PENSION FUNDS: Teachers, Public Employees May Bypass Managed Care
Two of the state's biggest and most influential pension funds -- the California State Teachers Retirement System (CalSTRS) and the California Public Employees' Retirement System (CalPERS) -- are considering leaving managed care and contracting directly with doctors and hospitals for health insurance, the Los Angeles Times reports. For the past year, CalPERS -- the second largest health insurance purchaser behind the federal government -- has been evaluating direct contracting; its health benefits committee will receive a progress report on the CalSTRS' plan today at the CalPERS Sacramento headquarters. The 500,000-member teachers' group could begin a pilot program as early as January 2000, when its board is expected to vote on the issue. Many believe the idea of direct contracting to be the "next configuration" for obtaining health insurance, contending that by eliminating the "middleman," employers, retirement funds and other health care-purchasing groups can control both premium costs and quality of care more closely. Direct contracting already has "shown promise" in smaller market areas, such as Minnesota. "This may be an opportunity in the California market to really try this and see if it works," suggests Bob Blum, principal at William M. Mercer, the consulting firm advising the CalSTRS fund on the issue. Similar to the Minnesota program, a California model for direct contracting likely would necessitate doctors and hospitals to organize into a care "consortia" and adhere to strict price and quality controls.
A Feasible Option?
Not surprisingly, managed care plans have not embraced the idea of direct contracting. California Association of Health Plans President and CEO Walter Zelman argues that it will be too difficult for physicians to tackle myriad administrative duties required in operating a health plan. Moreover, a plan to eliminate California HMOs in favor of direct contracting with care providers faces many obstacles, including garnering the support of Gov. Gray Davis (D). Just last week, Davis pledged not to harm the state's HMO industry when undertaking managed care reforms. Still, the task force studying the proposal -- headed by state Controller Kathleen Connell -- continues to "strongly recommend" that the pension fund boards consider direct contracting. Noting that under such a program, the pension funds would "have a provider base that is beholden only to them," Dr. Denard Fobbs, a member of the CalSTRS task force, concludes, "There is great potential to benefit economically by eliminating this huge middleman structure ... It makes all the sense in the world to me" (Bernstein, 12/14).