Reprinted from THE AIS REPORT ON BLUE CROSS AND BLUE SHIELD PLANS, a hard-hitting independent monthly newsletter on new products, market share, strategies, conversions, financing, profitability and strategic alliances of BC/BS plans. (Not affiliated with the Blue Cross and Blue Shield Association or its member companies.)
By Steve Davis, Managing Editor
May 2013 Volume 12 Issue 5
After a decade of having the business to itself, Blue Shield of California will be one of five health plan operators administering a new $14 billion, five-year contract for HMOs offered through the California Public Employees’ Retirement System (CalPERS). Blue Shield of California’s HMOs now cover more than 400,000 CalPERS members.
Beginning on Jan. 1, 2014, Blue Shield of California will be joined by Health Net, Inc., WellPoint, Inc. subsidiary Anthem Blue Cross, Sharp Health Plan and UnitedHealth Group in administering HMOs for the program. The contract was approved April 17 by the CalPERS Board of Administration. Blue Shield of California opted not to protest the decision, and is now negotiating with CalPERS on 2014 rates, says Blue Shield spokesperson Steve Shivinski. CalPERS will release rates on June 15. Kaiser Permanente also offers an HMO through a separate contract, and another contract to administer the self-funded PPO contract was awarded to Anthem Blue Cross. All of the CalPERS health provider contracts were timed to end in December 2013 so that all contracts would be on the same timetable.
The decision to add more carriers was based on the evolvement of CalPERS’ 21-point health initiative, which was approved by the CalPERS Board of Administration in 2012. That initiative was the result of more than a year of research by CalPERS staff, says spokesperson Bill Madison. “The Board decided that it wanted more options avail-able, as well as the ability to provide a self-funded HMO option, much like our current self-funded PPO program,” he tells The AIS Report. He adds that having multiple carriers isn’t a new idea for CalPERS. At one time, the program had as many as 20 participating carriers.
CalPERS Seeks New Approach
A request for proposals (RFP) last October asked bidders for “innovative approaches” for the CalPERS program, and included stringent requirements for technical and financial responses, according to a statement from CalPERS.
The RFP also required bidders to indicate how they would meet requirements to provide transparency in their operations, comply with pricing and performance guarantees, support disease management, and implement integrated health care models.
At an April 16 meeting of CalPERS’ Pension and Health Benefits Committee, Paul Markovich, Blue Shield of California’s president and CEO, said he was dubious that CalPERS’ decision to include more carriers would help contain coverage costs.
He cited a 3% medical trend for Blue Shield’s CalPERS 2014 plans, excluding pharmacy costs, and an expected 2.8% trend for 2015. Moreover, he said the combined geographic service area of the other HMO bidders includes eight fewer counties, which will impact more than 64,000 members.
During the meeting, Markovich said he was “perplexed” by the board’s confidence that it had a good idea what the costs would be for the multiple HMO options. “Right now I have no idea how we will price this scenario, so I don’t know how you know.” Shivinski says Blue Shield received the highest overall score in the CalPERS evaluation process.
Health Net Offers Narrow Networks
Health Net participated in CalPERS until the giant purchaser decided to consolidate carriers about 10 years ago. The idea was that there would be substantial savings by having just one HMO carrier and one PPO carrier, explains Larry Tallman, chief sales officer at Health Net.
“At the time, their risks were spread so widely that they couldn’t get control over the costs with so many carriers. They decided that if they had a single carrier per product line, all of the members would be with one carrier and they could get substantial savings,” he tells The AIS Report. “It’s a different philosophy now, and we re-engaged.”
The RFP allowed carriers to bid regionally or statewide. Health Net was awarded the contract for six counties in Southern California for its HMO and Medicare Advantage products. It is still negotiating the pricing.
Health Net will use medical management combined with a strong wellness component and a narrow provider network, which the company refers to as a “tailored” network strategy. Health Net launched its tailored networks in 2006.
Spokesperson Brad Keifer says the contract award “is a validation of our tailored network strategy,” which he says has been effective at holding down coverage costs for employers. Health Net has about 2.2 million members in California including Medicare and Medicaid members.
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