CalPERS Panel OKs Coverage Proposals

Officials at the California Public Employees’ Retirement System approved several proposals Tuesday aimed at improving the cost and quality of health-care coverage for the pension fund’s 1.2 million members.

The health panel at CalPERS voted to require HMOs that it contracts with to provide more data on costs and quality, and to beef up efforts to offer medical coverage in every California county. The panel also adopted a controversial plan to give health insurers longer-term contracts, which could bring more predictable premium rate increases for CalPERS and its members but also could tie the pension fund’s hands in certain ways.

CalPERS, which manages more than $130 billion in pension funds, is expected to spend $3.3 billion this year on health care for its members, which include government workers, their families and retirees. As the nation’s second-largest purchaser of health care -- only the federal government outspends CalPERS -- major changes made by the pension giant in Sacramento are closely watched by the managed-care industry as well as health providers and private-sector employers.

“They are on the right track in trying to reward quality and making that information available to their members,” said Emma Hoo, a director at the Pacific Business Group on Health, a San Francisco nonprofit that advocates for more than 40 major companies in California.

The insurance rates that CalPERS accepts are often seen as an indication of the increases that many other employers can expect. Last year the fund approved a 25% increase in HMO premiums for 2003, and big rate hikes are expected for 2004 when CalPERS announces the results of the negotiations in mid-June.

Amid spiraling medical inflation, CalPERS has sharply reduced the number of HMO choices for its members, from more than a dozen a few years ago to just three today -- Kaiser Permanente, Blue Shield of California and Western Health Advantage. CalPERS is betting that closer relationships with select carriers will help it improve quality and cost in the long run.

As part of that strategy, the health panel Tuesday cleared the way for CalPERS to negotiate a three-year contract with the biggest of its three carriers, Blue Shield. In a hearing, panel members argued that a longer contract spreads costs out over several years and gives the state more negotiating power. But some state employees voiced concerns, noting that Blue Shield doesn’t provide coverage in some rural counties.

The panel also approved a plan to better manage patients with costly chronic diseases, and a “regional pricing” structure that would take into account geographical differences in the cost and use of medical care. Officials said this could give public agencies in Southern California incentives to remain in the CalPERS system. “Basically, they’ve been subsidizing those in Northern California,” said Clark McKinley, a CalPERS spokesman.

“We’re trying to rewrite the book on health care,” McKinley said, noting that the health panel’s recommendations will now go before the full CalPERS board. “We know we can’t fix what’s broke by ourselves, but we can try to get better value for the dollars we spend.”