The CalPERS long-term care fiasco continues, with the board and staff taking a course of action that increases harm to policyholders by continuing to bleed them rather than put the program in bankruptcy.
For those new to this train wreck, the public comment at the February 14 CalPERS board meeting by policy-holder and certified financial planner Lawrence Grossman provides an introduction. A key bit of background is that state legislation allowed CalPERS to jump on the long-term care insurance bandwagon in the 1990s. Most of these insurance plans have gotten into a world of hurt by underestimating the degree to which proper elder care would extend lifepsans of policy-holders and overestimating the lapse rate (lapsed policies mean the premiums paid by dropouts benefit the remaining policyholders). But CalPERS’ recklessness and incompetence were in a league of its own.
CalPERS not only considerably underpriced its policies compared to commercial competitors, but it made matters worse via giving CalPERS policyholders the options of lifetime benefits (as opposed to fixed dollar benefits) and inflation protection. Inflation protection would seem like an incredible promise for any long-term insurance scheme. Yet the policies were advertised as CalPERS policies, not those of a free-standing “CalPERS Long-Term Care Fund,” as in not backed by CalPERS or the state of California.
Four years later and things are going according to CalPERS’ abusive plan. Even though Judge Highberger clearly rejected CalPERS’ position that it can violate policy terms and raise premiums, CalPERS has continued to increase premiums because the court so far has issued only preliminary decisions. Note these increases are vastly in excess of those implemented by commercial carriers.
Much of retirement planning focuses on financial, investment, and estate planning needs. Earlier research, such as the SOA’s Retirement Health & Happiness brief, showcases how this retirement planning overlooks some challenges of late-in-life retirees.
Retirees have access to more than 200,000 personal finance professionals, 10,000 senior centers, and approximately 28,000 assisted living facilities. Still, do retirees have all the information they need to make critical decisions throughout retirement, particularly in the latter stages of retirement?
In collaboration with Financial Finesse, the SOA Aging and Retirement Strategic Research Program prepared this guide as a resource to help older retirees and those who assist them. This guide will help the reader ask impactful questions to make informed decisions.
Author(s): SOA Aging and Retirement Strategic Research Program
South Carolina — one of the leaders in the effort to create the Interstate Insurance Product Regulation Compact — has withdrawn from the compact because of a conflict over long-term care insurance rate increase application reviews.
Members of the Interstate Insurance Product Regulation Commission, the body that oversees the compact, voted in December 2021 to keep a rule that lets the compact review and approve requests for LTCI rate increases under 15%.
The rule conflicts with a new South Carolina law that requires the director of the South Carolina Department of Insurance or a director designee to review and rule on all LTCI rate filings.
The American Academy of Actuaries presents this summary of select significant regulatory and legislative developments in 2021 at the state, federal, and international levels of interest to the U.S. actuarial profession as a service to its members.
The Academy focused on key policy debates in 2021 regarding pensions and retirement, health, life, and property and casualty insurance, and risk management and financial reporting.
Responding to the COVID-19 pandemic, addressing ever-changing cyber risk concerns, and analyzing the implications and actuarial impacts of data science modeling continued to be a focus in 2021.
Practice councils monitored and responded to numerous legislative developments at the state, federal, and international level. The Academy also increased its focus on the varied impacts of climate risk and public policy initiatives related to racial equity and unfair discrimination in 2021.
The Academy continues to track the progress of legislative and regulatory developments on actuarially relevant issues that have carried over into the 2022 calendar year.
A requirement to have paid into the system is characteristic of a social insurance program, and the 10 year contribution requirement is essentially the same as the eligibility requirement for Old Age benefits in Social Security. However, true social insurance programs pay out benefits to those eligible regardless of residence — again, once you’ve paid into Social Security long enough to have earned your benefit, you can collect regardless of where you live, even if you have moved abroad. In fact, even noncitizens who worked in the United States long enough to have accumulated sufficient Social Security credits, can receive benefits after having moved back to their home countries. What’s more, many social insurance systems provide some sort of refund mechanism for workers who do not accumulate enough contribution years to be eligible.
And this hybrid system will likely prove to be unsustainable politically. Even if ordinary Washingtonians are not well-versed in social insurance concepts and theories, it will not sit right with them that those who retire with 10 years of payroll taxes have “earned” their benefits but those with 9 years have not, and, likewise, that those who have “earned” benefits would lose those “earned” benefits merely by moving out of state. How precisely this will play out over the long term remains to be seen, but the new bills are not likely to be the end of the story.
In any case, these problems will not be easy to remedy.
