CalPERS' health costs to rise Up to 41% leap in HMO fees
Victoria Colliver, Chronicle Staff Writer Saturday, April 13, 2002
---------------------------------------------------------------------------- ----
In a preview of mounting health care costs, the California Public Employees' Retirement System said it faces HMO price increases of as much as 41.1 percent next year.
Considered a bellwether for health care costs, CalPERS has received bids from its health plans for 2003 that proposed increases ranging from 15.1 percent to 41.1 percent. The nation's largest public pension fund provides health insurance to about 1.2 million state employees, dependents and retirees.
CalPERS sets the bar for other purchasers because of its size. It is among the country's biggest buyers of health care. The fund also provides an early look at what employers and consumers might face in rate increases because it gets bids earlier than other major purchasers.
"This is not good news for CalPERS. This is not good news for any other major employers in the state," said Peter Boland, a health care analyst in Berkeley, of the bids. "You could probably use these as a baseline for next year and expect even higher premiums."
"It's certainly a dangerous omen for all employers and all consumers," said Walter Zelman, head of the California Association of Health Plans, which represents HMOs. "Health care costs are rising far more sharply than society can tolerate."
CalPERS' board meets next Tuesday, when it could vote on the proposals. Until then, the pension fund won't reveal any specifics about the bids.
Last year, the CalPERS board was so upset by the proposed increases from its 10 plans -- which at that time ranged from 5 percent to 41 percent -- that it tossed them all out and told the health maintenance organizations to come back with better bids. Ultimately, it winnowed the number of plans it offers to its members to seven and had an overall 2002 increase averaging 6 percent and 13.2 percent for basic HMO coverage.
The fund passed on the increases to its members in the forms of higher co- payments for doctor visits and a multitier drug plan that requires people to pay more for brand-name than generic drugs.
This year, CalPERS hopes to keep the price of its drug plan and co-payments the same, but it doesn't think it can try the same hardball tactic of throwing out the bids.
"Some of them (the plans) have lost money on CalPERS in recent years," said CalPERS spokesman Clark McKinley. "It becomes a no-give situation. The leverage we had last year is not here this year."
SKYROCKETING DRUG PRICES The reasons health care costs are rising have been essentially the same over the past few years: increasing hospital costs, skyrocketing pharmaceutical prices driven in part by drug advertising and the growing effect of pricey technological advances. At the same time, recently consolidated hospital networks and large medical groups have been able to demand higher reimbursement rates from the insurers.
CalPERS' staff hopes to curb some costs by recommending that the board keep just five of the seven plans it currently offers to its members. It suggests keeping Kaiser along with its three smaller, regional plans: Health Plan of the Redwoods, Western Health Advantage and Universal Care. The staff's proposal recommends dropping two of the three remaining major plans, which include Health Net, PacifiCare and Blue Shield.
"The rationale behind this is that (CalPERS) can save $70 million by consolidating. The other reason is . . . by having a larger pool and working with fewer plans we can develop some real care management programs," said CalPERS spokesman Clark McKinley. He was referring to preventive care and disease management programs that aim to save money by keeping people healthier.
Larry Levitt, vice president with the Kaiser Family Foundation, a health care research group based in Menlo Park, questions the tactic of reducing the number of plans. "At some point as you keep dropping plans, you're leverage is going to get worse and worse," he said.
Levitt said CalPERS' bids are "tangible evidence costs are continuing to rise without any end in sight. As little leverage as CalPERS thinks it has, other smaller employers have even less."
SOME COULD LOSE COVERAGE The fear is that 2003 premium increases will be so onerous to smaller employers that they will drop health benefits all together and push more people into the growing ranks of the uninsured.
Scott Hauge, founder of Small Business Advocates, a political action committee representing San Francisco's small businesses, said most small businesses have managed to avoid dropping health care by passing along costs to employees.
But Hauge admitted that as the situation worsens, small business employees will suffer: "If they're (CalPERS) getting hit, it's 'Katie, bar the doors.' "
Other large employer groups that purchase insurance directly from insurers are also expected to be hard hit. The Pacific Business Group on Health, a purchasing coalition for large employers based in San Francisco, won't receive its bids until this summer and declined to comment.
Paul Fronstin, director of the health research program for the Employee Benefits Research Institute in Washington, D.C., said solutions won't come until this country addresses the reasons behind the cost increases instead of just shifting the costs to employees.
As for 2003 being worse than 2002, Fronstin said that's just the beginning. "Wait until 2010 when the baby boomers hit the fan," he said, referring to the tide of baby boomers who will put unprecedented demands on health services as they age. "You ain't seen nothing yet."