Posted on 22 Feb 2013 by Neilson
Dailey Mayo received some stunning news in the mail last week: an 85% rate increase for the long-term-care insurance he has had for 15 years from the California Public Employees' Retirement System.
The retired sales manager in Pasadena said his monthly premium of nearly $400 would jump to $738, or about $8,850 annually, under this plan. "I'm 82 now and I might need this care soon," he said. "It really ticks me off that they are doing this."
More than 110,000 CalPERS policyholders are receiving similar news after the pension fund's board approved the changes late last year. CalPERS said the hefty rate hikes won't take effect until 2015 and are necessary to keep this $3.6-billion insurance fund intact for future claims. This CalPERS program, like other plans sold by private insurers, has been plagued by higher-than-expected claims, lower investment returns and poor pricing.
"We understand people's anger and frustration," said Bill Madison, a CalPERS spokesman. "It's not something the board wanted to do, but it's necessary so benefits are available to people when they need it. We know these rate increases can be a financial hardship."
Insurance regulators in California and other states say insurers too often underestimated the cost of care and the number of customers who would hold on to these policies. These plans typically help pay for nursing-home stays, home-health visits and other residential care that's generally not covered by Medicare.
Many insurers have stopped selling the most generous, unlimited policies, and some companies have left the business entirely. All this comes as millions of baby boomers enter retirement and weigh difficult decisions about what type of financial protection they may need against future medical expenses.
CalPERS, which runs the nation's second-largest long-term-care plan, after one for federal government employees, said it would offer affected policyholders several ways to adjust their benefits to avoid these premium increases.
For instance, customers can drop the option of having benefits that automatically increase with inflation or they can forgo lifetime benefits in favor of a finite period or amount. CalPERS said it would ask policyholders to make a decision on any changes by June 30.
Overall, the agency has more than 148,000 policyholders in its long-term-care program. Some policyholders will see a 5% rate increase this year, while most will see the bigger 85% increase starting in 2015. The 85% increase primarily affects about 110,000 people who purchased the agency's policies from 1995 to 2004 that provided lifetime benefits.
The giant pension fund said it is taking numerous steps to shore up the struggling program. Thursday, the CalPERS board of administration approved plans to reopen enrollment by the end of the year and to offer newly designed long-term-care policies aimed at fortifying the program with new premium dollars. Enrollment has been closed since 2009.
Large rate hikes have become the norm for many of the nation's 8 million long-term-care policyholders.
John Hancock Life Insurance Co. received approval for 40% rate increases on certain policies sold in California late last year, according to the state Insurance Department. A unit of CNA Financial Corp. has sought increases of 45% for some California policyholders, but state officials said they are still reviewing that request.
California lawmakers approved a law last year that imposed new requirements on insurers wanting to raise these rates, and it bolstered other consumer protections.
Industry officials say pricing long-term-care policies accurately has been a long-standing challenge as people continue to live longer and medical costs keep rising. CalPERS and private insurers have also been stung by historically low interest rates that have contributed to lower investment returns, which are used to pay claims.
"Long-term-care insurance is probably the most complex insurance product imaginable," said Jesse Slome, executive director of the American Assn. for Long-Term Care Insurance in Los Angeles. "You have to predict correctly 20 years into the future what economic conditions will be like and what health conditions will be like."
Slome said the federal employee program for long-term-care insurance raised rates as much as 25% in 2009 and less than 2% of affected policyholders dropped their coverage.
"Nobody likes paying more, but these policyholders will have options," Slome said. "Now is the time for people to reassess their personal situation."
CalPERS said its average annual premium for long-term-care insurance now is $2,206, or $184 a month. Since the start of the program, dementia and stroke have been the leading causes of claims, accounting for 44% of all payouts. The agency said the number of active claims increased 6% in 2012 over 2011, and total claims paid amounted to $182 million.
The fund for long-term-care insurance is separate from CalPERS' $255-billion pension fund and financially independent. As a result, that pension money cannot be used to hold down the long-term-care rates.
Richard Carter, 64, a math teacher in the Los Angeles Unified School District, got one of the letters this week about the 85% increase in premiums. Carter said he cannot afford for his rates to rise to about $5,000 a year.
"That's just not affordable on what I expect to receive in retirement," said Carter, who plans to retire next year. "And that doesn't include what I am sure will be further increases in the coming years."
Mayo, the retired sales manager in Pasadena, was able to purchase a long-term-care policy through CalPERS because his daughter worked for the state's workers' compensation bureau at the time. He said he's studying his options for changing benefits to stave off the huge run-up in premiums.
"As I get older I need some protection," Mayo said. "I am really debating whether to keep the damn thing."