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State worker health insurance premiums may see double-digit hikes. What CalPERS is considering

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CalPERS health insurance policyholders will likely see their premiums grow by more than 11% on average next year, according to preliminary prices that the board of the nation’s largest pension will consider at its meeting next week in Monterey.

The California Public Employees’ Retirement System provides health insurance for more than 1.5 million people, including roughly 770,000 state and local public employees and retires and about 770,000 dependents.

The price hikes reflect the larger trend of medical inflation across the country. A combination of rising demand for non-COVID-related health services, high labor costs and a desire to recover pandemic-era losses have all driven health care providers to raise their prices.

The plan with the highest premium increase is also the state’s most popular, an HMO plan administered by Kaiser Permanente. The monthly price is projected to rise more than 13% according to preliminary premiums released at the board’s June meeting. That plan serves nearly 550,000 people.

CalPERS also offers Medicare Advantage policies and Medicare supplemental plans for those who qualify.

Included in the offerings are Medicare supplement plans called PERS Gold and PERS Platinum that cover more than 150,000 seniors. The Gold plan premiums may increase by 3.5%; the Platinum premiums are expected to go up about 7%.

Medicare Advantage plans are expected to also increase by more than 13% on average. The popular Kaiser Permanente Senior Advantage plan, which covers more than 108,000 enrollees, may increase in price by more than 14%.

The preliminary rates posted online are subject to further negotiation and might change slightly before they are approved by the CalPERS Board of Administration on Tuesday. California pays about $690 per month toward individual state workers’ plans. The state previously offered an additional $260 health insurance stipend to members of SEIU Local 1000, but the benefit ended when Local 1000’s contract expired June 30.

CalPERS option: Combine HMO and PPO ‘risk pools’

Another factor affecting the exact rate change is whether the board decides to change how it risk-adjusts its premiums in the future. Currently, PPO and HMO premiums are risk-adjusted separately. But a new proposal would combine the “risk pools” and, effectively, raise HMO rates to keep PPO premiums from skyrocketing.

Prices for the state’s popular PERS Gold and PERS Platinum PPO plans could soar 19.25% next year under the current two-pool system. With a single risk pool, however, those premiums will only go up by roughly 12%.

In contrast, the Kaiser HMO would only increase in price by about 11.75% under the two-pool scenario. Under one pool, the rates were estimated to rise by more than 13%.

CalPERS has previously tried to fix the pattern that experts have called a “death spiral,” where higher-cost plans drive out healthier people into lower-cost ones. The board first approved the two-pool risk adjustment method in 2020 after its health insurance experts said the system needed to make changes to save three of its best plans — Anthem Traditional HMO, Blue Shield Access+ and what was previously known as PERS Care. Those plans attracted people who spent the most on medical treatment. When insurers kept raising premiums to cover medical spending, healthy people left the plans, prompting more hikes.

The two-pool method was meant as a temporary fix while the state transitioned into a one-pool system. At the time, the board said prices would increase again in 2023 before stabilizing in 2024.

That timeline has since changed.

At the June meeting of the Health Benefits Committee, Chief Health Director Don Molds reported that the PPOs were still losing healthy members to HMO plans, and that was causing PPOs to spend more money than they were collecting from premiums. Left unchecked, that trend would jeopardize the viability of those PPO plans.

“We had hoped that it would be longer before we needed to begin to merge the two risk pools,” Molds said. “This is not our preferred way of working, but the challenges we are facing today call for immediate action.”

Rob Jarzombek, CalPERS’ chief of health plan research, noted at the June meeting that large group health insurance purchasers, including the Center for Medicare and Medicaid Services as well as Covered California, use one risk pool for their risk adjustments.

But the move to combine the plans has been criticized as unfair to HMO policyholders, who would essentially be keeping costs lower for PPO plans. PPOs give policyholders more freedom to choose their providers, whereas HMOs tend to limit who patients can see and require them to obtain referrals from their primary care providers if they want to see specialists.

JJ Jelincic, a former CalPERS board member and investment officer, described the combining of PPOs and HMOs as akin to lumping homeowners and auto owners together into the same risk pool.

“They’re very, very different products,” he said. “If I’m in an HMO, then why am I subsidizing your right to choose whichever doctor you want?”

In theory, by keeping PPO premiums lower, the plan becomes more attractive to younger and healthier people who would otherwise be more likely to choose a plan with lower cost and fewer provider choices. But Jelincic doubts the PPO prices would sink low enough for cost-conscious policyholders to consider switching.

Jelincic said he believes the board will vote in favor of a three-year phase-in for a single-pool system.

“They want to encourage people – healthier people – to get into the PPO to help keep rates down.”