 million less annually under the budget deal, according to Douglas. That cut might be even deeper absent the provision that allows Kaiser to contract directly with the state rather than local health plans to serve Medi-Cal.

Kaiser is an influential health care player in the Capitol and contributed $250,000 to Brown's tax initiative campaign in January, state records show. Other Medi-Cal health insurers gave as well, including Anthem Blue Cross, which donated $50,000.

Stenrud said Kaiser gave the money because it supports the tax initiative as a way to prevent deeper budget cuts in the future. Brown press secretary Gil Duran said, "I can say that Governor Brown makes his decisions based on what's best for California and Californians, and there is no other consideration that goes into making his decisions."

Kaiser currently has no position on the proposal as it negotiates with Brown officials and lawmakers, Stenrud said.

"If we are able to reach some kind of agreement here, from our perspective, that means we are no longer in opposition to the proposal as the governor has put forward," he said. "But even if we are able to reach some kind of accommodation here, we're not going to be in a place where we support this. We're just trying to mitigate the disruption our own members would face."

One critic of the governor's overall plan to eliminate Healthy Families expressed support for preserving the same medical providers for 200,000 Kaiser children.

"It's good that this would minimize the disruption for (Kaiser) patients in this switch," said Anthony Wright, executive director for Health Access California. "It doesn't resolve our overall issue with continuity of care and need for strong oversight in these plans."

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