Three CalPERS Health Plans Are In A ‘Death Spiral.’ Can They Be Saved?

Oct. 26--Three of the best health plans California state workers and retirees can buy are speeding toward collapse, according to CalPERS insurance experts.

The plans may be salvaged, but a proposed solution likely will involve price increases for young, healthy workers, Health Plan Research and Administration Division Chief Marta Green has told the CalPERS board.

The board is expected to hear details of the proposal, including projected prices, at a meeting in three weeks.

The California Public Employees' Retirement System provides health insurance to about 1.5 million people, including current and retired state workers, other public employees and their dependent family members.

Open enrollment just ended for next year's plans. The proposed changes wouldn't take effect until 2022.

The three troubled plans are PERSCare, Anthem Traditional HMO and Blue Shield Access+.

They have bigger networks of doctors and hospitals than other plans and cover greater shares of medical costs. They're also more expensive.

The plans' benefits have attracted some of the least healthy workers and retirees, who need more medical treatment than healthier members. When insurers have to pay big medical bills, they raise premiums. Price hikes in turn push healthier people out of the plans and into cheaper plans.

"As a result, a few of our plans are in what's called a death spiral," Green told the board in a Sept. 15 meeting, according to a transcript. "A cycle in which premiums increase from one year to the next, members then leave that plan because of those increases, and then the premiums consequently increase even more because risk is worse."

The spiral started just two years ago, when CalPERS ended a complicated program that shifted money from lower-risk plans to the higher-risk plans to try to stabilize prices. Prices went up after the program ended, and 34,000 people exited Blue Shield Access+. Ten thousand left PERSCare and 5,000 left the Anthem HMO.

Green is expected to propose bringing back a simpler version of the risk adjustment program at a Nov. 17 meeting.

Price increases

PERSCare, a broad-network PPO that covers about 93,000 people, will cost $1,112 per month next year for a single state worker. Projections show the plan would cost $1,841 per month by 2026.

Anthem Traditional HMO, with about 18,000 policyholders, will cost $1,200 per month next year. It would cost $2,202 by 2026 without changes, according to the projections.

Blue Shield Access+, a broad-network HMO covering about 89,000 people, would jump from $939 to $1,302 per month.

State workers don't pay those totals. They pay a portion spelled out in union agreements. For the 2021 plans, the state is contributing $607 to $645 per month for most workers. Workers are responsible for the rest. SEIU Local 1000 members and state attorneys receive another $260 per month.

The prices for the expensive plans are becoming inflated, Green said. Their benefits aren't as good as their prices suggest. Meanwhile, the cheaper plans -- with narrower networks and higher deductibles -- are becoming underpriced.

Green told the board her November proposal will align plans' prices with their value. It uses a form of risk adjustment known as portfolio rating.

Cheaper plans would get a price bump in 2022, unless the board uses cash infusions to phase in the increases over two years.

PERS Select, CalPERS' second-cheapest plan at $527 per month, would jump to $755 in 2022 without phase-in, according to projections. About 99,000 people are enrolled in the PPO plan.

Prices would also jump for Anthem Select and Health Net SmartCare, while rates would drop for the expensive plans. Then all of the plans would start gradually ticking upward from year to year, according to the projections.

More changes

The projections show Kaiser's HMO would be the cheapest HMO under the new system.

Devara Berger, who was a manager working on health legislation at CalPERS before she retired in 2013, said she's concerned Kaiser could end up without competition under the proposed change, which could drive up prices over time.

"I'm very concerned about how this is going to change our health plan makeup down the road," Berger said.

Green told the board the new system would ensure plans have to compete based on quality and value, rather than their ability to attract young and healthy people to their plans.

Henry Jones, the board's president, told Green he's seen major shifts to how CalPERS manages its health plans in just the last 12 years.

"If our ultimate goal is to make sure that our members are getting healthier and the cost is affordable, how do we evaluate if every two or three years we're changing some significant components of these plans," Jones asked, according to the September transcript.

Green, who started her job at CalPERS a year ago following seven years at the Department of Managed Health Care, said the proposal is simpler and more transparent than the last risk adjustment program. She said it's similar to the approach used by Covered California, the state of Washington and other large systems.

"Does that mean like we'd never recommend a change in the future? No," she told Jones. "But I think it's a much more stable platform than the one we have today."

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