CalPERS Long-Term Care Program Expected to See Significant Premium Increases

From the Sacramento Bee:

CalPERS long term care insurance to see ‘significant premium increases,’ officials say

By Wes Venteicher

June 18, 2020 11:29 AM

CalPERS has suspended enrollment in its long term care insurance plans and is preparing for a rate hike as the coronavirus takes a toll on the plans.

Health officials expect “significant premium increases” and will share specifics in September, CalPERS Chief Health Director Don Moulds told the CalPERS board this week. The new rates would go into effect in July 2021, Moulds said.

About 118,000 current and retired state workers are enrolled in CalPERS’ long term care insurance plans. The plans help cover costs of care in nursing homes, long term care facilities and at home.

Nursing homes have been epicenters of COVID-19 outbreaks across the U.S. About a third of all deaths from the virus in the country have been in nursing homes and long term care facilities, according to reporting by the New York Times.

Moulds recommended suspending new sign-ups because volatility makes it too difficult to set prices. “We recognize that this is an exceedingly difficult time to be having this discussion,” Moulds told the board.

Nursing homes and assisted living facilities have closed facilities to outside visitors, ended congregate meals and recreational activities, limited intake of new residents and put in place costly new safety protocols, he said.

The virus is affecting the insurance plans both by driving up costs of care and by hurting investment returns for the fund that supports the plans, Moulds said.

The long term care insurance fund is separate from the CalPERS fund that pays for pensions and doesn’t affect pensions, representatives of the system have said.

The long term care fund has a lower return-on-investment target compared to the pension fund, and the target might need to be reduced further based on recent negative changes in the market, Moulds said. With lower assumptions for future returns, the fund would need to bring in more money elsewhere — including by raising monthly premiums, he said.

CalPERS started selling long term care insurance in the 1990s. It was a new type of insurance that no one had much experience in, and many insurers, including CalPERS, underpriced their plans.

The retirement system sold plans with an extra “inflation protection” benefit, promising that benefits would increase without corresponding price hikes.

When CalPERS raised rates by 85 percent in 2013, policyholders sued, saying the increases violated the promises in their plans.

That lawsuit has been working its way toward a trial. The trial’s current schedule calls for trial preparations in September, according to an update posted on Plaintiffs estimate a ruling in their favor could cost CalPERS $1.2 billion.

Eileen Lodyga, one of the plaintiffs in the lawsuit, criticized CalPERS at a board meeting Tuesday for considering another rate increase while the lawsuit remains unresolved.

Lodyga said she elected to reduce her benefits to avoid the full brunt of the 2013 rate increase, yet her premiums still tripled from what they were originally.

“This is hurting real people at a vulnerable age who trusted CalPERS,” Lodyga said.

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