Thousands of CalPERS members could get $30,000 or more in long-term care lawsuit settlement
CalPERS has agreed to pay up to $2.7 billion to settle a lawsuit over big price hikes the retirement system imposed on long-term care policyholders eight years ago, according to a Tuesday announcement.
The proposed agreement, which requires a judge’s approval, would settle a class-action lawsuit policyholders filed in 2013. Several policyholders filed the lawsuit after receiving notices that their premiums would rise 85% in two increases in 2015 and 2016.
The settlement agreement presents affected policyholders — those who paid extra for an “inflation protection” benefit — with a choice. To receive a full refund of their premiums, they must give up their long-term care insurance plans. The policies, which CalPERS started selling in 1995, cover costs for nursing homes and in-home care.
Most policyholders who accept the settlement money would receive between about $35,000 and $50,000, with a minimum payment of $10,000, said Stuart Talley, an attorney representing the policyholders with Sacramento-based law firm Kershaw, Cook and Talley.
Policyholders may opt out of the settlement and keep their plans. The attorneys expect almost none of them to take that option, Talley said. Those who keep the plans face another 90% increase the CalPERS board approved last year, which will be instituted over two years starting as early as this November.
“We’ve received so many phone calls from people who say they want their money back, and they want to get out of this program,” he said.
The attorneys are working to find a replacement plan from another carrier for people who choose to drop their CalPERS policy but still want long-term care insurance, Talley said.
The settlement applies to about 80,000 people who purchased plans with the inflation protection benefit. Marketing materials promised steady increases to benefits to cover the rising costs of long-term care, coupled with promises that premiums would not rise as a result of the increasing benefits.
People who kept their plans and paid the higher prices in 2015 and 2016 are included in the settlement, as are those who elected to reduce their benefits. Those people are eligible for full premium refunds, according to the agreement.
Policyholders who have started receiving long-term care, triggering insurance claims, are eligible for refunds of what they paid on top of their original premiums, but can’t get their original premiums back. If those policyholders elected to reduce their benefits, they’re eligible for an additional year of benefits, according to the agreement.
The settlement agreement says that if more than 10% of policyholders opt out, choosing to keep their plans, CalPERS may terminate the settlement agreement.
A CalPERS spokeswoman declined to discuss specifics of the agreement.
“We believe this settlement is in the best interest of all long-term care policyholders and represents a sincere effort to resolve very complex issues in a fair manner,” Matthew Jacobs, CalPERS general counsel, said in the release. “It’s the right path forward and enables the CalPERS long term care program to continue helping policyholders who are counting on the program for critical care in a time of need.”
Payouts won’t come from pension fund
The settlement money will come from CalPERS’ $5.48 billion long-term care fund, not from the $470 billion fund that covers public employees’ pensions, according to the release.
Los Angeles Superior Court judge William Highberger will review the proposed settlement and could grant preliminary approval July 22, according to the release.
The $2.7 billion settlement includes money for refunds along with assorted money for setting up a call center and other expenses.
The settlement agreement would pay 9% of the total payouts to the policyholders’ attorneys. If the maximum projected refunds of about $2.5 billion are paid out, that’s roughly $225 million for attorneys from four firms.
In court, CalPERS argued it had the authority for the 2015 and 2016 rate increases and said the increases were necessary to keep the plans afloat.
Highberger, the judge, urged CalPERS two years ago to pursue a settlement agreement in the case, saying the retirement system faced “very serious risk” of losing the lawsuit.
A jury trial scheduled for March 22 will be avoided if Highberger approves the proposed settlement agreement.
Long-term care rate hikes continue
The CalPERS board last year approved two more rate increases, totaling 90%, that will go into effect this year and next year unless policyholders elect to reduce their plan benefits. Insurance analysts told the board the fund wasn’t sustainable over the long term without a rate hike. The board also suspended new enrollment in the plan.
CalPERS spokeswoman Deborah Reyman declined to say whether the system plans to reopen enrollment, and declined to say whether CalPERS has projected what might happen to rates for existing policyholders as a result of the settlement agreement.
About 117,000 people still had the plans as of last year. About 62,000 of them are included in the lawsuit’s class, Talley said. If all of those policyholders exit the plan as the attorneys expect, only about 55,000 people would remain in the program.
The retirement system started selling the plans when long-term care insurance was a new product. Most insurers found the line of insurance infeasible and stopped offering it, or instituted large rate increases.
More information, along with the settlement agreement documents, are available at calpersclassactionlawsuit.com.
Wes Venteicher anchors The Bee’s popular State Worker coverage in the newspaper’s Capitol Bureau. He covers taxes, pensions, unions, state spending and California government. A Montana native, he reported on health care and politics in Chicago and Pittsburgh before joining The Bee in 2018.
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