BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 575| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 575 Author: Liu (D) Amended: 4/30/15 Vote: 21 SENATE INSURANCE COMMITTEE: 7-0, 4/22/15 AYES: Roth, Gaines, Berryhill, Hernandez, Liu, Mitchell, Wieckowski NO VOTE RECORDED: Hall SUBJECT: Long-term care insurance SOURCE: California Department of Insurance DIGEST: This bill requires long-term care insurance carriers to annually notify policyholders with a vested contingent benefit upon lapse or a nonforfeiture benefit, and any designated third-party, that the benefit is available and how they may request more information about the benefit. ANALYSIS: Existing law: 1)Requires insurers to offer applicants for long-term care insurance (LTCI) the option to purchase a shortened benefit period nonforfeiture benefit that would provide a lifetime maximum benefit that is at least the equivalent value of the SB 575 Page 2 greater of the amount of premium paid or the dollar equivalent of three months of care at a nursing facility. 2)Requires insurers to offer applicants the opportunity to designate at least one individual in addition to the applicant to receive notice of lapse or termination of a policy for nonpayment of premium and requires insurers to receive from each applicant either: (a) a written designation of at least one third-party recipient, in addition to the applicant, who is to receive notice of lapse or termination for nonpayment of premium ("designation") or (b) a waiver signed and dated by the applicant notifying the insurer that the policyholder elects not to make a designation ("waiver"). 3)Requires insurers to notify policyholders of the right to add or change a designation at least every two years. 4)Requires approval by the Insurance Commissioner (IC) of any rate or rate adjustment applied to LTCI policies before a policy may be offered, sold, issued, or delivered to a resident of this state. 5)Permits the IC to require an insurer, as a condition of approval of a rate adjustment that exceeds a specified threshold, to administer a contingent benefit upon lapse that would provide the insured a minimum lifetime benefit that is at least the equivalent value of the greater of the amount of premiums paid or 30 times the daily nursing home benefit at the time of lapse. This bill: 1)Requires insurers to notify policyholders when a contingent benefit on lapse or a nonforfeiture benefit is conferred, and annually thereafter, that the benefit is available, that the insured may request a statement of the current value of the benefit, and how the policyholder may contact the insurer for more information. SB 575 Page 3 2)Requires insurers, when a contingent benefit upon lapse or a nonforfeiture benefit is conferred, to send a form notifying the policyholder that he or she has the right to designate a third-party to receive the annual notice and requires the insurer to receive: (a) a designation; (b) confirmation that the same person previously designated under Insurance Code Section 10235.40 to receive a notice of lapse shall receive the annual notice; or (c) a waiver. 3)Deems a failure to return the form to be a waiver by the policyholder. 4)Requires insurers to remind policyholders of the right to add or change a designation at the time of the annual notice or separately on a biennial basis. Background LTCI covers the costs of long-term care services when insureds are unable to take care of themselves. Unfortunately many of these policies were severely underpriced when they were first sold and have been subject to steep premium increases. Since the 1990s, California has adopted several significant reforms and rates are now regulated by the California Department of Insurance. Some carriers are still requesting approval for rate increases. Premium increases may be devastating to vulnerable consumers. California law provides consumers with options to help mitigate the impact. At the time of application, insurers must offer applicants the option to purchase a shortened benefit period nonforfeiture benefit ("nonforfeiture benefit"). When an insurer requests rate increase that meets a certain threshold, the IC may require an insurer to offer qualifying policyholders a contingent benefit upon lapse. SB 575 Page 4 Both contingent and nonforfeiture benefits provide shorter coverage periods than the underlying policy, but require no further premium payments. Because these benefits may vest many years before used, SB 575 requires insurers to send benefit holders an annual reminder providing basic information about the benefit. Existing law also provides policyholders with the option to designate a third party to receive a notice of lapse for nonpayment of premium. Since contingent and nonforfeiture benefits are considered paid-up and not subject to lapse, the existing designation process does not apply. This bill extends the designation process so that the holder of a contingent or nonforfeiture benefit may confirm, change, or add a designee to receive the annual notice. Representatives of the LTCI industry opposed this bill in the Senate Insurance Committee and are still evaluating this bill to identify potential implementation issues. However, they have removed their opposition based on recent amendments and the author's willingness to work with stakeholders on remaining issues. FISCAL EFFECT: Appropriation: No Fiscal Com.:NoLocal: No SUPPORT: (Verified4/30/15) California Department of Insurance (source) California Advocates for Nursing Home Reform California Association of Area Agencies on Aging California Commission on Aging California Health Advocates California Retired Teachers Association Congress of California Seniors National Association of Social Workers, California Chapter The Arc and United Cerebral Palsy California Collaboration SB 575 Page 5 OPPOSITION: (Verified4/30/15) None received ARGUMENTS IN SUPPORT: Proponents argue that existing law gives eligible long-term care policyholders facing large rate hikes they could not afford the right to stop paying premiums and bank a benefit amount for potential later use in the amount of premiums they had already paid. Individuals who lapse their LTCI policies and "bank" contingent benefits do not receive periodic notification from the insurer that these benefits are available. Without notification these individuals and their families can easily lose track of the existence of the benefits, especially if the insured suffers from cognitive impairment. These individuals and families likely end up paying for care or doing without when, in fact, benefits are available. Prepared by:Hugh Slayden / INS. / (916) 651-4110 5/1/15 14:05:15 **** END ****