The CalPERS Board of Administration approved measures at their November meetings to address financial challenges in its Long-Term Care (LTC) insurance program. The CalPERS Long-Term Care Fund, which is separate from its pension fund, faces a funding shortfall due to adjustments in actuarial assumptions and a lowering of the fund’s discount rate in light of recent returns of fixed income investments which are the fund’s primary holding.
Because LTC is a closed fund, the additional revenue needed to meet new liabilities must be generated from within the program. There are essentially three ways of addressing shortfalls in the LTC program. The first is by raising premiums. The second is through changes to benefit design, and the third is by taking steps to improve investment returns.
Over the last several months, the CalPERS team updated the board, members, and stakeholders about the challenges facing the LTC fund, engaging in a thorough and thoughtful process to explore all options to minimize the rate increase, maintain the sustainability of the program, and protect the coverage policy holders are relying on.
In November, the Board approved a 4.75% discount rate for the LTC fund and to raise premiums over two years. The first increase of 52% will be implemented starting in July 2021 and a potential 25% rate increase in July 2022.
Understanding this is an exceedingly difficult time to be considering a rate increase, CalPERS is engaging in strategic asset allocation and specialized investment strategies to help improve investment returns. Additionally, the board approved benefit designs that are not currently available to policy holders, that when combined with other benefit designs approved by the Board in the past, create packages that policy holders may choose in lieu of the July 2021 premium increase.
CalPERS is also considering novel LTC insurance models that invest heavily in home-retrofits, falls prevention, early and targeted in-home assistance, and other in-home supports with the goal of enabling policy holders to stay in their homes much longer, and delay costly institutional care for longer. These models will be explored in 2021 and if enacted could significantly offset the second-year premium increase.
CalPERS and LTGC Group, its LTC Administrator, will communicate rigorously over the next several months with policy holders to inform them of the increase and of their options.
“Since April, we have thoroughly explored all possible solutions to minimize the financial impact of increased premiums on policyholders,” said CalPERS Chief Health Director Don Moulds. “We know these rate proposals are difficult for many, particularly during the continued uncertainty caused by COVID-19 and its impact on seniors and caregivers. These rate proposals represent a prudent approach that protects benefits. As we move forward to strengthen the Long-Term Care fund, we will continue to aggressively explore ways to minimize rate impacts. The steps we are taking will protect policyholders who are counting on the program for critical care.”