BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 575|
|Office of Senate Floor Analyses | |
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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
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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.
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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.
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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
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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
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