Blaming Drug Costs, CalPERS Considers 7% Hike in HMO Premiums

The California Public Employees’ Retirement System is poised to raise HMO premiums for state employees an average of 7.21 percent in 2016. The move shows that rising hospital and drug costs could mean higher premiums in the private sector, too.

The proposed HMO rate hike is up from a 3.9 percent hike in 2015. Premiums for state employees in less-restrictive preferred provider organization plans are slated to jump an average of 10.8 percent. That compares to an increase of less than 1 percent in 2015. HMO and PPO premiums for public agencies vary by region.

The Pension and Health Benefits Committee approved these increases Tuesday — and a change in Medicare HMO coverage to offer UnitedHealthcare as the only non-Kaiser alternative. This shift would decrease Medicare HMO rates for 2016 by 3.46 percent. Medicare PPOs would be unaffected, with an average rate hike of 9.22 percent in 2016.

The full board of administration will make final decisions on all premiums and changes Wednesday.

“This year’s rate-setting process has been challenging,” said Doug McKeever, chief of the health policy research division at CalPERS, at Tuesday’s committee meeting. Due to market changes, modest year-over-year increases have shifted to a sharper rise in health care costs, he said. CalPERS hospital cost trends are up about 5 percent; pharmacy costs are up 10 percent.

“Obviously, these increases played a great role in determining the 2016 proposed rates before you today,” McKeever said.

With more than 1.4 million people in its health benefits pool, CalPERS is considered a bellwether for health-care trends. The program has a slight enrollment edge on Covered California, the state health benefit exchange, which had about 1.34 million enrollees in March.

“It’s an ominous sign for health-care costs that premiums are increasing at CalPERS as much as they are,” said Sacramento health economist Albert Lowey-Ball. “It’s my hope this will not extend to premiums at Covered California.”

Lowey-Ball marveled at the market clout of a small number of powerful drug companies — and inability of health plans to curb prices or purchasers to demand them. “CalPERS should be able to limit hospital and pharmacy increases,” Lowey-Ball said. “After all, they are among the two largest health care purchasers in California.”

There was little comment from committee members Tuesday except Richard Gillihan, who is director of the California Department of Human Resources.

“While I appreciate the efforts you all made to bring options forward … we continue to be concerned about the rising cost of health care,” Gillihan said. “I would encourage us to consider other alternatives going forward to rein in the cost of what’s a very expensive program for employers and employees.”

CalPERS tries to keep increases as low as possible for members, while maintaining quality, but pharmacy prices presented a big hurdle this year, deputy executive officer Ann Boynton said in a news release. Average premiums for single individuals increased a little under $45 per month, she said.

“Pharmacy costs accounted for nearly 45 percent of the overall rate increases for both the HMO and PPO 2016 premiums,” she said in the release. Premiums are still competitive with comparable plans offered by Covered California, she added.

There are great variations in rate increases between plans, however. Kaiser Permanente HMO members are slated for a premium hike next year of 4.54 percent. Blue Shield’s basic HMO premium will rise 6.86 percent, but Blue Shield NetValue plan members will see premiums jump 13.55 percent.

A PDF has details on proposed HMO, PPO and association plan rates for 2016.

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