The California Public Employees' Retirement System, the country's third-largest purchaser of health benefits, said its health insurance premiums next year would increase 3%, on average, for nearly 1.3 million members.
The giant pension fund said that would mark its smallest rate increase since 1998. Premiums at CalPERS rose 9.6% this year and 4.1% in 2012.
The CalPERS Board of Administration gave final approval to the rates Wednesday, and they take effect for various plans Jan. 1.
"The lower rates most members will see next year are the result of successful rate negotiations with existing and new health plan providers," said George Diehr, vice chairman of CalPERS' pension and health benefits committee.
In April, CalPERS voted to add more health plans to its offerings next year in hopes that increased competition would help hold down costs.
CalPERS broke up Blue Shield of California's statewide HMO contract for public employees and opted for four new companies alongside Blue Shield. The agency also kept on Kaiser Permanente and Anthem Blue Cross, a unit of industry giant WellPoint Inc.
CalPERS spends about $7 billion annually on medical care for active and retired state and local government employees and their family members. CalPERS is the largest healthcare buyer in California and trails only the federal government and General Motors nationally.
The rates announced Tuesday include increases of 3.8%, on average, for HMO plans and 2.5% for preferred-provider-organization plans. Medicare HMO plans would rise 5.8%, on average, while PPO plans for seniors would drop 8.7%.
CalPERS officials cautioned that in certain areas of the state rate increases would be higher.
Next year, for the first time, CalPERS is using risk-adjusted rates that raise premiums among healthier groups and lower premiums in plans with a higher proportion of sicker patients. The agency said it wants to reward insurers for developing programs that cater to people with chronic illnesses and for serving areas they would otherwise avoid.