BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        SB 575|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
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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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            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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