Pension Fund Blasts Kaiser’s Demand for Rate Increase
In a strongly worded rebuke, the California Public Employees’ Retirement System on Tuesday called Kaiser Permanente’s demand for a 12.6% rate hike “outrageous.”
At the same time, CalPERS, the nation’s second-largest purchaser of health benefits after the federal government, said it approved an average 5% increase in medical premiums with nine other health maintenance organizations for 1999. Although the CalPERS rate hikes are the largest since 1993, they are “fully justified” and something “we can live with,” said William D. Crist, CalPERS board president.
CalPERS officials blasted Kaiser at a news conference in Sacramento on Tuesday, accusing the Oakland-based HMO of threatening to pull out of the state health program unless the pension fund relented. Kaiser’s rate hike is unjustified, officials said, and the result of “serious business mistakes” and mismanagement by the HMO.
But Kaiser Vice President Jack Hudes insisted there were no management blunders. Rather, Kaiser simply failed to accurately forecast rates for 1997, lowering its prices as other HMOs were raising them modestly.
Kaiser has been warning employers that it would seek double-digit rate hikes for some customers, after incurring a $270-million loss in 1997--the health plan’s first deficit ever. More than 5 million Californians belong to the Kaiser health plan.
CalPERS’ action sets up a power struggle between one of the country’s most influential purchasers of health care and the nation’s biggest HMO. The outcome of the CalPERS-Kaiser dispute will affect the cost of medical insurance for 340,000 CalPERS members who belong to Kaiser.
Also, the pension fund’s decision to accept a 5% overall rate hike is another sign that California employers and workers face accelerating medical costs after five years of relatively stable rates.
“CalPERS is an excellent bellwether, and I think we’re going to see increases in the 5% to 10%” range for California employers, said Glenn Meister, a principal at William M. Mercer Inc., a benefits consultant in Los Angeles.
CalPERS officials said Kaiser’s 12.6% rate hike--along with a proposed 27% increase for members in its Medicare plan--would increase medical costs for CalPERS members by $54.6 million and cost employees with families nearly $300 more a year.
Although CalPERS sought to portray Kaiser’s request as unreasonable, Hudes said the state was telling “only half the story.” He noted that Kaiser raised its rates only 2% last year.
CalPERS officials conceded that even with the 12.6% premium hike, Kaiser’s rates still would be comparable with those of other HMOs.
Hudes also contended that Kaiser’s CalPERS members tend to be older, sicker and require costlier medical care than Kaiser’s membership generally. If medical costs are adjusted for the increased financial risk of providing care for sicker patients, Kaiser’s rates would be “the lowest priced,” he said.
CalPERS’ Crist said the pension fund has warned Kaiser that it may freeze its membership unless it cuts its rate request by half. And Kaiser has warned CalPERS that it may withdraw from the state health plan if it doesn’t get what it wants.
In a letter sent to a CalPERS official in late March, Kaiser Vice President James Waller wrote that if CalPERS did not accept the 12.6% increase, Kaiser would “have no choice but to begin communication to state employees and government agencies that health care from Kaiser Permanente will not be available through CalPERS in 1999.”
In 1992, CalPERS protested Kaiser’s request for a 10.5% rate hike. The agency later granted Kaiser the increase, but barred the HMO from signing up new CalPERS members.
CalPERS spokesman Bill Branch said Kaiser’s membership fell by 6,000 that year. The next year, Kaiser lowered its rates by 2% to 3%, he said.
