The California Public Employees Retirement System, the nation's second-largest purchaser of healthcare services, gambled that more competition among health plans offered to its members would mean cost savings and it won.

CalPERS will save $21.3 million after most of its members moved into lower-cost health plans during open enrollment. Members had more plan choices because CalPERS added Anthem Blue Cross, Health Net, Sharp Health Plan and UnitedHealthcare to its list of HMO options. Previously, the CalPERs contract had exclusively been held by Blue Shield of California and Kaiser Permanente. The purchasing coalition decided to expand competition based on a member survey that showed many were price sensitive.

While the change was expected by some to be a huge blow to Blue Shield, which had held the exclusive non-Kaiser contract, the opposite happened: Blue Shield ended up with a net gain in enrollment after members switched from more expensive plans (including its own Access+ plan) to its lower-cost NetValue plan.

The most surprising outcome was an exodus of members from Kaiser Permanente. Kaiser lost the most members of any plan 12,909 members after most switched into cheaper plans, CalPERS says. That development highlights a growing problem for Kaiser: its staff-model system restricts its ability to form the smaller networks that other carriers are using to help reduce costs. Kaiser plans have some of the highest premiums on California's health insurance exchange, Covered California, and its premiums for some of its large accounts, such as San Francisco Health Service System, have increased. SFHSS had a 5 percent rate increase from Kaiser for 2014, but saw flat or reduced premiums over the last two years from Blue Shield.

While Kaiser faces the difficulty of maintaining its successful healthcare delivery services model, officials have recognized the need to become more competitive on price. CalPERS Ann Boynton said she thinks there's plenty of opportunity across Kaiser's delivery system to reduce costs, such as the way services are delivered and how it charges for services.

Whatever they do, it's clear that Kaiser's historically low-cost carrier persona is at risk. Since plan pricing is now the leading variable in employers or members decisions on health insurance, it will have to find a way to balance its valued care delivery system with affordability.

Follow Jenny Kerr on Twitter @ JennyKerrDRG

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