Risk Mitigation for Basic Plans
CalPERS uses a risk mitigation strategy to risk adjust premiums for the Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) Basic plans. This strategy is the result of a year-long analysis (PDF). Starting in 2024, Basic HMO and PPO plans began a three-year transition into a single risk pool (PDF) to stabilize the Basic plan program. However, in July 2024, the CalPERS Board of Administration approved a full transition to a single risk pool in 2025 (PDF) instead of a three-year transition to a single risk pool.
Medicare plans aren’t included in our risk mitigation strategy.
Health Plan Risk Scores
To implement our risk mitigation strategy, we engaged Milliman, an international actuarial and consulting firm, in the development of health plan risk scores based on the Milliman Advanced Risk Adjusters (MARA) prospective tool. MARA analyzes each member’s medical claim history to produce risk scores that predict their risk of incurring future health care costs.
A risk score equal to one means the member enrolled in the health plan has the same health care costs as the average members in the Basic plan program. A risk score lower or higher than one means a member’s health care costs are lower or higher than the average member in the Basic plan program.
Here’s how the risk score works:
| Risk Score of a Plan | Associated Costs for Health Care Services Provided |
|---|---|
| Less than 1 | Less than Average |
| Equal to 1 | Average |
| Greater than 1 | Higher than Average |
2025 Risk Scores by Basic Plan
Health plan 2025 risk scores are provided in the table below:
| Basic Plan | 2025 Adjusted Risk Score |
|---|---|
| Anthem Blue Cross Select HMO | 0.9398 |
| Anthem Blue Cross Traditional HMO | 1.1153 |
| Blue Shield Access+ | 1.2009 |
| Blue Shield Trio | 0.8485 |
| Health Net Salud y Más | 0.7634 |
| Kaiser Permanente | 0.9113 |
| PERS Gold | 1.1242 |
| PERS Platinum | 1.1242 |
| Sharp Performance Plus | 0.9151 |
| UnitedHealthcare Alliance HMO | 1.0493 |
| UnitedHealthcare Harmony HMO | 0.9178 |
| Western Health Advantage | 0.9780 |
| Basic HMO and PPO Plan Overall Average | 1.0000 |
Development of Risk Adjusted Premiums
The following is a high-level example for risk mitigation. There are additional, more intricate steps involved that are outside the scope of this description.
Each plan’s total premium consists of three component costs: Medical, Pharmacy, and Administrative Service Fees (ASF). ASFs are the operating costs associated with administering the plan and are set at the outset of the five-year contract with the plan.
Plan A has an unadjusted single-party premium of $950 comprised of the following components:
| Medical | Pharmacy | ASFs |
|---|---|---|
| $700 | $200 | $50 |
Plan A has an Adjusted Risk Score of 1.2, indicating members in this plan use health care services more than the average member, and its overall costs are higher than the value of the plan based on its network.
By portfolio rating Plan A, the premium will decrease to better align with the value of the plan and its network.
Let’s follow the steps for portfolio rating Plan A:
| Step 1 | Add medical and pharmacy components | Medical + Pharmacy $700 + $200 = $900 |
| Step 2 | Divide the result from Step 1 by the Adjusted Risk Score | ÷ Adjusted Risk Score $900 ÷ 1.2 = $750 |
| Step 3 | Add the ASFs to the result from Step 2 to arrive at the risk mitigated premium | + ASFs $750 + $50 = $800 |
After risk mitigation, Plan A has a statewide single-party premium of $800.