BILL ANALYSIS Ó
AB 332
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Date of Hearing: April 8, 2015
ASSEMBLY COMMITTEE ON INSURANCE
Tom Daly, Chair
AB 332
(Calderon) - As Introduced February 13, 2015
SUBJECT: Long-term Care Insurance Task Force
SUMMARY: Establishes a task force to design a statewide, public
long-term care insurance program. Specifically, this bill:
1)Requires the Insurance Commissioner (commissioner) to appoint
a task force to design a statewide long-term care (LTC)
insurance program.
2)Requires the task force to explore the following aspects of
the program:
a) Program design options for eligibility, enrollment,
benefits, financing, administration and interaction with
Medi-Cal and other public programs.
b) The feasibility of including a LTC benefit in the
State Disability Insurance program (SDI).
c) Payroll deductions for premiums.
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d) Mandatory enrollment options.
e) Coordination of benefits with other private
insurance.
f) Impact on the LTC workforce.
1)Requires the commissioner to appoint senior health policy and
LTC insurance stakeholders to the task force including one
representative of a labor union representing LTC workers, the
Department of Health Care Services, and the Employment
Development Department.
2)Requires the Department of Insurance and other participating
governmental agencies to fund the task force with existing
resources.
3)Requires the task force to issue its report on or before
January 1, 2017.
4)Permits the commissioner to seek private funds to pay for the
task force.
5)Makes numerous findings and declarations regarding LTC costs.
EXISTING LAW:
1) Provides for the regulation of LTC insurance by the
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commissioner and prescribes various requirements and
conditions governing the delivery of individual or group
long-term care insurance in the state.
2) Establishes the California Partnership for Long-Term Care
Program to link private long-term care insurance and health
care service plan contracts that cover long-term care with
the In-Home Supportive Services program and Medi-Cal and to
provide Medi-Cal benefits to certain individuals who have
income and resources above the eligibility levels for receipt
of medical assistance, but who have purchased certified
private long-term care insurance policies and subsequently
exhausted the benefits of these private policies.
FISCAL EFFECT: Undetermined
COMMENTS:
1)Purpose of the Bill . According to the author, Californian's
have two options for the elderly to receive the care and
personal assistance they need to remain in their home. The
first is for a person to qualify for Medi-Cal. By qualifying
for Medi-Cal, seniors and persons with disabilities may
qualify for many programs administered by the state such as
In-Home Supportive Services. The second option is for a
person to earn and/or save enough disposable income to hire a
private home care aide or pay for residential care. Recent
public opinion research shows over 60 percent of working
adults fear they will not be able to afford long-term care and
health care costs during their golden years. The majority of
participants indicated they could not afford more than 3
months of care at a nursing facility with an average cost of
$6,000 per month, while 40 percent of participants indicated
they could not afford a single month of care in a nursing
home. Among the Latino population, 88 percent of participants
do not have long-term care insurance and are unaware if they
qualify for public benefits. A long-term care insurance task
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force would be the first step towards building a robust
long-term care system in California.
2)Long Term Care . LTC services provide individuals who, because
of illness or disability, are generally unable to perform
activities of daily living, such as bathing, dressing,
toileting, and getting around the house, or suffer from
cognitive impairments. LTC services are provided in a variety
of settings, such as nursing homes, assisted living
facilities, and private residences. Only about 20 percent of
the elderly who need LTC services live in an institutional
setting. The roughly 80 percent living in the community
primarily live in private homes, but a small number live in
residential communities catering to the needs of elderly
people. For those living at home, most receive assistance
from unpaid family members and friends (referred to as
informal care) while some pay for assistance (referred to as
formal care) from home health aides. Elderly people with
severe functional and cognitive limitations who require
around-the clock assistance often live in institutional
settings. According to data from the Medicare Current
Beneficiary Survey, the elderly nursing home population has
declined over the past 10 years as more elderly people are
living in residential care facilities, community-based housing
with supportive services, and in their homes.
