The pension fund is preparing to rebid its health insurance business, and two of its current plans, Anthem and Blue Shield, are likely to face intense competition.


By Chad Terhune, Los Angeles Times
June 28, 2012

California’s biggest healthcare buyer isn’t happy about its $7-billion annual medical bill climbing almost 10% next year, and the state’s big insurers may be feeling the heat.

The California Public Employees’ Retirement System is preparing to rebid its health insurance business this fall for 1.3 million members, and two of its current plans, Anthem Blue Cross and Blue Shield of California, are likely to face intense competition as the giant pension fund considers its options.

Perhaps the boldest move under consideration for 2014 would be to bypass insurers altogether in some areas of the state and begin contracting for medical services directly with large physician groups.

This month, CalPERS said its health premiums will rise 9.6% next year, or nearly triple the current rate of medical inflation. Ann Boynton, deputy executive officer for benefits at CalPERS, said the agency isn’t satisfied with the status quo, and it’s seeking fresh ideas in this next round of contracts that start January 2014.

“We continue to see that our members’ health does not improve in a significant way, and we have continual increases in our cost trend,” she said. “We think more can be done.”

Other employers and healthcare companies are watching closely to see what direction CalPERS goes.

“CalPERS is a bellwether by virtue of its sheer size, and people follow what it does,” said Donald Crane, chief executive of the California Assn. of Physician Groups. “There is no mistaking they want a new version of healthcare.”

CalPERS spends about $7 billion annually to provide care to active and retired state and local government employees and their families. That makes it the largest buyer nationwide after the federal government and General Motors, respectively. Ultimately, state and local taxpayers foot the bill for most of these health benefits, and government budgets are already under severe strain.

The agency relies on the state’s three biggest insurers: Kaiser Permanente, Anthem and Blue Shield. Those contracts all expire in December 2013. Kaiser provides a standard health maintenance organization, while Blue Shield offers two other HMO plans. Anthem administers three preferred provider organization plans self-funded by CalPERS.

CalPERS says it intends to renew its HMO contract with Kaiser, which serves more than 500,000 of its members. Experts say CalPERS would be reluctant to drop Kaiser and force so many patients to switch doctors because Kaiser operates its own hospitals and physician practices.

Blue Shield serves about 400,000 HMO customers, and Anthem has 350,000 people in PPO plans.

The agency got an early peek at some new contenders when a dozen health plans and physician groups responded to a list of questions CalPERS posed to the industry this year.

Major insurers such as UnitedHealth Group, Aetna and Cigna touted their capabilities along with some regional players such as Sharp Health Plan in San Diego. The California Assn. of Physician Groups responded on behalf of its 155 members.

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