CalPERS OKs 13% Increase in Cost of Managed Care, Signaling ‘Dramatic Increases’ in Medical Costs Nationwide

The California Public Employees' Retirement System, the nation's second-largest purchaser of health insurance after the federal government, on April 18 approved contracts for 2002 with eight HMOs that call for a 6% increase in how much CalPERS pays to provide insurance for its members and a "significant" rise in copayments for prescription drugs and doctor visits, the Sacramento Bee reports (Rapaport, Sacramento Bee, 4/19). Altogether, CalPERS will pay 13% more for managed care benefits next year through increased premiums and member copayments. The move has led many analysts to suggest that U.S. employers and workers "can expect dramatic increases" in the cost of medical benefits in the next few years, since CalPERS has traditionally "se[t] the pace for employees across the country," the Los Angeles Times reports. Under the new plan, which takes effect Jan. 1, doctor visits will require a $10 copay, and prescription drug copays will range from $5 to $45. Currently, copayments for doctors' visits and all prescription drugs are $5. The total package amounts to $1.76 billion, up from $1.65 billion this year. Premiums for CalPERS Medicare HMOs will rise 16.5%, with the same copay rates as in the traditional HMOs. CalPERS premiums increased 9.2% and 9.7% over the past two years, with no increase in copayments. The increase of 6% is smaller than past years, however, CalPERS members will be asked to pay twice as much out of pocket. Some have "criticized" the decision to raise copays because it disproportionately affects the "sickest employees" and those who can "least afford" the increase, such as retierees. The contract approvals come after CalPERS in February rejected all 11 bids it received from HMOs, saying that they sought premium increases that CalPERS considered too high.

'Red Flags' Showing Double Digit Medical Inflation
According to the Times, CalPERS' move to increase cost-sharing among employees was "inevitable," because managed care has been unable to hold down health costs and hospitals and physician groups are struggling financially. Helen Schauffler, director of the Center for Health and Public Policy Studies at UC-Berkeley, called the new plan "equitable," adding, "It [is] a clever way to split the burden between employer and employee." She also said that, "I don't think there is any question that we are back in double digit inflation. However, workers' advocates said the increase in copayments would hurt low-income patients. Higher health insurace premiums could mean additional financial stress on private buisnesses. Lee Exton, vice president of the benefits management firm Segal Co., said, "My concern is that this [premium increase] may lead to job layoffs in the long term, and that long term may only be in 12 months," adding that CalPERS' decision "is the first indication of what's out there on the horizon, and it's certainly sent up some red flags for us" (Gellene/Girion, Los Angeles Times, 4/19).