San Diego Union-Tribune

Like the fever spike of a sudden illness, California’s biggest buyer of health insurance said yesterday that it will pay an average premium hike of 9.7 percent for its members next year.

The announcement by California Public Employees’ Retirement System — the buyers of insurance for more than 1 million public employees and their families — stunned the medical community.

The announcement raises fears of a return to stiff inflation in health care premiums — and higher costs to consumers.

“This is a terrible omen that the private market will pay double-digit increases for the next few years,” said Jamie Court, advocacy director for the Foundation for Taxpayer and Consumer rights in Santa Monica.

Court said the state needs to pass legislation that would require insurers to justify their increases, lest consumers pay to fund higher industry profits and receive fewer benefits.

But others likened the Calpers rate hike to a dam bursting, indicating that even the weight of the biggest health insurance buyer could no longer contain the cost of medical care to the state’s residents.

“It shows that there was simply not enough money for the provider community” of doctors and hospitals, said Dr. Robert Hertzka, president of the San Diego County Medical Society.

“We have had stable rates for five or six years, and we’ve had medical groups folding. . . . Clearly, the providers had some price to give. But we have gotten to point where we’re down to bone and muscle.”

The biggest Calpers premium increase will go to Kaiser Permanente, the state’s largest HMO, which hiked rates 11.7 percent and was branded as “disappointing” by the state pension system.

Margaret Stanley, Calpers Health Benefits administrator, noted that Kaiser will rise from the system’s least expensive plan last year to its third most expensive plan next year.

“They may lose members in this process,” Stanley said.

Last year, Kaiser suffered an operating loss of $354 million, as many in the industry believed it undercut rates to boost membership. The HMO has 5.8 million members in California, including 500,000 in San Diego, where it is also the largest plan.

A spokesman for Kaiser noted that the plan had cut rates from 1993 to 1998. The Kaiser spokesman declined to comment on where rates are headed beyond next year.

“It would be unwise to make any statements about future rates,” said James Waller, a vice president of Kaiser. “We feel the steps we are taking will put Kaiser in a better position than any health plan out there.”

As Kaiser rates fell in the middle of the decade, so did average premiums for Calpers. But the trend has turned upward in recent years.

Last year, Calpers’ rates rose 7.3 percent, after a 2.7 percent hike the previous year. From 1993 to 1997, however, Calpers rates fell an average 7.8 percent. Health Net, which will get a 9.9 percent premium hike, was criticized yesterday by Calpers for failing to allow an effective audit of its rate-setting procedures in time for this year’s premium negotiations. Calpers said it would expect a rate adjustment for 2001 from Health Net if it later finds the Health Net hike unjustified.

On the other hand, Calpers singled out PacifiCare for special praise, saying the HMO deserved a “gold star” for quality, price and being the first to sign a multiyear agreement, which it now has extended for another three years. PacifiCare will receive a 6 percent premium increase next year.

The other premium increases announced by Calpers yesterday were: 3.9 percent for Maxicare; 5.6 percent to Cigna; 6.5 percent for Aetna US Healthcare; 8.5 percent for Blue Shield; 10.5 percent for Health Plan of the Redwoods; and a 10.9 percent increase for Lifeguard.

Calpers also has added a plan from Universal Care next year, which will be its lowest priced offering with a single person monthly rate of $161.49.

The pension system sought to emphasize that the increases next year also bought improvements.

“These contracts provide important new patient rights and protection against rising costs through multiyear agreements” with five of the plans, said State Treasurer Philip Angelides, chairman of the benefits committee.

The improvements include independent third party reviews for disputes and an assurance that all legitimate emergency care will be covered by the health plans.

But despite the improvements and the multiyear agreements with some plans, observers within the health care industry said the size of the Calpers rate hike came as a “shock” and almost surely signaled a return to health cost inflation in California and elsewhere.

“It will have a huge effect,” said Dr. Laurence Miller, a medical director with CCN, a non-HMO managed health-care organization based in San Diego. “The Calpers hike will set off a round of price increases across the country.”