Hearing CalPERS Rate Hike for Long-Term Care Insurance

San Francisco's Poor House

As prior blog posts have noted, although UC is not under CalPERS, UC employees - because they were state employees - were invited to enroll in CalPERS' long-term care insurance plan.  Such plans ostensibly protect enrollees against potential catastrophic expenses that can be entailed in major health crises.  Those who did enroll now find themselves facing large rate hikes or accepting an alternative less generous plan.  Many who enrolled did so assuming that CalPERS would protect them from such hikes.  Yours truly has encountered a number of folks who now find themselves in this predicament.  CalPERS blames the matter on stock market reverses, low current interest rates, and early underestimates of what the program would actually cost.

Yours truly offers this observation.  An insurance carrier can cut the cost of offering such plans by removing from coverage the truly catastrophic expenses.  But that is what insurance is all about.  If you go to the audio link below, you will hear from CalPERS that most people don't have catastrophes and therefore taking an alternative plan that effectively removes them from full coverage won't affect most enrollees. The problem is that it is catastrophes that insurance is all about.  Most people who have fire insurance on their houses won't have their house burn down.  But it is precisely that unlikely event that causes people to buy fire insurance. If CalPERS ever does reopen with some version of long-term care insurance - see below - caveat emptor.

The California State Assembly Committee on Aging and Long-Term Care held a hearing today largely devoted to the CalPERS issue.  A link to an audio of the first part of that hearing - which runs about two and a quarter hours - can be found below.  There is a general presentation on long-term care followed by witnesses including one from CalPERS.  After the official witnesses, there are lengthy public comments by CalPERS enrollees and others, generally expressing anger at the hikes, the fact that CalPERS is an autonomous public entity not subject to the kind of regulation that applies to private companies, etc.  At present, it appears that CalPERS is not offering long-term care policies to new enrollees.  However, it was said that there might be such new enrollment allowed - albeit to a limited policy - later this year.

The audio link is at:


Below is the agenda:

"Paying the Price for a Long Life: What's Next for Long-Term Care Insurance?"
 
Hearing of California Assembly Committee on Aging and Long-Term Care held largely in response to large premium increases announced by CalPERS for its long-term care program, May 7, 2013
 
Hearing chaired by Assembly Member Mariko Yamada
 
Presentation on trends of older Americans and Older Californians preparing for retirement and Long-Term Care, Victoria R. Ballesteros, Director of Communications, The SCAN Foundation
 
PANEL 1 Government/Industry Officials

1. Ann Boynton, Deputy Executive Officer of CalPERS
2. Nettie Hoge, Chief Deputy Commissioner, Department of Insurance
3. Ted Angelo, Association of California Life & Health Insurance Companies
4. Rebecca Blanton, Executive Director, Commission on the Status of Women and Girls
Public Comments
 
Note: Recorded from a live stream. In some cases, there were breaks in the transmission. Gaps have been edited out of the recording.

Hiking

Earlier blog posts have noted that CalPERS' premiums for long-term care are going nowhere but up.  Another rate hike is being announced with an option instead to move to a lesser-value plan.

UC employees and faculty are normally not covered by CalPERS' pension and health care plans.  However, as state workers, they were offered the chance to enroll in CalPERS' long-term care program when CalPERS got into that business.  Unfortunately, there was no guarantee concerning what the premiums would be over time.  From the Sacramento Bee's State Worker blog:

The California Public Employees' Retirement System today is mailing some 150,000 official notices to long-term care insurance policyholders that a rate hike is coming. The letter explains that CalPERS is raising premiums 5 percent this year on the plan's costliest policies, which offer lifetime coverage and daily benefit payouts that keep up with inflation.Policyholders can avoid the premium increases by moving into plans that offer up to 10 years of benefits without automatically inflation-adjusted coverage. The deadline to opt into another plan varies by policyholder. CalPERS' letter also flags a 5 percent increase planned for 2014 and another 85 percent jump in 2015 spread over two years. All the rate hikes apply to policies offering inflation-protected, lifetime coverage for things like nursing home services and in-home care...

