News and Commentary

CalPERS-Blue Shield 3-Year Deal Gives Disease Management Vital Role

The argument that disease management could save the system money in the long run has often been met by the retort that HMOs do not have a real incentive to back such programs because of the way enrollees jump from plan to plan. Health Plan A's wonderful DM efforts might wind up saving money for Health Plan B down the line.

That is just one issue that may be addressed as a result of a decision by the California Public Employees' Retirement System to contract with Blue Shield of California for three years, instead of the usual one.

The deal sets margins on how much rates can increase over that period, which starts Jan. 1, 2004 (pending final approval by CalPERS).

"It won't be a three-year rate," explains Tom Epstein, a spokesman for Blue Shield of California. "It will be a rate for next year, and then the subsequent rates will be determined after we look at experience from 2004 and have the independent actuary take a look at everything again."

That independent actuary's review was a key point in netting the health plan the deal, which brings with it about 460,000 members and $1 billion in annual revenue. To land the contract, Blue Shield had to open its books to allow an independent actuary to evaluate costs and propose rates. CalPERS is expected to approve the proposal on June 18.

"CalPERS made a three-year commitment to a process," says Epstein. "We're not giving them a specific price. The process is that we're going to work together and we've agreed to an acceptable margin and depending on the costs, that will determine the rate."

The move was approved on May 13 by a panel overseeing CalPERS's retirement system, the Los Angeles Times reports, saying that the plan "could bring more predictable premium rate increases for CalPERS and its members but could also tie the pension fund's hands in some ways.... CalPERS is betting that closer relationships with select carriers will help it improve quality and cost in the long run."

Paul Markovich, Blue Shield of California's senior vice president for the CalPERS business unit, explains that a major portion of the package involves Blue Shield's commitment to increase management of patients with chronic disease with state-of-the-art prevention and disease management programs.

"The three-year time frame provides an incentive for greater investments in preventive services for all, and care management programs for members with serious or chronic health problems," says Markovich. "These programs will enable members to live more productive and comfortable lives as well as save money over the life of the contract, slowing the rate of premium increases."

CalPERS, the second-largest purchaser of health care in the country after the federal government, hopes the plan addresses some difficult issues.

"The underlying forces driving health care premiums in recent years are killing prospects for affordable health care: high cost of chronic conditions like diabetes and asthma, escalating hospital costs, and out-of-control prescription drug price hikes," says Sid Abrams, chairman of CalPERS' health benefits committee. "Even this plan is not a panacea for solving the health care crisis. But it will help our members get more for the health care dollar and bring our partners in line."

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