Sacramento -- Members of the California Public Employees' Retirement System will likely face HMO premium increases of nearly 17 percent as well as higher drug co- payments and emergency room fees in 2004 under a plan approved Tuesday by the pension fund's health committee.

"It is certainly a perfect storm. Probably more than ever before we have a health care system that is on life support," said committee member Sean Harrigan.

Under the plan, which goes to the CalPERS board today, members may have to pay some of the 16.68 percent premium increases out of their pockets because of the state budget crisis. The exact amount depends on individual union contracts.

The increases were not welcomed by the California State Employees Association, CalPERS' largest union.

"We do not believe the cost of care to our members has gone up 43 percent over the last 24 months," said Barbara LaPlante, president of CSEA's retired division, to the committee, which met in Sacramento. She said she was concerned about the members' ability to afford the cost increases.

Under the proposed plan, ER co-payments would increase from as low as $25 to $75 for all plans. Drug co-payments for Kaiser patients would go from $5 to $10 for generics and from $15 to $20 for brand-name drugs. Co-payments for other plans will increase from about $30 to $45 for the more expensive drugs.

Blue Shield's rates would increase 17.08 percent and Kaiser would go up 16. 06 percent. Western Health Advantage, CalPERS' smaller regional plan, would increase by 32.85 percent. CalPERS officials say the rates are considerably lower than the 31 percent increase the HMOs initially proposed.

The weighted average Medicare HMO rates would increase 23.39 percent.

Several committee members said they expect the increases to prompt some cities, counties and other public agencies, especially those in Southern California where health care costs are lower, to pull out of CalPERS in favor of lower-cost private insurance plans.

"The hope is we're not going to lose many agencies. I hope the agencies will realize there are other advantages to being part of CalPERS," said the committee's chairman, Sidney Abrams.

While the 2004 rate increases are not as high as the whopping 25.1 percent increase for this year, they are still high and mark a change for CalPERS, which was considered the 800-pound gorilla in employee health-benefit purchasers. With 1.2 million members, it is the third-largest buyer of employee health benefits in the country.

But some health experts say CalPERS' power is diminishing.

"CalPERS has not taken the steps most employers have taken to shift costs to their employees," said Dr. Mark Smith, president of the California Healthcare Foundation, a nonprofit health research group based in Oakland.

Smith described CalPERS' increases, such as the ER fee and drug co-payment increases, as "relatively modest." Other employers have shifted more costs to employees through such methods as charging workers more for picking more expensive hospitals and imposing higher co-payments.

The CalPERS committee did reject some additional cost-shifting measures, which included a $250 fee for hospitalization and a $100 outpatient surgery co- payment. Those measures, plus the ER fee and drug changes, would have dropped the average weighted increase for HMOs from 18.4 percent to 14.6 percent.

The committee also opted not to consider charging Northern Californian public agencies proportionately higher rates than Southern California agencies,

at least for now. It is more expensive to insure members in the north, primarily because of hospital consolidations, as opposed to Southern California.

While most committee members reluctantly supported the increases as necessary, member Charles Valdes described them as obscene and "not justified in the least." He said too many of the insurers are simply caving in to what the hospital and physician groups are demanding.

Peter Lee, head of the Pacific Business Group on Health, a large employer purchasing group, called CalPERS' increases "unsustainable over the long term."

"This is a yellow flag of caution that the trends we've seen over the last few years aren't abating," he said of the increases. "When PERS is still looking at the high teens, you know there's not much relief other purchasers can see."

He did praise CalPERS for recently adopting a strategic plan that supports tiered rates for hospitals, a narrower choice of health care providers and measures that would help employees make choices based on the quality of care.