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What’s the Future of LTCI in California?

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The California Public Employees’ Retirement System (CalPERS) offers retirement benefits to state, public and classified school employees and their families. Employees and their employers (state agencies funded by tax dollars) make contributions to CalPERS, and a 13-member board invests those funds. In 1990, CalPERS initiated a self-funded, not-for-profit long-term care insurance (LTCI) program. They are currently the largest LTCI provider in California and the second-largest buyer of LTCI in the US, with only the federal government ahead of them. In 2005, the CalPERS pension fund reached $200 billion, according to their Web site.

And yet on July 1, 2007, policyholders will see an increase in their monthly rates—up to 41 percent for the oldest individuals! Why?

Last year, board members voted in favor of this increase to compensate for a projected $600 million deficit over the next 60 years. Is this forward thinking merely precautionary, intended to safeguard our burgeoning retiree population? Judging from the company’s financial reports, poor market performance is to blame. According to a March 2007 CalPERS press release, 11 companies in which CalPERS invests—including Sara Lee Corporation, the pharmaceutical giant Eli Lilly and Company, and Dollar Tree stores—have performed poorly on the NASDAQ. Public-sector employees who purchased plans between 1995 and 2004 will have until July 31, 2007 to drop their coverage. For many people, there will be no choice.

Many private-sector employers offer 401(k) plans, matching employees’ contributions into private accounts. The funds are tax-deferred, and the investing decisions are left to the employee. A number of states have adopted this method for their public employees. While return on investment is still subject to market trends, these plans take the burden off tax payers who ultimately pay for deficits in state and federally funded programs. This leaves me wondering about the privatization of retirement funding—a concept we, as a nation, vehemently opposed when President Bush first introduced it? However you look at it, we’re a nation in debt, and dependence on government-funded programs means one thing: more money out of our communal pocket. While no one likes rate increases, the reality is undeniable—you can’t depend on funding that isn’t there, no matter how much time you’ve devoted to a state agency.

(Attempting to) hem this hole in our pocket,

Lori Deschene

Posted in: Editorials, Long-term Care Insurance (LTCI), Why and When to Purchase

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