When CalPERS imposed an 85 percent rate hike on its long-term care insurance program, it caused a fuss among customers and some legislators.
Now it's sparked a lawsuit.
A trio of law firms filed suit against CalPERS on Tuesday, saying the pension fund misled public employees and retirees into buying the coverage by promising their premiums would be stable. The firms are seeking to have the suit certified as a class action on behalf of more than 125,000 affected policyholders.
Filed in Los Angeles Superior Court, the suit came 10 months after the California Public Employees' Retirement System board approved the big rate increases. Policyholders got formal notice in February. The 85 percent rate hike takes effect in 2015.
To buffer the impact, CalPERS is offering a less expensive benefit plan as an alternative.
CalPERS has said the rate hikes were necessary to bolster a program that was losing money. Unlike pensions, the program isn't subsidized by taxpayers. Long-term care insurance pays for stays in nursing homes, convalescent homes and the like.
The pension fund began offering the coverage in 1995, and the lawsuit said CalPERS' brochures and other promotional materials were deceptive. One early letter to public employees, from 1996, said public employees and their family members "may obtain excellent coverage at a low rate locked-in for the life of your coverage."
According to the suit, the premiums "were grossly underpriced and were not sufficient. CalPERS, which had no prior experience providing long-term care coverage, over-promised and under-delivered."
News of the lawsuit brought cheers from some angry policyholders.
"I applaud this," said Mary Jean Anderson, 76, of Valley Springs in Calaveras County. "CalPERS duped us."
Anderson and her husband, John, a retired state social worker, dropped their old plan last month in order to get less expensive coverage from CalPERS.
"If a class-action lawsuit has been filed, I would very definitely join in," said Shirley Elrod, 68, a retired Department of Motor Vehicles worker living in Sacramento.
Premiums have periodically risen over the years, and a pair of 5 percent rate hikes are planned for this year and next. But the 85 percent increase set for 2015 came as a shock to many customers.
Holly Wedding, a 63-year-old Sacramentan cited in the lawsuit, originally paid $58 a month in premiums. She now pays $149.25, which will balloon to $304.41 two years from now, said one of the lawyers on the case, Stuart Talley of Sacramento.
"Wonderful people were duped into thinking they had purchased protection in the event they were no longer able to care for themselves," said Gregory Bentley, a Claremont lawyer participating in the suit. "Unfortunately, the peace of mind so many sought turned out to be a worthless bill of goods."
CalPERS said it raised premiums only after determining there was no alternative.
"CalPERS took great care in coming to the decision to restructure the program so that participants could access services when they need them," the pension fund said in a statement responding to the suit. "We consulted with member and policyholder groups and completed rigorous analyses of options before making the very tough decision that rate increases were necessary."
Because of the big rate hike, the suit says thousands of policyholders have been left with difficult choices: Pay the higher premiums, reduce their coverage in order to keep their rates steady "or risk having their coverage terminated by CalPERS for nonpayment of premiums."
The suit demands that CalPERS return all the premiums paid by those customers over the years.
Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.