BILL ANALYSIS Ó
SB 575
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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.
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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.
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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:
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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."
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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.
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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.
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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
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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
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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.
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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.
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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
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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