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American Health Line

As expected, the board of the California Public Employees’
Retirement System, the second-largest purchaser of health insurance after the federal government, yesterday approved a 25.1% increase in premiums for the system’s HMO plans in 2003, the San Francisco Chronicle reports.

CalPERS, which serves 1.2 million employees, retirees and dependents, also will drop contracts with Health Net Inc. and PacifiCare Health Systems Inc. next year. The decision will reduce the number of HMO plans in the system from seven to five, which will save CalPERS an estimated $77 million.

Dropping the two HMOs will force as many as 350,000 CalPERS members to switch to Blue Shield of California, Kaiser Permanente or one of three regional health plans, although about 90% of CalPERS members will not have to switch doctors.

Members enrolled in basic HMO plans will face an average $52 increase in monthly premiums next year, and Medicare HMO members will face an average $66, or 40%, increase. CalPERS’ HMO plans will cost about $2.2 billion in 2003, about $400 million more than this year. In addition to increases in premiums for HMO plan members, the CalPERS board yesterday approved 22.1% and 18.9% increases for members enrolled in the system’s two preferred provider organization plans (Colliver, San Francisco Chronicle, 4/18).

According to CalPERS, reductions in Medicare reimbursements, the “burden of growing numbers of uninsured” individuals and “marketplace forces” were the contributing factors behind the system’s decision to pass the “historic” increases in premium rates (Wall Street Journal, 4/18). “We’re very much afraid these high double-digit increases in the cost of health care (are) something we have to look forward to in our future,” William Crist, president of the CalPERS board, said (San Francisco Chronicle, 4/18).


CalPERS’ 2003 rates may serve as a “harbinger of what employers nationally may face” in their contract negotiations with health plans, USA Today reports (Appleby, USA Today, 4/18).

CalPERS officials said that “their experience reflects what is happening around the country as employers struggle with double- digit health care cost increases.” According to analysts, employers nationwide face 12% to 15% premium increases in 2003, which could prompt many employers to offer fewer health plans, reduce benefits or shift additional costs to employees (Abelson, New York Times, 4/18).

Analysts said that CalPERS’ decision to increase premium rates serves as “clear indication of the return of soaring health increases.” However, they also said that the move “doesn’t necessarily point to a further escalation of what many are calling a national health care crisis.” Credit Suisse analyst Joseph France said that the large premium increases at CalPERS “reflected the fund’s traditionally low rates and historically generous benefits” and “decidedly does not have any meaningful implications” for the health insurance market (Lee, Los Angeles Times, 4/18).

Randall Abbott, a senior consultant at Watson Wyatt, said that “cost pressures are particularly acute” in California, which has a “very mature, very competitive HMO marketplace” compared to the rest of the nation (New York Times, 4/18).


Meanwhile, Jamie Court, executive director of the Foundation
for Taxpayer and Consumer Rights, writes in a Los Angeles Times opinion piece that the CalPERS decision yesterday should “sound an alarm bell in Sacramento that following the money in the health care system is as important as dealing with abuses of patients’ rights.” Court urges California lawmakers to require health plans to receive state approval before they increase premiums.

According to Court, the “only silver lining in this dark cloud is that the CalPERS concession to the HMO industry may garner populist support for real solutions as more Californians see the possibility of being uninsured” (Court, Los Angeles Times, 4/18).

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