CalPERS picks four new HMO plans for 5-year contracts

The California Public Employees' Retirement System picked four new HMO plans for five-year health insurance contracts starting next year, a blow to incumbent carrier Blue Shield of California.

The giant pension fund voted Wednesday to split up Blue Shield's statewide HMO contract and offer additional plans from Anthem Blue Cross, UnitedHealth Group Inc., Sharp Health Plan and Health Net Inc. alongside Blue Shield.

Those five companies will offer health maintenance organization plans to about 400,000 people who have Blue Shield coverage now as well as to other CalPERS members participating in open enrollment this fall.

Following Wednesday's board vote, CalPERS and the winning bidders will negotiate rates. Kaiser Permanente has a separate HMO contract that's not part of this bidding, and CalPERS plans to renew it this year.

CalPERS officials are hoping this increased competition will help hold down rising healthcare costs among its 1.3 million active and retired government workers and their dependents. Overall, its health premiums rose 9.6% this year, or nearly triple the current rate of medical inflation. These new, five-year contracts start in January.

CalPERS is the country's third-largest healthcare buyer, after the federal government and General Motors Co., and it spends about $7 billion annually on medical care.

These new HMO options will vary by region. CalPERS picked Anthem and Blue Shield to offer health plans across most of the state.

UnitedHealth offered an HMO for 21 counties in Northern and Southern California. Health Net's plans would be available in six Southern California counties, and Sharp Health Plan would be offered in San Diego County.

Last month, Anthem beat out Blue Shield to retain its CalPERS contract for preferred-provider plans, which cover about 360,000 people. Anthem, a unit of industry giant WellPoint Inc., said "we look forward to expanding our partnership with CalPERS and providing excellent service to their members for both their HMO and PPO needs."

Likewise, UnitedHealth, the nation's largest health insurer, said it was grateful for the opportunity "to provide state employees with affordable, quality health benefit options."

The board's decision marked a major loss for Blue Shield, which has held a statewide HMO contract since 2003 and counts CalPERS as its biggest customer.

CalPERS said it will spend about $2.2 billion this year on Blue Shield premiums, which includes $96 million in administrative fees for the company. Overall, the San Francisco company has $10.5 billion in annual revenue and about 3 million customers statewide.

Blue Shield's chief executive, Paul Markovich, warned CalPERS officials at a meeting Tuesday that multiple HMOs may not yield lower costs.

"I am perplexed by your confidence that you have a good feel for what the costs will be for multiple HMO options," Markovich said.

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