BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                        AB 565|
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                                   THIRD READING 


          Bill No:  AB 565
          Author:   Cooley (D) 
          Amended:  6/29/16 in Senate
          Vote:     21 

           SENATE INSURANCE COMMITTEE:  8-0, 6/22/16
           AYES:  Roth, Gaines, Berryhill, Glazer, Hall, Hernandez,  
            Mitchell, Wieckowski
           NO VOTE RECORDED:  Liu

           ASSEMBLY FLOOR:  Not relevant

           SUBJECT:   Group life and disability insurance:  required  
                     provisions


          SOURCE:    Association of California Life and Health Insurance  
          Companies
          
          DIGEST:  This bill revises the standards for group life  
          insurance related to dependent coverage and waiver of premium  
          benefits.


          ANALYSIS:  

          Existing law:

          1)Establishes standards for life and disability insurance and  
            subjects life and disability insurers to regulation by  
            California Department of Insurance (CDI).

          2)Authorizes life insurers to issue a master group life  
            insurance policy to employers, unions, credit unions and other  
            qualified associations, so that individual members of the  








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            group may obtain coverage through that master policy.

          3)Permits insurers to cover dependents of an insured employee.

          4)Defines "dependent" to include the insured's spouse, all  
            children from birth until 26 years of age, or a child 26 years  
            of age or older that suffers from a qualifying disability and  
            is incapable of self-sustaining employment.

          5)Authorizes insurers to include a benefit that waives premium  
            charges on life insurance policies when the insured suffers a  
            total disability ("waiver of premium benefit"). 

          6)Requires an insurer, offering a waiver of premium benefit, to  
            waive all premiums due for the entire period of total  
            disability if the insured develops a total disability before  
            age 60. 

          7)Requires an insurer, offering a waiver of premium benefit, to  
            waive all premiums until the insured reaches age 65 if the  
            insured develops a total disability after attaining age 60. 

          This bill:

          1)Revises the definition of "dependent" for the purpose of  
            issuing dependent coverage, to include children up to the age  
            of 26.

          2)Authorizes an insurer offering a waiver of premium benefit in  
            a group master policy to waive all premiums due for the period  
            of total disability until the insured attains 65 years of age  
            if the insured develops a total disability before age 60. 

          3)Authorizes an insurer offering a waiver of premium benefit in  
            a group master policy to offer a policy that excludes  
            disabilities developed once the insured reaches age 60 or  
            older.

          4)Requires an insurer to offer to renew a policy that continues  
            an in-force waiver of premium benefit for group policies  
            issued prior to January 1, 2017 (this ensures that the  
            policyholders the option to keep the more generous benefits if  








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            the policy provides those benefits at the time of renewal).


          Background
          
          Group life insurance policies provide coverage to group members  
          under a master policy usually issued to an employer or  
          association.  These policies are less expensive than individual  
          counterparts.  Premiums for group policies are tied to the  
          claims experience of the group and higher utilization may result  
          in an increase in premium for the entire group.  The master  
          policyholder selects a standard set of benefits and some  
          policyholders, such as employers, may pay the premium.    
          Coverage typically ends when the member leaves the group or the  
          employment ends, although employees may convert a group  
          certificate to a permanent, individual policy at that time.   
          According to the sponsor, most group insurance is renewed on an  
          annual term basis and offered to active employees.  This bill  
          addresses special types of benefits that attach to group life  
          insurance policies.

          Dependent life insurance covers a member's spouse or qualified  
          child and pays the benefit to the member when a covered  
          dependent dies.  In 2011, SB 220 (Price, Chapter 126, Statutes  
          of 2011) authorized insurers to cover children "from birth until  
          26 years of age."  This bill clarifies that an insurer may  
          permit a policyholder to choose a maximum age limit at or  
          between 18 and 26.  The changes made by SB 220 also created some  
          confusion as to whether coverage may be limited based on factors  
          related to dependency including marital status, student status,  
          residency, or whether the group member is supporting the child.   
          On that point, this bill is intended to return the law to what  
          it was prior to SB 220 so that an insurer may limit dependent  
          coverage on actuarially justified factors or factors that truly  
          relate to whether a child is a "dependent."

          Life insurers may waive premium during periods when the insured  
          can no longer work so that coverage remains in force until the  
          end of the disability or the insured reaches an age specified by  
          the policy.  SB 1449 (Calderon, 2012, Chapter 567, Statutes of  
          2012) established specific standards for these benefits  
          including minimum waiver periods based on whether the insured  








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          develops a disability before or after reaching the age of 60.   
          SB 1449 was based on standards developed by the Interstate  
          Insurance Product Regulation Commission (IIPRC) designed for  
          individual life insurance policies that had no connection to  
          retirement or termination of employment.  (The IIPRC establishes  
          a uniform set of standards and a single policy approval process  
          for its 44 participating states.)  In 2013, the IIPRC adopted  
          standards specific to group policies, and members of the  
          insurance industry began raising concerns that California's  
          standards were misaligned with group coverage typically offered  
          to employers and would significantly increase premium.  The  
          following year, AB 2578 (Dababneh, Chapter 360, Statutes of  
          2014) made minor adjustments to California's standards, but did  
          not fully address concerns related to cost.  AB 565 more closely  
          aligns California law to the IIPRC standards applicable to group  
          policies by permitting the insurer to limit the waiver of  
          premium benefit period to a retirement proxy age no younger than  
          age 65 and to exclude disabilities that develop after age 60.   
          However, insurers must give policyholders the option to keep the  
          more generous benefits at renewal.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No


          SUPPORT:   (Verified6/29/16)


          Association of California Life and Health Insurance Companies  
              (source)
          American Council of Life Insurers


          OPPOSITION:   (Verified7/25/16)




          None received










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          ARGUMENTS IN SUPPORT:     ACLHIC points out that unlike the  
          federal Affordable Care Act that provides coverage that benefits  
          dependent children, dependent life insurance coverage pays the  
          benefit the parent/group member.  A requirement that forces  
          coverage for all children under age 26 unduly restricts options  
          for employers and affinity groups.  


          ACLHIC also argues that group life insurance is usually provided  
          during an insured's span of employment with the group  
          policyholder or with a known set of limitations as part of  
          affinity group coverage.  Treating group coverage like  
          individual coverage could lead employers and groups to forego  
          the waiver of premium benefit due to the added expense. As a  
          result, employees would be deprived of the ability to have their  
          premium paid while disabled, at a time they most need financial  
          help.





          Prepared by:Hugh Slayden / INS. / (916) 651-4110
          7/25/16 11:29:54


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