The promised health care may be long-term, but the insurance premium rates guaranteed by the California Public Employees’ Retirement System (CalPERS) turned out not to be.

So a few months after the giant pension fund announced it was raising rates 85%, effective in 2015, disgruntled policy holders filed a class-action lawsuit in Los Angeles County Superior Court. They claimed that CalPERS had guaranteed that the policies it began issuing in 1995 to cover stays in nursing homes and long-term care facilities would have rates that “would be fixed and would never rise based on the consumer’s age or health.”

The lawsuit argues that CalPERS had given them no warning of the announced rate hike in February, or told them that the program was “grossly underfunded” and hadn’t enrolled any new members since 2009. “Now more than 125,000 Class Members, many of whom are elderly and on fixed incomes, are placed in the untenable position of either allowing their policies to lapse or paying CalPers increased premiums that they simply cannot afford,” the suit complains.

The 85% premium increase applied to anyone who bought a policy between 1995 and 2004. The $3.6 billion insurance fund is the second-largest long-term plan in the nation.  Plaintiffs are pressing for a quick court date and jury trial, because many of them are very old.

CalPERS marketed the policies heavily, promoting a price tag 30% below comparable programs with benefits that exceeded those in the marketplace. One advertisement cited in the lawsuit proclaims, “[w]hen you enroll, you lock-in your premium at the same rate for as long as you pay premiums.”

The lawsuit charges that CalPERS willfully misled policyholders. The plaintiffs charge that CalPERS knew right from the start that it had underpriced the insurance, but kept on adding new benefits. “In short, CalPers, which had no prior experience providing long-term care coverage, over-promised and under-delivered.” Closing enrollment in 2009, the suit alleges, guaranteed a “death spiral” for the program.

The lawsuit cites the plight of plaintiff 88-year-old Elma Sanchez, who was paying $179 a month when she signed up for coverage in 1998. Her monthly premium will be $793.75 in 2015.

CalPERS isn’t the only company boosting rates on long-term policies. Buffeted by the economic downturn five years ago, risky investments that didn’t pan out, unexpectedly high claims for benefits and miscalculations about a form of insurance no one had experience with until it burst on the scene a few decades ago, companies like John Hancock Life Insurance Co., which got the state OK to boost rates 40% on some of its policies, have been seeking to charge higher premiums.

–Ken Broder

To Learn More:

CalPERS Sued over Long-Term Care Insurance Rate Hikes (by Dale Kasler, Sacramento Bee)

Lawsuit Alleges CalPERS Misled Customers with Long-Term Care Plans (by Chad Terhune, Los Angeles Times)

CalPERS Plans 85% Rate Hike for Long-Term-Care Insurance (by Chad Terhune, Los Angeles Times)

FAQ on Long-Term Care Program & Premium Increase  (CalPERS)

CalPERS Lawsuit (Los Angeles County Superior Court)