BILL ANALYSIS Ó AB 2366 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 2366 (Dababneh) As Amended August 19, 2016 Majority vote -------------------------------------------------------------------- |ASSEMBLY: |78-0 |(May 12, 2016) |SENATE: | 37-0 | (August 25, | | | | | | |2016) | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: INS. SUMMARY: Exempts insurers that offer a policy that combines both life and long-term care (LTC) coverages from the requirement to offer the new policy to their existing long-term care policy holders and clarifies the requirements for when LTC policy holders must be offered a new policy. The Senate amendments clarify that an insurer must offer existing LTC policyholders any new policy that adds coverage for new LTC services or providers. EXISTING LAW: 1)Requires long-term care insurance policies to provide the policy holder with the right to be: AB 2366 Page 2 a) Notified of any new long-term care benefit or benefit eligibility rule offered by the insurer, and b) Offered the new benefit or benefit eligibility rule by the insurer as either a replacement policy or a rider on the existing policy. FISCAL EFFECT: According to the Assembly Appropriations Committee, the bill would have negligible fiscal impact on the Department of Insurance. COMMENTS: 1)Purpose. According to the author, the requirement to offer new LTC products to existing policyholders hinders the ability of companies to make new products available for consumers, creates a compliance debacle for new hybrid products, and can be extremely confusing or misleading to existing policyholders. The author introduced the bill to offer a simple solution to ensure that insurance consumers are offered the latest innovative insurance products, while protecting existing policyholders 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. 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 an insurance agent or representative. 2)Troubled Product. Long-term care insurance is a product with a troubled history that has spawned a rigorous regulatory regime. Long-term care policies are subject to myriad regulatory controls including prior approval requirements for policies and advertisements, rate regulation, mandatory AB 2366 Page 3 benefits, and detailed requirements governing the sale of LTC products to name a few. These elaborate controls have arisen from problems that prior LTC products have had in both product design (what services are covered and in what quantity) and pricing. Many early products suffered from the dual sins of paying for a large amount of a fairly narrow range of services (mostly institutional care) with relatively low premiums that resulted in many policyholders owning policies that didn't cover a lot of the services they needed (LTC services are increasingly provided at home and in non-institutional settings) and ever increasing premiums that are unaffordable for retirees with fixed incomes. LTC insurance is an inherently difficult product for both consumers and insurers. It requires 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. This is inherently difficult as it requires the consumer to answer these questions based on what their physical and financial condition will be 10, 20, or 30 years from now. That inherent problem is compounded by the rapid development of medical and other technologies that are changing the way we age and die in dramatic ways. Even if the "what" of LTC services doesn't change over that time span, we can be confident that the "how" and the cost of LTC services will be very different in 20 years. 3)Combination Products. For the reasons noted above, and others, LTC insurance has been a difficult product to sell. Somewhere between 10 and 12% of adults have an LTC policy of some kind. Mostly these policies have been purchased by more affluent women who face the reality that they will need care and likely not have a spouse or partner to provide it (women have longer average life spans than men) and want to preserve some assets to pass on to their heirs. Insurers have created products that combine life insurance and LTC insurance to try and make the product appealing to a broader range of consumers. These products provide a death benefit during the policyholder's working years and the benefit converts to an LTC benefit later in life. These new products are new LTC AB 2366 Page 4 products and therefore have triggered the requirement that they be offered to existing LTC insurance policyholders. Insurers indicate that this is problematic because the requirement to offer new products to existing policyholders was enacted with standalone LTC insurance products in mind. Combination products (also referred to as hybrid products) have a financial structure particular to the specific type of life insurance product upon which it is based (whole life, universal life, variable life, etc.) and within each type there are different methods of allocating premiums and earnings. The diversity of products in this new market may well be at odds with the underlying requirement to offer policyholders new products as they become available. Analysis Prepared by: Paul Riches / INS. / (916) 319-2086: FN: 0004818