BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 565| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 AB 565 Page 2 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 AB 565 Page 3 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 AB 565 Page 4 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 AB 565 Page 5 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 **** END ****