CalPERS Out to Stem Healthcare Defections
By VITA REED
Orange County and other Southern California public agencies that buy healthcare for their workers through the California Public Employees Retirement System soon could get a bit of pricing relief.
CalPERS’ board plans to hear scenarios next week on how a new plan to organize California into five pricing regions is likely to play out.
The goal is to come up with better prices for the 1,100 cities, counties, school districts and special districts that make up 38% of CalPERS’ health benefits program, the state’s largest healthcare purchasing pool.
If approved, the new pricing is set to start Jan. 1.
The plan is a bid to stop public agencies from bolting from the program because they can get better health insurance prices from private insurers.
Some 35 local agencies with 37,000 members left CalPERS’ health program this year, and more could leave if changes aren’t made to the rating system.
CalOptima, the Orange-based program that serves the county’s Medi-Cal patients, may consider returning to CalPERS if the agency goes to a regional rating system with more competitive pricing, said Courtney Wiercioch, an agency spokeswoman.
CalOptima left CalPERS’ program last year because of higher costs, Wiercioch said.
CalPERS’ pricing proposal divides California into five regions, which reflect that healthcare pricing in Southern California generally runs up to 15% lower than the state average.
OC is included in a large region that’s broken by Los Angeles County, said Clark McKinley, a spokesman for the pension fund.
San Diego, Riverside and Imperial counties also are part of the same proposed region as OC. Los Angeles and San Bernardino counties would make up their own region.
CalPERS, which serves more than 1.4 million public employees, retirees and their families, is one of the largest health insurance buyers. CalPERS often is seen as an indicator of where state and national healthcare cost trends are going.
But in this case, industry observers say CalPERS is following the private sector’s lead on regional rates.
“CalPERS must shift to a regional model in order to compete with the open market,” said Karen Nixon, a Newport Beach employee benefits broker. “By underwriting according to geographical regions, CalPERS’ rates may become more competitive in the short run.”
Staying with a statewide rate, she said, could be risky for the agency.
“Like any association plan, there is the potential for the death spiral,” she said.
The death spiral, according to Nixon, is where employer groups with younger, healthier workers opt out of a plan to buy insurance on their own, leaving the plan with older, higher-risk groups.
CalPERS also faces a potential rebellion by Southern California members, according to Henry Loubet, senior vice president of Keenan, a Torrance-based benefits consultant with a San Clemente office.
“Historically, from all the information that we have and that most other people have, the Southern California rates have subsidized the Northern California rates,” Loubet said. “Northern California does have a higher healthcare cost structure.”
Like the private sector, CalPERS isn’t immune to soaring costs,it had to accept a 17% rate hike for this year, after a 26% average rate rise in 2003.
Regional rating was proposed last year in a move voted down by CalPERS’ board. A desire to stem the tide of defecting agencies could have pushed the issue back to the forefront.
CalPERS offers benefits through Blue Shield of California and Kaiser Permanente for health maintenance organization plans. Blue Cross of California runs the agency’s preferred provider organization plan.
“Right now, it’s going to help CalPERS and Blue Shield keep more membership,” said Paul Markovich, who directs Blue Shield’s CalPERS unit.
Going to regional rates, Markovich said, could be attractive to smaller government employers that are concentrated in one area.
CalPERS once counted Cypress-based PacifiCare Health Systems Inc. among its carriers. But in 2002, the agency cut PacifiCare and Woodland Hills-based Health Net Inc. from its roster in an effort to save money.
At that time, PacifiCare said its contract proposal had a higher rate increase than CalPERS’ other healthcare providers.
Last year, PacifiCare said it was giving quotes to more than 100 Southern California public agencies interested in seeing if they could buy insurance for less than what CalPERS was offering.
PacifiCare officials said that CalPERS’ uniform pricing was a problem for Southern California.
If the regional proposal is adopted, it won’t affect state employees who make up 62% of CalPERS’ health benefits pool. Those workers still are going to pay a single, statewide average premium.
CalPERS traditionally works with a statewide average rate negotiated with participating health plans. While that rate is calculated to offset cost differences among various regions in California, it also masks significant cost differences and usage patterns.
And even if the agency makes the change, it could face resistance from some public sector unions concerned about Northern California workers paying more for their healthcare costs.
As for rolling out the change, CalPERS has several options:
n Putting in prices that reflect each region’s market health premium rates.
n Adopting prices reflecting the market rates but with some “smoothing” and upper and lower limits built in. The idea there is to keep Northern California from not being hit too hard the first year while giving Southern California some relief.
