In a bid to curb health care inflation, CalPERS is splitting up its multibillion-dollar HMO contract among five different companies.
The decision Wednesday by CalPERS' governing board ends a quasi-monopoly enjoyed by Blue Shield of California. The company will continue to run CalPERS' HMO plan but will now have to share the business over the next five years with Anthem Blue Cross, Health Net, Sharp and United Health Care.
About 400,000 members, one-fourth of the CalPERS population, will be affected.
"We wanted to increase competition," said CalPERS spokesman Bill Madison. "More selection and choice will help us on the path ... toward lowering costs and improving quality."
CalPERS also plans to renew its separate HMO contract with Kaiser Permanente. Kaiser is getting the special treatment because it already has implemented various "integrated medicine" practices sought by CalPERS.
The California Public Employees' Retirement System spends $7 billion a year on health care and has been trying to hold down rate increases. Overall premiums jumped an average of 9.6 percent for 2013, the biggest rate hike in years, although HMO rates went up by a slightly lower 8.7 percent.
Blue Shield tried to prevent the breakup of its CalPERS business, pleading its case earlier this week to the pension fund's health and benefits committee.
Paul Markovich, president and chief executive, told the committee that CalPERS was "about to award a five-year, $14 billion health plan contract or contracts" without knowing whether it would actually yield cost savings.
Although the HMO providers have been selected, CalPERS now has to negotiate rates with each of them. Pricing, which must be approved by the CalPERS board, won't be known until June. The new rates will take effect next January.
Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler..