BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 575|
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UNFINISHED BUSINESS
Bill No: SB 575
Author: Liu (D)
Amended: 7/13/15
Vote: 21
SENATE INSURANCE COMMITTEE: 7-0, 4/22/15
AYES: Roth, Gaines, Berryhill, Hernandez, Liu, Mitchell,
Wieckowski
NO VOTE RECORDED: Hall
SENATE FLOOR: 36-0, 5/4/15
AYES: Allen, Anderson, Bates, Beall, Block, Cannella, De León,
Fuller, Gaines, Galgiani, Hall, Hernandez, Hertzberg, Hill,
Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire,
Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen,
Nielsen, Pan, Roth, Runner, Stone, Vidak, Wieckowski, Wolk
NO VOTE RECORDED: Berryhill, Hancock, Pavley
ASSEMBLY FLOOR: 79-0, 8/27/15 - See last page for vote
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 shortened benefit period nonforfeiture
benefit ("nonforfeiture benefit"), and any designated
third-party, that the benefit is available and how they may
request more information about the benefit.
Assembly Amendments (1) modify the frequency and effective date
of certain notice requirements, as well as clarified the period
of time in which a lack of a consumer's response would be deemed
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Page 2
a waiver of the right to designate a third-party recipient; and
(2) add a requirement that the insurer notify the consumer of
the value of the benefit but permits the insurer to calculate
that value up to 60 days prior to the notice.
ANALYSIS:
Existing law:
1)Requires insurers to offer applicants for long-term care
insurance (LTCI) the option to purchase a nonforfeiture
benefit that would provide a lifetime maximum benefit that is
at least the equivalent value of the 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 a 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 a 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.
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This bill:
1)Requires insurers, when a contingent benefit on lapse or a
nonforfeiture benefit is conferred, to notify policyholders
and annually thereafter, that the benefit is available, the
dollar value of the benefit calculated up to 60 days prior to
the notice, and contact information where the consumer may
receive more information.
2)Requires insurers, also 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.
Delays this requirement, until July 1, 2016, for
individuals holding a contingent benefit upon lapse when
this bill goes into effect.
Deems a failure to return this form within 90 days to be
a waiver by the policyholder.
Requires insurers to remind policyholders of the right
to add or change a designation at the time of the annual
notice.
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.
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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 nonforfeiture benefit that
provides a paid-up minimum benefit should the policy lapse.
When an insurer requests a rate increase that meets a certain
threshold, the IC may require an insurer to offer qualifying
policyholders a contingent benefit upon lapse that also provides
a paid-up minimum benefit instead of maintaining the existing
policy at the increased premium level. 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.
The LTCI industry initially expressed concerns over the
provision that requires insurers to include the value of the
benefit with the annual statement because the value of the
benefit might decrease before the notice is received. That
provision was amended out of this bill before it left the Senate
with the understanding the author would continue to work on that
issue. Amendments taken in the Assembly negotiated with the
industry representatives added that provision back into this
bill but modified so that insurers would not be in the position
of having to provide potentially outdated information.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified8/27/15)
California Department of Insurance (source)
California Advocates for Nursing Home Reform
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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
OPPOSITION: (Verified8/27/15)
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.
ASSEMBLY FLOOR: 79-0, 8/27/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Beth Gaines, Gallagher, