After its first two proposals were rejected, Cigna HealthCare of California is scrambling to put together a new bid to be one of the managed health care plan for the giant California Public Employees Retirement System (Calpers).

Cigna was one of the big losers last month when Calpers flexed its economic muscle and demanded that its HMOs lower their proposed premiums for fiscal 2002.

Cigna's Glendale-based subsidiary was one of just three existing Calpers health maintenance organizations along with Aetna and Lifeguard that were dropped in a second round of bidding intended to cut premium costs.

But now the company may ask the Calpers board to consider a third bid, noting that Woodland Hills-based Health Net Inc. was given an opportunity to adjust its second bid last month.

"We are saying we are part of the solution. We are a low-cost provider," said Jim Harris, a Cigna spokesman. "We are saying we would like to negotiate with them."

Calpers, whose $1.65 billion health benefits business is second only to that of the federal government, asked its 10 current HMOs to rebid for new contracts in February after initial bids for the upcoming fiscal year came in with premium hikes averaging 25 percent.

Calpers put some bite in its bark but announcing it would only accept the seven best bids in the second round and it worked, though Calpers ended up adding an eighth to the mix. The bids came in $143 million lower, dropping the premium increases to an average of 15 to 18 percent.

Blue Shield, Health Plan of the Redwoods, Kaiser Permanente, Maxicare, PacifiCare, Universal Care and Western Health Advantage (an HMO new to Calpers) made it through the process. They are now in negotiations for final contracts, which are expected to be adopted by the fund's board this month.

Also in negotiations is Health Net, which resubmitted its second bid. But that left three existing HMOs out in the cold.

Cigna currently serves about 30,000 of Calpers 1.1 million members, roughly 5 percent of the plan's 670,000 enrollees statewide.

Harris said that Cigna feels its case was strengthened by the decision of the Calpers board in Health Net's situation.

Health Net, with 240,000 Calpers enrollees, was given 48 hours to submit another bid, which it did.

The move by Calpers to squeeze the HMOs comes at a time when health care costs are sharply on the rise after a period of smaller price hikes last decade or, in Calpers' case, even reductions.

Bobby Pena spokesman for the California Association of Health Plans, the HMOs' state trade group said that Calpers effectively used it massive purchasing power to reduce costs.

"As any employer, they have every right to drive down costs, but the part we are concerned about is that they are not just any employer," he said. "We would say, 'Just because you wield that much power, please be considerate of the fact that costs are going up.' People (other employers) are watching what they (Calpers) are doing."

Elaine Batchlor, vice president of health care finance, organization and operation for the California HealthCare Foundation, a non-partisan research institute, said that Calpers had to throw its weight around after seeing proposed increases as high as 41 percent.

But she also acknowledged that the HMOs are in a tough spot, with health care costs being driven up by new pharmaceuticals and technology and doctors who are demanding greater reimbursement rates.

"It's a harbinger of the fact that health care costs are going to be less well controlled than they were over the past five years," Batchlor said. "Everything I have read indicates costs are likely to continue to go up in the double-digit rates for next year."

The decision by Calpers to eliminate some of its plans does not come without costs. Nearly 8 percent of its members will lose access to their current doctors, though the fund says it is doing what it can to minimize the inconvenience.

Moreover, the fund is considering doubling the $5 co-payment it now requires members to pay for office visits and instituting a three-tiered pharmacy benefit.

That would lower Calpers' costs by an additional $143 million, officials said.

For reprint and licensing requests for this article, CLICK HERE.