NU Online News Service, April 17, 10:49 a.m. – The Health Benefits Committee at the California Public Employees’ Retirement System, says it had a terrible time putting together a decent health benefits package for 2003.

CalPERS provides major medical coverage and Medicare supplement coverage for 1.2 million public employees, dependents and retirees. It has long been famous for offering members rich benefits and long menus of coverage choices at a reasonable cost.

But the committee is now recommending that CalPERS hold down cost increases by reducing the number of health maintenance organizations to five in 2003, from seven this year.

Even with the cuts in coverage options, the average HMO rate increase will still be 25%, the CalPERS health committee warns.

Rates for the two self-insured preferred provider plans will go up 22% and 19%, the committee says.

The CalPERS Board of Administration will consider the health committee’s recommendations today.

The CalPERS health committee says managed care companies seemed far more intent this year on reaching target profit margins than on keeping CalPERS members.

“This is the toughest market environment we’ve ever faced,” Rob Feckner, chair of the health committee, says in a statement accompanying the announcement of the rate increases. “The HMOs gave little ground in rate negotiations.”

Some companies told CalPERS they had no choice but to demand higher rates because they had been losing money on CalPERS members, the committee says.

About three-quarters of CalPERS members buy HMO coverage.

The total cost for the HMO coverage will probably increase to $2.4 billion, or about $2,700 per member, in 2003, up from $1.8 billion, or about $2,000 per member, this year, the CalPERS health committee says.

Eliminating two of the HMOs, Health Net Inc., Woodland Hills, Calif., and PacifiCare Health Systems Inc., Santa Ana, Calif., would force 350,000 members to switch health plans and 35,000 to change doctors, but it would save about $77 million, the committee says.

Despite the rate increase, there would be no changes in benefits, service areas or co-payments for office visits and prescription drugs, the committee says.

The HMOs still available would include plans provided by Blue Shield of California, San Francisco; Kaiser Permanente, Oakland, Calif.; Health Plan of the Redwoods, Santa Rosa, Calif.; Universal Care Inc., Long Beach, Calif.; and Western Health Advantage, Sacramento.

Blue Shield and Kaiser are big, statewide companies, but the other three are regional plans, and the CalPERS health committee notes that use of Universal Care is “contingent upon approval by the state Department of Managed Care for its financial reserves.”

CalPERS is looking into the possibility of completely revamping its health coverage program in 2004.