The second part of CSU-ERFSA Legislative Director Robert Girling's report highlights the economic risks that the CalPERS pension fund faces over the next decade; and, efforts that CalPERS is making to control healthcare costs for its members.
CalPERS Outlines Key Economic Risks for Next Decade
Attendees at CalPERS Stakeholder Forum held January 21, and 22, 2020 were warned of the challenges faced by the Fund. Sitting at just 71% funded, CalPERS is trying to return to the glory days of pre-recession funded ratios. It had a 128% funded ratio in 1999, which then dropped sharply from 101% in 2007 to 61% in 2009. The pension plan projects the funded ratio to hit 92% by 2028 if its investment returns hit 8%, 86% if investment returns reach 7%, and 80% if they hit 6%.
However, it faces challenges in terms of declining interest rates and very high valuations in the stock market as well as slowing global economic growth.
Additionally, climate change poses a risk to approximately one-fifth of CalPERS’ equity portfolio. Energy stocks, construction, transportation, agriculture, food and forestry holdings are sources of the most significant risks.
If returns to CalPERS remain below 7% then it is likely that employer and employee contributions will have to increase.
CalPERS Health Care Information for Retirees
CalPERS is concerned about the skyrocketing cost of healthcare in the US and California. This is driven by concentration and monopoly pricing for hospital services and pharmaceuticals. At a two day Stakeholder Forum we learned that big pharma and hospitals are making huge profits with health care administration eating up about 35% of every health care dollar versus 5% in Canada which has single payer healthcare.
What is CalPERS doing to address high cost of healthcare and high premiums?
CalPERS is seeking out partnerships with the other state agencies with large healthcare purchasing components - like Covered California - to develop a consistent set of measurements and metrics for all health plans, providers and pharmacies in California to adhere to. A lack of uniformity in reporting from health care entities currently makes it very hard to compare apples to apples, and these partnerships will allow CalPERS to pin a poor performer down and say “Here are the facts showing that you’re not doing what you should, so shape up if you want to continue doing business with the State of California.”
In order to reduce pharmaceutical costs, CalPERS is supporting the Governor’s pharmaceutical strategy for bulk purchasing of pharmaceuticals, which CalPERS is a stakeholder, and a generic manufacturing proposal for California to contract with manufacturers to produce generic drugs. It is expected that this will introduce more competition and lower cost drugs.
In addition CalPERS is a plaintiff in a successful antitrust lawsuit against Sutter for massive overcharging. CalPERS also is supporting small and midsize health practices in order to provide more choice for members and provide lower cost diagnostic services as well as tele-medicine and outpatient care.
In order to improve the quality of member care, CalPERS clinical priorities include prevention and treatment of chronic disease, access and treatment of mental and behavioral health; strategies to manage the very few high-cost high-need patients who account for 50% of health expenditures; and prevention and treatment of chronic disease such as diabetes which affects 15% of members.
Preliminary premiums for next year will be available at the April stakeholder meeting with final rates in June. Some of these will include reference pricing.