What does long term care include?
A $1.2 billion lawsuit that could affect up to about 100,000 seniors who had CalPERS long-term care insurance plans goes to trial Monday.
The class-action lawsuit claims the California Public Employees’ Retirement System violated insurance policy terms when it increased premiums by 85 percent in 2015 and 2016 after promising policyholders stability.
“These people were completely, completely misled,” said Michael Bidart, an attorney representing the plaintiffs.
CalPERS contends it had the legal authority to raise the premiums.
“We raised rates to sustain the plan and we believe they were properly increased in accordance with our contract,” CalPERS General Counsel Matt Jacobs said in an email.
Seniors who paid the increase or who reduced their coverage to avoid it are members of the suit’s class, excepting those who opted out. The suit is known as Elma Sanchez vs. CalPERS. Plaintiffs have estimated the damages from the increased premiums and other costs associated with the increases total about $1.2 billion, but that number is one of the issues to be addressed at trial.
The trial, taking place in Los Angeles County Superior Court, has been broken up into several parts. It could end as early as next week if a judge sides with CalPERS in an initial phase, or it could stretch out indefinitely.
Attorneys representing seniors with the plans filed the lawsuit in 2013, after CalPERS notified the seniors of the premium hikes to come, according to court documents.
CalPERS started selling the plans, which cover care in nursing homes and other settings, in 1995, according to court documents. The fund advertised them as 30 percent cheaper than similar plans and indicated they would be prudently managed, according to the complaint filed in the case.
From the start, the long term care program was “grossly underfunded” and was engaging in overly risky investment strategies that resulted in losses the fund didn’t tell policyholders about, according to the complaint.
The complaint says the state advertised to employees that by enrolling, they could lock in premiums for the life of their policies.
“What happened was they over-promised and under-priced the products they were selling,” said Bidart, the plaintiffs’ attorney.
CalPERS’ struggles with long-term care insurance aren’t unique. While many insurers offered the plans in the 1990s, premium increases and insurer losses drove most out of that line of business, according to the AARP.
Judge William Highberger on Monday will address arguments over whether CalPERS had the authority under its contracts with policyholders to raise the rates, Bidart said. A ruling in favor of CalPERS in that phase could end the case.
If the suit proceeds from there, it will move on to statute of limitations issues. CalPERS argues that since it increased premiums by lesser percentages in 2003, 2007, 2010, 2011, 2012 and 2013, seniors who wanted to file a lawsuit should have done so earlier.
“Plaintiffs paid these increases for years without complaint before the initiation of this lawsuit,” CalPERS attorneys argued in a court filing.
The judge could decide in favor of the plaintiffs on that issue, or he could send that piece to a jury trial, Bidart said.
If plaintiffs prevail on the contract of limitations issue, the lawsuit — absent a settlement — would proceed to a jury trial related to the potential breach of contract. Any damages would be determined in that phase.
CalPERS has said that since the long-term care insurance fund is separate from its pension fund and other programs, the only way for it to pay damages in the trial would be to raise long-term care insurance premiums.
“The long-term care fund is self-supporting,” Jacobs said in an email. “Any monetary judgment seriously threatens its viability going forward.”
More information, including court documents, is available at a website Bidart set up: http://www.calpersclassactionlawsuit.com.