CalPERS Agrees to $820M Long-Term Care Insurance Rate Suit Settlement

A state court judge in California has given preliminary approval to a $820 million settlement that could resolve nine years of litigation between the California Public Employees’ Retirement System and 80,000 CalPERS long-term care insurance benefits policyholders.

The policyholders have been suing CalPERS since 2013, after the state public employee pension agency increased premiums by 85% for LTCI policies with automatic inflation protection that were purchased between 1995 and 2004. The settlement amounts to about $10,000 in value per class member.

In addition to agreeing to pay $740 million to the class members, CalPERS has agreed to pay about $80 million for attorneys’ fees and expenses, administrative costs, and extra awards for the current and former CalPERS LTCI policyholders who served as the “named plaintiffs,” or lead plaintiffs, for the class.

CalPERS managers said they did nothing wrong, but they have agreed to the settlement to end the court fight.

Judge William Highberger, a California Superior Court judge in Los Angeles, expressed support for the proposed settlement earlier this month. He scheduled a July 26 hearing on a final approval motion.

The History

To agents selling ordinary individual LTCI coverage, CalPERS once looked like a formidable foe.

In 2004, for example, it told state public employers that it could charge 20% less than comparable private LTCI plans. “Most of these savings result from the direct marketing and self-funded, not-for-profit aspects of the program,” CalPERS said.

Opting Out

Class members will be able to opt out of the settlement. If 1% of the class members opt out, the current settlement effort could fail.

The court rejected an earlier settlement agreement, which was completed in 2021, because too many class members opted out.

For the earlier settlement, the parties relied partly on having an outside insurer provide replacement LTCI coverage, but the class ended up being unable to find replacement coverage. Some class members rejected the settlement so that they could keep their LTCI coverage, according to a draft letter from the plaintiffs and the class counsel to the class members that was included in the settlement proposal packet.

The New Settlement Proposal

The new settlement agreement provides seven different categories of benefits. Consumers who still have coverage and are not yet on a claim can give up their coverage in exchange for the return of 80% of the premiums already paid for the coverage, or keep their coverage and get an extra $1,000 cash payment.

The plaintiffs and the class counsel say one reason to agree to the settlement is that the average age of class members is 76, and about 15,000 of the class members have already died.

Staying in court for another two to four years could mean that 9,000 class members would die before getting any help from a settlement, according to the plaintiffs and the class counsel.

An aerial view of the Embarcadero in San Francisco. (Photo: Jason Doiy/ALM)