BILL ANALYSIS Ó AB 332 Page 1 ASSEMBLY THIRD READING AB 332 (Calderon) As Amended April 27, 2015 Majority vote ------------------------------------------------------------------ |Committee |Votes |Ayes |Noes | | | | | | | | | | | |----------------+------+--------------------+---------------------| |Insurance |9-4 |Daly, Calderon, |Beth Gaines, Travis | | | |Cooley, Cooper, |Allen, Grove, Mayes | | | |Dababneh, Frazier, | | | | |Gatto, Gonzalez, | | | | |Rodriguez | | | | | | | |----------------+------+--------------------+---------------------| |Aging |7-0 |Brown, Hadley, | | | | |Gipson, Gray, | | | | |Levine, Lopez, | | | | |Mathis | | | | | | | |----------------+------+--------------------+---------------------| |Appropriations |12-5 |Gomez, Bloom, |Bigelow, Chang, | | | |Bonta, Calderon, |Gallagher, Jones, | | | |Daly, Eggman, |Wagner | | | |Eduardo Garcia, | | | | |Holden, Quirk, | | | | |Rendon, Weber, Wood | | | | | | | | | | | | AB 332 Page 2 ------------------------------------------------------------------ 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. 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 AB 332 Page 3 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 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. AB 332 Page 4 FISCAL EFFECT: According to the Assembly Appropriations Committee, estimated one-time costs for staff support for the task force of $115,000 a year for two years from the Insurance Fund. 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% 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% of participants indicated they could not afford a single month of care in a nursing home. Among the Latino population, 88% of participants do not have long-term care insurance and are unaware if they qualify for public benefits. A long-term care insurance task 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% of the elderly who need LTC services live in an institutional setting. The roughly 80% living in the community primarily live in private homes, but a AB 332 Page 5 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 University of California, 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 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 AB 332 Page 6 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 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. AB 332 Page 7 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 (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 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. Analysis Prepared by: Paul Riches / INS. / (916) 319-2086 FN: 0000338 AB 332 Page 8