BILL ANALYSIS Ó
SB 475
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Date of Hearing: June 30, 2015
ASSEMBLY COMMITTEE ON HUMAN SERVICES
Kansen Chu, Chair
SB
475 (Monning) - As Amended June 25, 2015
SENATE VOTE: 31-4
SUBJECT: Continuing care contracts: cancellation: payments.
SUMMARY: Imposes additional repayment and other requirements on
certain continuing care contracts once a unit has been vacated.
Specifically, this bill:
1)Prohibits a continuing care retirement community (CCRC)
provider from charging a resident or his or her descendants a
monthly fee once a unit has been permanently vacated by the
resident, unless the fee is part of an equity interest
contract. Further requires a continuing care contract to
contain, among other things, a statement regarding this
prohibition.
2)Requires a continuing care contract to contain the policy or
terms for repaying a lump sum of any portion of the entrance
fee, and further requires every continuing care contract that
provides for a refund or repaying a lump sum of all or part of
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the entrance fee to, among other things, do the following:
a) State that the provider shall make a good faith
effort to reoccupy or resell a unit for which a lump-sum
payment is conditioned upon resale of the unit and, by
July 1, 2016, notice current residents, as specified,
regarding this statement as clarification of the
resident's existing contract; and
b) State, for a lump-sum payment, the average and
longest amount of time that a lump-sum payment has been
delayed.
3)Requires, for contracts signed after January 1, 2016, a
repayment of at least 20% of the full lump-sum payment if the
unit remains vacant for 120 days after the resident's
termination. Further specifies that this repayment shall not
cause the contract to be deemed a refundable contract
requiring a refund reserve, as specified.
4)Requires, for existing and prospective continuing care
contracts, that any payment balance that has not been paid to
a resident within 120 days shall accrue interest at a rate no
lower than the United States prime lending rate. Further
requires that any payment balance that has not been paid
within 180 days will accrue interest at a rate no lower than
2% plus the United States prime lending rate and that interest
shall continue to accrue until the date the full lump-sum
payment is paid to the resident.
5)Clarifies that, after the death of a resident, repayment and
interest requirements apply to a lump-sum payment that is
conditioned upon the resale of a unit and that any payment and
interest shall be payable to the resident's estate.
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6)States that these repayment and other requirements shall not
be construed to limit or alter any legal remedies otherwise
available to the resident or his or her estate.
EXISTING LAW:
1)Establishes the California Residential Care Facilities for the
Elderly Act to provide for the licensure and regulation of
Residential Care Facilities for the Elderly (RCFEs) as a
separate category within the existing licensing structure of
the Department of Social Services (DSS). (HSC 1569 et seq.)
2)Provides for the licensure and regulation of Skilled Nursing
Facilities (SNFs) by the Department of Public Health. (HSC
1250 et seq.)
3)Defines a "continuing care contract" to mean a contract that
includes a promise by a provider to provide one or more
elements of care to an elderly resident, as specified, in
exchange for an entrance fee and/or the payment of periodic
charges. (HSC 1771(c)(8))
4)Defines a "continuing care retirement community" (CCRC) to
mean a facility located in the state where services promised
in a continuing care contract are provided. Further allows
that, when services are provided in residents' own homes, the
homes into which the provider takes those services are to be
considered a part of the CCRC. (HSC 1771(c)(10))
5)Provides for the certification and regulation of CCRCs by DSS.
(HSC 1170 et seq.)
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6)Requires an applicant for a certificate of authority to
operate a CCRC to obtain appropriate licenses for the entire
CCRC as otherwise required by law, including RCFE and/or SNF
licenses. (HSC 1771.5)
7)Requires a continuing care contract to contain numerous
specified elements including, but not limited to, the duration
of the contract, the list of services that will be made
available to the resident as required to provide the
appropriate level of care, an itemization of the services
included in the monthly fee and services available for an
extra charge, and others. Further requires additional
information and disclosures to be attached to the continuing
care contract. (HSC 1788(a), (d) through (h))
8)Establishes requirements regarding the cancellation of a
continuing care contract. (HSC 1788.2)
9)Requires a lump-sum payment that is conditioned upon resale of
a unit to be paid to the resident within 14 calendar days
after resale of the unit. Futher requires that this payment
not be considered, characterized, or advertised as a refund.
(HSC 1788.4(e))
FISCAL EFFECT: This bill has been keyed non-fiscal by the
Office of Legislative Counsel.
