Cost Takes Center Stage in Health Care Reform Efforts

Trustees of the nation’s third-largest buyer of health insurance are huddling this month, mapping out the best ways to wield their considerable clout in the health care arena.

In their summer retreat this month, CalPERS trustees will discuss a variety of strategies to keep health costs down including increased emphasis on preventive health care and disease management, and investment in new medical infrastructure. CalPERS plans to invest $700 million in companies specializing in new ways to increase efficiencies in health care.

CalPERS, which provides health coverage for 1.2 million government workers and retirees, is the nation’s largest public pension fund. When CalPERS acts, the California health care community pays attention.

Last month, CalPERS announced an average 6.3% increase in health care rates for 2008. Although it was the lowest hike in nearly a decade, trustees said the organization is facing significant health care inflation pressures and that future increases could be in the double-digit range.

“In some ways, we’re in a sort of delicate situation,” said Edward Fong, public affairs manager for CalPERS. “Our board does adopt certain policy positions, but we are a government agency, and there are some instances in which it is not appropriate.”

For instance, CalPERS does not plan to take an official position on any of the health care reform proposals working their way through the Legislature and the governor’s office. CalPERS also will refrain from endorsing or opposing any proposals under consideration by the governor’s commission while trying to figure out how to pay for retirees’ health benefits.

“As an organization we can’t offer an opinion on that, but we certainly are able to offer information and testimony,” Fong said. “We have expertise and information that other people don’t, and we certainly are sharing both in the form of public testimony and a whole lot of data.”

State, School Workers’ Group Take More Active Role

Other organizations are less reticent to offer opinions. Two state groups that share the same acronym — CSEA –also share a relationship with CalPERS and are outspoken in their positions.

“This is not just a retiree issue, it’s everybody’s issue,” said J.J. Jelincic, president of the California State Employees Association. “Retirees are getting all the attention lately but it’s not just them. Everybody’s health care is just too expensive. Our society needs to figure out a way to make the entire system work better.”

Dave Low, assistant director of government relations for the California School Employees Association, agrees.

“I think the bigger issue is health care reform for everybody,” Low said. “We need to solve this problem for more than just retirees — for workers, families, everybody.”

Low, Jelincic and a majority of the state’s legislators believe the best way to reform health care in California is with a single-payer plan such as the one proposed by Sen. Sheila Kuehl (D-Los Angeles). Her universal care plan was passed by the Legislature last year and vetoed by Gov. Arnold Schwarzenegger (R). It probably faces a similar fate this year.

“I don’t think there’s any question that a single-player plan is the best solution,” Low said. “But it’s probably not something that’s going to happen this year. Or even next year.”

“In the meantime, we should be looking at ways to make what we have work better,” Low added. “In the case of retiree benefits, better prefunding mechanisms — trust funds, for instance — would be a good place to start.”

Keeping an Eye on Long-Term Costs

In addition to new funding options, CalPERS trustees are considering new investments in programs that would keep people healthier. Looking for new ways to reduce the cost of medical care, some insurers and insurance buyers are hoping a new emphasis on preventive health care and disease management techniques will help.

Intuitively, it makes sense: The healthier people stay, the less it will cost to take care of them.

But there is some question about just how cost-effective such plans are over the long run.

According to the Congressional Budget Office, disease management program data does not conclusively show that the programs reduce health care costs, although the programs might be valuable tools for other reasons.

Responding to a request by the U.S. Senate Budget Committee two years ago, CBO reviewed disease management statistics to determine whether the programs reduce the overall cost of health care and if they could be used to lower spending by Medicare. The review found that most of the literature on disease management focuses on processes of care — such as patients’ adherence to testing or exam guidelines — or on intermediate measures of health, such as changes in blood pressure or cholesterol levels. The few studies that address health care spending generally used controlled settings and failed to account for the additional costs of the programs’ screening, monitoring and educational services

However, literature and program data do suggest that some disease management efforts such as smoking cessation programs, diabetes monitoring and heart disease monitoring can have beneficial medical impacts, even if they aren’t particularly cost-effective.

“The idea of trying to keep costs down is a good one and it makes sense,” Jelincic said. “But it doesn’t address the bigger picture.”

Costs Remain an Issue

“We have made a social decision that we are going to provide health care for people, whether they’re old or young, sick or healthy, working or retired,” Jelincic said. “I think it’s the right decision, and we do manage to provide health coverage for retirees with Medicare. I don’t see why that can’t be expanded to include everyone.”

Tactics such as prefunding retiree benefits and disease management programs may be good ideas, but they probably won’t do much to decrease costs, Jelincic said.

“You can shift costs, but they’re still there. If the private sector wants to decrease premium contributions to increase profits, somebody else will have to pay eventually,” Jelincic said, adding that whether it is “counties through indigent care or Medicare or individuals, somebody will have to pay.”

“You don’t get rid of costs.”

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