CalPERS board approves Sutter Health Plan contract and 2027 premiums after staff warns UHC increases were unsupportable

President Taylor opened Day 2 of the CalPERS off‑site with a health‑care focused agenda and an action item to replace UnitedHealthcare (UHC) basic HMO plans.

Rob Jarzombek, CalPERS staff, recommended a two‑year contract with Sutter Health Plan to cover six counties (Placer, Sacramento, San Joaquin, Stanislaus, Solano, Yolo) beginning Jan. 1, 2027. Jarzombek said Sutter Health Plan serves about 115,000 basic members across 16 counties and contracts with roughly 8,000 clinicians and 33 hospitals. He recommended the change because UnitedHealthcare proposed double‑digit premium increases — staff’s analysis showed Alliance proposed roughly 23% and Harmony roughly 21% — which CalPERS concluded were excessive and unsupported by market or member data.

Staff warned about two categories of disruption: combo household members (basic + Medicare) and behavioral‑health network differences. Jarzombek said the plan termination affects an estimated ~800 families (about 1,800 members) in UHC combination plans who may need to choose new basic + Medicare products; creating a Sutter‑based Medicare Advantage product for a 2027 start was infeasible in the timeframe, staff said. On behavioral health, UHC Alliance members currently use Optum while Sutter contracts with Carilion; staff estimated about 80% provider overlap in many counties and said they are working with Sutter to add high‑impact providers to reduce disruption.

Jarzombek described an administrative‑transfer process if members do not actively select a plan during open enrollment: priority is primary‑care provider continuity and limiting premium impact. For Greater Sacramento area Alliance members, staff recommended administrative transfer to Sutter; in other counties members would be transferred to Anthem Select or Blue Shield Access Plus depending on county. CalPERS will continue outpatient pharmacy benefits through CVS for many transfers; however, members shifted to some Blue Shield plans will receive pharmacy from Blue Shield directly.

The board heard questions about provider continuity and county‑level impacts. Staff said primary‑care continuity matches were very high in the six Sacramento‑area counties (close to 100%) and facilities continuity was nearly 100% in many counties. The board also pressed staff on communications: staff described tailored member letters, email, a custom message on statements, a September webinar, call‑center support from Sutter during enrollment, and employer outreach and health‑fair support.

After discussion, Mr. Palke moved to approve the contract (01/01/2027–12/31/2028); the motion was seconded and carried unanimously.

Separately, staff presented recommended 2027 HMO and PPO premiums and plan‑design changes. Jarzombek summarized three recommendations incorporated into the premiums shown to the board: (1) remove UHC basic plans due to their proposed rate increases, (2) implement a product change for UHC’s Medicare Advantage product to separate medical and pharmacy to increase CMS reimbursements, and (3) cut the premium surcharge on basic PPO plans by 50% in 2027 with a goal to eliminate it in 2028. Staff reported weighted average changes of 5.78% for basic plans, 0.51% for Medicare, and 4.97% overall — notably lower than a cited national commercial trend of about 9% for 2027. Jarzombek said about $167 million would have been added to member/employer premiums under the UHC proposals staff rejected.

Board members praised staff for keeping overall increases lower than national trends and for negotiating favorable outcomes for Medicare Advantage and PPO reserve stabilization. A motion to approve the 2027 HMO/PPO premiums and plan design was made, seconded, and approved unanimously.

What happens next: staff will communicate plan and premium changes to members and employers in advance of and during open enrollment (open enrollment Sept. 14–Oct. 9); administrative transfers and other operational steps will follow after board action and are targeted for the 2027 plan year start.

Quotes from the meeting: “Creating a Sutter‑based Medicare Advantage Plan for 01/01/2027 was not feasible given the short timeframe,” Jarzombek told the board, noting a more realistic 2028 start for any Medicare product tied to Sutter.

“Primary‑care provider continuity has been our priority for admin transfers,” Jarzombek said, adding the matching exercise showed very high continuity in the six‑county area.

Ending note: The board voted to proceed with the Sutter HMO contract and the 2027 premium and plan‑design recommendations; staff will carry out member communications and implementation steps during the open‑enrollment season.