Moving to cushion spiraling health care costs, one of the nation's largest pension plans yesterday said it will pass on some medical costs to 1.2 million public workers and retirees statewide.

The California Public Employees' Retirement System voted to increase co-payments on drugs and fees for some medical services because of surging health care costs.

Fees for emergency room visits were increased from $25 to $75, and co-payments for Kaiser patients, for instance, will climb from $5 to $10 for generic drugs, and from $15 to $20 for brand-name drugs.

The move came a day after CalPERS increased premiums 16.7 percent to 18.4 percent for 2004, which followed this year's 25.1 percent premium increase.

In 2002, health care costs increased an average of about 15 percent for employers, but CalPERS is experiencing larger increases because of its generous benefits packages, said Mark Smith, president of the nonprofit California Healthcare Foundation.

"CalPERS hasn't been as aggressive in passing these costs on to members as some corporations," Smith said. "The benefits it offers are fairly generous and that comes with a cost."

Faced with a proposed 31 percent increase for health care coverage through its two primary health care providers – Blue Shield of California and Kaiser Permanente – the board of CalPERS decided to increase some co-payments for drugs and medical services.

The news didn't sit well in some quarters.

Perry Kenny, president of the California State Employees Association, said the CalPERS action unfairly shifts the cost of medical care to workers. He said it cheats former state workers over the age of 65 who are promised 100 percent medical coverage from the state.

"A hundred percent is a hundred percent," Kenny said. "They shouldn't have to pay anything."

Currently, CalPERS provides health care benefits to 1,100 government agencies in the state, including police and fire departments and school and water districts.

Because of the increases in premiums, the pension plan expects that some public agencies will seek to obtain lower health care premiums through other agencies, CalPERS spokesman Clark McKinley said.

"We do expect some agencies to drop out," he said. "We don't know who or how many, but we would expect to see some defections in the days ahead."

On Tuesday, Orange County-based PacifiCare took a deliberate jab at CalPERS by announcing a new public-sector health care plan to lure agencies away from CalPERS.

PacifiCare said it was specifically targeting agencies now served by CalPERS and believes it can provide lower health care rates.

Some municipalities and public agencies in Orange, Riverside and San Bernardino counties have discussed seceding from CalPERS.

"One of the problems CalPERS has is that it has not figured out how to have tiered rate structures in the state," Smith said. "Medical costs are higher in Northern California than in Southern California and there are some agencies in Southern California who won't want to subsidize the north."

McKinley said CalPERS is aware of that discontent but has yet to find a workable solution that would allow it to regionalize health care costs.

"There is more competition in the south and that means rates are lower," he said. "There is more dominance by hospital chains in the north and that means costs are higher."

McKinley said the premium increases by CalPERS can be absorbed by the public agencies themselves, but that in light of the state's fiscal shortfall almost all of those agencies will pass on the costs to workers and retirees.

"We know it will make some people unhappy, but we had to do this," he said.

CalPERS used to hold considerable influence with health care providers in the mid-1990s and could control costs somewhat because of its size. But Smith said those days have passed.

"CalPERS used to squeeze the plans, which would squeeze the hospitals and doctors," he said. "But that's no longer the case. Everything is profit-driven now, and size doesn't matter. CalPERS, because it represents a lot of retirees, has higher health care costs . . . so its costs tend to be higher."