BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2366| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2366 Author: Dababneh (D), et al. Amended: 6/13/16 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 SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 ASSEMBLY FLOOR: 78-0, 5/12/16 (Consent) - See last page for vote SUBJECT: Long-term care insurance SOURCE: Association of California Life and Health Insurance Companies DIGEST: This bill exempts life insurance policies that also provide coverage for long-term care services from a provision that requires insurers to offer new benefits to holders of existing long-term care insurance (LTCI) policies. ANALYSIS: Existing law: AB 2366 Page 2 1)Provides for the regulation of LTCI and life insurance by the California Department of Insurance (CDI) and prescribes various requirements and conditions governing those products. 2)Requires LTCI carriers to offer new policies, benefits, or benefit eligibility criteria to existing policyholders as either a replacement policy or a rider on the existing policy ("mandatory offer"). 3)Authorizes the Insurance Commissioner to waive the requirement under certain conditions. This bill: 1)Clarifies that the mandatory offer must be made within 12 months from when the new policy series is made available in this state. 2)Limits the mandatory offer to only those changes that are material in nature and would exempt "minor" revisions such as changes to elimination periods, benefit periods, and benefit amounts. 3)Exempts from the mandatory offer those life insurance policies or riders that contain "accelerated long-term care benefits" i.e. policies that pay for long-term care services out of a life insurance benefit. Background LTCI policies are sold with the expectation that they will not be needed until decades later. However, the rapid evolution of care options makes it difficult for insurers and consumers to predict what services will be offered and available that far in AB 2366 Page 3 the future. For example, many early products only covered nursing home care and those policies did not cover home care and assisted living facilities when those services became available. Now, insurers must make a mandatory offer of new benefits to existing policyholders as a replacement policy or rider. This provides the insured an opportunity to update the policy. Some life insurance products, often referred to as "hybrid" or "combination" products, pay for long-term care services out of the death benefit when the insured develops a qualifying disability. The mandatory offer applies whether or not the policy is standard LTCI or a hybrid. Both standard and hybrid life insurance products come in a variety of forms that interact with LTCI benefits differently. Whole life policies offer a fixed death benefit, level premium, and a steadily increasing cash value. Universal life policies allow the policyholder to change the death benefit, change or skip premium payments, and have a less predictable cash value. According to the Association of California Life and Health Insurance Companies (ACLHIC), new LTCI benefits might not integrate or graft well onto an existing life policy. This bill conforms California law to the standards adopted by the National Association of Insurance Commissioners by exempting "minor" changes to covered services or providers for all LTCI policies, as well as all hybrid products. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No SUPPORT: (Verified 8/1/16) Association of California Life and Health Insurance Companies (source) American Council of Life Insurers National Association of Insurance and Financial Advisors - California AB 2366 Page 4 OPPOSITION: (Verified 8/1/16) California Department of Insurance ARGUMENTS IN SUPPORT: ACLHIC argues that existing law impedes the development of innovative products and confuses consumers. ACLHIC suggests that it would not be appropriate to force an insurer that develops a new whole life hybrid product to offer the new LTCI features to consumers with an existing universal life hybrid product. For example, an LTCI feature designed for whole life insurance that funds additional LTCI benefits with dividends paid to the policyholder would be meaningless when attached to a universal life policy that does not pay dividends. ARGUMENTS IN OPPOSITION: CDI argues that an exemption for LTCI attached to life insurance is not necessary given recent amendments that limit the obligation to offer new benefits that are material only. CDI further emphasizes that this exemption may be more significant since industry representatives suggest that more consumers will obtain LTCI through combination policies than through standalone policies. ASSEMBLY FLOOR: 78-0, 5/12/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon NO VOTE RECORDED: Burke, Jones-Sawyer AB 2366 Page 5 Prepared by:Hugh Slayden / INS. / (916) 651-4110 8/3/16 19:33:36 **** END ****