CALPERS: Butts Heads With Kaiser Over Rate Hike
The California Public Employees Retirement System (CalPERS) sharply rebuked Kaiser Permanente yesterday for its proposed 12.6% rate hike for 1999, setting off a possible showdown between the two giants, the Los Angeles Times reports. CalPERS is the second largest purchaser of health care coverage in the nation after the federal government, and Kaiser is the largest HMO in the nation and in California. The standoff came at a time when CalPERS has approved the largest average rate increases in its history for other HMOs, an average of 5% (Olmos, 4/15). At a press conference in Sacramento yesterday, "CalPERS officials repeatedly attacked Kaiser for its hard-line position," the Wall Street Journal reports. William Crist, president of CalPERS' governing board, said, "Kaiser, unlike the other nine (HMOs), really hasn't been willing to negotiate in the sense of looking for some alternatives to this very, very substantial one-year rate increase (Rundle, Wall Street Journal, 4/15). He noted that the proposed increase would "add $54.6 million to the costs paid by CalPERS employers and Kaiser members," amounting to an additional $300 in premiums for the average covered family (Appel, Santa Rosa Press-Democrat, 4/15). Crist blamed Kaiser's poor business decisions for the hike, saying, "Kaiser lost control of its costs. We don't believe our members should have to tolerate this rate increase in one year (Appleby, Contra Costa Times, 4/15).
The Kaiser Prepares For Battle
Kaiser Vice President Jack Hudes "insisted there were no management blunders." Rather, he said, the HMO simply failed to raise its rates accordingly over the last few years. "He noted that Kaiser lowered its rates by 1% to 7% from 1995 to 1997, and raised them only 2% last year" (Los Angeles Times, 4/15). Indeed, with the 12% increase, "Kaiser premiums would still be only 1.4% higher than in 1992," thus making it still very competitive with other HMOs in the state. Kaiser attributed the need for this year's raise to higher drug and hospitalization costs, and a series of nurses' strikes (Hall, San Francisco Chronicle, 4/15). The Contra Costa Times reports that "Kaiser is also reeling from its first loss -- $270 million nationwide in its 1997 fiscal year -- and a surging membership demanding more services."
Drawing A Line In The Sand
"It's an enormous battle of wills between two giants," said John Funk, a principal with the Integrated Healthcare Consulting Group in Southern California. CalPERS has threatened to "freeze new membership in Kaiser unless the HMO relents, just as it did in 1992 when Kaiser was its highest-priced plan" (4/15). Berkeley-based health care consultant Peter Boland said, "CalPERS can't afford to give in. For them to accept a 12% premium increase like this would signal to every other health plan that you can have a disastrous year and all you need to do is go and get your customers to pay for it." The Chronicle reports that in bargaining sessions over the past few weeks, "CalPERS had said it would simply pay whatever it deemed appropriate if Kaiser didn't back down, prompting a counter-threat from Kaiser to withdraw coverage from CalPERS even though it would mean abandoning one of its biggest accounts." Hudes said, "OK, call us the bad guys. We're just trying to get back on the right revenue stream" (4/15). The outcome of the dispute will affect 340,000 state workers, according to the Los Angeles Times.
CalPERS' "decision to accept a 5% overall rate hike another sign that California employers and workers face accelerating medical costs after five years of relatively stable rates." Glenn Meister, a principal at William M. Mercer Inc., a benefits consultant in Los Angeles, said, "CalPERS is an excellent bellwether, and I think we're going to see increases in the 5% to 10% range" (4/15). The specific rates for 1999 "range from a low of 2.5% for PacifiCare to a high of 9.2% for Omni" (Press-Democrat, 4/15).