CalPERS leading HMO rate hikes with 25%

Analysts say U.S. businesses can expect double-digit health insurance premiums for a third year running.

By Myrle Croasdale, AMNews staff. May 6, 2002.

California's largest buyer of health insurance is announcing an average HMO rate increase of 25%, making it clear to many observers that health premiums everywhere will likely rise rapidly in 2003.

The California Public Employees' Retirement System also announced 18.9% and 22.1% increases for its two self-funded PPOs. CalPERS represents 1.2 million state employees and retirees. What happens with CalPERS often indicates what other employers will experience in the health care arena, but aspects of this year's increase may be unique to this second-largest purchaser of health care.

Most large employers may not see a rate hike the size of CalPERS', but industry watchers say escalating costs in the double digits are likely.

"This is an indication it could get worse before it gets better," said Paul Ginsburg, president of the Center for Studying Health System Change. "CalPERS was able to squeeze HMOs hard in the past because the HMOs were afraid of losing market share. Now they're at a point where there's no sense in retaining market share if they're going to lose money."

Part of CalPERS' huge rate hike can be tied to the power of the unions that make up the organization, he said. CalPERS did not trim back any of its plans' benefits to keep costs down, like it did the year prior. CalPERS raised co-pays in 2002 to limit premium increases near 6% -- an action that ignited lawsuits from the unions. [...]