CalPERS Members Object to Rate Hike

The California Public Employees’ Retirement System is facing a growing member revolt as the giant pension fund Tuesday approved a nearly 17% rate increase in health insurance payments for next year.

The rate hike means CalPERS’ medical bills will grow by an additional $600 million in 2004 to almost $4 billion. And a big chunk of that increase will be borne by its 1.2 million members statewide, with some looking at a doubling of their out-of-pocket costs for medical coverage.

Those in the CalPERS system include public workers at hundreds of agencies, schools, police departments and other government offices in the state.

Although rising health-care costs are straining many employees and employers nationwide, the situation at CalPERS is especially dire. As one of the nation’s largest buyers of health care, CalPERS for many years used its clout to obtain favorable rates from insurance carriers.

But now its members are balking at escalating costs, and some of the public agencies they work for -- already under stress because of the state’s budget problems -- are privately threatening to pull out of CalPERS health plans and find cheaper medical coverage on the open market. Those agencies, most of which are clustered in Southern California, tend to have relatively younger and healthier workforces than others.

In turn, any exodus from CalPERS’ health plans would leave those left in the system vulnerable to ever bigger rate increases in the future -- a scenario that analysts call “the death spiral.”

Indeed, some question whether CalPERS’ health system is going to survive the current crisis. “CalPERS may begin to dissolve,” Goldman Sachs said in a report this week.

CalPERS has long been in the vanguard of seeking improvements in the nation’s health-care system. But its effectiveness has been weakened in recent years because of its rapidly aging membership and soaring medical and drug costs.

“CalPERS needs to do something,” said Eric Shapiro, Culver City’s controller. “This is becoming more and more of a financial burden for us.”

Because much of the split within CalPERS follows geographic lines, some recommend that the pension fund have different insurance rates in Northern and Southern California.

“CalPERS really should go to regional pricing,” said Oxnard Human Resources Director Lino Corona, whose city has 1,100 employees. “There’s no way we should be subsidizing the rest of the state.”

At a recent CalPERS meeting in Moreno Valley, representatives of public agencies in San Bernardino and Riverside counties were asked whether they planned to leave CalPERS in 2004. About half raised their hands, according to officials at the meeting.

“It’s a concern right now that a lot of our public agencies in Southern California are going to defect,” said CalPERS spokesman Clark McKinley. “They are a cheaper market, and those are younger lives down there.”

CalPERS officials have debated the notion of instituting regional pricing. But so far, they have backed away from splitting insurance rates, saying that it would put too big a burden on some members and that the issue needed to be studied more.

At a public hearing Tuesday, Sid Abrams, chairman of CalPERS’ health benefits committee, did not address the regional differences or the threat of defection. In a statement later, he said CalPERS got a good deal in obtaining a 16.6% rate increase for next year.

CalPERS’ two main health insurers -- Blue Shield of California and Kaiser Permanente -- initially had sought a 30% rate increase, officials said. Last year, CalPERS approved a 25% boost in health insurance premiums.

“I believe we have done a good job in getting as fair a price as possible, considering the higher cost of health care and our rate of usage and our population,” Abrams said.

Many members did not see it that way.

Esther Boykin, 46, a single mother who works at the Department of Motor Vehicles in Roseville, Calif., said that with the upcoming increase, she may be paying $94 a month more next year under her Kaiser plan.

“That $94 is my utility bill. It’s a pair of shoes for my 12-year-old,” she said. “We’ve had a 43% rate increase in the past two years, and I’ve never gotten a raise like that in my life.”

Insurance executives said health premiums in Northern California are generally higher than in Southern California, partly because hospital services there are more expensive. Kaiser Permanente spokeswoman Kathleen McKenna said a move toward regional pricing would be a good “first step,” but it would not solve all the problems for CalPERS members.

In fact, some questioned whether public agencies and their employees would benefit in the long run if they bolted from CalPERS’ health system.

“Defections will not only undercut CalPERS’ ability to work for progressive changes in our health-care system, it will leave these agencies out in the cold facing a health-care system they can’t change,” said Peter Lee, president of the Pacific Business Group on Health, a San Francisco nonprofit that negotiates insurance rates for major companies in California.

Vrana reported from Sacramento and White from Los Angeles.