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February 25, 2002
CalPERS Exploring 'Radical Overhaul'
Rai
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sing out-of-pocket fees and slashing HMO options have not been enough to hold down skyrocketing health care costs for the 1.2-million-member California Public Employees' Retirement System.

So CalPERS is now exploring a radical overhaul of its health benefits program, the San Jose Mercury News reports.

CalPERS might replace its current menu of health plans with a single, statewide, self-insured plan or an offering of two or three HMOs, staff members said at a meeting last week.

The Mercury News recalls that once, CalPERS' massive membership rolls alone were enough to command good rates from HMOs. But a lot has changed since the mid-1990s to create a market less suited to CalPERS' way of doing business.

Hospitals, once powerless to charge HMOs high rates, have consolidated into larger health care systems capable of holding their own at the bargaining table. Insurers, in turn, raised rates. And investors, once dazzled by membership growth, began judging plans based on bottom line growth.

CalPERS, meanwhile, has seen its own health care costs soar as it is less able to negotiate good rates and HMOs refuse to serve high-cost counties, forcing the sickest and hardest to serve members to enroll in the pension fund's self-insured PPO plans.

CalPERS had average premium increases of 9.2 percent last year - less than the double-digit rate hikes most other purchasers experienced that year but a far cry from the the mid-1990s, when CalPERS commanded premium decreases.

"Something like 33 percent of PERS member are in Kaiser. Something like 5 percent of Kaiser members are in PERS," said Mark Smith, president and chief executive officer of the California Healthcare Foundation. "I leave it to you to decide who's got more leverage in that relationship."

Over the next six months, CalPERS will meet periodically to iron out a new health-benefits plan, which might be implemented as soon as 2003.

The two ideas under consideration carry their own risks, according to the Mercury News.

With a single self-insured plan, CalPERS would eliminate the instability and costs associated with HMOs exiting counties, but would assume all financial and legal risk. And, CalPERS would have no guarantee of getting better rates from hospitals and doctors than HMOs already had.

A switch to two or three HMOs with statewide service faces a different challenge: No HMO in California currently has a statewide network of hospitals and doctors.

In both options, the biggest hurdle could be persuading members to accept a cost-containment solution that leaves fewer health plan choices, said Barbara Adachi, a regional managing director for Deloitte & Touche, who spoke at a recent PERS meeting.

"CalPERS needs to act now to avoid further deterioration in its plans," Adachi said. "There's an understanding that it will take time, but we already know that the market will not be able to solve the problems CalPERS faces."

To view the Sacramento Bee column, click here.


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