As part of a plan to hold down health-care costs for state workers, CalPERS is expected today to approve higher premium increases for city, county and school workers in Northern California.
All 1.3 million workers insured by the California Public Employees' Retirement System will see double-digit increases in premiums in 2004. But the local workers in Northern California will see the biggest increase.

Because hospital costs and insurance premiums in Northern California are higher than in the south state, CalPERS wants to charge local agencies insurance premiums that reflect the cost of coverage in their region. The California State Employees Association, the largest state workers union in CalPERS, has resisted all attempts to charge state employees premiums that differ by region.

Though many local government officials in Sacramento and throughout Northern California oppose CalPERS' plan to raise their premiums, pension fund officials said they could not afford to lose the younger, healthier Southern California members threatening to leave CalPERS over escalating costs.

In the Sacramento region, roughly 40,000 local government workers could see their medical costs rise dramatically in order to minimize premium hikes for about 190,000 state employees and retirees who also live here.

After heated debate that spilled over two days of meetings in Sacramento, the measure to set different premiums for local government workers in the north state and south state was approved Tuesday by the CalPERS health committee. It goes to a vote today before the full CalPERS board, which in recent years has adopted most health committee recommendations.

Though local government officials understood the need for CalPERS to curb skyrocketing health costs, many questioned the fairness of its new plan.

"It comes down to how we go to our employees and tell them we have to take away a benefit they have come to expect when they know that other government workers in their community will not be seeing the same level of pain," said Joanne Narlock, human resources director for the city of Lodi.

Local government workers will not know the magnitude of their increased out-of-pocket medical costs until June -- the earliest CalPERS might approve its HMO rates for 2004.

Stacey Haney, human resources director for the city of Roseville, had tears in her eyes just imagining the effects.

"We already have so many city employees who took zero salary increases this year and are already spending several hundred dollars of their own money on health care each month," Haney said. "This is not business as usual for us, and it's going to be devastating for a lot of people."

The vote comes as CalPERS, the second-largest purchaser of health benefits behind the federal government, finds it can no longer command lower rates from HMOs based on its size alone.

Faced with escalating hospital costs in Northern California that have driven insurance premiums far higher here than in the south state, CalPERS finds it needs to overhaul its health program to reassert its muscle in the marketplace, said CalPERS health benefits administrator Allen Feezor.

"It's time to let the HMOs and the hospitals we do business with know we're serious about getting good quality, safety and value for our money," Feezor said.

Given the great disparity in costs between Northern and Southern California -- as much as 500 percent for some medical procedures -- Feezor said the pension fund had little choice but to embrace major changes that have been resisted in the past by many unions representing CalPERS members.

"We need to move to pricing for our members that reflects regional variation in the costs of health care if we want to continue to provide value to all our members over the long term."

Local government officials in Southern California have threatened to leave CalPERS' health program next year if the premium changes do not take effect.

In addition, the California State Employees Union has criticized pension fund trustees for attempting to pass more out-of-pocket health costs to state workers in the coming years.

Among other things, Cal-PERS is mulling multitiered hospital fees in 2004 for its members enrolled in Blue Shield next year, a move that would tie fees for hospital care to the price and quality of treatment at individual hospitals.

By 2005, CalPERS might scale back the network of hospitals its members can use in order to further trim premium increases.

After sharp criticism from CSEA and other unions, Cal-PERS postponed its vote on tiered hospitals to next month.

"Overall, all we see is more attempts to pile more medical costs on our workers," said CSEA President Perry Kenny.

The CSEA has blocked past attempts by CalPERS to charge state workers different premiums based on the cost of insurance where they live.

Public agencies, which account for about 40 percent of CalPERS members, do not have the clout of a statewide union to represent their interests.

Following a record average premium increase of 25 percent last year, CalPERS faces the prospect of its health costs spiraling further out of control unless the pension fund makes major changes to its benefits.