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 will begin a three-year transition into a single risk pool (PDF) to stabilize the Basic plan program.

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

2024 Risk Scores by Basic Plan

Health plan 2024 risk scores are provided in the table below:

Basic Plan	2024 Adjusted Risk Score
Anthem Blue Cross Select HMO	0.9638
Anthem Blue Cross Traditional HMO	1.1612
Blue Shield Access+	1.2898
Blue Shield Trio	0.8916
Health Net Salud y Más	0.7805
Kaiser Permanente	0.9312
PERS Gold	0.7635
PERS Platinum	1.3253
Sharp Performance Plus	0.8985
UnitedHealthcare Alliance HMO	1.0648
UnitedHealthcare Harmony HMO	0.9295
Western Health Advantage	1.0790
Total	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.