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CalPERS health and long‑term care finances improve but PPO reserves remain below target
Summary
CalPERS reported improved health‑plan and long‑term care reserves as of June 30, 2024, but the PPO subaccounts remained under the fully funded target; trustees discussed longer‑term solutions including new vendor contracts and pharmacy strategies.
CalPERS presented semiannual reports on the health plan accounts and the long‑term care (LTC) program on April 8. Staff reported material improvements in both programs’ financial positions for the 2024 reporting year but said key shortfalls remain in the PPO subaccounts.
Actuarial staff said the LTC program’s funded ratio improved to 94% as of June 30, 2024 after implementing the premium increase the board approved in September 2024 and after favorable investment returns. The LTC margin moved from a negative 19.01% in 2023 to negative 10.58% in 2024, reflecting an investment gain, non‑investment cash flows, population changes, actuarial assumption and model updates, and the September rate action.
Health plan staff reported the HMO Basic plan estimated surplus improved and the combined PPO balances also showed year‑over‑year improvement. As of June 30, 2024, the PPO basic and Medicare subaccounts remained below the fully funded reserve level; the combined PPO shortfall improved to an actuarial reserve ratio of 33% (from 10% in 2023) but the deficit was still hundreds of millions of dollars. Staff cited higher‑than‑expected pharmacy costs — particularly specialty drugs and certain GLP‑1 therapies — as a driver of pharmacy losses.
To address PPO funding and program design, the board previously approved two key changes that were implemented for 2025 premiums: consolidation of risk pools from two pools to a single pool and contract changes that include guarantees from vendors (Blue Shield and Included Health). Staff said CalPERS is also negotiating pharmacy benefit manager arrangements and other initiatives to reduce cost trends. Trustees asked for continued monitoring and for staff to report on contract performance, pharmacy trends and the run‑out of plans that transitioned to fully insured models (Blue Shield SS Plus and TRIO).
