The State Worker

CalPERS faces court fight over long-term care fees

The California Public Employees’ Retirement System faces a class-action lawsuit arguing that it inappropriately hiked fees on people who bought insurance for long-term medical needs through the pension fund.
The California Public Employees’ Retirement System faces a class-action lawsuit arguing that it inappropriately hiked fees on people who bought insurance for long-term medical needs through the pension fund. Sacramento Bee file photo

A class-action lawsuit against CalPERS filed on behalf of more than 130,000 California government workers and retirees can move forward to trial, a Los Angeles judge has ruled.

The lawsuit challenges a sharp increase in fees that the California Public Employees’ Retirement System levied on people who bought insurance for long-term health care through the pension fund. It argues that the rate hike was different in scale and purpose than any previous fee increase on those policy holders.

A lawyer for the group suing CalPERS cast the decision by Judge Ann Jones as a “very positive event moving forward to trial.”

It was “the largest obstacle standing in our way,” attorney Mike Bidart said.

The lawsuit stems from a series of rate increases that CalPERS adopted for long-term care insurance beginning in 2013, peaking with an 85 percent rate hike in 2015. People with those plans could have avoided the rate hikes if they dropped lifetime coverage and inflation protection policies that they also bought, according to documents cited by Jones in her ruling.

Bidart contends that the structure of the rate increases breached the contracts people signed when they bought the policies. Those agreements included assurances that rate hikes would be spread among those who bought long-term care insurance, and that people who bought inflation protection policies would not see their rates increase because of expanded benefits.

The judge wrote that structuring the rate increases in such a way that they deterred people from continuing lifetime care plans suggested that “a driving reason behind the 85 percent premium increase was to do away with the inflation protection and/or lifetime benefits.”

Her ruling followed motions from CalPERS to dismiss the case. CalPERS argued that the contracts allowed rate increases and that policy holders did not protest significant rates hike in 2003 and 2007.

Jones dismissed a part of the lawsuit that named individual members of the CalPERS Board of Administration. The lawsuit had claimed that they failed in their responsibility to effectively manage funds for long-term care policy holders. The remaining case centers on breach-of-contract claims.

Jones “did not rule on the merits of these claims, which CalPERS looks forward to disproving at trial,” CalPERS General Counsel Matt Jacobs said in a written statement.

Bidart said the lawsuit, known as Sanchez vs. CalPERS, likely will go to trial in the first half 2018.

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at sacbee.com/newsletters.

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