CA State Union Call Outs CalPERS Health Cost Increase

February 21, 2003 ( - California Public Employees' Retirement System (CalPERS) is being challenged by a large union about proposed health insurance premium increases next year.

The California State Employees Association said it would continue challenging the nation’s largest public pension fund on the increases unless CalPERS can prove the rate hikes would lead to better care, according to a report by the Sacramento Bee.

The union said that with CalPERS’ size, currently the nation’s second-largest purchaser of health benefits, union officials expect the fund to use its influence in the marketplace to hold HMOs, hospitals, and doctors accountable for rapidly rising  costs.   “In these crazy economic times, a lot of people have been saying CalPERS is no longer big enough to have an influence. But I believe that there are plenty of things an organization that spends $2.4 billion can do,” Tom Elkin, a consultant for the union and former CalPERS health executive, told the newspaper.

Elkin, speaking for the union at a meeting with CalPERS, said the fund has an obligation to its members to reduce the double-digit premium rate increases of recent years.   Last year, CalPERS had average HMO rate hike of 25%, four times larger than the increase the pension fund absorbed for 2002.

With rate negotiations for 2004 HMO contracts now under way, CalPERS is trying to balance union demands for minimal premium hikes and benefit reductions against insurers’ insistence that rapidly escalating hospital and drug costs warrant higher payments.  

According to the report, the four main issues that will dominate contract talks are:

  • balancing members’ desires for a broad choice of hospitals and HMOs against cost savings achieved by reducing health care options
  • using disease management programs to improve care with lower costs for chronically ill patients
  • contracting with a pharmacy benefits manager (PBM) to provide drug benefits for CalPERS members – even those in HMOs
  • pressing HMOs to provide better value for CalPERS’ members by reducing expenditures on hospital care.

Additionally, CalPERS has looked at possible internal cost-cutting measures that include:

  • taking a more aggressive role in promoting legislation that sheds light on health costs and helps keep premium increases in check
  • supporting state and federal legislative efforts to reduce the rolls of the uninsured, regulating the quality and cost of care, and enhancing competition in the health care marketplace
  • investigating its payments to other hospital chains, in the face of the fund disclosing overpaying Tenet almost 50% more than it spent at other hospital chains.