The State Worker: Did CalPERS lie about long-term care insurance policies?
02/28/2013 12:00 AM
03/12/2013 7:22 PM
Did CalPERS lie?
Some longtime policyholders who bought CalPERS' most costly long-term care insurance think so after the fund's board recently approved a huge premium hike.
About 148,000 members of the California Public Employees' Retirement System have coverage, which pays for nursing home care and similar services. Most have an "automatic inflation-protection" feature that increases payout limits each year. That, plus policies offering lifetime benefits, helped drive the $3.6 billion insurance fund toward insolvency.
Unlike pensions, there's no government backstop for losses. So CalPERS admitted the math didn't add up and hiked premiums 85 percent.
Longtime policyholders say that when CalPERS was pushing the insurance in the 1990s, it guaranteed their rates wouldn't rise. That gave younger adults – a crucial group for such plans – incentive to buy.
Surely CalPERS knows what it's doing, those early purchasers thought.
A graph in a sales brochure from 1998 shows inflation-protected coverage for a 45-year-old as a flat blue line. It starts at $75 per month and stays there.
"With this option, your plan is designed to remain level and won't increase each year," the brochure says.
A black line represents coverage costs without inflation protection. It starts well below $50 but bends sharply past $700 by age 78.
CalPERS representatives pushed inflation protection, according to several dozen angry calls and emails fielded by this column. Now many of those policyholders feel bamboozled.
"They have taken a lot of money from a lot of people," said Marty Boyer, a retired Alameda County employee who now has her own communications firm.
Asked whether CalPERS broke its promise, Ann Boynton, deputy executive officer of the CalPERS Benefit Programs Policy and Planning unit, said, "This could sound like a cop-out, but I wasn't here. I can't say what anyone was told or what they heard."
Again, from the brochure: "The ... program is one of the most comprehensive and affordable plans available today."
But the material also left wiggle room for raising policyholder payments: "Your premiums can only be changed through action of the CalPERS Board."
The coming rate hike is so huge that it will certainly force some policyholders to move down to cheaper options. Some might drop their coverage.
"They've been collecting my premiums for more than 10 years," said Oakland state worker Dorothy Thompson. "Now they're trying to scare us off. It's immoral."
But what's the alternative? Lower premium increases?
That merely puts off the day that seniors in nursing homes and assisted living centers would have their lives upended when funds dry up.
What promise would that break?
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