Benefit reductions, price hikes coming for CalPERS long-term care insurance plans
CalPERS hasn’t publicly estimated how much it might raise premiums on its long-term care insurance policies next year, but the anticipated rate hikes are prompting the system to consider a wide range of changes including benefit reductions.
The California Public Employee Retirement System’s board reviewed information in meetings this week that show the depths of the financial challenges faced by its $4.7 billion long-term care insurance fund.
The board plans consider specific changes in November, when it will likely weigh premium increases that would go into effect in July 2021. The system suspended enrollment in the plans in June and warned of “significant premium increases” to come.
The fund supports long-term care policies that help cover costs for nursing homes and in-home care. It is separate from CalPERS’ $413 billion pension fund.
CalPERS offices are trying to find ways to minimize the projected increases.
One possibility is giving policyholders options to reduce their benefits instead of paying higher premiums, chief health director Don Moulds told the board.
Right now, the policies start covering costs of long-term care after a policyholder has been paying the costs themselves for 90 days. The system could increase that delay to 180 days to help keep premiums down, Moulds said.
Other possibilities for benefit reductions include adding deductibles, reducing the policies’ duration and reducing daily benefit amounts, he said.
Policyholders also could be given the option to pay a lump sum to keep their premiums stable, he said.
“We don’t like them and our policyholders wouldn’t necessarily choose them,” if they weren’t facing rate increases, he said.
CalPERS is still fighting a class-action lawsuit over an 85% premium increase introduced in 2013. Policyholders who purchased “inflation protection” when they signed up for the plans said in the lawsuit that CalPERS improperly increased their rates. They estimate CalPERS could have to pay as much as $1.2 billion if they prevail.
CalPERS has said it had the authority to raise the rates, and that any payment to close out the lawsuit would further drive up premiums. A jury trial has been delayed several times and is now scheduled for March 29.
The outlook for the troubled line of insurance worsened dramatically from 2017 to 2019, and then got even worse during the coronavirus, according to financial summaries.
The average policyholder is 75 years old and sicker on average than in the past, according to the summary. The system now is paying out more in benefits than it is taking in, according to a presentation to the board.
Two-thirds of the fund’s portfolio is invested in bonds and other fixed-income assets that return money to investors based on interest rates, according to a summary the system’s investment staff prepared for the board. With investment rates at historic lows, returns are suffering, according to the summary.
Investment staff offered a preliminary recommendation for the board to consider reducing its projections for investment returns to 4% from the current 5.25%. The change would force the fund to look elsewhere for the money it had counted on from investment returns.
The system is considering moving some of its money out of the stable class of investments to other investment types that likely would be riskier but offer the potential for higher returns, such as stocks. Those changes could help minimize premium increases.
At the end of June 2018, the fund estimated it had 101% of the assets it estimated it would need to cover future costs. If the board accepts the projections of its actuaries based on a sicker population, worsening financial outlook and changes in enrollment, that percentage would drop to 69% for the end of June 2019, according to the meeting materials.
This story was originally published September 16, 2020 at 5:30 AM with the headline "Benefit reductions, price hikes coming for CalPERS long-term care insurance plans."