CalPERS Adopts Financial Recovery Plan for PERSCare and PERS Choice; Benefit Changes and Premium Increase Will Restore Financial Viability.

Business Editors

SACRAMENTO, Calif.--(BUSINESS WIRE)--Dec. 13, 2000

The California Public Employees' Retirement System (CalPERS) today adopted a financial recovery plan for the System's two self-funded preferred provider organizations (PPOs) -- PERSCare and PERS Choice.

The plan, which includes a number of benefit, premium and administrative changes, is expected to restore the plans' reserves and make them financially viable.

"These actions are critical to the financial recovery of these health plans," said William D. Crist, President of CalPERS Board of Administration. "Rapid enrollment growth, increased use of prescriptions drugs, rapidly increasing provider price demands and the drawing down of reserves in the past are some of the events that make these changes necessary."

The changes in benefit design, drug coverage, retail pharmacy networks and plan administration are expected to save CalPERS $77.9 million. The changes include:

-- A 5.2 percent premium increase in the PERSCare basic plan only;

-- Adjusting the annual deductibles to $500 per person, to a maximum of $1000
per family;

-- Increasing the doctor office visit co-pay to $20 from 10% co-insurance for
PERSCare and a $10 co-pay for PERS Choice members;

-- Charging a $50 co-pay for emergency room visits; and

-- Establishing a three-tier pharmacy benefit design that includes three
co-payment levels -- one for generics, a second formulary for brand drugs, and
a third for non-formulary brand drugs.

A desire by members for flexibility offered in self-funded plans and recent HMO withdrawals from rural areas in California have created significant increases in enrollment for CalPERS PPOs causing some of the plans' deterioration. PERSCare and PERS Choice experienced a 49 percent growth in the last three years. Much of the increase is due to withdrawal of HMOs from rural areas.

Greater repricing by health care providers, an increase in surgical hospital stays and increased use of prescriptions drugs also contributed to the plans' financial shortfall.

Approximately 22 percent of CalPERS 1.2 million members belong to PERSCare and PERS Choice. Both health plans are PPOs that cater to individuals that value the freedom to choose doctors and specialists.

Approximately 95 percent of CalPERS members have choices of health plans other than PERSCare and PERS Choice.

Members of PERSCare and PERS Choice will have an opportunity to opt out of the health plans and select one of the 10 HMO plans offered by CalPERS during a special open enrollment period beginning December 16, 2000 through January 31, 2001. The new changes are effective February 1, 2001.

CalPERS is the nation's largest public pension fund with assets totaling approximately $170 billion. The System provides retirement and health benefits to 1.2 million state and local public employees and their families. For further information on the System, please visit CalPERS web site at www.calpers.ca.gov.