SURGE LIKELY FOR CALPERS MEDICAL COSTS.

Byline: Evan Pondel Staff Writer

The California Public Employees' Retirement System will likely recommend a double-digit increase in health care premiums for its members, a move that could set the pace for employers across the country.

In 2001, the agency confronted a similar scenario, with proposed increases ranging from 5 percent to 41 percent. CalPERS was able to raise premiums by 6 percent after agreeing to double members' out-of-pocket fees. The industry soon followed suit.

CalPERS will meet today with the health benefits committee to approve 2003 rate proposals submitted by HMOs that currently contract with the pension fund.

For several months CalPERS has been working with major health care providers to alleviate the burden of rising premiums. But the economic downturn has squeezed profits for many of these companies, ultimately translating to higher premiums for consumers.

``We'll probably see double digits for sure,'' said Clark McKinley, a spokesman with CalPERS, referring to the foreseeable outcome of today's meeting in Sacramento.

CalPERS provides health benefits for more than 1.2 million members, positioning itself as the second-largest buyer of health insurance in the country after the federal government. McKinley said in previous years, it has been easier to negotiate with the health care companies because the rates submitted could be balanced by increasing co-payments.

Not this year, though.

Initial bids for rate increases from health plans ranged from 15 percent to 41 percent. McKinley said such a spread has thrown a wrench in CalPERS' ability to mitigate the increases in premiums.

``This year, the staff is not recommending any increase in co-pays,'' McKinley said. ``The major difference this is year is that the savings would not be significant enough to warrant raising co-pays. And HMOs didn't want to give on premiums.''

Despite the likelihood of HMOs willing to lower their premiums significantly, CalPERS is poised to reduce the number of HMOs it contracts with from seven to five. McKinely said CalPERS will announce which HMO plans have made the cut today.

CalPERS also plans to approve Kaiser Permanente's rate proposal - which will be subject to conditions surrounding future expansions and proof of rate calculations. In a section of CalPERS' agenda for today's meeting, Nancy Welsh, the agency's chief of the health program development division, said Kaiser's rates are ``higher than justified target rates.''

As a result, CalPERS staff is ``recommending serious re-evaluation of Kaiser's participation as a CalPERS health plan,'' Welsh said.

For Kaiser and its 6.3 million members, CalPERS is a vital contract as it provides health care for around 400,000 CalPERS members.

``A continued relationship with CalPERS is important and we believe we've presented the necessary information (for today's meeting) and don't want to presume anything,'' said Jim Anderson, a spokesman for Oakland-based Kaiser.

It's not rare for CalPERS to evaluate its HMO plans. McKinley said Health Net recently came under CalPERS scrutiny amid a problem that the Woodlands Hills-based company was having with national accreditation.

Health Net currently provides coverage for around 185,000 CalPERS members. Regarding the prospect of rising premiums, Lisa Kalustian, a spokeswoman for Health Net, said health care costs are rising tremendously.

``You have to look at all the factors,'' she said. ``Even though it's a challenge.''

Still, the health committee that meets today doesn't have the final say about new rates. The committee, which includes seven of the 13 CalPERS board members, will simply provide recommendations. The full board, which usually approves the recommendations, is scheduled to review the issue Wednesday. But McKinely said the committee could still elect to do more negotiations with the health plans.