3)Retirement Readiness . It is well accepted that the average
American worker has inadequate retirement savings. A worker is
considered to be at risk for serious economic hardship in old
age if his or her retirement income falls under 200% of the
poverty threshold for individuals. A study of retirement
readiness published in 2011 by the UC Berkeley Center for
Labor Research and Education found that 47% of Californians
are projected to have retirement incomes below 300% of the
poverty level ($34,470 in 2013). Individuals who have not
been able to save enough to provide adequate retirement income
are unlikely to be able to support the added cost of LTC
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insurance premiums either before or, especially, during
retirement. Individuals with low retirement incomes who need
LTC services are most likely going spend down their assets and
rely on Medi-Cal to pay for those services.
4)How is LTC Paid For ? More than half of LTC services are
provided as informal care. The Congressional Budget Office
estimates that the value of informal care provided in 2011 was
approximately $234 billion. Of the $192 billion spent on
formal LTC services in 2011 roughly two-thirds is paid by
Medicare and Medicaid (with the remainder paid out-of-pocket
by consumers or by private insurance). Medi-Cal (sometimes
with a little Medicare added in) is the de facto LTC insurance
policy for those who aren't wealthy enough to afford LTC
insurance premiums or to pay LTC costs out-of-pocket.
Creating a public LTC insurance product as envisioned by the
bill would be protective of the state General Fund (which pays
for 50% of Medi-Cal costs for most recipients) to the extent
that consumers elect to buy the insurance. However, given
that a reasonably affordable LTC policy will cover only a part
of the LTC expenses for most people, it is likely that a great
many of those who buy the policy will spend down their assets
and become Medi-Cal eligible at some point. For most
Californians, buying an LTC insurance policy shifts the
financial burden for the LTC services away from the General
Fund and onto the individual.
5)Problems in the LTC Market . The long-term care insurance
marketplace is problematic for both insurers and consumers.
In the past five years 10 of the top 20 LTC insurers have
stopped selling new LTC policies. Insurers have struggled
with setting premiums adequate to cover their costs in the
absence of sufficient claims data. LTC insurance is a
relatively new product that requires years of paying premiums
before claims are made. Only in recent years have the
insurers begun to receive claims for many of the policies sold
early on, and those claims have been much higher than the
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insurers anticipated. In addition to misjudging the cost of
claims, insurers have struggled with anticipating policy lapse
rates, LTC inflation, and life span increases. All of those
factors, and others, have led to LTC insurance being much more
expensive than previously expected. The early mistakes in
pricing LTC policies has led to rounds of major premium
increases which adds marketing challenges to a product that is
already, according to insurance agents, difficult to sell.
CalPERS is a recent example of an LTC insurer that
underestimated the cost of insuring LTC. It has pushed
through multiple premium increases (30% in 2003, 43.8% in
2007, and 85% in 2015) in an attempt to set premiums in line
with its costs. While premium increases of this size are
difficult to absorb for those who are still working, it can be
impossible for retirees on a fixed income to absorb the higher
premiums.
Genworth is the largest issuer of private LTC insurance and it
has suffered massive financial losses on the product in the
past year. It has added nearly $1 billion to the loss
reserves for its LTC policies and has had its bonds reduced to
junk status by multiple rating agencies. These losses are
occurring despite Genworth having significantly increased the
premiums charged for its existing policies. Losses in LTC
insurance previously caused both MetLife and Prudential to
exit the market.
6)Previous Legislation . A very similar bill was introduced in
2002 (SB 1438 by Senator Alquist) and was held on the Senate
Appropriations Committee suspense file.
7)CLASS Act . The federal Patient Protection and Affordable Care
Act (also known as Obamacare) established the Community Living
Assistance Services and Supports program (CLASS). The CLASS
program was intended to be a national, voluntary insurance
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program designed to provide assistance to qualified
individuals to obtain help with many basic daily living
activities. On October 14, 2011, the federal Department of
Health and Human Services announced that the CLASS Act was not
financially viable. The CLASS Act was subsequently repealed.
REGISTERED SUPPORT / OPPOSITION:
Support
California State Council of the Service Employees International
(co-sponsor)
United Long-Term Healthcare Workers (co-sponsor)
Congress of California Seniors (CCS)
United Domestic Workers of America
Opposition
None received
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Analysis Prepared by:Paul Riches / INS. / (916) 319-2086