Long-Term Litigation for CalPERS Long-Term Care

Back in the day when long-term care insurance was beginning to be offered, CalPERS offered a policy to state employees. Although UC employees are not normally under CalPERS, as state employees they were able to buy these policies at what seemed to be very advantageous premiums at the time. But then CalPERS jacked up the premiums. Some subscribers dropped their policies. Some accepted cutback policies to avoid the full jacked-up premiums. Some paid. And finally, some sued.

The lawsuit has had its twists and turns. Back in September 2021, we reported a settlement.* But now it appears that the settlement has fallen apart and the lawsuit will go to a jury trial (eventually). From the Sacramento Bee:

The State Worker
$2.7 billion settlement in CalPERS long-term care insurance lawsuit is canceled

Wes Venteicher, May 16, 2022

An agreement in which CalPERS would have paid up to $2.7 billion to settle a lawsuit over the cost of its long-term care coverage has been scrapped, creating new uncertainty for tens of thousands of policyholders. A group of policyholders with inflation protection benefits sued the California Public Employees’ Retirement System over an 85% rate hike that was announced in 2013. CalPERS had promised in marketing materials that the optional benefit, which increased coverage amounts for things like nursing home stays, wouldn’t drive up their premiums. The policyholders argued in the lawsuit the rate hike violated their policy agreements. CalPERS argued they had the authority to raise rates and did so to keep the plans afloat.

The settlement in the class-action lawsuit, reached last July, gave policyholders a choice: they could give up their plans and get a refund of all premiums they had paid — up to about $50,000 — or they could opt out of the settlement and keep their coverage, which got even more expensive last year. The agreement included the caveat that if more than 10% of policyholders chose to keep their plans, CalPERS could exit the deal. Last month, attorneys representing the plaintiffs announced 30% had decided to stay, and both sides had agreed the settlement was off.

Attorneys for CalPERS and policyholders have resumed negotiations. If they don’t reach a new agreement, the case will go to a jury trial, likely not before next year. CalPERS declined to comment beyond an emailed statement attributed to general counsel Matt Jacobs, who said the parties are “working in good faith to reach an alternate settlement” and will proceed to trial if needed. In the email, Jacobs said CalPERS “acted appropriately at all times, and fully complied with its contractual obligations.”

MORE PRICE INCREASES

The settlement’s collapse means more difficult choices for about 60,000 policyholders who would have been covered by the deal, which helps cover costs associated with nursing home stays and in-home care. The agreement included those who elected to pay extra for inflation protection when they purchased long-term care insurance from CalPERS as early as the 1990s. Those in the settlement group purchased the plans before 2004 and were living in California in 2013, when CalPERS announced that it planned to raise rates by 85% in 2015 and 2016. The agreement covered people who paid the increases, those who dropped their plans to avoid the higher prices and beneficiaries of policyholders who have died...

FEW OTHER CARRIERS

Long-term care insurance was a new product in the 1990s when CalPERS and other insurers started selling it. But carriers paid more in claims than expected and did not earn enough on investment portfolios to cover extra costs. They have repeatedly raised premiums to keep pace with costs. Plans sold today are less generous and cost even more, and many insurers have dropped the product. Only five still sell long-term care insurance in California, while 56 have stopped, according to an Insurance Department website. CalPERS also has suspended enrollment, citing “uncertainty in the long-term care market.”

Plaintiffs’ attorneys tried to find another insurer for those who wanted to drop CalPERS but still wanted long-term care insurance, [policyholder attorney Mike] Bidart said. They shared data from the group that enabled carriers to evaluate risks and pricing, but couldn’t find a reputable one despite “a tremendous amount of effort,” he said. CalPERS representatives have said that any money it has to pay as a result of the lawsuit would come from the long-term care insurance fund, not from the system’s pension fund, recently valued at $446 billion. Payouts resulting from the lawsuit could result in more price hikes, according to CalPERS.

Full story at https://www.sacbee.com/news/politics-government/the-state-worker/article261395182.html.

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*http://uclafacultyassociation.blogspot.com/2021/09/more-on-calperslong-term-care-settlement.html.