CalPERS Proposes 11.4% HMO Increase

June 16, 2004 ( - The nation's largest pension fund is set to vote on a proposed HMO rate hike of 11.4% for 2005.

The California Public Employees’ Retirement System’s (CalPERS) h ealth committee recommended the rate increase Tuesday as part of the fund’s annual contract negotiations with its not-for-profit HMO plans: Blue Shield of California, Kaiser Permanente and Western Health Advantage, according to news reports.

Overall, the suggested rates would bring the cost of the total health program to just over $4 billion, an increase of about 7.3% from nearly $3.8 billion in 2004, according to news reports. By HMO, the proposed rates translate into rate hikes of:

  • Blue Shield – 12.6%
  • Kaiser – 9.9%
  • Western Health Advantage – 15.0%.

The decision for 2005’s proposed rate hike differs from previous years in a number of ways. New to next year’s deal is the decision by CalPERS to drop 38 hospitals from its offerings in an effort to save money. While the list of the proposed hospital jettisons is still under consideration, the decision could force as many as 53,000 beneficiaries to find new doctors. Additionally, CalPERS plans to break the state into four regions and charge contracting agencies in Northern California more than those in Southern California.

Leading Indicator

With $162 billion in assets, the California Public Employees’ Retirement System (CalPERS) is often seen as a bellwether for health insurance trends.The public pension fund, which is the nation’s third-largest buyer of health care behind the federal government and General Motors, is closely watched by other U.S. employers, who have also struggled with soaring health-care costs over the past few years, watch its annual contract negotiations closely.

However, a report last year suggested that the giant pension fund’s experiences might not be as illustrative of developing national trends as once thought. Kaiser Permanente and Blue Shield of California, which combined insure about two-thirds of CalPERS’ members, said in the study that 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 (See CalPERS HMO Rates Overly Influenced By Age ).

Nationally representative or not, the proposed increases would be less than the 25%-rate hike that CalPERS approved for 2003 and the 18.4% in 2004 (See CalPERS 2004 Health Coverage Price Hike Proposed at 18.4% ).