CalPERS Approves 6% Premium Hike

The California Public Employees' Retirement System, the nation's second-largest purchaser of health insurance after the federal government, yesterday approved contracts for 2002 with eight HMOs that call for a 6% increase in premiums and a "significan[t]" rise in copayments for prescription drugs and doctor visits, the Sacramento Bee reports (Rapaport, Sacramento Bee, 4/19). The move has led many analysts to suggest that U.S. employers and workers "can expect dramatic increases" in the cost of medical benefits in the next few years, because Calpers has traditionally "se[t]the pace for employers across the country," the Los Angeles Times reports. Under the new plan, which takes effect Jan. 1, doctor visits will require a $10 copay, and prescription drug copays will range from $5 to $45. Currently, copayments for doctors' visits and all prescription drugs are $5. The total package amounts to $1.76 billion, up from $1.65 billion this year. Premiums for CalPERS Medicare HMOs will rise 16.5%, with the same copay rates as in the traditional HMOs. CalPERS premiums increased 9.2% and 9.7% over the past two years, with no increase in co-payments. The contract approvals come after CalPERS in February rejected all 11 bids it received from HMOs, saying that they sought premium increases that CalPERS considered too high.

According to the Times, CalPERS' move to increase cost-sharing among employees was "inevitable," because managed care has been unable to hold down health costs and hospitals and physician groups are struggling financially. Helen Schauffler, director of the Center for Health and Public Policy Studies at UC-Berkeley, called the new plan "equitable," adding, "It is a clever way to split the burden between employer and employee." However, workers' advocates said the increase in co-payments would hurt low-income patients. Other analysts said that the move "could trigger another round of job cuts at many companies." Lee Exton, vice president of the benefits management firm Segal Co., said, "My concern is that this [premium increase] may lead to job layoffs in the long term, and that long term may only be in 12 months," adding that CalPERS' decision "is the first indication of what's out there on the horizon, and it's certainly sent up some red flags for us" (Gellene/Girion, Los Angeles Times, 4/19).