CalPERS Adopts 2004 Health Care Rates; 16.7% to 18.4% HMO Premium Hike, Some Co-Pay Increases.

Business Editors

SACRAMENTO, Calif.--(BUSINESS WIRE)--June 18, 2003

The California Public Employees' Retirement System (CalPERS) today voted 7-5 to increase basic plan premiums by an average of 16.7 percent to 18.4 percent -- almost half of what health maintenance organizations initially proposed in the still inflationary health care market.

It also sets new co-payments for emergency room visits at $50 and changes the co-pays for non-formulary prescription drugs in an effort to reduce costs.

To trim initial bid increases that averaged 31 percent, CalPERS forged stronger partnerships with its plans to more precisely calculate costs and approved a multiyear contract with Blue Shield.

Blue Shield's rates could rise by 17 percent to 18.4 percent; Kaiser's by 16 percent to 18.2 percent. Premiums for the system's Sacramento-area regional plan, Western Health Advantage, will go up by 32.8 percent to 34.5 percent. The acceptance of WHA, which will still remain the lowest-cost HMO, is contingent upon its ability to prove it can successfully enroll as many as 35,000 enrollees who may leave other CalPERS plans.

Final rates will be subject to further negotiations over the cost impact of granting reduced co-pays for persons who need medically necessary non-formulary drugs.

For the system's preferred provider networks (PPOs), at most there will be a reduction of 0.88 percent in the PERSCare basic plan, a reduction of 1.4 percent for PERSCare Medicare, and a reduction of 1.7 percent for the PERSChoice Medicare plan. PERS Choice basic plan premium could rise between 17.8 percent and 18.5 percent.

"This year's deliberations demonstrate that now more than ever, we need a national solution to our health care crisis," said Sean Harrigan, President, "I believe we have achieved the best possible outcome today, but we must make clear the need for structural reform. Without an overhaul of this country's health care system, I cannot see the ability of any purchaser -- even one the size of CalPERS -- to keep cost increases at bay and quality of care affordable. In the meantime, we're doing what we can to minimize the pain and work on long-term measures to deal with the underlying causes of health care costs."

Key factors affecting the increase include the rising medical needs of an aging population, the growing number of people with chronic conditions, escalating demands for new diagnostic and treatment technologies, pricing demands by hospitals, and prescription drugs.

Emergency room co-payments will be set at $50 for all plans. In addition, the co-pay for non-formulary prescriptions drugs at all plans but Kaiser will be set at $45-$75, depending on whether the prescription is filled at the retail pharmacy or through mail order to a commercial pharmacy provider. The health plans will not charge higher co-pays for non-formulary drugs in instances when the drug is deemed to be medically necessary.

HMOs will also be required to expand disease management programs, and establish performance targets. Blue Shield will receive incentives if it meets targets designed to keep hospital costs from soaring.

It is expected that Blue Shield will generate short-term savings of $5 million off 2004 premiums through a new effort to address the chronic conditions of CalPERS members that account for most of the System's health care costs.

The System's strategy to go into a multiyear contract with Blue Shield helped dampen the rate of increases, avoiding $125 million in premium costs. A "re-pricing" mechanism for 2005 and 2006 is also part of the contract proposal with Blue Shield. It is designed to protect the HMO from potential unforeseen losses while returning excess savings to the pension fund's health care program.

Finally, the proposal commits Blue Shield to contain hospital cost increases and caps the amount of money CalPERS will pay for administrative overhead and "profit" to no more than 7.1 percent.

Sidney Abrams, Chairman of the Health Benefits Committee, praised Blue Shield for providing complete transparency of cost and utilization information, which enabled staff to verify CalPERS costs and limit unnecessary out-of-pocket payments for some 460,000 enrollees. Kaiser, with some 422,000 CalPERS enrollees, was also commended for being more open than ever before.

"I have never seen more open negotiations with Blue Shield and I think the rates reflect that," he said. "We have achieved the best result possible today, but we will leave no stone unturned in developing and implementing solutions to help in the short and long term."

CalPERS rates have been closely watched since it is the nation's third largest purchaser of employee health benefits after the federal government and General Motors. CalPERS has 1.2 million enrollees and a 2003 health program budget of $3.4 billion.

While the program will cost employers and members more in 2004, the price is substantially less than the overall increase of more than 25 percent from 2002 to 2003.

By reducing its lineup to three not-for-profit HMOs, CalPERS has been able to get more accurate analyses of its members' costs than when it had seven or more partners, each competing against each other and reluctant to fully disclose pricing practices.

In May, the CalPERS Board charted a new course for the program by adopting a long-term strategic plan. This new venture puts the pension fund in the forefront of new initiatives aimed at restraining costs in the short term and addressing their underlying causes in the long term.

For more information about CalPERS, visit our web site at www.calpers.ca.gov.