In another sign of intense medical cost cutting statewide, the California Public Employees Retirement System has once again wielded its bargaining clout to negotiate reductions of more than 2% in the cost of health insurance for nearly 1 million Californians.
CalPERS, the pension fund of government workers that is also one of the nation's largest health care purchasing groups, has negotiated the rate rollbacks for 1996 with 22 insurers, including 16 health maintenance organizations.
CalPERS plans to formally announce the results of its rate negotiations on Feb. 15.
Because of its vast size and national stature as a model of health care purchasing alliances, CalPERS' actions are closely followed in the health care industry. Employers await the results of CalPERS negotiations, and they are increasingly using them to gain bargaining leverage in their own contract talks with insurers.
This would mark the third consecutive year that CalPERS was able to roll back rates on behalf of almost 1 million government employees, dependents and retirees. CalPERS won an average rate reduction of 1.1% for 1995, and it gained a 0.5% decline for its members the previous year.
"What we're hearing, unofficially, is that rates are expected to be down in the range of 2% to 3% for most plans," said Kurt Davis, a spokesman for Foundation Health Corp., a large HMO based near Sacramento.
The pension fund is able to demand rate reductions largely because of its size--it represents 1,000 public-sector employers--and market conditions that favor buyers over sellers. HMOs, facing cutthroat competition and a consolidating industry, can ill afford to give up market share by not participating in the CalPERS program.
Peter Boland, a health care consultant in Berkeley, said HMOs are in no position to ask for premium hikes at a time when a number of large California-based health plans have reported healthy profits. In addition, many big HMOs have been piling up huge cash reserves--a fact also noted by employers.
"As long as large employers like CalPERS see this very impressive amount of profit being generated by the health plans, the plans will be hard-pressed to say we can't squeeze another 2% out of costs," Boland said. However, health plans will not absorb all those cuts; they will pass on a chunk of them to hospitals and physician groups, which are increasingly absorbing more of the economic risk in medical insurance.
A spokesman for PacifiCare HealthSystems said the Cypress-based HMO has negotiated a 2.5% premium decrease with CalPERS for 1996, but he noted that "the decrease for us is offset in half because providers are sharing the risk."
The spokesman also noted that CalPERS currently represents only about 36,000 of that HMO's 700,000 members.
Even so, HMOs and health care providers feel an impact with the CalPERS rate rollbacks because of their ripple effect on the industry.
A CalPERS spokeswoman said some health plans are still changing their bids and can continue to do so until Friday. The CalPERS board will meet to approve the rate plans next Wednesday.