The graphic “Settlement Bet” shows options that policyholders have to choose from in the Settlement. The graphic “Settlement Happens??” shows the consequences of the “Settlement Bets” if the Settlement happens or not.
Policyholders not wanting to terminate their CalPERS policies will select not to participate (“opt out”) in the Settlement (as participation will end policyholders’ policies if the Settlement is approved).
Policyholders whose preference in light of announced rate increases would be to terminate because of the new CalPERS rate increases can be divided into two groups in light of the Settlement options: (1) those that wish simply to terminate and stop paying premiums; and (2) those who wish to terminate but are prepared to gamble with CalPERS to get a refund.
In making these choices, all policyholders are being forced to gamble a lot of money. Why the Settlement is structured as a gamble is unclear, but it is. That seems incredibly unfair to policyholders who can ill afford more financial losses after their losses already caused by CalPERS LTC.
The ongoing CalPERS long-term care insurance program crisis continues to unravel. It is also revealing overarching behavior which is both unethical and contrary to law.
CalPERS announced insurance premium increases of 52%-90% that become effective very shortly, at the same time that CalPERS has agreed to a class action lawsuit settlement over its last 85% rate increase. (In my next article I will discuss why I suspect the settlement is another con job by CalPERS.) But here I first must address a shocking revelation previously unreported about CalPERS long-term care insurance program (LTC) which needs to be recognized before moving on to the issues of the proposed settlement.
There is new and truly disturbing information about the CalPERS long-term care insurance program from a recent review of the enabling legislation prepared by a former California Deputy Attorney General and Court of Appeal Attorney, Linda J. Vogel.
According to Vogel’s analysis, the CalPERS long-term care insurance program since inception in 1991 has operated contrary to law.
To justify the rate increases, CalPERS asserts that there is nothing problematic with the program, other than the usual suspects of low interest rates and unexpected policyholder behavior, issues that all long-term care providers have faced. But that is, at best, a half-truth.
While all other long-term care providers have faced the same challenges, there is no evidence that any other insurer in the nation has responded with premium increases like CalPERS. For example, the Federal Long Term Care Insurance Program has raised rates as much as 150%. For commercial policies, premiums rose up to 75% for UNUM Group in some states, while in California premiums for Mutual of Omaha policy premiums rose 20%, Transamerica premiums rose 25%, and Thrivent premiums rose about 37%.
During the past two decades, roughly the timeframe of the policies subject to the lawsuit, inflation has risen 49% and the cost of long-term care services about 120%. The chart below shows actual policy rates and the initial policy rate along with inflation and long-term care trends.
Overall, the survey results show that COVID-19 has had an impact on emerging LTC insurance experience through higher mortality (for both active and disabled lives) and lower claim incidence. Results on voluntary lapse rates were mixed; however, premium grace period extensions due to COVID-19 may have contributed to differences in reporting. The survey results also indicated that, in many cases, the impact of COVID-19 has not yet been studied or there is not yet data available. This was especially true in relation to studying COVID-19’s impact across various characteristics (gender, attained age, marital status, situs).
For questions studying the impact of COVID-19 on specific assumptions, the effect was measured on a multiplicative basis compared to the expectation without COVID-19, except for voluntary lapse, which was measured on an additive basis. See examples in the full survey questions in Appendix A for additional detail.
Authors: Mike Bergerson, FSA, MAAA, Principal and Consulting Actuary Andrew Dalton, FSA, MAAA, Principal and Consulting Actuary Robert Eaton, FSA, MAAA, Principal and Consulting Actuary James Stoltzfus, FSA, MAAA, Principal and Consulting Actuary
Despite the fact long-term care workers were the first in Ontario invited to get the COVID-19 vaccine last December, a little more than half of them have volunteered to get the shot.
As of this week, only 55,000 of 100,000 long-term care workers in Ontario have been inoculated, according to the province’s Ministry of Health.
Dr. Hugh Boyd, chair of the Ontario Medical Association’s section on long-term care and care of the elderly, said a lack of confidence in the vaccine and pervasive myths about the quick development and safety of the shot is at the root of the low numbers.
Race & Insurance — The insurance regulatory system, and insurance in general, reflects the society it protects. Through our special committee on race and insurance we will continue to ensure the availability and affordability of insurance products for persons of color and historically underrepresented groups and promote diversity and inclusion within our sector.
Climate Risk & Resiliency — The NAIC is committed to working with state, federal and international stakeholders to coordinate climate-related risk and resiliency assessments, disclosures, and evaluation initiatives so that each state has the information, policies, and tools that promote resiliency and ensure stable insurance markets for its citizens.