CalPERS weighs hefty HMO hikes

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CalPERS weighs hefty HMO hikes

By Lisa Rapaport

Sacromento Bee, June 17, 2003

Members of the California Public Employees' Retirement System could face average HMO premium increases of 18.4 percent next year unless CalPERS' health committee votes today to sharply raise fees for hospital visits, emergency care, surgery and prescription drugs.

Though the proposed rates are not as steep as the average 25 percent increase CalPERS got socked with this year, they are still a sign that U.S. employers will continue to see medical costs soar in 2004.

"CalPERS' premiums may be higher than other employers' because CalPERS for political reasons can't increase workers' share of costs as much as other firms have," said Mark Smith, president of the California Healthcare Foundation, a nonprofit that tracks health industry trends. "But (these rates) mean the big cost increases everybody has seen for the last couple of years are not going away."

The size of CalPERS' rate hike depends in large part on whether unions representing its nearly 1.3 million members support a proposal to raise workers' out-of-pocket health costs.

CalPERS staff Monday unveiled a plan that could trim its average HMO premium increase to 14.7 percent next year. For basic HMO members, it would:

* Create a $250 fee for each hospital admission.

* Create a $75 fee for emergency room visits ($50 for Kaiser).

* Create a $100 fee for each outpatient surgery (except Kaiser).

* Increase out-of-pocket fees for prescription drugs.

Several past attempts to raise workers' fees have been scuttled by the California State Employees Association, the largest union in CalPERS.

This time, CSEA President Perry Kenny said he needs proof that the fee hikes are warranted before he can support CalPERS' plan to curb premium increases.

"I am trying to be as circumspect as possible," Kenny said. "I will go to the meeting and ask my questions about why this is justified. Without the right answers, we can't support this."

Along with these fee increases, the health committee also could revisit today a proposal to lower premiums by charging higher rates to Northern California city, county and school district workers. That plan was rejected by the CalPERS board last month.

The pricing plan surfaced this year because CalPERS needs to retain its younger, healthier local government workers in the south state to offset the cost of insuring its typically older, sicker members to the north.

CalPERS staff said that proposal would trim public agency premium increases in Southern California to 6.7 percent but boost premium increases for agencies in the north to 26.6 percent.

State workers under this plan would still see average increases of 18.4 percent.

CalPERS health executive Loren Suter described the proposed regional pricing as a "zero-sum game."

"There are a lot of different ways you can cut the pie," Suter said. "It's just a matter of how much you want the south to subsidize the north."

In its efforts to pare down premium increases by shifting more health costs to workers, CalPERS is hardly alone.

Employers nationwide absorbed average health insurance premiums of 15 percent in 2003, the highest in a decade, according to a recent survey by the Center for Studying Health System Change.

The increase would have been even bigger -- an estimated average 18 percent -- if employers hadn't opted instead to increase workers' out-of-pocket costs.

"When you talk about the type of cost-sharing CalPERS is doing, they are followers, not leaders in the industry," said Paul Ginsberg, the center's president.

Still, the proposed fee increases come at a pivotal time for CalPERS.

A decade ago, CalPERS led the charge of employers nationwide that seized on managed care as a means to cut insurance costs.

In the mid-'90s, CalPERS' size alone was enough to command scant premium increases -- or even rate reductions from HMOs.

But the savings didn't last.

Hospitals were pressured to contribute to those premium cuts by lowering their prices, and they fought back by consolidating into large chains to get higher payments from HMOs.

In recent years, rising hospital bills, along with the high price of new technology and prescription drugs, have forced CalPERS and other employers to swallow huge premium increases and, at the same time, scale back benefits.

Without the proposed fee changes, CalPERS basic monthly HMO premiums for individual coverage would increase:

* $49 over current rates, to $317, for Blue Shield.

* $47, to $306, for Kaiser.

* $72, to $281, for Western Health Advantage.

Workers' share of the premiums would depend on their union contracts and could be reduced if CalPERS approves the proposed out-of-pocket fee increases.

"This is the year that CalPERS has had to face the fact that their size alone won't get them the lowest rates in the industry," said Smith, of the Healthcare Foundation.

"They need to start taking a serious look at changes they can make to their benefits if they want to control costs."

The CalPERS health committee will meet at 9 a.m. today at 400 P St.