CalPERS Health Costs May Jump

In a closely watched decision that could signal significant increases in health-care costs, a key panel of the California Public Employees’ Retirement System will consider Tuesday whether to recommend double-digit increases in premiums for its members.

CalPERS has been negotiating with major health-care providers to mitigate proposed rate increases averaging more than 25%, one of the sharpest jumps in years.

How CalPERS negotiates the costs sets the pace for employers across the country and provides an early look at what consumers can expect to face in rate increases. CalPERS negotiates health benefits for 1.2 million members and thus is the nation’s second-largest buyer of health insurance after the federal government.

This year CalPERS officials rejected initial bids from health plans proposing rate increases ranging from 15% to 41%. A second round of negotiations failed to produce any significant reductions in the rates, prompting CalPERS to start another around of talks but also to consider reducing the number of major managed-care plans to one from three.

That proposal could force 150,000 members to change providers, although 90% would keep their current physicians.

The move, if approved, would be a short-term cost cutting measure reflecting the system’s long-range goal of contracting with a single health-care provider, CalPERS spokeswoman Pat Macht said.

“There is a recognition that our years of being able to leverage prices are over, and CalPERS can’t bring affordable health care to its members alone,” Macht said. “This is a problem that is endemic to the state and nation. The back is beginning to break on the health-care delivery system in the United States.”

Exactly what the latest negotiated rates might be won’t be unveiled until Tuesday’s meeting of the pension fund’s health committee.

In 2001, the agency faced similar proposed increases, ranging from 5% to 41%, but stuck to raising premiums by 6% only after agreeing to double members’ out-of-pocket costs for office visits and prescription drugs. With the increases in so-called co-payments, the actual increase to members’ costs was about 13%.

The health committee, which includes seven of the 13 CalPERS board members, is scheduled to recommend new rates and plan-cutting proposals Tuesday. The full board, which typically approves the recommendations, is scheduled to take up the issue on Wednesday. Still, the panel could elect to postpone the decision and continue negotiating for better rates, Macht said.

A recent staff report described the initial proposed rates as being at “an all-time high” compared with CalPERS’ view of what it deemed as justified rate increases. The report, completed by Nancy Welsh, the agency’s chief of the health program development division, also noted that the members were offered no added services despite the sharp increase in premium payments.

Any increase is expected to face strong opposition from its members, including the California State Employees Assn., which reportedly already has objected to another increase in expenses and the possibility of cuts in benefits. The union, with 100,000 workers, demonstrated against last year’s rate hikes.

Until last year, CalPERS has been well-known for its ability to leverage its size in negotiating affordable health care for its members, composed of public employees, retirees and their families.

But late last year, CalPERS joined the National Coalition on Health Care, an alliance of big companies and unions that has long campaigned for a national solution to problems of health-care costs and access.

CalPERS admitted in essence that its ability to control costs, even as a big buyer, was shrinking, and that a national debate on how to deal with the problem was needed.

In a report, staff members said they will recommend that the pension fund consider dropping Kaiser Permanente as a plan option, saying that Kaiser’s proposed rates “are not only disappointingly high, but also higher than justified target rates.”

In a harshly critical report, Welsh said “Kaiser’s current approach appears to be to charge whatever it thinks the market will bear in order to meet its capital and expansion needs.”

“Clearly Kaiser’s traditional role as one of CalPERS’ lower-cost plans can no longer be assumed,” she said.

In all, Welsh said that “for CalPERS, as with health programs all across the country, there are no easy choices this year.”

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Reuters was used in compiling this report.