Beginning in 2022, CalPERS will use a portfolio rating approach for premiums for the Health Maintenance Organization (HMO) Basic plans. This change is the result of a year-long analysis and subsequent policy change designed to stabilize the Basic plan portfolio.

By pricing plans based upon the value of their benefit design and network, rather than the concentration of healthy or unhealthy lives in them, plans will compete on cost and quality of care instead of relying on their ability to attract younger and healthier members.

CalPERS Preferred Provider Organization (PPO) Basic plans will be priced based on their benefit and network differentials. Medicare plans aren’t included in the 2022 portfolio rating approach.

Health Plan Risk Scores

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 and prescription drug claim history to produce risk scores that predict their risk of incurring future health care costs.

A risk score lower or higher than one means a member’s medical costs are lower or higher than the average.

Here’s how the risk score works:

Risk Score of a Plan Associated Frequency of Health Care Services Provided
Greater than 1 More Frequent than Average
Equal to 1 Average
Less than 1 Less Frequent than Average

Health plans with a risk score greater than one have members with higher-than-average use of health care services. Plans with a risk score less than one have members with lower-than-average use of health care services.

2022 Risk Scores by Plan

Portfolio rating premiums involves the use of each plan’s risk score. Unadjusted risk scores, which are based on the frequency of health care services provided, are further adjusted before developing the final premium.

These adjustments account for:

  • Expected changes to member risk due to the introduction of new plan and service area expansions effective 2022
  • Accuracy in predicting the following year’s health costs for low enrollment plans by applying a credibility adjustment for plans with less than 25,000 members
  • Application of a two-year phase in, so that the impact of introducing portfolio rating on premiums is shared across plan years 2022 and 2023

Health plan 2022 risk scores are provided in the table below:

2022 Risk Scores by HMO Basic Plan

Basic HMO Plan Unadjusted 2022 MARA Risk Scores Adjusted 2022 MARA Risk Scores
Anthem Blue Cross Select HMO 0.9650 0.9842
Anthem Blue Cross Traditional HMO 1.2524 1.0880
Blue Shield Access+ 1.3166 1.1496
Blue Shield Trio 0.9949 0.9988
Health Net Salud y Más 0.6953 0.8909
Health Net SmartCare 1.1732 1.0663
Kaiser 0.9521 0.9776
Sharp Performance Plus 0.8551 0.9448
UnitedHealthcare Alliance HMO 0.9884 0.9961
UnitedHealthcare Harmony HMO 0.8586 0.9284
Western Health Advantage 1.1160 1.0319
HMO Total 1.0000 1.0000

The following is a high-level example for portfolio rating premiums. 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 portfolio rating, Plan A has a single-party premium of $800.