BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 332


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          GOVERNOR'S VETO


          AB  
          332 (Calderon)


          As Enrolled  September 8, 2015


          2/3 vote


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          Original Committee Reference:  INS.


          SUMMARY: Establishes a task force to design a statewide, public  
          long-term care insurance program.  










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          The Senate amendments: 


          1)Specify the membership of the task force as follows:


             a)   Insurance Commissioner (Chair).


             b)   Director of the Department of Health Care Services.


             c)   Director of the Department of Aging.


             d)   Certified actuary appointed by the Governor.


             e)   Non-government health policy expert appointed by the  
               Governor.


             f)   Representative of a long-term care provider association  
               appointed by the Governor.


             g)   Representative of a senior or consumer organizations  
               appointed by the Governor.


             h)   Representative of a long-term care employee organization  
               appointed by the Speaker of the Assembly.


             i)   Representative of the long-term care insurance industry  
               appointed by the Senate Rules Committee.


          2)Require the task force to consider establishing a joint  








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            public/private long-term care insurance system.


          3)Require the task force to suggest regulatory changes to  
            increase access to long-term care insurance and long-term care  
            programs.  


          4)Extend the deadline for the task force to complete its report  
            from January 1, 2017, to July 1, 2017.


          5)Requires the Department of Insurance to produce an actuarial  
            review of the task force recommendations.


          EXISTING LAW:  Provides for the regulation of long-term care  
          (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.


          COMMENTS:  


          1)Purpose of this 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 LTC and health care costs  
            during their golden years.  The majority of participants  
            indicated they could not afford more than three months of care  
            at a nursing facility with an average cost of $6,000 per  








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            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 LTC  
            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 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  








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            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 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 this  
            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  








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            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.


            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.  


          1)CLASS.  The federal Patient Protection and Affordable Care Act  
            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  








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            federal Department of Health and Human Services announced that  
            the CLASS Act was not financially viable.  The CLASS Act was  
            subsequently repealed. 


          GOVERNOR'S VETO MESSAGE:


          This bill would establish a nine-member task force to explore  
          the design and implementation of a statewide long-term care  
          insurance program.


          Since the federal government and a number of private  
          organizations have undertaken essentially the same task, I don't  
          think that this bill is necessary.  Moreover, I'm hesitant to  
          start down a path that may lead to a large and potentially  
          costly new mandate.


          Analysis Prepared by:                   Paul Riches / INS. /  
          (916) 319-2086                                    FN:   0002515