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