BILL ANALYSIS Ó
AB 332
Page 1
GOVERNOR'S VETO
AB
332 (Calderon)
As Enrolled September 8, 2015
2/3 vote
--------------------------------------------------------------------
|ASSEMBLY: | |(May 11, 2015) |SENATE: |26-12 |(September 1, |
| |59-16 | | | |2015) |
| | | | | | |
| | | | | | |
--------------------------------------------------------------------
--------------------------------------------------------------------
|ASSEMBLY: | |(September 3, | | | |
| |60-18 |2015) | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
--------------------------------------------------------------------
Original Committee Reference: INS.
SUMMARY: Establishes a task force to design a statewide, public
long-term care insurance program.
AB 332
Page 2
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
AB 332
Page 3
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
AB 332
Page 4
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
AB 332
Page 5
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
AB 332
Page 6
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
AB 332
Page 7
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