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Increased CalPERS Rates May Aid Little Guys

April 22, 2002

Re "Healthy Profits Don't Equal Good Health," Commentary, April 18: Jamie Court's column describing the negative impact of the large HMO premium increases that CalPERS has agreed to on the little guys or small business is just wrong. For years now CalPERS has utilized its large size and leverage to gain rate concessions from the HMOs that produced a premium that was significantly below cost. The loss on an account of this size forced the HMOs to make up the losses from other accounts, which are the same accounts that Court is concerned about. This has resulted in higher premiums generated by the small accounts being utilized to not only generate required HMO bottom lines but also to subsidize the premium of the state's largest purchasing group.

This leads me to conclude that premium increases for other employers this year will actually be less than if the HMOs had not raised CalPERS' rates to a level to cover their cost.

As for a regulatory solution, I do not believe that the state is equipped to prospectively determine what a fair rate is for a given benefit package for a given group. This proposition sounds like a gold mine for health-care consultants and the actuarial community. A more manageable and balanced approach would be a return to community rating, where all groups would pay the same rate for the same benefits. This was the original concept when HMOs were introduced to this country.

Donald B. Smallwood

San Juan Capistrano

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