Employers Unlikely to Imitate CalPERS’ Hike

In accepting a staggering 25% increase in health insurance premiums for next year, the California Public Employees’ Retirement System on Wednesday seemed to signal a new round of spiraling health-care cost increases.

“This is a market decision everybody is going to be facing,” said CalPERS President William D. Crist as he urged “more militant” action to alert policymakers of a deepening crisis in cost and availability of health coverage.

But analysts and business groups say most employers--and by extension their workers--won’t be strapped with such steep premium increases.

Although experts view the CalPERS action as a clear indication of the return of soaring health increases, they say the pension fund’s situation was in many ways unique and doesn’t necessarily point to a further escalation of what many are calling a national health-care crisis.

Premium increases nationally are expected to remain at about 15% this year and next, analysts and large insurers said. The increases will vary by region, and small businesses generally will face greater rate pressures, prompting some to drop health insurance for their employees.

But most health insurers won’t be looking for the level of increases approved by CalPERS, which will hit some members with hikes of more than 50% in 2003.

“It decidedly does not have any meaningful implications for the large insurers,” said Credit Suisse health-care analyst Joseph D. France.

In a report Wednesday, France said the big rate hike at CalPERS reflected the fund’s traditionally low rates and historically generous benefits for its 1.2 million members. During some years in the mid-1990s, CalPERS enjoyed a reduction in health premiums as it wielded its size to garner concessions from competing health plans.

But this year marked a turning point for CalPERS, the nation’s second-largest buyer of health insurance after the federal government. Despite several months of negotiations, some of CalPERS’ health maintenance organizations adamantly stood by their initial bids, even as CalPERS’ staff threatened to consolidate the number of HMOs it contracts with.

In the end, CalPERS voted Wednesday to drop PacifiCare and Health Net, which will force about 350,000 people to switch to Kaiser Permanente, Blue Shield or three smaller regional HMOs. (CalPERS also operates self-funded preferred provider organizations, which are generally more expensive for members. But four-fifths of all CalPERS’ members are enrolled in HMOs.)

Analysts were divided on whether other employers would follow CalPERS’ lead and seek to narrow the number of health plan offerings to workers.

Peter Lee, chief executive of the Pacific Business Group on Health, which negotiates for 44 major companies in California, said he expects employers to look very closely at consolidation because many plans have an overlapping network of doctors and hospitals.

In CalPERS’ case, officials said 90% of the members who will be forced to leave PacifiCare and Health Net will be able to keep their existing doctors through one of the remaining plans.

Employers “will be looking at the value of the health-care delivery, not relying on playing one plan off another,” Lee said. Besides comparing rates, Lee said, employers will be asking questions such as, “How do the plans distinguish themselves on disease management, on the quality of care?”

As with CalPERS officials and many analysts, Lee didn’t see any letup in rising health premiums any time soon. Costs nationally have been spiraling in the face of rising drug costs, bigger reimbursements at hospitals and new medical technologies, among other factors. In California, a critical shortage of nurses and the mandated earthquake-retrofitting of hospitals also have added to health-care costs.

David Olson, a spokesman at Health Net, one of California’s largest HMOs, said he hasn’t seen evidence yet of employers consolidating plans. Olson said Health Net was disappointed that CalPERS dropped its plan, but he also noted that the CalPERS account wasn’t profitable.

At Health Net, Olson said, health premiums for other employers next year aren’t expected to rise anywhere near what it was seeking at CalPERS. He said costs probably will go up about 15% in California and slightly lower in the Northeast.

“CalPERS is not a bellwether,” he said.

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Rising Costs

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