CalPERS panel recommends 3 new HMO plans alongside Blue Shield

A key committee of the California Public Employees’ Retirement System backed its staff’s recommendation to break up Blue Shield of California’s statewide HMO contract.

The agency’s pension and health benefits committee voted Tuesday in favor of awarding health-maintenance-organization contracts to both Anthem Blue Cross and Blue Shield to cover most of the state.

The committee also supported giving an HMO contract to UnitedHealth Group Inc. in portions of Northern and Southern California and enlisting Sharp Health Plan in San Diego County.

The full CalPERS board will consider those recommendations at a meeting Wednesday for final action. Once the plans are selected, CalPERS and the insurers will negotiate rates.

The four health plans that got the initial nod Tuesday would supplant Blue Shield’s current HMO, which covers more than 400,000 public workers and their families.

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Kaiser Permanente has a separate HMO contract that’s not part of this bidding, and CalPERS plans to renew it later this year.

CalPERS is the country’s third-largest healthcare buyer, after the federal government and General Motors Co. It spends about $7 billion annually on medical care for 1.3 million active and retired government workers and their dependents.

Like many employers, CalPERS has expressed frustration with rising medical costs and the lack of progress in improving workers’ health.

Overall, its health premiums rose 9.6% this year, or nearly triple the current rate of medical inflation. These new, five-year contracts would start in January.

Blue Shield’s chief executive, Paul Markovich, told CalPERS officials that the nonprofit company had made a compelling bid to maintain its statewide contract and he said multiple plans may not yield better results.

“I am perplexed by your confidence that you have a good feel for what the costs will be for multiple HMO options,” Markovich told the committee Tuesday.

But some CalPERS board members said increased competition should spur more innovation and help hold down costs.

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