CalPERS prepares to drop United Healthcare over high premiums, opts for Sutter Health

California state workers are likely to lose access to United Healthcare plans next year as CalPERS prepares to switch to Sutter Health Plan after the insurance behemoth tried to substantially increase 2027 premiums for public employees.

Staff at the California Public Employees’ Retirement System recommended Tuesday that the board drop United Healthcare plans after negotiations with the insurer over next year’s premiums failed to yield lower rates.

“Unfortunately, UHC’s basic plans came in with extremely high and unsubstantiated rate increases for 2027,” Rob Jarzombek, the chief of CalPERS’ Health Plan Research and Administration Division, told the board of administration during a Tuesday meeting.

“Despite negotiation, UHC was unwilling to bring rates down sufficiently,” he said. Adding Sutter Health Plan to CalPERS’ portfolio would minimize disruptions to state employees who make up the majority of those enrolled in United Healthcare’s plans, he noted.

During the board meeting, CalPERS’ staff also presented preliminary premiums for health plans in 2027.

United Healthcare offers two basic plans to public employees in California: Alliance, which joined CalPERS’ portfolio in 2014 and Harmony, which joined in 2022.

Staff said those plans had served CalPERS members well, but when United Healthcare proposed rate increases for the 2027 plans, those proposals were “not reasonable and not at all close to our projections,” Jarzombek said. He added United Healthcare’s rate increases would have equated to an additional $167 million that CalPERS members and employers would have had to pay in premiums next year.

A spokesperson for United Healthcare declined to comment.

A Sutter Health spokesperson said in a statement that Sutter Health Plan, which is a provider-sponsored health plan owned by Sutter Health, is aware of CalPERS’ proposal to update its health plan offerings and that potential changes are subject to board approval.

“We value our relationship with CalPERS and appreciate the opportunity to demonstrate how our integrated care model can support high-quality, coordinated care for members,” the statement read.

United Healthcare’s Alliance plan is particularly popular among civil service employees in the Sacramento area because the state’s contribution amount covers the premium cost for an individual member and is the only mid-priced plan that provides members access to the Sutter Health system. There are over 80,000 CalPERS members on this plan.

CalPERS staff recommended transitioning to Sutter Health Plan because it would have the least amount of impact on current members enrolled in United Healthcare plans since many of them would still be able to access providers within the Sutter Health system.

Jarzombek acknowledged that there will be some disruptions that arise from the transition but said CalPERS staff would work to minimize their impact.

This transition shows that “CalPERS is an active purchaser and will move to protect members and employers from inappropriately high rate increases,” Jarzombek said.

“As hard as it is to go through another year of change, I think we’re making the right choice,” Yvonne Walker, a CalPERS board member, said Tuesday. “It is absolutely right to drop UHC and go to Sutter.”

None of the board members publicly expressed opposition to the proposed transition. CalPERS’ board is likely to voted on the transition next month when staff make an official recommendation to transition from United Healthcare to Sutter Health Plan next year.

Also on Tuesday, CalPERS introduced preliminary premium rates for 2027, which showed smaller increases compared to previous years.

“This year’s premiums are a significant improvement on last year’s and are a continuation of a three-year run for lower year-over-year increases,” Jarzombek said.

Based on initial data, he expected CalPERS premiums would be lower than national averages. In 2026, basic plans increased on average 7.8%. Next year, those plans are expected to increase on average by 5.8%.

For Medicare plans, premium increases are expected to go up by much less. This year, Medicare plans increased in price by 11% on average. Next year, these plans for retirees will increase on average by less than 1%.

The board will vote next month to adopt the finalized premiums.

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