In Wake of Rate Increase, CalPERS Long Term Care Insurance Policyholders Reduce Coverage
Premiums for CalPERS Long Term Care Insurance products are set to increase next year, and many policyholders have already responded to the increases by cutting their coverage.
A rate hike of 5-85% will take place in 2015 and 2016 for members of the California Public Employee Retirement System. The program grossly underestimated claims rates and costs while simultaneously overestimating investment returns. Like many other carriers, the high usage and low federal interest rates have had a major negative impact on business. In order to avoid financial devastation for the system, rate hikes were necessary.
The increases apply to those with policies that feature unlimited benefit periods, an option that is no longer available from any carrier for that very reason. Unlimited benefit periods have proved detrimental to insurance companies, as people are using their policies to a much greater extent than anyone predicted.
Options for Coverage
CalPERS is offering policyholders the option to either accept the massive rate increase and keep their coverage in tact or reduce their coverage amount and continue paying the same rates. So far, more than one quarter of policyholders have cut their plans in order to avoid the rate hikes. That pans out to 16,000 who have left the unlimited lifetime policy with inflation protection behind in exchange for a policy with capped payments for care received in institutions and at home.
Another 41,000 policyholders have not yet taken any action on their policies. CalPERS just recently sent letters to these remaining lifetime policyholders to remind them about the changes and provide them with a recap of their options. Executives at CalPERS believe that many will simply accept the rate hike to hold onto their highly valuable policies.
“We think the folks (who want to) make the conversion have already made it,” said CalPERS executive Ann Boynton.
Long Term Care Insurance Market
The huge rate increases sparked a major backlash among policyholders who felt they had been misled about the potential of rate increases. Many allege that they were told their premiums would never go up, and this huge hike came as a painful surprise. A class action lawsuit has been launched against CalPERS and the suit is currently pending in Los Angeles Superior Court.
Long Term Care Insurance providers faced several obstacles over the past few years, including the low interest rate environment, higher than expected claims rates, low lapse rates, and advances in health care technology. Many carriers were forced to raise rates to remain financially solvent and continue supporting their policies, but the market seems to be settling out as carriers get a better grip on these influencing factors. Despite the rate increases, policies can still be very affordable and attainable.
Considering the sheer value of a Long Term Care Insurance policy, it makes sense to invest in one if you have assets to protect and don’t want to turn to a loved one for care later in life. To see how much a policy would cost for you, request a free quote comparison and we will shop the market for you and send you a quote of all the top rated companies and the best rates.