Boost in care policy cost's a shock
Sacramento Bee 4/11/07
But last Friday, the retired firefighter was stunned to learn his long-term care insurance premium will increase 41 percent this summer -- numbing news that has left Doyle and his wife, Bonny-Lee, wondering how they can absorb an extra $76.50 a month for coverage.
"Long-term (care) is probably the greatest need you may have," the 64-year-old Redding resident said. "They're putting us in a position of considering dropping out of the program. If we dropped out, we're out $12,000."
Doyle and thousands of other state and local government workers and retirees are suffering from sticker shock after the California Public Employees' Retirement System began notifying 173,000 policyholders they will see increases averaging 33.6 percent in their long-term care policies. The leap follows an average 17 percent hike approved four years ago.
While the giant pension fund mailed newsletters and fact sheets in late February warning of the upcoming increases, policyholders didn't learn about their specific changes until last week.
Stevan Treon and his wife, Bobbi, a Department of Motor Vehicles retiree, purchased coverage in 1999, paying a combined $164 a month for a top-tier plan with inflation protection. The new premium is about $300 a month.
The Sacramento resident said he is likely to stop coverage: "You don't have much choice. I would be stupid to stay in."
CalPERS is giving members 30 days to drop coverage, stay with their current plan or select a less expensive option with fewer benefits.
Since medical evaluations for new applicants can take six weeks or more to complete, retirement and insurance officials say CalPERS members shouldn't let their policies lapse while shopping around. If members decide to cancel policies, CalPERS will pro-rate any refunds.
"I'm facing paying this super increased premium or the option of dropping out," Doyle said. "They're only giving me 30 days to make a decision. That's not enough for me."
CalPERS, the nation's second-largest provider of long-term care group insurance, has set up a special toll-free telephone line at (888) 877-4934 to field inquiries.
"With any change, people are going to have questions. We want to make sure folks have the most information possible," said Karen Perkins, a CalPERS spokeswoman. CalPERS has received about a dozen calls so far.
As The Bee reported in November, CalPERS trustees agreed to boost rates starting this July in the face of a projected $600 million deficit in the coming decades.
The increases range from a low of 5 percent for younger, healthier policyholders, to as high as 47 percent for older members. The changes apply to customers who purchased plans from 1995 to 2004. Newer enrollees already are paying the higher rates.
By far, the older policyholders will be hit the hardest. Despite calls by labor advocates to ease the burden, trustees rejected calls to spread the increase over a couple years.
"We wish the board had done more smoothing and equalization of rates," said J.J. Jelincic, president of the California State Employees Association.
The $4 billion self-funded nonprofit CalPERS program relies on premiums and investment gains to pay for current and future claims. It can't divert pension money to address long-term deficits.
Long-term insurance offsets the cost of in-home and nursing home care for people who need help with daily living activities such as cooking and bathing. A relatively new product, long-term care coverage is the fastest-growing segment of the insurance business. That has resulted in growing pains along with growing criticism about carriers delaying or rejecting claims to cut costs. In California, for example, almost one out of four claims was denied in 2005.
CalPERS and other insurers blame shortfalls on the stock market downturn in the early part of this decade for eroding investment returns. Moreover, carriers miscalculated cost trends, failing to anticipate a high rate of policy renewals and medical advances that increased life expectancy.
Doyle and other CalPERS members are upset that the fund's early marketing pitches touted the advantage of selecting a not-for-profit program and advertised that rates "are designed to remain level."
"It's not fair. You get sucked into a program (because) they say, 'We are going to keep the costs level,' " Doyle said.
During the 1990s, California lawmakers became alarmed when a number of private insurers offered low-priced policies and later ratcheted up premiums. The Legislature regulated long-term care rates in 2003. While the law requires the Department of Insurance to approve rate increases in the private market, the rules don't apply to CalPERS.
Alan Sepanski, a long-term care insurance analyst in Sacramento, said state regulations have stabilized rates in the private market, making premiums competitive with the CalPERS program.
"Companies have more experience than they had 10 years ago. There are better plans out there for less money. It doesn't cost anything to look," Sepanski said.
But Harvey Robinson of the Retired Public Employees Association of California worries that health reasons may preclude many people from qualifying with a new insurer.
"Most people who want (coverage) are in their 60s," said Robinson, the group's health benefits director.
One retiree, though, doesn't think switching to private insurance would help. At 80 years old, Robert Murphy of Sacramento figures a new policy would be too expensive -- or he may not even qualify for one.
"It's frustrating," said Murphy, who will pay $488 a month more to cover himself and his wife, Alice.
"It will hurt."