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Mar 25, 2024   |   In the News
Issue brief: Capitated payment for primary care in self-funded health insurance arrangements
In the News

A new issue brief from IHA and the California Quality Collaborative explores how state and federal regulatory oversight of health coverage affects opportunities for hybrid primary care payment in self-funded health insurance arrangements in California.

Read the issue brief

Why this matters

As data from our California Regional Healthcare Cost and Quality Atlas shows, better care and lower costs typically result when plans and providers share in the financial risk through a capitation arrangement compared to fee-for-service payment arrangements. Although capitated payments are used widely in fully insured HMO products in California, fee-for-service (FFS) payments for primary care and other outpatient services are thought to be the dominant payment structure within PPO products, including self-funded PPOs.

As efforts toward aligned, hybrid primary care payments expand – including through the California Advanced Primary Care Initiative, led jointly by IHA and the California Quality Collaborative, some key decision-makers have questioned the feasibility of adopting capitation as a payment mechanism among self-funded and flex-funded health coverage arrangements.

What’s inside the brief

This technical memo is based on a review of publicly available documents and key informant interviews conducted between August 2023 and January 2024. It covers the following topics:

  • Primary care payment alignment and the role of capitation
  • Regulatory context pertaining to primary care payment in California, including the Knox Keene Act of 1975 (KKA) and the federal Employee Retirement Income Security Act of 1974 (ERISA)
  • Direct contracting between purchasers and providers: experimentation, potential, and limitations
  • Motivations and tradeoffs affecting primary care payment structure
  • Primary care capitation in self-insured plans: allowable conditions, remaining uncertainty
  • Potential next steps

Read the issue brief