COMMENTS:
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Continuing Care Retirement Communities: CCRCs offer individuals
60 years or older a housing option that includes long-term care
services that are typically provided for the lifetime of the
resident. CCRCs offer a long-term continuing care contract,
which is an agreement between a provider and a resident
promising that a range of services will be provided to the
resident at the CCRC (sometimes at an additional cost, depending
on the type of contract). These services include housing,
residential services, and nursing care.
Continuing care contracts can vary widely across CCRCs, with
differing provisions on costs, payment methods, services
provided, and other elements. Continuing care contracts
typically require an individual to pay an entrance fee and
monthly fees. Entrance fees can range widely, typically from
$100,000 to $1 million, and monthly fees vary depending in part
on the level of services included in the contract. CCRC
contracts are sometimes referred to by three "types": Type A
contracts (also known as life care contracts), are the most
expensive and are all-inclusive agreements wherein all housing,
services and healthcare are covered by the entrance fee and
monthly fees; Type B contracts typically offer discounted
healthcare services for limited amounts of time, after which
services can be purchased; and Type C contracts offer the lowest
entrance and monthly fees, but require residents to be
responsible for paying for healthcare services at market rates.
Also, continuing care contracts may be refundable or
non-refundable. Refundable contracts refund a portion of the
entrance fees, sometimes on a scale that decreases over time the
percentage of the entrance fee that is refunded. These types of
contracts require a CCRC to maintain a reserve for refunds (in
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addition to other reserves required for the operation of a
CCRC). Alternatively, many CCRC providers choose instead to
offer a repayment of a designated portion of the entrance fee -
a "lump-sum payment" - that is conditioned upon resale of the
unit. A reserve is not required in this case, as it is assumed
that the resale of the unit will result in the new resident's
entrance fee covering the cost of repaying a portion of the
former resident's entrance fee. In California, there are
currently no requirements that resale and/or repayment of
entrance fees take place within a certain period of time.
There are currently nearly 100 CCRCs in California, with over
20,000 units. Roughly 65% of CCRC providers are non-profit.
The Community Care Licensing Division of DSS oversees CCRCs by:
a) ensuring that licensing laws and regulations are followed
(CCRCs are required to obtain a certificate of authority and an
RCFE license; they must also obtain a SNF license through the
Department of Public Health (DPH) if offering skilled nursing
services), and b) reviewing and approving CCRC applications and
monitoring CCRCs' financial condition and their ability to
uphold their contractual obligations to residents.
Need for this bill: For contracts that condition the repayment
of entrance fees (or some portion thereof) on the resale of a
resident's unit, supporters of this bill argue that instances
exist where years pass before individuals or their estates
receive their repayment; therefore, they argue for requiring
repayment of 20% of the full lump-sum payment within 120 days,
and the accrual of interest on the remaining applicable balance
thereafter. Additionally, proponents of this bill point to
cases where monthly fees continue to be charged against an
entrance fee balance after a resident has passed away and their
residence has been vacated, and argue for the prohibition of
this practice.
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According to the author, "Under current law, Continuing Care
Retirement Community (CCRC) contracts that base the repayment of
a resident's entrance fee upon the resale of the unit and not
upon vacancy are unfair arrangements for consumers and there is
little incentive to resale those units in a timely manner. In
many cases the CCRC provider is able to take advantage of this
type of contract, which can lead to seniors or their estates
experiencing significant delays in the repayment of entrance
fees. For example, a CCRC in Pacific Grove had not paid
$530,600 to the estate of a resident who died more than 3 years
ago because the refund was conditioned upon resale of the unit.
[This bill] levels the playing field for the CCRC resident in a
manner that will result in more timely repayments and adds an
incentive for a CCRC to resale a unit in the form of interest on
the unpaid remaining balance. The resident safeguards in the
bill balance the need for steadfast repayment while ensuring the
CCRC can remain fiscally solvent so the current residents are
not adversely impacted."
California Continuing Care Residents Association (CALCRA), the
sponsor of this bill, states that, "Current law leaves families
without recourse to recover an entrance fee refund within a
reasonable time and there is no way to ensure that CCRC
providers are making a good faith effort to re-sell these vacant
units. [This bill] helps protect the investments seniors make
in their long-term care and ensures that CCRC providers remain
accountable for returning payments and refunds to seniors and
their families within a reasonable time. This bill also
prohibits a CCRC provider from charging the resident, or their
estate, for any costs associated with the unit once the unit has
been vacated and is made available for re-sale."
