CalPERS Rejects Co-Pay Increase

The pension fund and taxpayers are likely to absorb most of the rising health costs instead.

By Marc Lifsher
Times Staff Writer

June 21, 2006

SACRAMENTO — A California Public Employees' Retirement System committee on Tuesday rejected a proposal to increase healthcare co-payments for more than one million members.

Facing solid opposition from powerful public employee unions, the CalPERS health benefits committee turned down all staff proposals to hike co-payments for visits to doctors, emergency rooms, outpatient surgical centers and hospital stays. Under one proposal, co-pays would have risen to $15 from $10 for doctor visits and to $75 from $50 for emergency room visits.

The committee said more study is needed about how to pressure providers to lower prices.

The decision against increasing co-payments shows how CalPERS, the nation's largest public pension fund, is subject to far greater political and union pressures than many private sector employers that have been more aggressive in forcing workers to pay a higher proportion of rising health benefit costs.

If the decision is endorsed today by the full CalPERS board, as expected, CalPERS and state taxpayers will have to absorb double-digit hikes in premiums in 2007 for public employees' health insurance.

The decision means that CalPERS will pay at least $55 million more for healthcare coverage next year. As a result, the CalPERS committee was forced to approve rate increases of 11.6% for health maintenance organization participants and 12.9% for members who opt for preferred provider networks.

Most of the increase -- 80% in the case of state workers -- will be picked up by state and local government employers and ultimately taxpayers, based on collective bargaining agreements between state and public employee unions. The rest is paid by employees through higher payroll deductions.

In recent years, the CalPERS board has used its volume-buying clout to minimize premium increases. The pension fund has had more success controlling costs than many private sector employers, some of which have been forced to eliminate health coverage or switch to high-deductible, so-called bare-bones coverage.

"The co-pays are take-aways of benefits, a shifting of the costs from employers to members," said CalPERS board member Robert F. Carlson. "We're putting pain in their pocketbooks, besides the illnesses they already have."

Carlson, a former board president and retired state Department of Transportation lawyer, said CalPERS should refrain from creating roadblocks that might keep members, especially low-income retirees, from getting healthcare. Instead, CalPERS should use its market power to pressure insurers, hospitals and other providers to boost efficiencies and reduce rates.

CalPERS already has moved to prune especially high-cost hospitals from its networks and to seek providers with proven track records for quality care and reasonable prices, said Paul Markovich, Blue Shield of California's senior vice president for large-group business. The San Francisco-based nonprofit health plan, which covers about 385,000 CalPERS members, won a $4.5 billion, three-year contract renewal from the CalPERS health benefits committee Tuesday.

The committee also authorized the creation of a preferred provider plan that could keep premium hikes to less than half those of two existing plans by limiting the number of doctors in its network.