Seniors decry CalPERS long-term care rate hikes

May 10, 2013

By Dave Roberts

If you’re curious what health care insurance might be like when the government takes it over, a preview was provided on Tuesday at an informational hearing of the Assembly Committee on Aging and Long-Term Care. State Capitol Room 127 was packed with seniors angry about the false promises, mismanagement and exorbitant rate increases of the long-term care insurance program provided by the California Public Employees Retirement System.

The retirees are among the 150,000 state employees who thought they were doing the right thing for themselves and their families by agreeing to pay monthly premiums for the rest of their lives to ensure that they would be taken care of should they become incapacitated in their old age. About 119,000 of them signed up when the insurance was first offered in 1995. Many of them bought policies providing lifetime coverage and inflation protection. They believed that rate increases would not occur or would be modest if they did.

But CalPERS, which had no experience providing long-term coverage, over-promised and under-delivered. Officials failed to do the underwriting necessary to ensure that only the better risks would be allowed to purchase insurance. They failed to invest the premiums wisely and safely, and the fund was hit hard by the Great Recession. They failed to anticipate that people are living longer. And they didn’t recognize how expensive it would be to care for patients for those extra years.

As a result, just eight years after the long-term insurance program was launched, it was nearly broke.

“The margin in the fund had begun to decrease and was down to about 2 percent,” CalPERS Deputy Executive Officer Ann Boynton told the committee. “In 2003, the board then began the difficult process of implementing premium increases to address the shortfall.” But those increases were so inadequate, only four years later “the fund was in serious trouble.”

Rate increase Hell

Since then, policy holders have been in rate-increase hell with many suffering annual 5 percent hikes. And in 2015-16, they will be hit with a whopping 85 percent increase. Letters informing them of the bad news were sent out at the end of April. The only way to avoid the hike is either to drop coverage, thereby losing the tens of thousands of dollars already paid into the program with nothing to show for it, or to opt for lesser coverage in the form of a 3-, 6- or 10-year benefit plan.

But there’s no guarantee that these will be the last rate hikes.

“We believe, but cannot guarantee, that this [85 percent rate hike] action will avoid the need for further rate increase in the future,” said Boynton.

That statement was met with groans by many in the audience, prompting a call for civility by committee chair Mariko Yamada, D-Davis.

Earlier in her remarks, Boynton acknowledged, “We know this has been an incredibly difficult time” for the policy holders.

Tales of woe

That might be an understatement. Dozens of retirees on fixed incomes told the committee their tales of woe, complained about feeling ripped off and pleaded for help.

One Bay Area woman, who is 68 and her husband 74, said they have already invested more than $50,000 in their policies and now are “facing dropping our policies and losing our investment. We are victims of circumstances and consequences by an agency that has had no oversight or regulation [by government]. There is no guarantee that after 2015 there won’t be additional consequences. There has been 400 percent of increases. That is a violation of public trust. Why would we continue to invest one more dollar in this program? This must stop. We have done our part to protect ourselves in our desire not to be a burden to our society. The increases need to be halted.”

Another woman complained, “I feel I was the victim of fraudulent practices. Where is the honesty and integrity? When I first enrolled I was paying $40 a month. Now my premiums will go close to $200 a month. How many people can afford that. Is that fair?”

Ivonne Ramos Richardson, who said she had been a negotiator in the administration of Gov. George Deukmejian, is one of those who signed up for long-term insurance in 1995.

“I did it because my Mom died of cancer and Dad became caretaker,” she said. “That will not happen to us. We started at $42 per month and are now paying $142. It will go to $588 a month. Money that we don’t have. In my family there is dementia, Parkinson’s, Lou Gehrig’s disease. It frightens me to leave that lifetime and inflation protection [benefit].”

Richardson complained that the CalPERS letter she had received a few days earlier specified a May 29 deadline to decide whether she wants to exchange her current benefit plan for a shorter-term option in order to avoid the 85 percent rate hike.

“That is not enough time,” she said. CalPERS officials need to provide more education on the various options through “dog and pony shows” around the state, she added.

Boynton, who is as well versed in the program as anyone, acknowledged that it can be confusing.

“I’ve had a long-term care representative come to my house, and it makes no sense when trying to understand it,” she said. “Most people, until they have someone in a claim circumstance, don’t really understand the nuances of what’s going on when you talk about long-term care insurance. People carrying insurance may not know what they purchased, they may not know what the real value of what they currently have in their hand is worth.”

Legislature’s hands are tied

Although the policy holders are seeking help in stopping the rate hikes, Yamada told them the state Legislature’s hands are tied.

“The Committee on Aging and Long-Term Care does not have jurisdiction,” she said in her opening remarks. “CalPERS has its own independent board. We are bringing this hearing forward today in an effort to get at some of the facts. I know there is a lot of concern and fear and anger, quite frankly, about these issues.”

The one thing Yamada offered to do was to author a letter to CalPERS signed by other legislators asking that the May 29 deadline for switching benefits be moved back to allow more time for policy holders to consider their options.

“At our very minimum, I think in the strongest terms that we can articulate to the president of the CalPERS board there’s insufficient time for retirees to process this information and these kinds of changes,” she said. “I will start a sign-on letter to get an extension on the time for these life-changing elections. It takes time and effort. We do have to address this immediately as well as on a mid-term and long-term basis.”

Although there is widespread concern about losing lifetime benefit coverage, Boynton indicated that those fears are overblown for the vast majority. Fewer than 1 percent of policy holders require care for longer than nine years, she said. The average length of care is about 3.6 years.

Nearly one-third of those needing long-term care do so as a result of dementia, followed by cancer (18 percent), stroke (13) and fractures and injuries (9).

The highest rate of recovery , 17 percent, is for those with fractures and injuries, followed by stroke (11 percent), cancer (10) and dementia (9).

How long will it last?

In terms of how long benefits last for those with limited coverage, it matters where the care is received. A five-year policy actually may not last five years if the person is in the most expensive option, a skilled nursing facility. But it may last longer than five years if the patient is cared for at home with nursing support.

In 2012, only 7,300 of the 59,000 CalPERS benefit claims were used in skilled nursing facilities. The cost for those claims totaled $34 million. In contrast, more than three times that number of claims, 26,000, were used for home health care. But the cost, $59 million, was less than double the cost of the skilled nursing facility claims.

It’s estimated that about 70 percent of people who reach 65 will require long-term care at some point, but few have prepared for that contingency, according to The SCAN Foundation. That could result in a crisis as the Baby Boomers age, decline and become debilitated.

Currently, older Americans comprise 12 percent of the population. By 2030, they will make up 19 percent of the population, a cohort of 72 million.