Terms incentivize Blue Shield of California and Included Health to make coverage more affordable and improve quality by contractually requiring them to put over $460 million at-risk – aligning their interests with CalPERS’ commitment to affordability, quality, and equity.

June 12, 2024

Communications & Stakeholder Relations
Office of Public Affairs
(916) 795-3991 - newsroom@calpers.ca.gov

SACRAMENTO, Calif. – The CalPERS Board of Administration announced its intent to award two new contracts designed to promote savings by lowering health care costs over time while improving the quality of care for members enrolled in its self-funded preferred provider organization (PPO) plans. The new contracts — with Blue Shield of California and Included Health — create financial incentives to provide higher quality care at lower costs.

"The new contracts allow CalPERS to provide unique and innovative programs to better serve our PPO members, while controlling medical costs that have been very challenging, and improving the experience and quality of care our members receive," said Ramon Rubalcava, chair of the CalPERS Board of Administration Pension and Health Benefits Committee. "CalPERS is demonstrating that health care quality and equity is at the center of everything we do for our members."

What This Means for CalPERS PPO members

Under the new contracts, Blue Shield of California – a major nonprofit health plan based in the Golden State – will partner with Included Health, an integrated national care delivery and navigation company, to provide health care, navigation support, and personalized service to approximately 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 health care coverage – with the others covered through fully insured HMOs.

CalPERS 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 high-quality virtual care for behavioral and primary care needs.

The organizations will begin providing care for CalPERS members starting in the 2025 coverage year.

Among the important facts that CalPERS members need to know:

  • 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.
  • Basic PPO members will 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 based on who they are and the health challenges they are facing.
  • For the small percentage of Basic PPO members whose clinician may not be available in-network, CalPERS has developed systems to ensure continuity of care and a range of options to make sure they get the best care possible.

New Contracts Set Performance Guarantees on Cost and Quality

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 do not 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 thresholds for providing quality health care, 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 do not meet quality targets.

"By having these two organizations put hundreds of millions of dollars at-risk if they do not deliver for our members, we are aligning the interests of CalPERS and its members with those of Blue Shield of California and Included Health," said CalPERS Chief Health Director Don Moulds. "It doesn't matter which plan our members pick, they all deserve to receive quality care."

By aligning its PPO and HMO health care contracts, CalPERS' 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 terms and scale of these contracts for self-insured PPO coverage, in which the health plan and its care management partner are financially responsible for costs, are unique.

"For too long health plans offering PPOs have been both quality blind and indifferent to rising costs, because the employers or public purchasers are footing the bill," said Peter V. Lee, former executive director of Covered California and senior fellow at Stanford University who served as an advisor on the project. "This new arrangement represents a mammoth change, by having the interests of the health plan and its care management partner truly aligned with CalPERS' mission of providing the best possible quality care while making coverage more affordable over the long term."

Additional reasons that the CalPERS program could serve as a national model are:

  • 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.
  • The expected reduction in medical trend costs will be accomplished by improving the care members receive, not by reducing the benefits members receive or increasing their out-of-pocket costs.
  • The substantial amount at-risk for improving health care 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 – thus ensuring that these three programs, covering more than 40% of Californians, will encourage better care that can benefit the entire state.

CalPERS officials thanked the leaders and staff of Anthem Blue Cross for providing PPO services to its members for more than two decades.

"We appreciate the many years of service that Anthem Blue Cross has provided to CalPERS and its PPO members," Moulds said. "We are looking forward to continuing to work with Anthem Blue Cross in our HMO offerings."

About CalPERS

For more than nine decades, CalPERS has built retirement and health security for state, school, and public agency members who invest their lifework in public service. Our pension fund serves more than 2 million members in the CalPERS retirement system and administers benefits for more than 1.5 million members and their families in our health program, making us the largest defined-benefit public pension in the U.S. For more information, visit www.calpers.ca.gov.