Governor's Budget Plan for Health Care Benefits Raises Questions

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(Sacramento, CA)
Thursday, January 8, 2009

The California Public Employees’ Retirement System or CalPERS manages state workers’ pensions.  It also handles health insurance for more than a million state workers and retirees by negotiating with health plans for benefits. Under the governor’s proposal, the state could take over that job from CalPERS. The administration believes it can buy cheaper plans and save about $130 million.

“You don’t save $130 million and not have someone feel the pain.”
That’s Peter Lee with the non-profit Pacific Business Group on Health, which monitors health care purchasing and quality issues in California.  

“The question that needs to be asked and answered for both tax payers and for the state employees is where’s that pain coming from? Is it from lower benefits? Is it from higher cost sharing?” 
The governor is proposing that the Department of Personnel Administration negotiate with providers instead of CalPERS. DPA spokeswoman Lynelle Jolley admits they’re not sure yet what the impact will be on workers’ pocketbooks.  
“It might cost more, then again we might be able to tailor a package that gives them exactly what they need and it could cost less.” 
Jolley says the state pays billions of dollars a year for health care benefits. And, she says it gets more expensive each year.  

“It would be fool hardy for us not to try to find ways to save money on our health benefits, not to mention the costs out of pocket for our employees, their costs are going up too.” 
But, the non-partisan Legislative Analyst’s Office says it’s unclear if the change could happen in this short time frame, and if so, if it would get the estimated savings. Union groups representing state workers are even more skeptical. They say it’s an issue that should be handled at the bargaining table. Yvonne Walker is president of Service Employees International Union local 1000.  She says state workers’ health care will take another hit under the governor’s proposal.

“Maybe they did have the Cadillac plan at one time, but I’m telling you we’re in the Chrysler plan right now. If the switch happens, we’ll be in the Yugo plan, I believe.”
Walker’s not convinced the state can negotiate better deals. CalPERs has a lot of leverage because it’s the third largest health care buyer in the nation, right behind the federal government and General Motors. Walker says the governor’s office hasn’t released many details on the plan either.

“It’s kind of like buying a car, without ever actually looking at the car, but just having somebody tell you that this is going to be a better deal for you, I don’t know of any consumer that would say, ‘oh, okay, that’s wonderful.’” 
Peter Lee at the Pacific Business Group on Health points out the proposal requires a massive undertaking.

“I think a change like this would be mammoth - buying health care isn’t like buying pencils.”

CalPERS declined to comment for the story until its board can review the proposal.  Next up, the governor and the legislature will battle it out over the spending plan. But Schwarzenegger faces an especially tough fight with Democrats and labor unions over the health benefit changes he wants.