CALPERS: Announces 9.7% Price Increase for Health Insurers
In a move certain to reverberate across the country, the trendsetting state pension fund CalPERS announced yesterday that it has agreed to an average 9.7% hike in premiums for health insurers next year. The premium hikes come on the heels of this year's 7.3% increase, and are likely the death knell for the pension fund's "strong-arm tactics [that] had kept its HMO premiums virtually flat" (Louis, San Francisco Chronicle, 5/19). The move brings long-awaited relief for the managed care industry, which has complained of premiums that did not match rising costs. Wellpoint Health Networks Inc.'s Becky Kapustay said, "Any time an organization like CalPERS does something like this it is significant, because it validates what the health plans have been saying -- that they need to have increases" (Bernstein, Los Angeles Times, 5/19). The Wall Street Journal reports that CalPERS blamed "the costs of drugs and medical technology" for the increase, and said "some HMOs weren't managing such costs well" (Rundle, 5/19). The Sacramento Bee reports that CalPERS "hasn't seen a rate hike approaching double digits since 1991-92, when premiums increased 12%" (Slater, 5/19).
Kaiser Gets the Most
Kaiser Permanente, the troubled HMO that covers 40% of CalPERS' 1 million beneficiaries, received the largest increase, 11.7%, after a 10.75% increase for 1999 (Freudenheim, New York Times, 5/19). CalPERs officials made it clear that they were displeased with the large nonprofit HMO. CalPERS Health-Benefits Administrator Margaret Stanley said, "We think the rates are justified based on (Kaiser's) cost experience, but that doesn't mean we're happy about them. Kaiser used to be the least expensive option; now it's one of the most expensive" (Wall Street Journal, 5/19). She added, "Our members will want to look very carefully at their choices this year." The other rate increases, expected to be ratified today in Sacramento: Lifeguard (10.9%); Health Plan of the Redwoods (10.5%); HealthNet (9.9%); Blue Shield of California HMO (8.5%); Aetna U.S. Healthcare (6.5%); PacifiCare (6%); Cigna (5.6%) and Maxicare (3.9%). The fund also announced the addition of a new HMO, Universal Care, which will be its cheapest plan at $161.49 per month for single subscribers; Lifeguard is the most expensive at $195.31 for CalPERS members (Chronicle, 5/19). The San Diego Union-Tribune reports that CalPERS singled out PacifiCare for a "gold star," praising the plan for its quality, price and commitment -- the plan was the first to sign a multiyear deal, now extended by three years (Rose, 5/19).
Consumer advocates decried the premium increases, with Consumers for Quality Care's Jamie Court saying that HMO patients are already paying "a lot more for a lot less care. Health care businesses should be required to show the need for rate increases and where and how the money would be used" (Los Angeles Times, 5/19). Court added, "These rate increases aren't going to finance better care for patients. This is subsidizing renewed profits for the HMOs" (Chronicle, 5/19). HMOs welcomed the hefty increases. BancBoston Robertson Stephens analyst Sheryl Skolnick said, "Look's like [health insurers] will have another decent year. I'm a little surprised" (Orange County Register, 5/19). Dismissing arguments that last year's increase was a one-time occurrence, Berkeley health care consultant Peter Boland said "we [now] have a trend. This 9.7% increase sends a clear signal to physicians, medical groups and hospital groups. It gives them an incentive to demand higher reimbursements from the HMOs. And once we get into an upward cycle, it is very hard to turn it around" (Chronicle, 5/19). The Wall Street Journal notes that the hikes should end speculation about whether medical inflation had returned. Boland said, "[W]e are probably in the midst of multiyear underwriting cycle that will continue to go up for two or three years" (5/19).