State of California

  M E M O R A N D U M

  REFERENCE CODE:
  2001-019

  DATE:
  May 17, 2001

  TO:
  Employee Benefit Officers
  Employee Relations Officers
  Personnel Officers

  FROM:
  Department of Personnel Administration
  Labor Relations Division

  SUBJECT:
  Health Premium Update

  CONTACT:
  Wayne Heine, Assistant Chief, Labor Relations Division
  (916) 324-0476, CALNET 454-0476
  FAX: (916) 322-0765
   
  Email: WayneHeine@dpa.ca.gov


  The California Public Employees' Retirement System 
  (CalPERS) Board recently approved new premium rates for the 
  2002 health plans.  The Department of Personnel 
  Administration (DPA) is providing this summary of CalPERS' 
  actions to assist you in responding to possible employee 
  inquiries about the changes.
  
  We also want to update you on the status of this year's 
  health premiums.  Although DPA and the unions negotiated an 
  increase in the employer health contribution effective 
  January 1, 2001, that agreement expires June 30, 2001.
  
  2002 Health Premiums
  
  The HMO premiums approved by the CalPERS Board for 2002 
  will increase an average of 6 percent over current rates.  
  (For comparison, the average HMO premium rose 9.2 percent 
  in 2001.)  Rates for the self-funded plans (Basic option) 
  will increase 16.4 percent for PERS Choice and 24.4 percent 
  for PERS Care.
  
  The 6 percent HMO increase represents considerable savings 
  over the 23 percent average rate hike the HMO plans 
  initially proposed and the Board rejected.  When the 
  initial bids were rejected, the CalPERS Board requested 
  that the HMOs submit new bids that included a lower-cost 
  alternative using new copay levels.  The Board also 
  announced that it would accept only the seven best bids, 
  reducing the number of HMOs in the CalPERS health plan from 
  the current ten.
  
  The revised bids offered a choice between higher monthly 
  premiums with the current copay levels, or lower monthly 
  premiums with new copay levels, in some cases higher 
  copays.  Although raising copays was a difficult decision, 
  in the end it was the option the Board adopted.  Changing 
  the copay design, combined with the decision to reduce the 
  number of HMO plans, saves employees and the State $308 
  million.  That is the difference in cost between the 
  initial 23 percent average rate increase and the 6 percent 
  increase that was adopted.  A large portion of the savings 
  is related to the copay change.
  
  The new copay design will enable plan members to save money 
  by opting for generic over brand-name drugs, and by 
  ordering prescriptions through the mail rather than at 
  retail pharmacies.  Effective January 1, 2002, copays for a 
  30-day supply of a prescription purchased at a retail 
  pharmacy will cost members $5 for generic, $15 for brand 
  name, and $30 for non-formulary drugs.  For a 90-day supply 
  purchased by mail, the copay will be $10 for generic, $25 
  for brand name, and $45 for non-formulary drugs.  To 
  minimize the impact on high utilizers, copays for 
  prescriptions purchased through the mail will be capped at 
  $1,000/year.  For office visits, copays will rise from $5 
  to $10.
  
  The reduction in the number of HMO plans will require some 
  state employees to switch plans during the Fall 2001 open 
  enrollment period: Lifeguard, Aetna, and Cigna will no 
  longer be offered in 2002.  However, one new plan will be 
  added: Western Health Advantage.
  
  In addition, the Board announced this week that MaxiCare 
  has withdrawn its 2002 bid and will not be an available 
  option for CalPERS members in 2002, so enrollees in this 
  HMO also will need to switch plans during open enrollment.
  
  The State's contribution for employees' health premiums in 
  2002 will be negotiated through the collective bargaining 
  process now underway concerning successor agreements to the 
  1999-2001 labor contracts, which expire at the end of 
  June/beginning of July 2001.
  
  2001 Health Premiums
  
  As explained in PML 2001-010, the State agreed earlier this 
  year to pick up 50 percent of the average 9.2 percent 
  increase in HMO rates effective January 1, 2001, and 
  provide that same dollar increase to employees in higher 
  cost PPO plans (PERS Care and PERS Choice).  This 
  additional employer contribution expires at the end of June 
  2001.  Successor agreements to the 1999-2001 collective 
  bargaining agreements will dictate future employer 
  contributions.
  
  If successor agreements are not in place by that time, the 
  employer health contribution will revert to the rates 
  included in the 1999-2001 labor agreements (for excluded as 
  well as rank-and-file employees) until the new agreements 
  are reached and an appropriation is approved.
  
  Employees in Units 1, 3, 4, 11, 14, 15, 17, 20, and 21 are 
  covered by a separate agreement providing the same 
  additional employer contribution for the same time period 
  (January 1 through June 30, 2001).  However, that agreement 
  is awaiting legislative approval. Depending on when that 
  agreement is implemented, employees in these units 
  potentially will receive their additional monthly 
  contribution in a retroactive payment after June 30.  
  Details will be provided in a future PML.
  
  
  
  Wayne Heine
  Assistant Chief, Labor Relations Division