CALPERS: Will Allow New HMOs To Contract
"Fresh from its bruising fight this spring with Kaiser Permanente over rates, the state's largest buyer of health insurance .... thinks it's time to foster competition among its insurers," the Contra Costa Times reports (Appleby, 7/1). CalPERS announced yesterday that its Board of Administration voted to lift a decade-long moratorium on adding new HMOs to its system in an effort "to increase competition, hold down premiums and improve the quality of medical care."
The ban had been in place since the late 1980s when CalPERS members had to choose between 30 or more HMOs, making the system unwieldy and confusing for consumers. But now, largely through mergers and consolidations, the number of HMOs CalPERS contracts with is down to 10. "Some industry experts argued that the mergers would keep premiums low through greater efficiencies of scale, but so far we have seen no evidence of that. On the contrary, there is some evidence the mergers may have reduced competition and thereby contributed to the resurgence of health care inflation," said Kurato Shimada, chair of the CalPERS Health Benefits Committee (release, 6/30). "Kaiser, if not a wake-up call for CalPERS (officials), certainly caused them to take note of how they don't want to be too dependent on a few plans," said William Mercer Inc. analyst Glenn Meister.
The Times reports that not all analysts agree, however, "that industry consolidation is the main culprit in price hikes." Some point to other factors like soaring prescription drug costs and rising labor expenses. "Consolidations in and of themselves are only a small portion. The fact is we've had low or no increases for seven years. So it does not seem unreasonable that there would be a shift back toward covering the actual cost of doing business," said Wanda Jones, consultant with the New Century Healthcare Institute in San Francisco (7/1).
Not So Fast
CalPERS officials note, however, that lifting the moratorium does not mean all HMOs applying for CalPERS contracts will be accepted. New HMOs must provide the services that CalPERS is looking for, such as specialized disease management, stable provider networks or new types of managed care, officials say. And applicants would also be required to sign multi-year contracts. But CalPERS will continue to give special preference to HMOs that serve rural areas, as expanding HMOs into sparsely populated counties has long been a top priority of CalPERS. Eighty percent of CalPERS members are enrolled in only three HMO -- Kaiser Permanente, Health Net and PacifiCare, and those plans have expressed reluctance about moving into rural areas. "We are interested in hearing from other HMOs with innovative ways of meeting the rural challenge," said Margaret Stanley, CalPERS health benefits administrator. More CalPERS information can be obtained at www.calpers.ca.gov (release, 6/30).