Two heavyweights of West Coast healthcare-the California Public Employees' Retirement System and Kaiser Permanente-have commenced a battle of wills over premiums that's expected to be closely watched by the rest of the managed-care industry.
Sacramento-based CalPERS last week rejected a plan from Oakland, Calif.-based Kaiser to raise premiums for enrollees 12% in 1999, calling it excessive. Kaiser, which posted a $270 million loss in 1997, said its pricing had been too low.
It already announced an 11% hike in 1998 for much of its small group business and said it would levy similar increases for its large group business next year.
"We are extremely disappointed that Kaiser gave CalPERS, public employees and taxpayers a unilateral demand for $54.6 million more for next year, when it is Kaiser's management which bears the responsibility for the company's loss," said William Crist, president of the CalPERS board.
CalPERS granted an average premium increase of 5% for its nine other HMOs and believes a similar increase for Kaiser is in line. The contracts take effect Jan. 1, 1999.
Crist added he would seek an immediate meeting with Kaiser's board of directors, but a date had yet to be set. He threatened to block further enrollments in Kaiser's plan if it would not negotiate. Kaiser insures 340,000 CalPERS enrollees, or about 34% of CalPERS' 1 million enrollees.
Kaiser officials said they were disappointed in CalPERS' reaction.
"We don't believe the decision is in their best long-term interest. Our rate was not arbitrarily set; it was calculated for costs and (is) still very affordable compared to other plans," said Kaiser spokeswoman Kathleen Barco.
If the Kaiser rates went into effect, premiums for individual coverage would be the eighth-lowest among 20 HMO, PPO and indemnity plans offered to California state and local government employees.
Barco said Kaiser would talk to CalPERS officials but said future meetings would not be for the sake of negotiations. Observers said they expected Kaiser to back down on its initial 12% demand, but expect the offer won't satisfy CalPERS.
"Kaiser has to be concerned about a precedent they would set by backing off too much," said Ed Susank, principal with New York benefits consulting form William M. Mercer. "I don't believe Kaiser would agree to a 5% increase, but I do believe they would come down from 12%, perhaps to 9%."
Susank believes Kaiser would be hard-pressed to demand double-digit hikes from other large employer groups if it gave too much ground to CalPERS.
"It looks to us like Kaiser has drawn a line in the sand," said David Olson, vice president of investor relations at Woodland Hills, Calif.-based Foundation Health Systems, a Kaiser competitor whose Health Net subsidiary was granted and accepted a 5.9% increase from CalPERS.