CalPERS Green Lights New Health Program

May 15, 2003 ( -The California Public Employees' Retirement System (CalPERS) approved a new health insurance plan aimed at cutting costs, improving treatment and adding patient choice.

The move by CalPERS, the largest US pension fund, which administers benefits on behalf of California public employees, is sure to be closely watched by employers around the country. They, like CalPERS, are struggling to cope with spiraling health costs without robbing their employees of needed medical coverage. The CalPERS pension fund is the third largest purchaser of employee health benefits after the federal government and General Motors Corp.

According to a Reuters news report, CalPERS officials said a key element of the plan was to provide better price stability by establishing longer term contracts with partners. To that end, it said it plans to put in place new multiyear HMO contracts with Blue Shield shortly.

The new plan also requires that HMOs give network doctors and hospitals incentives to follow treatment practices that are clinically proven to be effective. In addition, it provides for the formation of a coalition with other large health care purchasers to share information and collaborate in an effort to gain more negotiating clout in the marketplace.

“The underlying forces driving health care premiums in recent years are killing prospects for affordable health care: high cost of chronic conditions like diabetes and asthma, escalating hospital costs, and out of control prescription drug price hikes,” Sid Abrams, chairman of CalPERS’ Health Benefits Committee, said, according to Reuters. “Even this plan is not a panacea for solving the health care crisis. But it will help our members get more for the health care dollar and bring our partners in line.”

Also as part of the new health benefits program, the CalPERS’ Board voted to push for legislation that would give it authority to set up a regional pricing plan and alternative benefit designs for local public agencies and schools. The move effectively gives CalPERS the option to pursue such strategies in the future.

CalPERS said it was interested in regional pricing because it believed some public agencies were leaving CalPERS in favor of less expensive plans. Without regional pricing, it said, more public agencies probably will leave CalPERS, causing further cost increases to all the remaining agencies.