CalPERS Vote May Hasten Shift of Health Costs to Employees
In a vote today that could hasten the shift of health-care costs to employees, the California Public Employees’ Retirement System will decide whether to raise premiums by an average of 6% and double members’ out-of-pocket costs for doctor visits and many prescription drugs.
The proposal, if approved, would accelerate the trend in which employees are picking up a bigger share of health insurance costs, observers said. CalPERS, whose 1.1 million members are state workers, their dependents and retirees, is the second-largest purchaser of health insurance after the federal government, and its actions are an important indicator of national trends in health benefits.
A key CalPERS committee Tuesday voted 4 to 2 to recommend the proposed increases. The full board will meet today.
The proposed premium hikes are significantly below bids submitted by a number of health plans that CalPERS rejected in February. The initial bids ranged between 5.4% and 41%.
But in accepting smaller premium increases, CalPERS will offset rising costs with larger co-payments for doctor visits and drugs, the first such hikes since 1993. The proposed premium increase would be the smallest in two years. It rose 9.2% in 2001 and 9.7% in 2000.
Ron Feckner, chairman of CalPERS’ health benefits committee, said that in a “tough health-care market,” the bids “serve members best overall.” He said the proposal, which includes bids from eight health maintenance organizations, saved $308 million over bids that had been rejected.
State Controller Kathleen Connell, a dissenting member of the committee, said some state employees would not be able to afford the increases.
“I do the payroll for the state,” she said. “This action would force employees to choose between inadequate coverage or none at all. It should not go forward.”
Members of the California State Employees Assn., which represents about 100,000 workers, plan to demonstrate against the proposal in Sacramento today. The association has asked CalPERS to delay the vote until its members complete contract negotiations for 2002.
The bids call for premium increases ranging from 1% for coverage by Universal Care to 24.9% for members living in Arizona who are covered by PacifiCare Health Systems. Co-payments for doctor visits will rise to $10 from $5, which CalPERS said is in line with national averages.
Prescription drug co-payments are designed to steer CalPERS members to generic and mail-order purchases. Under a three-tier proposal, members purchasing a 30-day supply from retail pharmacies would pay $5 for generics, $15 for brand-name drugs and $30 for drugs not in the health plan’s formulary. For a 90-day supply purchased through the mail, members would pay $10 for generics, $25 for brand-name drugs and $45 for non-formulary drugs.
The current co-payment is $5 for all prescriptions.
Peter Boland, president of Boland Healthcare, a management consulting company, said the bids represent a “cost shift to the consumer” that will set a “very real precedent for the next two to three years.”
“CalPERS tends to solidify the floor,” he said. “This will raise the floor on out-of-pocket expenditures and premiums in the future. It is not good news for consumers.”
State employer groups urged CalPERS to accept the bids. The League of California Cities, in a letter to the committee, said a “slight increase” in co-payments is needed to “offset the burdensome increases in premiums our agencies have endured.”
Representatives of employee groups, however, said the increase in out-of-pocket costs would hurt people who could least afford it.
“Nobody goes to doctors because they want to run up costs,” said Perry Kenny, president of the California State Employees Assn. “It is the people who are most ill who need it most and they will get penalized the most.”
He added, “Our members already have had to pay utility increases, and now they have medical increases.” State employees received a 4% raise in September.
The board will vote on bids from Blue Shield HMO, Health Net, HP Redwoods, Kaiser Permanente, Maxicare, PacifiCare Health Systems in California, Nevada and Arizona, Universal and Western Health Advantage, a new plan.
The health committee recommended Maxicare and Health Net with conditions. The step represents a reprieve for Health Net, which the committee earlier had recommended against.
The committee said acceptance of Maxicare’s bid should be contingent on an audit statement confirming that it has adequate reserves to meet claims. A representative of Los Angeles-based Maxicare, which posted losses in its fourth quarter, said it does not expect to have trouble complying with the conditions.
Acceptance of Health Net’s bid, the committee said, is contingent on it obtaining accreditation from the National Committee for Quality Assurance, which it lacked in 2000 and 2001. The committee also recommended that Health Net’s enrollment be frozen because it broke a previous commitment to hold its 2002 rate increase to 8.8%. Instead, it initially recommended 13.4%. Its bid Tuesday called for a 7.4% increase.
The committee also faulted Health Net for transferring $159 million in the first quarter of this year to its parent, Foundation Health, while offering CalPERS unacceptably high premiums.
Health Net spokeswoman Lisa Kalustian contradicted CalPERS’ version of events and said the Woodland Hills-based HMO did not guarantee it would hold premiums to 8.8%.
“There was a breakdown in communication,” she said. “There are a lot of elements we could not agree on.” She said Health Net accepted its “share of responsibility.”
