BILL ANALYSIS Ó
AB 2366
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Date of Hearing: April 19, 2016
ASSEMBLY COMMITTEE ON AGING AND LONG-TERM CARE
Cheryl Brown, Chair
AB 2366
(Dababneh) - As Amended March 16, 2016
SUBJECT: Long-term care insurance.
SUMMARY: Exempts insurers that offer a policy which combines
both life and long-term care (LTC) coverage from the requirement
to offer the new policy to their existing long-term care policy
holders. Specifically, this bill:
1)Maintains the requirement that insurers must notify its
existing insureds of the right to be notified of new benefits
or benefit eligibility.
2)Maintains the requirement that insurers must provide the
notice above within 12 months.
3)Maintains the requirement that the insurer must continue to
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file notice with the Department of Insurance.
4)Exempts the insurer from providing this notice for life
insurance-based combination policies that include long-term
care coverage provisions.
EXISTING LAW:
1)Requires long-term care insurance policies to provide the
policy holder with the right to be notified of any new
long-term care benefit or benefit eligibility rule offered by
the insurer.
2)Requires the insurer to offer the new benefit or benefit
eligibility rule by the insurer as either a replacement policy
or a rider on the existing policy.
3)Provides for the regulation of LTC insurance by the Insurance
Commissioner and prescribes various requirements and
conditions governing the delivery of individual or group
long-term care insurance in the state.
4)Establishes the California Partnership for Long-Term Care
Program to link private long-term care insurance and health
care service plan contracts that cover long-term care with the
In-Home Supportive Services program and Medi-Cal and to
provide Medi-Cal benefits to certain individuals who have
income and resources above the eligibility levels for receipt
of medical assistance, but who have purchased certified
private long-term care insurance policies and subsequently
exhausted the benefits of these private policies.
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FISCAL EFFECT: Unknown
COMMENTS:
Long-Term Care Services and Supports:
By 2030, nearly 20 % of California's population will be 65 years
or older. The vast majority of these seniors will one day need
some type of long-term care services and supports, meaning a
high level of help with nonmedical basic daily activities, like
walking, eating, and bathing. For older adults and their
families, providing this level of support can take a sizable
toll on both quality of life and personal finances, given the
lack of affordable, accessible financing solutions.
Preference for Home-Based Care:
The AARP Public Policy Institute has conducted numerous focus
groups and surveys of people age 50 and over to ascertain their
views about various issues with which they will grapple as they
age. Nearly 90 % of people over age 65 want to stay in their
home for as long as possible, and 80 % believe their current
residence is where they will always live.
When asked to think specifically about their own personal
situation as they get older, a slight majority of Americans 40
years or older are a great deal or quite a bit concerned about
losing their independence (52%) and losing their memories or
other mental abilities (51%). Forty-four percent are at least
quite a bit concerned about being able to pay for the care or
help they might need as they age, having to move to a nursing
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home (42%), being a burden on their family (41%), leaving debts
to their family (32%), and being alone without family or friends
around them (33%).
While a large share of Californians age 40 and older recognize
the future need, many also state they have done little or no
planning for their care needs and lack knowledge and confidence
on the financial aspects of long-term care. Among California
adults age 40 and over, only 27% are confident they have the
financial resources to pay for long-term care. This is
significantly lower than the rest of the country. In addition,
nearly 3 in 10 mistakenly believe Medicare covers ongoing care
in the home by a licensed home health care aid; a full one-third
of individuals 40 and over do not know what Medicare provides
for home-based care. What the survey does show without question
is that the vast majority of older adults want to remain in
their homes and communities as they age.
Several substantial and collaborative policy efforts are
underway to explore innovative strategies to solving the Rubik's
cube puzzle of how to finance long term services and support.
These efforts seek to provide information to help policymakers
and stakeholders create a viable set of policy solutions that
will meet the needs of individuals, families, state and federal
governments, and society at large.
In February 2016, three organizations - the Bipartisan Policy
Center (BPC), LeadingAge, and the Long-Term Care Financing
Collaborative (the Collaborative) released information regarding
how to approach better providing LTC services and supports.
First, increasing insurance-based coverage would require
multiple solutions, utilizing the strengths of both the private
and public sectors. The private insurance marketplace needs to
identify lower priced policies insuring against the risk of
needing a high level of LTSS over a relatively short period of
time. Next, it should include a public component of a
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catastrophic insurance program where all Americans would be
covered. And finally, Medicaid should be strengthened as the
safety net program, which would have an important but smaller
role in a refashioned, insurance-based LTC financing system.
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 cover
long-term care services and support. However, the federal
government has since determined that the national program
established under the CLASS Act would not be viable.
Long-term care (LTC) insurance is a product with a troubled
history that has resulted in a rigorous regulatory regime.
