BILL ANALYSIS Ó
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CONCURRENCE IN SENATE AMENDMENTS
AB
2366 (Dababneh)
As Amended August 19, 2016
Majority vote
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|ASSEMBLY: |78-0 |(May 12, 2016) |SENATE: | 37-0 | (August 25, |
| | | | | |2016) |
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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:
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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
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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
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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