CalPERS Eyes 9.2% HMO Premium Hike
The California Public Employees Retirement System today is expected to approve a 9.2% increase in the cost of premiums next year for the health maintenance plans offered to its 1.2 million members.
If CalPERS agrees to the premium hike, the pension fund will be backing away from an earlier plan to shift much of the health-care increase to CalPERS’ sickest members by hiking co-payments for doctor visits and prescription drugs.
Instead, the increase--worth about $100 million--will be absorbed by CalPERS and its members, who will pay more next year for their share of health-care coverage. The CalPERS health benefits committee approved the 9.2% increase Tuesday, and the full board is expected to rubber stamp the proposal today. The proposal also includes a 20% increase for its less-restrictive preferred provider organization health plans.
CalPERS’ actions on health-care costs are closely watched by businesses and other purchasers of health insurance. CalPERS is the nation’s second-largest buyer of health care, behind the federal government, and has enormous leverage in negotiating costs with health insurance companies.
Underpinning its decision to pay more for health care in 2001 is CalPERS’ resolve to obtain better care from the health plans with which it contracts. Worried that any increases will go instead to boost profits or pay for administration, officials at both CalPERS and the California State Teachers’ Retirement System are seeking additional ways to improve care for members.
Both pension funds have begun examining a proposal to abandon HMOs in favor of contracting directly with doctors and hospitals. On Tuesday, they learned that such a plan could cost up to $12 million a year and open the organizations to regulatory scrutiny and litigation, according to a feasibility study.
But the effort--which would revolutionize health care in California--could boost the quality of care received by the funds’ current and retired members. In the best-case scenario, direct contracting might save money, according to consulting firm Deloitte & Touche, which conducted the study and presented its findings to the two funds’ health benefits committees Tuesday.
The first detailed information on how the pension funds might proceed with direct contracting comes at a time when both are exceedingly frustrated with the service and price of health care offered by commercial insurers.
But if the 121-page Deloitte & Touche report is any indication, direct contracting will not be easy.
For example, the consultants point out that under California law, anyone who contracts with physicians to provide managed health care must be licensed and regulated as a health plan--unless the physicians happen to already have such a license.
That means that the agencies must apply to the new state Department of Managed Care, and would have to submit to the same scrutiny as the health plans they aim to replace. The application process would be costly and could take months to complete.
Another wrinkle is presented by the shaky financial state of the medical groups that provide most of the state’s managed care.
Most scenarios for direct contracting require doctors and hospitals to be organized into cohesive groups in order to provide an unbroken web of care for patients. Like commercial managed care, these groups would be paid a set amount, or capitation rate, each month for each patient’s care. The medical groups set their budgets based on these payments, using extra money left over from healthy patients to pay for the care of sick ones.
Such a system has been set up in Minnesota, where a consortium of businesses runs the nation’s most visible direct contracting system. But in California, many of the doctor-hospital alliances set up for the commercial market have collapsed or are mired in debt.
The groups that are comprised only of doctors are similarly shaky, with dozens near bankruptcy and many already out of business.
When interviewed by Deloitte & Touche for the feasibility study, most doctors said they would join a direct contracting program only if the retirement systems eschewed capitation altogether.
And hospitals said they would participate only if the funds’ members have no other choice but to join the direct contracting plan, in order to ensure a steady stream of patients.
Despite the potential complications, the two committees pressed on, asking administrators to research ways in which patients might receive better care under direct contracting.
Under a timeline suggested by Allen Feezor, who runs CalPERS’ health benefits division, public hearings on the subject could begin in August, with a vote on setting up a pilot project by mid-fall.
“You could analyze this for years,” said state Treasurer Phil Angelides, who chairs the CalPERS committee and supports setting up a trial program. “But we live in an environment where experiments are warranted. . . . You try new approaches and you see if they work.”
