CALPERS YIELDS TO STEEPER PREMIUMS FOR 2007

Sacramento Bee -

June 21: Bowing to pressure from labor leaders, a key CalPERS committee voted to accept a steeper increase in premiums rather than continue shifting more health care costs to public employees. Much of the average 11.6 percent increase in 2007 HMO premiums will be shouldered by the taxpayers who fund public agencies. In the private sector, many companies have reduced benefits or passed costs on to workers in the form of higher co-payments.

Union leaders urged the California Public Employees' Retirement System and health plans to pressure hospitals and doctors to cut health care costs and to postpone for at least a year proposed changes that included raising co-payments and dropping HMO coverage in five rural counties. "The providers set the prices. We will not affect the behavior of a single doctor. It's a bad strategy," said J.J. Jelincic, president of the California State Employees Association.

CalPERS is the nation's third-largest purchaser of health coverage, and its negotiated rates are closely watched by employers across the nation and signal the direction of health care costs for the coming year. During a daylong meeting Tuesday, a divided Health Benefits Committee avoided the dramatic steps taken two years ago when trustees eliminated HMO coverage at 23 higher-priced hospitals, including 13 owned by Sacramento-based Sutter Health.

Trustee Tony Oliveira pushed for the proposed changes but in the end could not persuade colleagues to his position. "Increasing co-pays does save (on) premiums," he said. The trade-off might actually be better for most members who would see their share of premiums decline even though co-payments rose, said Debbie Endsley, representative for trustee and state Personnel Administration chief Michael Navarro. "The downward cost in premium savings actually outweighs the increase (in co-payments)," she said. "Most of our population comes out a winner." However, the majority of trustees were concerned that members would not be able to absorb the added out-of-pocket expenses.

Of the proposed changes, trustee Robert Carlson said: "What we're doing here is putting pain in (the members') pocketbook. We should think about people who cannot afford this payment. I think that is wrong." Carlson and others agreed to take some steps to rein in costs, supporting more urgent care facilities that reduce the number of costly emergency room visits and requiring members in a PPO to obtain prior authorization for expensive imaging procedures such as CT scans.

They turned down proposals to shift more costs to members by boosting co-payments to visit the emergency room or stay in a hospital. They rejected plans to drop HMO coverage in five rural counties and to replace the HMO program in eight counties, including El Dorado, with a point-of-service plan. Trustees also opposed a Blue Cross of California proposal to introduce a new, lower-cost PPO program that would eliminate high-cost doctors.

The CalPERS panel approved an average increase of 12.61 percent for PPO coverage, or preferred provider organization plans. Trustee Marjorie Berte backed the new PPO option, saying it was a small step toward changing the pricing practices of high-cost physicians. "This is an opportunity to challenge some of these economic drivers. This is no experiment," Berte said. The cost-cutting moves could have saved millions. The higher co-payments alone would have cut nearly $55 million.

Rate increases, too, would have been smaller. For example, those in the Blue Shield HMO plan would see a 13.09 percent increase in 2007. But the changes could have lowered that premium hike to 7.03 percent. Now the state and more than 1,100 local government agencies and their employees and retirees can expect an average HMO increase of 11.6 percent. Roughly 62 percent of CalPERS health plan participants work for the state, which pays about 80 percent of the premium, with active employees picking up the remaining share. The cost for local agencies varies, depending on the policy.

For local governments, "the rate increases have definitely been an area of frustration," said Linda Spady, human resources director for the city of San Mateo. In recent years, a coalition of Bay Area cities considered creating its own health care purchasing pool. But most remained with CalPERS. "There aren't many cost-effective alternatives for agencies," Spady said. "We continue to look at alternatives for both different plans and cost structures."

The committee recommendations, if approved today by the full CalPERS board, will spell a return to double-digit annual premium hikes. Last year, trustees approved an average 9.2 percent increase in rates for coverage by health maintenance organizations. This year's 11.6 percent increase is similar to the average 13 percent health plans are using to open discussions with major California employers.