CalPERS to Raise HMO Rates by 11.4%

The California Public Employees’ Retirement System today is expected to adopt its smallest rate increase for health insurance payments in three years, as a result of the giant pension fund’s hardball tactics with pricey hospitals and HMOs.

CalPERS’ health benefits committee recommended Tuesday that the full board adopt an HMO premium rate increase for 2005 of 11.4%. HMO premium rates for CalPERS members rose 18% this year and 26% in 2003.

In addition, the committee recommended an increase of 6.4% in rates for preferred provider organizations. That compares with a 13.2% hike this year and 20% in 2003.

Overall, the proposal would hike CalPERS’ premiums by 9.9%.

The fund has cut costs by eliminating two of the state’s largest HMOs and it dropped 38 of the most expensive hospitals from its provider lists.

“This has been a hard negotiating year, but we have created fairness in our rates and will be using some surplus reserves to cushion the financial impact where we can,” said Sid Abrams, the committee’s chairman.

Although rates for CalPERS members in much of the state will go up, some members in Los Angeles, San Bernardino and Ventura counties would see premium reductions of 8.7% for Blue Shield, 3.5% for Kaiser and 1.5% for Per Choice and an increase of 5.4% for PerCare.

CalPERS, with 1.2 million enrollees, is one of the nation’s largest purchasers of health benefits. Even before CalPERS announced its proposed rate increase, premium hikes had been expected to take a breather.

According to a recent national employee benefits survey, HMOs are seeking premium hikes from large employers of about 13.7% for the coming year, down from 17.5% a year earlier.

Industry experts, however, said the slowdown in rate increases have not come from any fundamental change in healthcare prices or utilization.