CalPERS to Weigh Cutting Health Benefits
The California Public Employees’ Retirement System, once a benchmark of generous employer-sponsored health plans, is proposing to trim benefits for hundreds of thousands of its members in a bid to rein in runaway healthcare costs.
The proposals, to be considered Tuesday in a meeting in Sacramento, underscore an ongoing shift in the healthcare industry in which patients are being asked to assume a larger financial stake in the medical treatments they choose.
CalPERS’ plans include raising co-pays for more expensive treatments and lowering premiums for those willing to use a smaller network of doctors. The changes are designed to give incentives for cheaper medical care without compromising quality, CalPERS administrators said.
The move is strongly opposed by public employees’ unions that say it shifts too much of the costs to workers. Union representatives plan to speak at CalPERS’ Health Committee meeting Tuesday. If passed, the proposals would be voted on by the 13-member Board of Administration on Wednesday.
Board Chairman Rob Feckner, who also sits on the committee, said he probably would oppose the benefits changes this year because they affect the most vulnerable members, especially retirees who can’t afford higher co-pays.
“Some of these folks won’t go to the hospital” if they have to pay, he said. Currently there is no co-pay for hospital stays.
Still, Feckner acknowledged that some change to benefits would be needed in the near future.
CalPERS manages health coverage for 1.2 million public employees, their dependents and retirees. It is the state’s largest buyer of health insurance, yet its size has given it little leverage against rising costs.
“It doesn’t matter what your buying power is,” said Jeffrey Miles, an insurance broker in Marina del Rey and a spokesman for the California Assn. of Health Underwriters. “CalPERS is not immune to the main driver of healthcare costs.”
That driver is medical treatment itself. Newer and costlier procedures and drugs are helping Americans live longer but in many ways are making them poorer. According to federal estimates, healthcare consumed 7.2% of the nation’s economic output in 1965. It accounts for more than 16% today and is projected to rise to 20% in a decade.
Increasingly, employers are asking their workers to share the burden -- or dropping health benefits altogether.
CalPERS administers health benefits programs for the state and several local agencies. It collects the premiums and contracts with the health plans. The agency has been under growing pressure to rein in premiums, which have nearly doubled in five years.
To prevent rates from skyrocketing, CalPERS administrators said, they must tinker with the benefits, something they haven’t done in five years.
“We need to look at some cost sharing,” said Jarvio A. Grevious, CalPERS’ deputy executive officer of benefits administration. “We want to offer opportunities and incentives to our members so they get their care at the most appropriate settings.”
Appropriate also means cheaper. Among the proposals being considered are new co-pays for hospital care and ambulatory care. Patients who seek treatments at hospitals would pay $250 out of pocket. Those who go to ambulatory clinics would pay $25 a visit.
Ambulatory clinics are less equipped than hospitals and specialize in minor surgical procedures, which arguably do not need the resources of a full hospital. They also charge less.
Similarly, the agency would like to raise emergency room co-pays from $50 to $75 while holding co-pays for urgent care facilities at $25. Like ambulatory facilities, urgent clinics are not as heavily equipped as hospital emergency rooms and charge less for their services.
CalPERS is hoping that the new co-pays will motivate members to seek cheaper care when possible.
The co-pays are on par with what other large employers are doing, said Gary Claxton, an expert with Kaiser Family Foundation, a research institute.
Health plans and large employers have been dropping more-expensive doctors and hospitals from their provider networks to save money, but such measures are reaching their limits. Increasing patients’ financial stakes may be unpopular but does drive down costs, Claxton and other experts said. And CalPERS’ health benefits are still relatively rich compared with private-sector employer-sponsored plans.
In addition to raising co-pays, CalPERS is proposing to eliminate HMO coverage in several rural counties.
Blue Shield of California, one of CalPERS’ three HMO carriers, serves those areas but says coverage is expensive because of the relative lack of healthcare facilities. That drives up premiums for plan members elsewhere. About 52,000 people would be affected and most would have to switch to higher-premium plans such as a preferred provider organization.
CalPERS currently offers two Blue Cross of California PPO plans. Among the measures being considered Tuesday is the creation of a third PPO that would have about half the number of doctors in the network compared with the other two plans, but premiums would be 7.5% cheaper. The move would not compromise care, Blue Cross of California and CalPERS administrators said.
If the new proposals are adopted, they would save an estimated $120 million from expected premium hikes next year, CalPERS officials said. That’s money that all premium payers in the system, employees and employers, would save.
Officials would not discuss what the overall premiums are expected to be next year, but the system will pay $4.3 billion this year, compared with $4 billion last year. The state pays about 80% of healthcare premiums for its employees, and up to 100% for retirees. Local agencies’ contributions vary according to their contracts with unions.
“My problem with these proposals is that they don’t address the underlying problem of lack of affordable healthcare,” said Yvonne Walker, a bargaining official with Service Employees International Union Local 1000, which represents 90,000 state employees. “You have gas going up, the overall cost of living going up, and you want to put people in a position where they have to make financial decisions about their healthcare. I don’t think that is the direction we want to go.”
But that is the direction most are already headed, said Peter Lee, chief executive of the Pacific Business Group on Health, a coalition of employers. If the system is not made more efficient, rising healthcare costs will drive more employers to drop benefits, leaving workers unprotected, Lee said.
“Costs will be shared one way or the other,” he said, either through co-pays or “taxes going up to treat more uninsured people.”
