BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 575


                                                                    Page  1





          Date of Hearing:  July 7, 2015


                   ASSEMBLY COMMITTEE ON AGING AND LONG-TERM CARE


                                 Cheryl Brown, Chair


          SB  
          575 (Liu) - As Amended June 29, 2015


          SENATE VOTE:  36-0


          SUBJECT:  Long-term care insurance.


          SUMMARY:  Establishes annual notifications, and an opportunity  
          to designate alternative recipients of annual notifications for  
          long-term care insurance (LTCI) policy and certificate holders  
          who are entitled to benefits after lapsing premium payment, or  
          reducing premium payment.  Specifically, this bill:  


          1)Requires annual notifications to policy and certificate  
            holders of LTCI who have been deemed eligible for either  
            shortened benefit period nonforfeiture benefits, or contingent  
            benefits upon lapse.



          2)Requires insurers offer those policy or certificate holders  
            the opportunity to elect, or confirm a third-party recipient  
            of the annual notification of benefits.











                                                                     SB 575


                                                                    Page  2







          3)Requires the annual notification of benefits to describe those  
            benefits in dollar amounts.





          EXISTING LAW:  


          1)Establishes the position of Insurance Commissioner (IC),  
            elected by the people, with jurisdiction over the California  
            Department of Insurance, as specified.  



          2)Provides for "long-term care insurance" which includes any  
            insurance policy, certificate, or rider advertised, marketed,  
            offered, solicited, or designed to provide coverage for  
            diagnostic, preventive, therapeutic, rehabilitative,  
            maintenance, or personal care services that are provided in a  
            setting other than an acute care unit of a hospital.  LTCI  
            includes any insurance or indemnity product containing:  
            coverage for institutional care including care in a  
            convalescent facility, extended care facility, custodial care  
            facility, or a skilled nursing facility.  LTCI also includes  
            products providing home care coverage including home health  
            care, personal care, homemaker services, or hospice.  LTCI  
            additionally covers community-based coverage including adult  
            day care, adult day health care, hospice care at home or a  
            hospice facility, or respite care.  LTCI includes disability  
            based long-term care policies but does not include insurance  
            designed primarily to provide Medicare supplement or major  
            medical expense coverage.











                                                                     SB 575


                                                                    Page  3





          3)Requires the IC to approve any rate or any rate adjustment  
            applied to LTCI policies before the policy may be offered,  
            sold, issued, or delivered in California.



          4)Permits the IC to require that an insurer maintain a  
            "contingent benefit upon lapse," or a benefit valued by the  
            amount of premiums paid before the policy or certificate  
            holder was unable to continue making premium payments, and  
            subsequently lapsed.  



          5)Requires insurers to obtain from applicants and enrollees 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.





          6)Requires insurers to notify insureds of the right to change a  
            written designation at least every two years.



          7)Prohibits insurers from terminating an LTCI policy or  
            certificate until 30 days after a notice of lapse has been  
            sent to the policyholder and any designee(s).  



          FISCAL EFFECT:  This measure has not been analyzed by a fiscal  
          committee.


          COMMENTS:  








                                                                     SB 575


                                                                    Page  4







          1)Author's Statement:  "This bill will protect consumers and  
            more specifically, the elderly and their caregivers.  It  
            requires long-term care insurers to provide annual  
            notification of the availability and amount of contingent  
            benefits to the insured and, upon the insured's designation,  
            at least one other person.  Consumers may be eligible for  
            contingent benefits if their long-term care insurance premium  
            rate dramatically increases and they don't have a  
            non-forfeiture option.  Consumers who are eligible for the  
            contingent benefit option stop paying premiums and "bank"  
            these benefits.



            "Individuals who lapse their LTC policies 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.  This notification will give seniors and their  
            loved ones a clearer understanding of benefits available to  
            help finance and provide long term care.





            "This bill is sponsored by the California Department of  
            Insurance.  This bill is part of a package of legislation  
            recommended by the Senate Select Committee on Aging and  
            Long-Term Care." 












                                                                     SB 575


                                                                    Page  5






          2)Background on Dementia in California:  According to the  
            California Department of Public Health, there are now more  
            than 5.2 million people in the United States living with  
            Alzheimer's disease (AD).  As the population ages, this number  
            is expected to triple by the year 2050.  Among baby boomers  
            aged 55 and over, one in eight will develop AD and one in six  
            will develop a dementia.  Half of all persons 85 years and  
            older will develop the disease.  Although the illness usually  
            develops in people age 65 or older, it is estimated that over  
            500,000 people in their 30s, 40s, and 50s have Alzheimer's  
            disease or a related dementia.  It is the sixth leading cause  
            of death in the country.  Currently, there are 588,208  
            Californians 55 and over living with Alzheimer's disease;  
            one-tenth of the nation's Alzheimer's patients reside in this  
            state.  By 2030, this number will nearly double in California;  
            growing to over 1.1 million.  Due to a rapidly aging  
            population, the number of California's Latinos and Asians  
            living with Alzheimer's disease will triple by 2030.  The  
            number of African-Americans living with Alzheimer's disease  
            will double in this timeframe.



