CalPERS HMO Rates Overly Influenced By Age

June 2, 2003 ( - The California Public Employees' Retirement System (CalPERS) HMO premiums, long considered a bellwether for health care costs across the country, may not be as representative as once thought due to a disproportionate amount of old and sick workers in its ranks.

Kaiser Permanente and Blue Shield of California, which combined insure about two-thirds of CalPERS’ members, said CalPERS members use more care and cost more per visit than the typical HMO patient. This may be due in large part to the average CalPERS Kaiser participant being 6% older than other participants and Blue Shield participant being 8% older, according to a Sacramento Bee report.

“CalPERS ceased to be a predictor of HMO rates for the nation because its members are older and sicker than the typical employee group, and because CalPERS has been unable to control its costs by increasing workers’ out-of-pocket payments as much as other companies have,” said Mark Smith, president and chief executive of the California Healthcare Foundation.

These higher ages thus lead to longer and more intensive hospital stays.Hospital costs for CalPERS members are higher because they stay hospitalized longer and require 10% more intensive services than the typical Kaiser member. Additionally, CalPERS members in the Kaiser plan are also 20% more likely to have a costly chronic disease than the typical Kaiser HMO member. Among those ailments, CalPERS Kaiser HMO participants are:

  • 23% more likely to have coronary artery disease
  • 22% more likely to have diabetes
  • 21% more likely to have depression

Blue Shield noticed similar trends in the 22 categories of chronic illness tracked, and CalPERS members have higher than average rates in every diagnosis but one: pregnancy. According to Blue Shield claims data for 2002, CalPERS members had more hospital visits, more emergency room visits, and more prescriptions than the typical Blue Shield HMO member working for a large employer in California.

“Forty percent of all costs for our treating CalPERS patients come from just 1% of CalPERS’ members that are older, sicker and more likely to be chronically ill than the average HMO patient,” said Tom Epstein, spokesman for Blue Shield of California. That sickest 1% constituted an average Blue Shield payment of $55,000 per patient case, according to Epstein.

Cost Basis

Citing industry experts, the Bee report said the 1.3-million-member pension fund is expected to absorb HMO premium increases of 30% or more for 2004, twice what other large employers anticipate. Kaiser and Blue Shield said that the age and illness of CalPERS members, along with the high cost of hospital care in the northern and rural parts of the state where many of its members live, will drive premium increases higher next year.

While CalPERS plans several initiatives to better track and treat chronic disease among its members, it may take years for the pension fund to see any savings from these efforts. In the meantime, CalPERS risks losing the public agencies that can opt in or out of its health program each year after the HMO rates are released.

This poses a problem for CalPERS, as it is most likely to lose the younger, healthier employee groups that it most needs to keep in its health program. Without those healthier members, the average age and sickness level of CalPERS members will get worse, thus creating a group even more vulnerable to steep premium increases in the future.

“CalPERS in my estimation is going to end up with the state employees, and all the public agencies who can leave, will,” said Mark Conway, an insurance broker with Driver Alliant, a San Diego-based firm that sells insurance statewide.

For example, one agency with about 1,200 members would save $2.8 million on health costs next year by leaving CalPERS. That number trends even higher if the pension fund’s HMO rates rise by more than 20%, Conway said.

Once CalPERS announces its HMO rates for next year, public agencies will have about 60 days to give notice if they plan to drop out of the health program.