CALPERS: Expects $96M Losses on Two Self-Insured Health Plans
The California Public Employees' Retirement System, the nation's second-largest health benefits provider, will lose $96 million on its two self-insured health plans this year, the Los Angeles Times reports. The losses reduce the reserves in the system's health plan fund to $73.1 million, or enough money to last six weeks should unexpected emergencies hamper the fund's "ability to draw on its regular cash flow to pay for claims" (Bernstein, Los Angeles Times, 10/27). CalPERS offers its members a choice of 10 HMOs, including the 2 self-funded plans: PERSCare, which began in 1989, and PERSChoice, which was introduced in August 1993. The two self-funded plans cover a combined 230,000 members, or about 21% of individuals covered under the statewide health insurance purchasing pool (Robertson, Sacramento Business Journal, 10/23). Because the self-funded plans are not HMOs, but rather operate as PPOs where patients do not need referrals to see specialists, the two plans are "among the most expensive to administer."
What Went Wrong
Although the fund's losses "will not affect CalPERS' ability to pay retirement benefits to its members or destabilize the pension fund's other programs," the losses point to "ongoing financial pressures faced by health insurers," the Times reports. According to CalPERS officials, the losses are a result of a "huge run-up" in the membership of its self-funded plans, which have high premiums and deductibles, compared to traditional HMOs. As HMOs have pulled out of some rural counties, rural CalPERS members "have been forced to join" the self-funded plans. Unlike HMOs, which can pull out of areas "when it becomes too expensive to operate," CalPERS must "provide care for all of its members -- no matter where they live." According to Allen Feezor, CalPERS assistant executive officer for health, PERSCare and PERSChoice "have suffered inordinately" from the increased cost of doctor and hospital visits and prescription drugs, the Times reports. Feezor added that CalPERS "can't just pull out because they have beneficiaries all over the state."
Although CalPERS already has announced a "huge" premium increase for the two plans in 2001 -- an average of 19% more than this year -- Feezor said that "an even larger increase" -- 24% -- would be necessary to "stem the losses and begun rebuilding the reserve." In the next few months, Feezor plans to present the CalPERS board with several options, including:
- increasing premiums, deductibles and copayments even more in 2002;
- instituting a "three-tiered" copayment system for prescription drugs, under which patients who order by mail pay the least and those who buy drugs at a pharmacy would pay more;
- limiting the number of drugstores CalPERS members can use;
- "retooling" one of the two plans to "resemble an HMO" (Los Angeles Times, 10/27).