The honchos at the California Public Employees' Retirement System are in hot water again. Higher- than-expected claims and lower-than-expected returns on investments have forced the CalPERS board to raise premiums for its long-term care insurance by 85 percent.
Policyholders are upset. Back in the go-go '90s, when CalPERS was hawking what was then the relatively novel insurance product that provides nursing home and assisted living care, it led customers to believe that premiums would never rise. "With this option, your plan is designed to remain level and won't increase each year," a 1998 sales brochure promised.
CalPERS actuaries were as wrong about long-term care as they were when they told the Legislature the next year that substantially increasing public employee pension benefits wouldn't raise costs to state and local governments.
Unlike public pensions, long-term care insurance policies aren't guaranteed by taxpayers. So when claims soared and investment returns plummeted, policyholders were on the hook. To correct the unfunded liability, the CalPERS board voted to raise premiums by 85 percent, spread over two years beginning in 2015.
Now the retirement system is offering cheaper 3, 6 or 10-year options instead of the lifetime benefit most policyholders bought back in the '90s and early 2000s. By converting to these plans, CalPERS officials say, policyholders' premiums will not increase and in some cases might be reduced.
Still, early buyers of CalPERS' more expansive long-term care policies feel burned and with good reason. While there was no guarantee, CalPERS created an expectation that the cost of this extraordinary benefit would remain flat. It was a reckless promise, indicative of reckless management that previously ruled CalPERS. The adjustment under way was long overdue.
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