San Francisco health care premiums expected to drop

San Francisco Chronicle by Marisa Lagos –

July 9, 2014:

A year ago, dozens of angry city workers packed a City Hall hearing where San Francisco supervisors threatened to reject proposed 2014 health premiums for city employees, saying that Kaiser Permanente had failed to justify a 5.25 percent rate increase and that they were fed up with the provider’s lack of transparency.

On Wednesday, in nearly empty chambers, the same budget committee easily approved the city’s proposed rates for 2015 – a package that will slash Kaiser premiums by 2 percent, a rate the insurer has agreed to hold steady through 2016.

“It’s quite remarkable that you were able to negotiate these rates,” Supervisor John Avalos – who last year led the opposition to the rates – told Health Service System Director Catherine Dodd. “This is good work by the health system board and your office.”

Overall, health care premiums paid by the city and its workers will drop in 2015 by nearly 3 percent. The decline in rates, which comes as most private and public sector employers see sharp increases, is the result of a complete overhaul of the way the city approaches its insurers, Dodd said. The change has created competition that’s driven down prices, left the city with a reserve that will help subsidize rates for the coming year and created a system for the city to negotiate with its providers, she said.

“When do you hear of health rates going down?” asked Dodd, who last year put her own treatment of mantle cell lymphoma on hold to appear at the board and beg supervisors to pass the rates, while assuring them that her agency was working on longer-term solutions to skyrocketing costs.

‘Innovative’ approach

“Usually people are celebrating rates going up less than 5 percent – these are going down 2.7 percent. The reality is we have been innovative in how we are funding the premiums and we have successfully created competition between Kaiser and Blue Shield by keeping Blue Shield rates low,” she said.

Dodd, a former nurse, believes the city’s approach could be a model for both private and public employers.

One of the most significant changes has been the creation of accountable care organizations, or ACOs – partnerships between Blue Shield and medical groups and hospitals that are helping to drive down costs by making both sides more focused on patient outcomes.

Additionally, prior to the creation of those partnerships, Blue Shield took a profit pledge, promising to return any earnings above 2 percent to the city.

While those profits will likely not exist in the future – because the ACOs are keeping costs down – Dodd said the city was able to use the $8.8 million it received from the insurer in recent years to help subsidize rates in 2015.

Those subsidies will keep Blue Shield rates static next year, at $647 a month for single employees. Employees using the city’s self-funded plan will have an 18 percent drop in rates, to $1,012 per month.

Kaiser patients will see their rates fall from $565 a month to $553 for single employees. Dodd said the decline is the result of the insurer working closely with health service officials over the past year to justify their rates and a change in how the city splits its costs with employees that has resulted in more competition between Kaiser and Blue Shield.

Creating competition

In the past, she said, San Francisco gave employees with families incentives to choose Kaiser over Blue Shield because the city would pay far more of dependents’ Kaiser premiums.

“The goal was, if we can keep overall premiums close, and employers are picking up the same percentage regardless of what plan employees choose, there’s more competition between plans,” she said.

While city employees only pay a fraction of the monthly rate charged to the city – under most contracts, around 7 to 10 percent for a single person – Dodd said the savings achieved by the health system has helped the city provide other benefits to residents and workers, such as modest wage increases.

The city is also moving forward with the creation of a database, operated by an outside party, that will collect all city employee medical claims, crunch the numbers into averages and allow the Health Service System to have a better sense of what premiums should cost. That system should be online by the end of the year, Dodd said.

Once the system is online, she said, “We will be in a stronger position to go into negotiations. Our more hands-on approach makes insurers more accountable. If all employers were doing this, we would be in an even stronger position.”