            As the population of people afflicted with Alzheime's Disease,  
            or other dementia, increases, so will the likelihood that  
            these citizens may be owners of long-term care insurance  
            benefits.  Many may have lost their ability meet the premium  
            payment demands on a monthly basis, particularly given the  
            recent increases in premiums.  Existing state law assures that  
            those who were conscientious enough to purchase LTCI, thereby  
            reducing the likelihood that they will become dependent upon  
            government services at some point in the future due to  
            poverty, are entitled to benefits, though truncated.  SB 575  
            assures that those earned benefits are not forgotten.












                                                                     SB 575


                                                                    Page  6






          3)Caregivers in California:  Caregivers support the needs of  
            dependent individuals in a variety of ways, performing a range  
            of tasks, including companionship, light house-keeping, meal  
            preparation, and personal care tasks.  More complex and  
            sensitive tasks include money management, medication  
            management, communicating with health professionals, and  
            coordinating care.  The Family Caregiver Alliance finds that  
            many family members and friends do not consider such  
            assistance and care "caregiving" - they are just doing what  
            comes naturally to them: taking care of someone they love.   
            But that care may be required for months or years, and may  
            take an emotional, physical and financial toll on caregiving  
            families.  



            The value of the services family caregivers provide for  
            "free," when caring, was estimated to be $450 billion in 2009.  
             The estimated value of unpaid care in California is $47  
            billion, (accounting for over 3.8 billion hours of care at  
            $12.17, the average caregiver wage in 2009).  On the personal  
            side, long term caregiving has significant financial  
            consequences for caregivers, particularly for women.  Informal  
            caregivers personally lose about $659,139 over a lifetime:  
            $25,494 in Social Security benefits; $67,202 in pension  
            benefits; and $566,443 in forgone wages.  Caregivers face the  
            loss of income of the care recipient, loss of their own income  
            if they reduce their work hours or leave their jobs, loss of  
            employer-based medical benefits, shrinking of savings to pay  
            caregiving costs, and a threat to their retirement income due  
            to fewer contributions to pensions and other retirement  
            vehicles.  The toll and costs of caregiving can be partially  
            mitigated through the purchase of LTCI.  Residual LTCI  
            contingency or nonforfeiture benefits can offer relief to  
            caregiving families already burdened by unfavorable economic  
            conditions and family care demands.  










                                                                     SB 575


                                                                    Page  7








            A 2012 report issued by the California Commission on Aging  
            (CCoA) noted that the state faces serious caregiver challenges  
            in today's economic climate.  As budgets are cut at the state  
            level, state policies are moving rapidly toward providing more  
            services to frail elders in the home, according to the report,  
            entitled "Celebrating Caregiving in California."  The CCoA  
            cautioned that policymakers must weigh the value of protecting  
            the interest of family caregivers against the cost of  
            institutionalization.  SB 575 offers California caregivers a  
            margin of potential relief from the unremitting demands  
            associated with placing one's life aside in order to care for  
            another.





          4)What is Long-Term Care?  Long-term care (LTC) is a broad range  
            of services provided by paid or unpaid providers that can  
            support people who have limitations in their ability to care  
            for themselves due to a physical, cognitive, or chronic health  
            condition that is expected to continue for an extended period  
            of time.  These care needs may arise from an underlying health  
            condition as is most common among older adults, an inherited  
            or acquired disabling condition among younger adults, and/or a  
            condition present at birth.  LTC services can be provided in a  
            variety of settings including one's home (e.g., home care or  
            personal care services), in the community (e.g., adult day  
            care), in residential settings (e.g., assisted living or board  
            and care homes), or in institutional settings (e.g.,  
            intermediate care facilities or nursing homes).  The term  
            home-and-community-based services (HCBS) refer collectively to  
            those services that are provided outside of institutional  
            settings.  Generally, a person needing LTC is one who requires  
            assistance with activities of daily living (ADLs), including  
            bathing, dressing, eating, transferring, and walking; or  








                                                                     SB 575


                                                                    Page  8





            instrumental activities of daily living (IADLs), which may  
            include meal preparation, money management, house cleaning,  
            medication management, and transportation. 


          5)What is Long-term care insurance?  Long-term care insurance  
            (LTCI) covers the costs of some or all long-term care services  
            when insureds are unable to take care of themselves.  Coverage  
            is triggered when an insured develops a "chronic illness"  
            typically defined as an inability to perform a set number of  
            activities of daily living.  A policy may cover facility care  
            or home care or both.  Approximately 599,000 policies are  
            currently in force in California, up from about 497,000 five  
            years ago.  Once a consumer purchases a policy, the insurer  
            may not raise the premium on an individual policy due to a  
            change in the individual's circumstances, such as the  
            development of a health condition.  Subject to the approval of  
            the Insurance Commissioner, the insurer may raise the rate on  
            a "block of business" (a group of policies sold by the same  
            insurer using the same forms and rates) if the insurer  
            demonstrates that an increase is warranted.  All policyholders  
            in that group will receive the same increase.  





