BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                       AB 332


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          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 |                     |
          |                |      |                    |                     |
          |                |      |                    |                     |








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          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  








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            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.










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          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  








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            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  








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            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.








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            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


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