Long-term care policies are subject to regulatory controls
including prior approval requirements for policies and
advertisements, rate regulation, mandatory benefits, and
detailed requirements governing the sale of LTC products to name
a few. These stringent controls resulted from controversies
involving prior LTC products in both product design (what
services are covered and in what quantity) and pricing. Many
early products were quite expensive for the narrow range of
services and an emphasis on mostly institutional care that
resulted in many policyholders owning policies that didn't cover
the services they needed. LTC services are increasingly
provided at home and in non-institutional, lesser restrictive
settings and at the same time ever-increasing premiums that are
unaffordable for the elderly with fixed incomes.
In addition, LTC insurance coverage is inherently difficult for
both the consumer and the insurer to estimate what LTC services
will be needed, how long they will be needed, and when they will
be needed. The typical insurance coverage framework pressures
the consumer to provide answers based on what their physical and
financial condition will be 10, 20, or 30 years from now. It is
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tremendously difficult to anticipate what an individual might
need over the last decades of one's life. What is becoming
clearer is that the vast majority of older adults want to remain
in their homes and communities as they age.
Author's Statement: According to the author, "Americans are
increasingly concerned about how to pay for long-term care
costs, if the need arises. At the same time, some consumers are
hesitant to purchase and pay premiums on a traditional long-term
care policy they may never use. In response to these concerns,
some insurance companies began offering a hybrid product, which
combines the benefits of a long-term care policy and a life
insurance policy. Popular among consumers, premiums for these
types of hybrid products reached $1.2 billion in 2014.
"Despite the popularity and evident desire for these types of
hybrid products, California customers are unable to access some
of these hybrid products because of a provision in California
law that requires companies to offer existing long-term care
policyholders the ability to upgrade their benefits any time new
policies are developed with new long-term care benefits. Since
hybrid products are treated as one policy and not separate
components, there is confusion when new long-term care policy
upgrades are available.
"Current law was intended to ensure that all stand-alone
long-term care insurance consumers would continue to be able to
compare and contrast their existing coverage against new
products. However, hybrid products were not prevalent when the
original mandate was passed, and applying it to combination
products is not in consumers' best interest and hinders new
products from being offered.
"AB 2366 will exempt hybrid products from this mandatory "offer"
requirement. This will give customers more access to hybrid
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products."
Arguments in Support: According to the sponsor, the Association
of California Life and Health Insurance Companies, "AB 2366
simply exempts hybrid products from the current offer
requirement. This solution is not unique. There are other
sections in CA law that carve out hybrid products from some of
the LTC requirements that are typically put in place for
stand-alone LTC policies." The bill "will help remove a
confusing replacement coverage requirement and pave the way for
more innovative Long-Term Care products. Existing law requires
insurers offering new long-term care (LTC) policies to offer the
"new" coverage to their existing LTC policyholders whenever a
new product is developed and approved for sale in the state.
The offer statute (CIC 10235.52) was established in 2002 at a
time when individual standalone LTC policies were more the focus
of policymakers. We believe it is inappropriate to apply this
requirement to "hybrid" products as it hinders the ability of
companies to make new products available for consumers and can
also be confusing or misleading to existing policyholders.
ACLHIC is sponsoring AB 2366 to offer a simple solution to
ensure that insurance consumers are offered the latest
innovative insurance products, and protect existing consumers
from being forced to review and contemplate a potentially
inappropriate replacement product. In fact, a number of
existing insurance code sections require significant protections
for consumers against potential unnecessary LTC replacement
sales. We believe this modest change in the law will assist in
the development of new innovative LTC products, and protect many
existing policyholders from being needlessly confused by an
updated offer every time a new LTC product is developed. All
products an insurer offers are always available for review
online, or by calling a trusted insurance agent or
representative."
Related Legislation:
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SB 1438 (Alquist) of 2012, called for a Long-Term Care Task
force convened by the Commissioner of the Department of
Insurance. SB 1438 was held in Senate Appropriations Committee.
AB 999 (Yamada), Chapter 627, Statutes of 2012 revised long-term
care (LTC) insurance oversight to enhance consumer information
and revise rate calculation requirements.
AB 1553 (Yamada) of 2014 prohibited the use of gender as a
factor to determine the premium for LTC insurance. AB 1553 was
held in the Assembly Insurance Committee.
AB 332 (Calderon) of 2015 established a task force to design a
statewide, public long-term care insurance program. AB 332 was
vetoed by the Governor.
REGISTERED SUPPORT / OPPOSITION:
Support
Association of California Life and Health Insurance Companies -
Sponsor
National Association of Insurance and Financial Advisors -
California (NAIFA-California)
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Opposition
None on file.
Analysis Prepared by:Gail Gronert / AGING & L.T.C. / (916)
319-3990