CalPERS drops two HMOs, raises rates by 25 percent

By STEFANIE FRITH Associated Press Writer
Thursday April 18, 2002

SACRAMENTO — The California Public Employees’ Retirement System dropped two of the four major health maintenance organizations offered to its 1.2 million members Wednesday while raising rates for next year by 25 percent. 

The decision by California’s largest purchaser of public employee health benefits will cost employees across the state hundreds of dollars more per year, CalPERS officials said. 

The announcement comes as part of a chain reaction in health care, as hospitals charge HMOs and insurers more, who then pass those costs to the people they cover. 

CalPERS dropped Pacificare and Health Net while keeping Blue Shield and Kaiser Permanente along with three small, regional HMOs. 

Premiums will rise by 25.1 percent for HMOs, which serve three-quarters of CalPERS members, and up to about 22 percent for preferred provider insurance plans. The cost for the HMO rate increases alone, to be shared by the state and its employees and retirees, is $2.4 billion. 

How much CalPERS members will pay depends on their employers and insurance plan, but many retirees will not pay higher rates because the state pays their entire premium. 

Costs for employees will depend on which HMO they stay with, and if they are a single person compared to a family. A single person with Blue Shield in 2003 could pay from $34 to $58 more per month, while a family of four could pay $90 to $107 more per month. Benefits, however, will remain the same. 

“It’s going to be substantial for lower-income people,” said CalPERS president William Crist. 

CalPERS covers all state and local government employees, including retirees and public school employees who are not teachers. 

For years, CalPERS has relied on competition among HMOs to keep costs down, but this year all HMOs are raising prices. Nationwide, major insurers are raising premiums 10 to 30 percent, the largest increases in decades. 

In their negotiations with CalPERS, some HMOs proposed raises of up to 41 percent while reducing benefits and pulling out of some counties, which would have left many employees and retirees without an HMO option in their area. 

CalPERS officials wouldn’t specify the high bidders, but they did say that Pacificare and Health Net were among the highest. 

Crist said CalPERS is “trying to raise the visibility of this crisis.” 

Part of the current problems have been caused because hospitals must pay billions of dollars in uncompensated health care caused by so many uninsured Californians, said Jan Emerson, vice president of the California Healthcare Association. 

“Seven million people are uninsured but that doesn’t stop them from showing up at hospitals and requiring care,” she said, adding that two out of three California hospitals are losing money, with about 30 closing in the last six years. 

Emerson also points to recent state and federal laws that have required hospitals to retrofit for earthquake safety, which has cost $24 billion since 1994.