Governor Newsom Signs Lowenthal Health Care Affordability Bill, Extending VEBA Direct Pilot Through 2030

Direct contracting pilot pairs affordability innovation with measurable quality gains across prevention, chronic disease, women's health and cancer screening

SACRAMENTO, October 13, 2026 - As California continues to confront rising health care costs for working families, Governor Gavin Newsom has signed Assembly Bill 2594, extending California's first state-authorized direct contracting pilot program for a qualifying voluntary employees' beneficiary association through 2030. Operated by California Schools VEBA (CalVEBA), the VEBA Direct pilot explores how self-funded public employers can improve health care affordability through innovative contracting models with health care providers. These ground-breaking partnerships improve access to high-quality care, reduce layers of unnecessary intervention, and create better value for the participating employers and employees.

Launched on January 1, 2024, following review by the California Department of Managed Care, VEBA Direct currently includes 23 participating employers and integrated medical groups such as Sharp Rees-Stealy, Sharp Community Medical Group, UC San Diego Health, and Rady Children's Hospital. By reducing unnecessary administrative layers and aligning employers and providers around measurable outcomes, the model is designed to deliver better value while preserving patient protections and access to high-quality care.

A growing pilot with measurable demand
VEBA Direct reported 5,691 members in 2026, with working-age adults representing approximately three-quarters of enrollment. Enrollment increased across several participating medical groups between late 2025 and January 2026, including 33% growth for Sharp Community Medical Group and 121% growth for UC San Diego Health. The growth reflects demand for the model and underscores the importance of maintaining a stable policy environment long enough to evaluate affordability and health outcomes.

Quality results exceed statewide PPO benchmarks
|Early clinical results provide an important complement to savings data. In 2025, VEBA Direct preliminary data showed promising improvements against statewide benchmarks, as measured by Integrated Healthcare Association (IHA), as follows:

2025 IHA-REPORTED MEASURE RESULT

Colorectal cancer screening 69.3%

Cervical cancer screening 85.2%

Breast cancer screening 83.6%

Controlled diabetes, GSD below 8% 71.1%

Poorly controlled diabetes, GSD above 9% (lower is better) 20.0%

Provider-group data also showed strong performance in chronic disease and women's health. In 2025, controlling high blood pressure reached 80.4%, kidney health evaluation for patients with diabetes reached 78.9%, and timely prenatal and postpartum care each reached 93.5%. CalVEBA is also using direct contracting to address specialty-drug markups and support a coordinated, whole-person model focused on prevention, chronic disease, mental health, women's health and cancer care.

Why the extension matters:
AB 2594 extends the statutory runway for VEBA Direct through 2030 and requires an interim report back to the Legislature on the success of the pilot to be delivered by January 1, 2029. Continued oversight will give policy makers a meaningful period to evaluate affordability, clinical quality and member experience while maintaining safeguards for patients.

"Nearly 40% of Californians bear some kind of medical debt," said Assemblymember Josh Lowenthal (D - Long Beach). "This number is alarmingly high and points to a need to find novel solutions to drive health care costs down for Californians. The VEBA pilot program is a promising affordability solution that explores how employers can structure health care financing to improve care access and affordability. With this extension, the State of California will be able to evaluate whether collectivizing health care costs can unlock new savings for Californians."

"CalVEBA thanks Assemblymember Lowenthal and the Legislature for their bipartisan support of AB 2594. Healthcare costs are a real concern for school employees and their families, and this pilot is showing there may be a better way. At a time when healthcare costs continue to rise, I think it's worth taking a closer look at approaches that deliver better value without compromising care," said Laura Josh, General Manager of CalVEBA.

"The VEBA direct contracting pilot is designed to show how employers and providers can work together to pinpoint specific cost drivers of health care premiums and to focus on keeping employee populations healthier and happier," said William Barcellona, Executive Vice President of Government Affairs for America's Physician Groups. "Our first two years have proved the concept, now we have the time to dig in and really innovate."

About California Schools VEBA
California Schools VEBA is a nonprofit, joint labor-management health care trust that helps California school districts and other governmental agencies provide health benefits for employees and their families. By pooling resources, establishing self-funded programs and using collective purchasing power, CalVEBA works to improve care coordination, increase transparency and manage health care costs on behalf of participating employers and members.