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Calif. Pension Funds May Drop HMOs

December 14, 1999

LOS ANGELES (AP) _ Two of California’s largest pension funds are considering dropping the managed health care coverage for their members and contracting directly with doctors and hospitals, the Los Angeles Times reported today.

The organizations considering the action, the California State Teachers Retirement System and the California Public Employees’ Retirement System, together represent about 1.5 million people.

Supporters of such a move say it would likely give employers better control of premium costs and make it easier for them to monitor services.

The teacher fund, with about 500,000 members, said it wants to be able to implement a pilot program as early as January, when its board is expected to vote on the matter.

CalPERS, the second largest health insurance buyer behind the federal government, is monitoring the teachers fund’s activities and contemplating similar action, the Times said. However, its own effort is still in its infancy.

Success would in part require a solid network of doctors and hospitals willing to take part in the contracting plan.

``We have to look at how we can shift the marketplace. And with direct contracting, we can provide services in a more economical fashion,″ said state Treasurer Phil Angelides, a board member at both pension funds and chairs the health benefits committee of CalPERS.

The direct contracting effort also would have to win the support of Gov. Gray Davis, who last week vowed not to hurt California’s HMOs when reforming managed care.

The president of the California Association of Health Plans said the plan is bound to fail because it would be too difficult for physicians to take on the administrative tasks associated with running a managed care plan.

``Sometimes physicians think we can do all of those things _ until they try to do them,″ said Walter Zelman, president and chief executive of the Sacramento-based trade organization.

Such contracting has been successful in smaller markets.

In Minnesota, the Buyers Health Care Action Group reported health care costs dropped by 11 percent once it began paying health care suppliers directly to care for its 150,000 members.

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