Full story at http://blogs.sacbee.com/the_state_worker/2013/04/calpers-letters-detail-long-term-care-rate-hikes-options.html

Read more here: http://blogs.sacbee.com/the_state_worker/2013/04/calpers-letters-detail-long-term-care-rate-hikes-options.html#storylink=cpy

Seems like they are asking too much for too little and doing it too late:

Update: Legislative hearings on CalPERS long-term care are now scheduled:
http://www.sacbee.com/2013/05/02/5388222/the-state-worker-committee-calls.html

Indirect Flattery for UCRP from CalPERS

According to a Bloomberg report, CalPERS' chief actuary is recommending that his fund follow the practice that is currently in place (assuming the Regents continue it) for the UC pension fund.  At present, CalPERS follows a fifteen year smoothing period, extremely long, and doesn't get to 100% funding in thirty years.  UC has five years smoothing and a plan for 100% over 30 years.

...Alan Milligan, (CalPERS')... chief actuary, recommends that the biggest U.S. pension stop spreading out losses and gains over 15 years and instead set rates based on how much is needed to reach 100 percent funding within 30 years... Under Milligan’s proposal, the fund would shrink its 15-year rolling period for asset smoothing to five years and amortize gains and losses over a fixed 30-year period rather than the current rolling 30-year period. A fixed period means that all obligations will be fully funded by a specific date...

Full article at http://www.bloomberg.com/news/2013-04-16/california-pension-may-ask-for-50-boost-to-close-gap.html

UPDATE: Report indicates that the recommendations are likely to be adopted:
http://blogs.sacbee.com/the_state_worker/2013/04/calpers-board-votes-for-accounting-changes-to-hike-pension-costs.htm
A more detailed account is at http://calpensions.com/2013/04/17/calpers-panel-approves-rate-hike-on-split-vote/

Long-Term Care Cop Out?

Back on Feb. 20, we posted a piece on a big CalPERS hike for long-term care insurance.  We noted that although UC is not covered by CalPERS, as state employees, UC employees could buy - some might say were encouraged to buy - long-term care insurance through CalPERS.  Now premiums are climbing rapidly and some may drop the insurance (losing what they paid) due to the price hikes.

From the Sacramento Bee State Worker Blog:

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...  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." ...

Full story at http://www.sacbee.com/2013/02/28/5223864/the-state-worker-did-calpers-lie.html

Our earlier post can be found at:

http://uclafacultyassociation.blogspot.com/2013/02/the-wrong-kind-of-hike.html

Seems like some cops are nicer than others:

The Wrong Kind of Hike

CalPERS enrollees receive notice of long-term care rate hikes

2/20/13, Sacramento Bee, Jon Ortiz [excerpt]

With an 85 percent premium hike looming, government workers and retirees covered by CalPERS' costliest long-term care insurance policies face a crucial decision: Swallow the increase or get out of a program they have been paying into for years. The reality of the increase literally came home this week as letters from CalPERS hit the mailboxes of 148,000 policyholders. The fund's board last year voted to raise premiums for the 90 percent of insured members who bought the top-tier plan – lifetime coverage and inflation protection for things like nursing home and assisted-living care. Half of those policyholders are in the very highest tier and also face two small increases over the next two years before the 85 percent jump kicks in. In all, rates for them will roughly double. CalPERS says it is hiking rates to keep the insurance fund solvent long-term. Losses from higher-than-expected claims, lower-than-expected investment returns and loose underwriting standards early on forced the decision...

Full story: http://www.sacbee.com/2013/02/20/5202227/calpers-enrollees-receive-notice.html 

Does this matter for UC employees?  UC is not part of CalPERS.  But as state employees, UC employees at one time were offered the "opportunity" to subscribe to CalPERS' long-term care plan.  There is a larger lesson from this episode.  Long-term care policies are essentially a promise to provide resources for what could be an expensive future event.  But the premiums you will pay for such policies/promises are not fixed.  Moreover, you are depending on some insurance company - which between now and then may be merged, acquired, or who knows what? - to honor the policy when you may not be in a good position to appeal denials of claims.  

Long-term care insurance is truly faith-based insurance.  But if you believe...