CalPERS hike sets off alarm

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When the nation's second largest purchaser of health care gets socked with a big rate hike, lots of people pay the price.

CalPERS' governing board approved an average 9.5 percent increase in premiums Wednesday, a move that will hurt taxpayers and public employees statewide. Given CalPERS' size and influence, it could affect health care premiums in the private sector, too.

The new rates will cost the average CalPERS member an extra $30 a month starting in January. State and local agencies will pay millions more, too.

"That is a lot," said Paul Ginsburg, who runs a health care think tank in Washington, reacting to CalPERS' announcement.

Wednesday's decision follows a period of relative calm. CalPERS raised premiums just 4.1 percent last year, although that was held down artificially by a federal government subsidy.

Now, with rising medical costs driving up insurance rates for practically everyone, even a powerful group like the California Public Employees' Retirement System is struggling for an antidote.

"There was an expectation that CalPERS' costs, which had moderated over the past few years, would continue (to rise slowly). But I'm not too surprised, given what's going on," said Henry Loubert, chief strategy officer at Keenan and Associates, a big health insurance broker in Torrance.

Besides the 1.3 million public employees and retirees who use CalPERS coverage, the impact will be felt by government agencies, which pick up most of the tab. Those costs are ultimately shouldered by taxpayers.

"The damage it causes to our budget is significant," said Robert Bendorf, the Yuba County administrator. The county had budgeted just a 5 percent increase.

CalPERS' rate hike comes at a particularly chaotic time in health care. On Wednesday alone, 4,000 nurses staged a one-day strike at Sutter Health hospitals in the Bay Area, and a consumer group in Santa Monica announced a lawsuit against Blue Shield of California over its treatment of policyholders.

Hanging over the entire industry is the uncertain future of President Barack Obama's blueprint for overhauling the system, the Affordable Care Act. The law awaits a verdict on its constitutionality from the U.S. Supreme Court.

Meanwhile, premium hikes continue without pause.

Insurers say they're merely passing along to their customers the impact of higher hospital bills, doctors' fees and pharmaceutical prices.

"Health care premiums reflect underlying costs," said Patrick Johnston, president of the California Association of Health Plans.

For their part, medical providers say they're powerless to put a lid on expenses. Hospitals are getting clobbered by labor costs, state-mandated seismic retrofits and chronic underpayments from Medicare and Medi-Cal, said Jan Emerson-Shea of the California Hospital Association.

The underfunding of Medicare and Medi-Cal is costing California hospitals billions, forcing others to shoulder more of the burden, she said.

It shifts costs "to large purchasers like us," said CalPERS board member Howard Schwartz.

Still, CalPERS' rate hike was surprising to some experts. In general, health care costs are going up around 6 percent to 7 percent a year, said Ginsburg, president of the Center for Studying Health System Change.

The increase is bigger at CalPERS partly because the fund kept premiums artificially low in past years, thanks to a $200 million subsidy from the federal government for early retirees' coverage.

The subsidy, part of the Affordable Care Act, has run out. So CalPERS' premiums will rise more quickly in 2013 than the national average.

"We booked all of these savings last year, and it caused a 'snapback' this year," said Priya Mathur, chairwoman of CalPERS' pension and health benefits committee.

Experts said CalPERS is affected by its comparatively older member base, which drives up usage of health services.

"CalPERS is often touted ... as having a lot of market power. But at the same time it has a population that's a little older and a little sicker than the general population," said Anthony Wright of the Sacramento advocacy group Health Access California. "It's not young kids."

The news wasn't all bad for CalPERS. The increase was supposed to be 9.6 percent. But some last-minute negotiating led to a slightly lower increase in one of its Blue Shield plans, bringing the overall jump to 9.5 percent.

The pension fund said it has saved millions over the years by excluding costly hospitals and tweaking its plans. It's about to look into converting its HMOs to self-funded plans, which would save on administrative costs, said Ann Boynton, deputy executive officer.


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