Opposition: A number of CCRC providers have expressed
opposition to this bill, with one key contention being the
requirement to pay 20% of the full lump-sum payment within
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months of a resident vacating the unit through death or moving,
and without the guarantee that the unit will be reoccupied and
another entrance fee collected within that timeframe. Opponents
of this bill state that this requirement would seriously
jeopardize the financial stability of CCRCs, and potentially
threaten a "run on the bank" if multiple residents terminate
contracts simultaneously. Some providers claim that, even if a
reserve is not statutorily required for the repayment
stipulations contained in this bill, some financial lenders and
institutions may require such a reserve, and good accounting
practices simply warrant it.
CCRC providers claim that the financial instability and need for
large reserves that would result from this bill would, in the
end, harm the consumer by translating into significantly
increased entrance and monthly fees and/or, as LeadingAge
California argues, reducing "the willingness of providers to
offer repayment contracts, which can be the most affordable
method of accessing CCRCs." Erickson Living writes that, if
this bill were to be enacted, "repayments to estates would take
precedence over ensuring the financial stability for more than
100 communities and tensofthousands of frail seniors living in
California CCRCs.
Staff comments: California, along with the nation as a whole,
faces an aging population by 2020, it is projected that 1 in 5
Californians will be 60 or older. A variety of housing and
long-term care models will be needed to meet the increasing
demand attending this demographic shift and the differing needs
of this diverse population. For some individuals, CCRCs may
present an attractive option. This bill seeks to ensure that
those individuals, and their beneficiaries, are not unduly
burdened by questionably lengthy waits for repayment of entrance
fees upon the resident vacating the unit through moving or
passing away. However, requiring CCRC providers to repay 20% in
120 days may incentivize (while not requiring) these providers
to maintain higher reserves; as a result, providers may, in
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turn, ultimately pass costs on to consumers through increased
entrance fees and monthly charges. Additionally, residents who
are choosing to move from a CCRC and permanently cancel their
contracts may often need prompt repayment of some portion of
their entrance fees so that they may afford relocation - say, in
the example of a CCRC resident who would like to move to another
part of the state to be near his or her family. While the
estates of CCRC residents who pass away should also receive
entrance fee repayments in a timely manner, there is arguably
greater urgency on the part of CCRC residents who choose to
cancel their contracts and relocate.
Recognizing the importance of: a) balancing the needs and
interests of former CCRC residents and their families with those
of current and prospective CCRC residents, and b) prioritizing
the urgency of repayments to living residents, committee staff
recommends that the percentage of repayment required within 120
days be reduced for lump-sum payments due to estates.
Recommended amendments:
Based on the concerns raised above, committee staff recommends
that the 120-day repayment requirement be maintained at 20% for
living CCRC residents who choose to cancel their contracts, and
reduced to 10% for repayments due to estates upon the death of a
resident.
DOUBLE REFERRAL . This bill has been double-referred. Should
this bill pass out of this committee, it will be referred to the
Assembly Committee on Aging and Long-Term Care.
REGISTERED SUPPORT / OPPOSITION:
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Support
California Continuing Care Residents Association (CALCRA)
sponsor
157 members of Eskaton Village Carmichael
California Advocates for Nursing Home Reform (CANHR)
California Commission on Aging (CCoA)
California Long-Term Care Ombudsman Association (CLTCOA)
Cardinal Point Residents Association
Consumer Federation of California (CFC)
National Association of Social Workers, CA Chapter (NASW-CA)
161 Individuals
Opposition
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American Baptist Homes of the West
Atherton Baptist Homes
British Home
Carmel Valley Manor
Channing House
Continuing Life LLC
Episcopal Communities & Services for Seniors
Episcopal Senior Communities
Forest Hill
Foundation Property Management, Inc.
Fredericka Manor Retirement Community
Front Porch Communities and Services
Heritage on the Marina
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Hillcrest
La Costa Glen Carlsbad
Lake Park
Los Angeles Jewish Home for the Aging
Motion Picture & Television Fund (MPTF)
O'Conner Woods
Palm Village Retirement Community
Spring Lake Village
Stoneridge Creek Pleasanton
The Samarkand Retirement Community
The Terraces of Los Gatos
Analysis Prepared by:Daphne Hunt / HUM. S. / (916)
319-2089
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