Lessons from CalPERS LTC Insurance Crisis

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Since the 1990s, the California state pension fund (CalPERS) sold long-term care (LTC) policies to its residents. The lawsuit over claims related to those policies illustrates the dangers clients face with government-sponsored insurance programs.

The $2.7 billion CalPERS LTC insurance class action settlement, preliminarily approved in 2021, collapsed on April 22, 2022. Though little has been written about the suit, it was to be one of the largest settlements in U.S. history. Policyholders who were forced to continue paying premiums for the last year to just participate in the settlement, now find that they will get nothing for that gamble, other than the options of paying a 90% increase in their insurance premiums or walking away from their policies. This increase brings total premium increases to 900% for policies thought to have guaranteed level premiums.

This is a financial and health care crisis for 120,000 policy holders, who are overwhelmingly elderly, and their families. Many of these policyholders will soon need LTC services, and though they have paid premiums for decades, they are now being forced to terminate or reduce coverage because they can no longer afford the latest rate increase or have trust in CalPERS.

This is also a crisis for CalPERS and its three decades of presumably well-intentioned public policy that massively failed in implementation. The crisis has been shaded from view because CalPERS is an independent entity and denies any crisis exists. It effectively is not overseen by either its Board or the California State Legislature. The LTC failures have been massive and manifold – the enabling legislation, the implementation by CalPERS, the lack of oversight by the California Legislature and the Department of Insurance, and the overarching failure to properly disclose to policyholders what insurance CalPERS was selling.