CalPERS’ PPO plans are changing administrators in 2025. Why some members are nervous

William Melhado, The Sacramento BeeSacramento Bee

When California announced the state’s popular PPO health insurance plans would be changing administrators from Anthem Blue Cross to Blue Shield of California and Included Health in 2025, Cassandra Riera was hopeful. She had positive experiences with Blue Shield previously.

Before open enrollment, Riera tried to obtain a document that would confirm whether Blue Shield would honor an existing agreement that helps pay for specialized therapy for her daughter. Earlier this month, she was told that the document outlining coverage for the PPO plans wasn’t yet complete.

The missing document made Riera nervous about the change and what it could mean for her family.

“I haven’t even picked [my plan] yet,” Riera said. “What’s it going to be like once I’m actually having to have a health plan administered?”

The California Public Employees’ Retirement System said the document Riera was trying to track down would be published on it’s website on Friday, a little over two weeks before the open enrollment period ends.

Earlier this summer, CalPERS announced Blue Shield and Included Health would administer the state workers and retirees’ basic and Medicare PPO plans. The change, CalPERS said, will lower healthcare costs and improve member’s quality of insurance. The switch will take place on Jan. 1.

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“With the addition of Included Health and their personalized care services, detailing the coordination of services with Blue Shield of California for the [Evidence of Coverage] and other publications/materials took extra time,” said James Scullary, assistant division chief of CalPERS’ Office of Public affairs. “We regret the inconvenience.”

The change comes as the PPO plans’ reserves have lost hundreds of millions of dollars in recent years due to the increased medical cost and higher utilization rates. The change also means that some members could be forced to switch doctors.

Paul Markovich, CEO of Blue Shield of California, told the CalPERS board members earlier this month that they hoped to minimize issues during the transition. Of the roughly 400,000 members that could be impacted by the change in administrators, he said Blue Shield was hoping only 3,000 would have to change primary care physicians in January.

Weighing the options

For the last 14 years, Riera’s daughter has received a special form of therapy that helps people with autism, like her daughter, communicate and become more independent, such as helping “make sure that she can navigate from school to the after school program.”

In southern California, where Riera lives, the demand for providers of Applied Behavior Analysis outnumbers the available providers, so Riera could only find an out-of-network therapist for her daughter’s ongoing sessions. Under her current Platinum PPO health insurance plan Riera has through CalPERS, she worked out an agreement in which her insurer Anthem pays 90% of the allowable amount that they would pay to an in-network provider for the therapy. Riera picks up the rest of the bill.

The specialized form of therapy is immensely helpful for her daughter, Riera said, but also costly. She estimated those out-of-pocket costs have ranged from $1,000 to $3,000 a month.

Before open enrollment began this month, Riera wanted to read through the Evidence of Coverage document for the Platinum PPO plan, which she hopes to continue in 2025.

When Riera contacted Included Health, a company contracted by the state to assist with navigating the complexities of the health insurance world, earlier in September to get a copy of the Evidence of Coverage, a representative told her the crucial document was not available.

On Tuesday, CalPERS said the documents are in the “final stages of review” and are expected to be available online by the end of the week. The Evidence of Coverage would be public on CalPERS’ website by this Friday, the agency said, along with other documents relevant to the PPO plans.

“There’s a reason open enrollment is as long as it is,” Riera said. “I have to evaluate a lot of pros and cons, and look at the language and determine what plan can best meet my daughter’s needs.”

A shrinking checking account

The state’s PPO plans are different from the HMO plans offered in that they are self-funded, which means the state is responsible for most of the medical costs incurred by members subscribed to those plans that exceed the premiums paid by California and its employees.

In recent years, the state has paid hundreds of millions of dollars for the medical services used by PPO members, which has left the plans’ fund balance significantly below the level of reserves CalPERS aims to maintain.

Between 2021 and 2023, the health care fund balance of the state’s basic PPO plans shrank from $520 million to $67 million. The “actuarial prudent level” for these plans is $732 million, CalPERS said. In 2021, CalPERS consolidated its three PPO plans into two plans but the agency said that had no impact on the shrinking fund balance.

Susan Pantely, a principal and consulting actuary with the consulting firm Milliman, likened fund balances to a checking account, with medical claims acting as expenses and premiums serving as revenue.

“If I don’t have enough in the fund balance to have those reserves, if it’s negative … my checking account is overdrawn,” Pantely said. “The more negative I get, the more I keep digging myself into that hole.”

The fund balance isn’t negative, as of December 2023 when CalPERS reported the most recent numbers. Pantely noted that the fund balance’s rate of decline has slowed in the last year.

The numbers are concerning, said Garen Corbett, director of the California Health Benefits Review Program, which provides the Legislature with independent analysis of health insurance-related legislation.

Corbett said the decrease in the fund balance wasn’t surprising, given “there’s a lot of pressures in healthcare right now.”

CalPERS said some of those pressures included increased costs for medical supplies and labor. The agency also noted the impact of the COVID-19 pandemic on deferred care. Members put off seeing the doctor during the initial years of the pandemic, but in the following years utilization rates spiked due to the pent-up demand for health care.

Corbett also pointed to the increased use of high-cost specialty drugs, such as the diabetes and weight-loss medication Ozempic, as a contributor to high medical claims.

The PPO plans remain strong, with sufficient assets to provide care for members, CalPERS said. The fund balance is reserved for emergency situations, such as a global pandemic.

To replenish the fund balance, CalPERS approved a premium surcharge of 4-5% to the PPO plans beginning in 2023. The agency expected the surcharge would continue for the next few years.

Additionally, in an April report on the fund balance, CalPERS noted that it was looking to save money in the next pharmacy benefit manager contract.

CalPERS also noted that new contracts with Blue Shield and Included Health contain financial incentives to help lower costs. The contracts set a medical trend cost target of 5.5%, with the goal of decreasing the target to 3% by 2029. Blue Shield and Included Health will put $464 million at-risk as part of the five-year contract to ensure the goals are met, CalPERS announced earlier this year.

“If they weren’t successful in four or five years from now, I would be more alarmed,” Corbett said.