CalPERS Faces Sharply Higher Health-Care Costs
In a sign that health-care costs will continue to soar for employers, the California Public Employees' Retirement System said Tuesday that it received bids from health-care providers that would increase average premiums by 15% to 18%.
The agency is hoping to hammer down those increases in further negotiations. It also said it plans to drop three of its 10 health-care providers, part of a previously announced plan to increase competition for its business.
CalPERS, the nation's second-largest purchaser of health insurance, is considering dropping Aetna, Cigna Health Care of California and Lifeguard after the three health maintenance organizations ranked last in a bidding war for the system's 2002 health-care coverage. Together, the three HMOs insure 9% of CalPERS' 1.1 million covered employees, dependents and retirees.
CalPERS' annual negotiations on health-care costs are closely watched by employers as a leading indicator of health-care trends. The outcome so far bodes ill for companies that are struggling to restrain soaring costs, as well as for health-care organizations trying to boost profits, analysts said.
"This is bad news for everybody," said health-care consultant Peter Boland of Berkeley-based Boland Healthcare.
The companies' proposals were the second round of bidding. CalPERS in February rejected bids by all 10 of its HMOs, saying the premium rate increases the organizations requested were too high. The proposed increases ranged from 5% to 41%, with an average of about 25%, said Pat Macht, a CalPERS spokeswoman.
As an incentive to lower costs, CalPERS said it would accept only the best seven bids, based on price, service, member access and management.
After reviewing the new bids, CalPERS' health benefits committee recommended Tuesday that further negotiations begin with six existing HMOs--Blue Shield, Health Plan of the Redwoods, Kaiser, Maxicare, PacifiCare and Universal Care--and one new carrier, Western Health Advantage.
CalPERS also rejected a bid from Health Net, saying the Woodland Hills-based HMO failed to comply with bidding rules. CalPERS gave the HMO, which insures about 240,000 CalPERS members, 48 hours to resubmit its proposal.
CalPERS said dropping the three insurers would cause some disruptions to members, but most--92.5% of the 95,000 affected--would be able to keep their current physicians since most doctors belong to more than one CalPERS-approved plan.
