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Staggering increases in public health care costs in 2003

Members of the nation's second-largest purchaser of public employee health insurance will pay much more for their coverage in 2003.

The California Public Employees' Retirement System (CalPERS) approved a 25 percent increase in health insurance premiums for 2003.

“There has to be a turn in the national debate on health care.”

The news isn’t much better for the rest of us. According to Susan Pisano, vice president of communications for the American Association of Health Plans (AAHP), the rest of the country will see rates go up as well.

"Right now the question of health care is very big in the minds of Americans," says Pisano. "There has to be a turn in the national debate on health care, because the questions now are ones of access and security. We have to be serious in deciding what we are willing to pay for, such as new technology, and what we aren't, like the recent litigation binge we've seen."

Pisano says rising health care costs are driven by numerous factors, such as increased hospital costs, doctors' fees, and prescription drug prices. They are also affected, she says, by things such as chronic conditions and an aging population.  Pisano is quick to point out lawsuits and huge jury awards in the medical field have fueled the increase in health care costs.

CalPERS warns out-of-pocket expenses for some members will rise by as much as 50 percent. CalPERS implemented a tiered-pricing prescription drug plan and in 2001 increased office visit co-pays from $5 to $10 to try to offset increases, but it wasn't enough.

"This is the toughest market environment we've ever faced," says Rob Feckner, chairman of CalPERS health benefits committee. "The HMOs gave little ground in rate negotiations, and left us no room to maneuver in our pursuit of maintaining current benefit design and continuity of care and service area." Unlike recent years, Feckner says HMOs are focused on reaching their target profit margins and aren't as worried about holding on to enrollees.

More lawsuits and higher hospital costs have forced insurers to focus on meeting target profit margins instead of retaining customer bases.

Pisano says CalPERS is unique, so there's no guarantee rates will go up nationally on the same scale. Even so, Pisano says consumers should expect to contribute more to their employer-sponsored health insurance plans. Consumers could also face higher co-pays or a decrease in benefits.

Changing approaches

CalPERS might be setting the stage for another change, this one in strategy. The organization is dropping two of the four major HMOs it has offered to members in the past. Dr. William D. Crist, president of CalPERS’ board of administration, says because of significant overlap in doctors and hospitals covered by HMOs, it made sense to reduce the number of plans.

CalPERS now offers insurance through two major HMOs and three regional plans. Expected savings from the change is estimated at $77.2 million. CalPERS claims at least 90 percent of those changing plans will be able to stay with the same doctor.

CalPERS also increased premiums for its two preferred provider organizations (PPOs) for 2003 by 18.9 percent and 22.1 percent. Because these plans are self-insured, CalPERS periodically adjusts rates to make sure they have enough reserves to cover three to four months of administrative fees and claims.

CalPERS is assessing other potential models for health plans. A new program could involve two or three fully insured health vendors or one self-funded plan operating with one or more third-party administrators.

"In our opinion," says Crist, "neither free market economic forces nor current public policies offer any hope for relief from accelerating prices in the foreseeable future." CalPERS joined the National Coalition on Health Care (NCHC), adding its voice to those calling for dramatic reform of the health care system.

"Employment based coverage and the way our nation has chosen to provide health care to its citizens is imperiled," says Allen Feezor, CalPERS health benefits administrator. "We are saying to our enrollees and our employers that their sound coverage and good value will continue. But to our health plan providers and plans, we are saying that it's no longer enough to leverage prices, and to national policymakers that it's time for a larger public policy debate — immediately."

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