The California Public Employees' Retirement System, long considered a bellwether for healthcare trends, announced an average premium increase of 9.9% for 2005, its smallest increase in three years. The slowdown is a result of the pension fund's hardball tactics -- a controversial decision to drop 38 higher-cost hospitals from its statewide HMO network and a move to regional pricing. According to confidential documents obtained by the Sacramento Bee, many of the hospitals dropped were also rated among the highest in quality. In Sacramento, for example, four Sutter Health hospitals with the highest quality ratings on a quality-cost comparison conducted by Blue Shield of California were dropped in favor of alternatives that received lower quality scores.
CalPERS said its HMO rates will rise an average of 11.4% in 2005, compared with 18% this year and 26% in 2003. PPO rates will climb an average of 6.4%, compared with 13.2% this year and 20% in 2003. The total cost of the 1.2 million-beneficiary health program will rise 7.3% to just more than $4 billion. "This has been a hard negotiating year, but we have created fairness in our rates," Sid Abrams, chairman of CalPERS' health benefits committee, said in a news release. The pension fund has been under increasing pressure to justify its decision to limit its network because the move will require 53,000 beneficiaries to change providers or purchase more expensive insurance. -- by Laura B. Benko