The California Public Employees’ Retirement System (CalPERS) will be awarding two new contracts designed to lower healthcare costs. The contracts – with Blue Shield of California and Included Health – create financial incentives to provide higher quality care at lower costs for members enrolled in its self-funded preferred provider organization (PPO) plans, according to CalPERS.
Under the new contracts, Blue Shield of California will partner with Included Health, an integrated national care delivery and navigation company, to provide healthcare, navigation support and personalized service to about 400,000 CalPERS PPO members (250,000 in Basic PPO plans and 150,000 in Medicare Supplemental plans).
This represents about one-third of the 1.5 million CalPERS members who receive healthcare coverage – with the others covered through fully insured HMOs.
CalPERS said it selected Blue Shield because of “its commitment to expanding access to high-quality care, controlling costs through innovation, and addressing health equity.” Included Health will provide personalized help for members navigating clinical, administrative and financial issues, in addition to higher levels of support for those with complex and chronic health needs, while supplementing Blue Shield’s provider network with virtual care for behavioral and primary care needs.
The organizations will begin providing care for CalPERS members starting in the 2025 coverage year.
Most CalPERS PPO members will be able to continue seeing their existing doctor as an in-network provider since Blue Shield has virtually all the same hospitals, facilities and systems, and significant overlap of physicians and clinicians, as the current plan, CalPERS said.
Basic PPO members stand to benefit from new navigation and member support services, and those with complex health conditions will receive more tailored assistance that is responsive to their unique needs, according to CalPERS.
For the small percentage of Basic PPO members whose clinician may not be available in-network, CalPERS said it has developed systems to ensure continuity of care.
WHAT’S THE IMPACT
A key component of the new five-year contracts is the establishment of performance guarantees in which Blue Shield and Included Health will put $464 million at-risk if they don’t meet the program’s goals for controlling medical cost trends and improving quality.
The contracts set the initial medical trend cost target at 5.5% in 2025 and lowers the target each year until it reaches 3% by 2029. If CalPERS’ trend is lower than the target, Blue Shield and Included Health stand to share in the savings.
The total cost of care target aligns with California’s Office of Health Care Affordability’s benchmarks in 2029 and will help CalPERS ensure the long-term stability of its PPO plans. The PPO plans are self-funded, meaning CalPERS is responsible for collecting premiums from enrollees and paying their medical claims and those of their dependents.
In addition, the contracts also set new target quality thresholds, including controlling blood pressure, diabetes care, childhood immunizations, colorectal cancer screening and pregnancy care. The targets are identical to those that CalPERS included in its latest HMO contracts, which also contain significant financial consequences for health plans that don’t meet quality targets.
By aligning its PPO and HMO contracts, CalPERS said its health plans will put more than $1.3 billion at risk over the course of the five-year agreements if they do not meet quality targets or contain medical cost trends.
THE LARGER TREND
CalPERS cited a number of reasons why it thinks the program could serve as a national model.
For one, the organization said that lower costs will be achieved without arbitrarily excluding hospitals and major facilities, as almost all major hospitals, trauma centers, and health delivery systems are in-network.
It added that the expected reduction in medical trend costs will be accomplished by improving the care members receive, not by reducing the benefits they receive or increasing their out-of-pocket costs.
Moreover, CalPERS said the substantial amount at-risk for improving healthcare quality is aligned with quality measures shared by the Department of Health Care Services (which administers Medi-Cal, California’s Medicaid program) and Covered California.