Second largest health insurance purchaser increases premium payments to HMOs

Posted 4-25-97

The California Public Employees' Retirement System, the second largest purchaser of health insurance in the nation after the federal government, announced earlier this month it will pay higher premiums to HMOs for the first time in five years. The announcement is significant because CalPERS' decisions traditionally set a precedent for HMO rates across the country.

CalPERS, which covers one million active and retired state employees, will pay an average of 2.7 percent more to 11 HMOs in 1998.

CalPERS representatives consider the small increase a victory, because average monthly premiums will still be less than they were five years ago for most plans. And the rate increases are far below the 10-percent increases predicted by industry experts for many health insurance purchasers nationwide, according to Kurato Shimada, chair of the CalPERS health benefits committee.

Health insurance premiums are starting to climb again. According to a March 17 Business Week report, costs will increase for a variety of reasons. For example, about 75 percent of workers are already enrolled in managed care plans, so managed care companies are now focusing on profits rather than recruiting members. Physicians, who have had their salaries reduced by HMOs in recent years so HMOs can keep their premium rates low, are refusing further cuts. And HMOs will have to raise premiums to make up for new laws mandating benefits like two-day maternity stays that will raise their costs.

"Unfortunately, it appears that the 'easy' savings in health costs have already been squeezed out," said Henry E. Simmons, MD, president of the National Coalition on Health Care, an organization that recently published a report on how changes in healthcare spending affect consumers. "The data confirms the trend we have anticipated: that healthcare cost pressures have resumed and will continue to build."

Related Sites
California Public Employees' Retirement System
National Coalition on Health Care