CalPERS Wins Cuts in Health Insurance Costs : Health: Private employers may be prompted to seek similar rollbacks, and care providers could reduce their rates.

In another display of clout that is likely to accelerate cost cutting throughout the state’s health care system, the huge California Public Employees Retirement System said Wednesday that it has negotiated a 1.1% decrease in the cost of health insurance for 920,000 Californians.

CalPERS, which negotiates health care on behalf of 910 public employers, has been cited by President Clinton and others as a national model for health care reform. Because of its vast size and reputation as an innovator, its actions are closely followed in the industry.

In California, observers said CalPERS’ rate rollback will have a significant ripple effect. It is likely to force hospitals, doctors and other health care providers to reduce their rates, and it could prompt large private employers to seek similar cuts in health premiums for their workers.

“You might see things happening with the Rockwells and Pacific Bells,” said Tom Mabie, manager of government markets for Blue Shield of California.

The reductions, which go into effect Aug. 1, mark the first time the giant public employee pension fund has achieved a rate rollback. CalPERS has limited premium increases to 6.4% cumulatively over the past three years, contrasted with an average increase in health care costs of 30.1% nationally during that period.

The successful reduction comes without any benefit changes and without increases in co-payments to members, CalPERS said. Faced with the threat of losing access to a significant source of patients, the two dozen health plans aligned with CalPERS found ways to cut costs in administration, executive salaries and the actual delivery of care, the fund said.

CalPERS’ announcement comes amid a national debate on how best to cope with rising health care costs. Congress is considering various proposals, including President Clinton’s plan for a national health system.

The rollback “says to other employer purchasing coalitions that you can do this on a regional or even a metropolitan basis,” said Peter Boland, a Berkeley health care consultant. “It sets a precedent that if you are organized and you represent a significant number of patients, you can drive down the price.”

Boland said the CalPERS action also puts more pressure on physicians and hospitals to reduce their fees, because some insurers may try to recoup lost revenue in a process known in the industry as cost shifting. In such shifting, hospitals and other providers that are inadequately reimbursed for their costs raise their prices to other payers.

Critics of CalPERS have said the health care savings it boasts about are illusory. Suppliers simply pass on those costs to others, they contend.

Used to that criticism, CalPERS said in a statement accompanying its rate reduction announcement that it “does not believe that cost shifting or price shifting is occurring to any great degree.”

CalPERS said the reduction it negotiated with 24 health plans constrasts with a projected national increase of 8% this year.

CalPERS said in October that it would seek a 5% rollback in rates, but most observers viewed that as a starting point for negotiations.

“We are not only interested in price,” said Tom Elkin, chief of the CalPERS Health program. “As we press for affordable care, we must also assure our members that access and quality will not be sacrificed.”

CalPERS is a quasi-public organization whose main purpose is running a giant pension fund for government workers.