CalPERS Set to Pay More in Bid for Better Health Care
The California Public Employees’ Retirement System today is expected to accept significantly higher health care premiums and patient co-payments in exchange for assurances of better-quality care, a shift that could set a precedent for many employers and purchasers of health care coverage nationwide.
CalPERS, which provides health benefits for 1 million current and former state government employees, is expected to endorse a plan to double most co-payments required of members and to increase the premiums that it pays health plans by an average of 4.9% to health maintenance organizations and up to 18% to other managed care plans.
At the same time, CalPERS has put health plans on notice that it expects better customer service and higher quality of care for members.
The move by CalPERS, long viewed as a trendsetter because of its size and tough negotiating stance, illustrates a growing recognition that tight limits on payments for health care--a foundation for the nation’s managed care system--have had a damaging effect on the quality of care.
Leaders at the mammoth retirement system say they are moving away from their well-known approach of hard negotiations aimed at holding down costs--and they recommend that the private sector do the same.
Health care has been so compromised by pressure from employers and large purchasers to keep down prices that quality has begun to suffer, said state Treasurer Phil Angelides, who sits on the CalPERS board and chairs its health benefits committee, which approved the increases at a meeting Tuesday.
In the future, he said, if negotiations are based only on cost, patient care will deteriorate. Instead, Angelides said, purchasers should band together and negotiate on indicators of quality.
“Is our negotiating strategy each year merely going to be to limit increases and erode quality?” Angelides said. “Our whole strategy can’t be about dumbing down costs. This is a new era, in which we need to use our purchasing clout--yes, to reasonably constrain costs, but also on equal parts quality and access.”
At a meeting of the full CalPERS board today, its members are expected to increase co-payments from $5 to $10 for doctor visits and brand-name medicines and to implement premium hikes of up to 18% for loosely managed health plans, such as preferred provider organizations (PPOs), and of 4.9% on average for tightly regulated HMOs. The co-payments will double the out-of-pocket costs for many patients, but much of the premium hike will be borne by CalPERS. Some members will also see their premiums rise, depending on their health plan.
Under a complicated formula that involves a discount to CalPERS for implementing the co-payment increases, the new prices are meant to provide HMOs in the state the equivalent of $195 million in income. About half that cost, which will take effect in January, will be borne by patients in the form of co-payments.
Led by the retirement system, private employers also are demanding better service, that insurers be accredited and that consumer complaints be dealt with quickly and fairly.
Such demands are a far cry from the employer emphasis on cost that started the managed care revolution two decades ago. At the time, led in part by CalPERS and other large buyers of insurance, employers asked for and received ever lower benefit packages for employees, prompting a proliferation of restrictive managed care plans.
Bud Volberding, president of Cigna Healthcare of California, said that in negotiations over next year’s premiums, employers have shied away from the practice of reducing benefits to accommodate higher costs--a change from earlier years.
“I’m surprised that there haven’t been more changes in benefit design,” Volberding said. “I think it’s [because of] the competition for employees that the employers are facing.”
Dee Shaw, vice president for special accounts at Kaiser Permanente, said that CalPERS and other purchasers are demanding detailed information aimed at gauging consumer satisfaction and medical efficacy.
“They’re asking with more frequency, and they’re doing more with the information,” Shaw said.
At Hughes Electronics in El Segundo, employees actually pay less each month for health plans that the company views as providing higher quality--even if that means that the company’s costs go up, said Dr. Pamela Hymel, director of employee health programs.
“When I started in this job six years ago, there was a huge effort to just cut costs in the medical area,” Hymel said. “I think people realize now that with the HMO backlash, it’s a competitive advantage to have some choice in the health plans that you offer to your employees and to have some good plans. There’s been less of a focus on [cutting] costs.”
To judge quality, the company insists that plans provide data not only on customer service and medical policies but also on the effectiveness of treatment and care for Hughes employees, she said.
During the CalPERS negotiations, representatives of the retirement system demanded specific information on customer satisfaction and disease management programs at the health plans with which it contracts.
To be sure, the increased costs of the CalPERS quality initiative will not be borne entirely by the organization itself. The retirement fund received a $100-million discount from the health plans in exchange for increasing co-payments.
And while CalPERS officials defended the move, saying that it would prod consumers to be more careful about over-utilizing doctor visits or expensive brand-name drugs, others were critical.
“We were surprised that they opted for a reduction in benefits” in the form of higher co-payments, said Kathleen McKenna, public affairs director for Kaiser. The giant HMO opposed the plan, particularly because it will increase costs for members who can be treated only with brand-name drugs.
And with many hospitals and physician groups in tatters financially, and managed care companies smarting from low profits and even lower public images, is the employers’ sudden interest in quality too little too late?
“That’s the $64,000 question,” said Susan Adachi, human resources director for CCC Steel Inc., which employs about 80 people in Rancho Dominguez. “I hope not. I really hope not.”
For the health plans, there is the question of whether the demands for increased service can be offset by hefty increases in premiums and co-payments, said Walter Zelman, president of the California Assn. of Health Plans.
Most California HMOs, he said, are earning profits of about 2%.
“It’s unquestionably a tough challenge,” Zelman said. “We’ve got to respond to the demands for better services, and we’ve got to accommodate the new mandates from the Legislature, and we’ve got to keep managed care affordable.”
That could be difficult. CalPERS, for example, is considering requiring health plans to tailor disease management programs, such as diabetes control efforts, to the specific needs of CalPERS members. Failure to meet certain standards of quality or to offer such services could result in a plan’s being dropped.
At the same time, CalPERS is exploring other ways of improving quality, such as bypassing HMOs and contracting directly with doctors, or joining forces with the California State Teachers’ Retirement System.
“The hardball wouldn’t be played by the cost increases; it would be played around getting more for the money that we have to pay,” CalPERS spokeswoman Pat Macht said. “We have to get out of this going back and forth like a pingpong ball over price increases.”
