Long-term care settlement to cost CalPERS as much as $2.7B

Policyholders saw an 85% bump in their premiums in 2015, despite assurances when they signed up that rates would not increase.

CalPERS has reached a settlement with plaintiffs in a lawsuit over rate hikes in its troubled long-term care insurance program, according to court records filed Monday.

The system’s long-term care fund would pay as much as $2.7 billion to a class of more than 79,000 people who bought policies between 1995 and 2004 and opted for an inflation-protection feature as part of their coverage. Those policyholders saw an 85% bump in their premiums in 2015, despite assurances when they signed up that rates would not increase.

Over time, early participants in the program faced several increases, with one of the lead plaintiffs seeing their monthly rate go from $179 to $794, according to the complaint.

The settlement is welcome news for the affected participants, but it also leaves many in an uncomfortable position. The agreement would allow them to be fully reimbursed for years of premium payments, but they will be required to surrender their contracts to receive that money.

It is impossible to find coverage comparable to what they signed up for decades ago, especially at the rates they were initially paying — if people can find coverage at all.

Taking cash in the settlement is “much better than nothing,” financial adviser Lawrence Grossman, who started his policy 20 years ago, wrote in an email. “Continuing with CalPERS is not a rational choice.”

However, Grossman said, “I’d rather have a long-term care policy like the one I thought I bought. If I take the cash, then I have no coverage. And I no longer qualify for a new policy.”

The settlement does not address governance issues with the long-term care program, management of which “failed miserably for decades,” he said.

People eligible for the settlement must continue to pay premiums until the agreement is finalized, according to the court filing. CalPERS has the option of canceling the settlement if more than 10% of the eligible contract holders opt out or if the agreement would cause the long-term care fund margin to drop below 10%.

The CalPERS program is currently closed to new enrollment “due to uncertainty in the long-term care market,” the group stated on an announcement on its website. Last year, the program’s board approved a rate increase for all long-term care policies that will amount to a 90% hike. A 52% rate bump will happen as soon as November, and a second increase of 25% could go into effect in the fall of 2022.

The lawsuit does not pertain to the forthcoming rate increases, which existing policy holders who opt out of the settlement will have to accept in order to keep their coverage, unless they choose a reduction in benefits.

The judge presiding over the case, which is in California State Court, must approve the proposed settlement agreement.

Towers Watson, which helped set the premiums for the program when it launched in 1995, was previously a defendant in the lawsuit, but it settled with plaintiffs in 2018 for $9.75 million.

The CalPERS long-term care program is far from alone in the challenges it faces to remain viable, although it has struggled more than others. For example, the Federal Long Term Care Insurance Program has not had to raise rates as dramatically.