            LTCI is relatively new form of insurance.  Insurers first sold  
            LTC covering nursing homes in the 1970s and expanded coverage  
            in the 1980s to cover a wider variety of settings.   
            Unfortunately, those insurers failed to accurately estimate  
            future costs and losses.  (Some consumer advocates also argue  
            that some insurers underpriced the product as a "teaser rate"  
            to induce consumers into purchasing policies.)  Regardless,  
            increasing life expectancies, faulty assumptions on lapse  
            ratios and the cost of care, as well as the poor performance  
            of insurer investments, have conspired to drive dramatic  
            increases in LTCI premiums recently, increasing the likelihood  
            of individuals lapsing their payments; a policy lapse places  








                                                                     SB 575


                                                                    Page  9





            the consumer in an extremely disadvantageous position since  
            the insured will likely lose all benefits under the policy  
            unless the consumer purchased an optional "nonforfeiture  
            benefit" that provides a very limited vested benefit.  When  
            consumers lose their original coverage, they also lose most of  
            their bargaining position.  Obtaining a new or replacement  
            policy may require additional underwriting and the potential  
            for much higher premium since a new policy will be priced at  
            the consumer's attained age.  Consumers with poor health may  
            not be able to purchase a policy at all.  





            Market Condition:  Many LTCI carriers, such as Prudential and  
            MetLife, have already stopped offering new LTCI policies in  
            California.  Presently, only 12 insurers are writing new  
            business in California, a drop from the 16 insurers that were  
            active five years ago.  Genworth Financial, with 32 percent of  
            California's individual LTCI market, warns that its ability to  
            continue to offer LTCI nationally depends on its ability to  
            obtain approval on pending rate increases.  





            LTCI Alternatives:  Insurance as a tool has many uses and LTCI  
            products are not the only insurance-based approach to  
            addressing the needs of the chronically ill.  Some life and  
            disability insurer offers products timed to be helpful during  
            a chronic illness, but are not specifically designed to pay  
            for long-term care services.  For example, some life insurance  
            policies offer accelerated benefits triggered by a chronic  
            illness that pay insureds all or a portion of the death  
            benefit of a life insurance policy when they develop a chronic  
            illness.  









                                                                     SB 575


                                                                    Page  10









          6)Contingent Benefit on Lapse:  Another consumer protection, the  
            contingent benefit on lapse "contingent benefit", provides  
            minimum coverage for some policyholders who did not purchase a  
            nonforfeiture benefit and are forced to lapse their policies  
            because of a substantial rate increase.  If over the life of a  
            policy, the insurer increases premiums beyond a specified  
            threshold, the IC may require the insurer to offer the  
            policyholder a contingent benefit, along with other options  
            (such as a shorter coverage period), that the policyholder may  
            elect instead of a rate increase.  The policyholder may elect  
            the contingent benefit or will be deemed to have elected the  
            contingent benefit if the policy lapses within 120 days of the  
            due date of the increased premium.  The thresholds are based  
            on the age of the policyholder and the premium at the time the  
            policy was issued; the older the policyholder, the lower the  
            threshold.



          7)Previous Legislation
                 AB 1804 (Perea) Chapter 380, Statutes of 2014, requires  
               insurers to maintain a process that allows policyholders to  
               designate in writing or electronic transmission at least  
               one third-party recipient to receive a notice of lapse or  
               nonrenewal for nonpayment of premium for private passenger  
               auto, certain residential property, and individual  
               disability income insurance policies.  



                 AB 1747 (Feuer), Chapter 315, Statutes of 2012, requires  
               insurers to permit holders of life insurance policies to  
               designate in writing at least one other person to receive  
               notice of lapse for nonpayment.  









                                                                     SB 575


                                                                    Page  11







                 SB 1810 (Dunn), Chapter 312, Statutes of 2006,  
               authorizes the IC to require a LTCI carrier to offer a  
               contingent benefit, as specified, as a condition of  
               approval of a modification to a rate schedule.



                 SB 1052 (Vasconcellos), Chapter 699, Statutes of 1997,  
               requires insurers to permit holders of long-term care  
               policies to designate in writing at least one other person  
               to receive notice of lapse for nonpayment and prohibits  
               termination of a LTCI policy for nonpayment until that  
               notice has been mailed 30 days before termination of the  
               policy.  


          REGISTERED SUPPORT / OPPOSITION:





          Support


          California Department of Insurance - Sponsor


          American Federation of State, County and Municipal Employees  
          (AFSCME), AFL-CIO


          California Commission on Aging


          California Health Advocates









                                                                     SB 575


                                                                    Page  12






          California Retired Teachers Association (CalRTA)


          National Association of Social Workers, California Chapter  
          (NASW-CA)





          Opposition


          None on file.





          Analysis Prepared by:Robert MacLaughlin / AGING & L.T.C. / (916)  
          319-3990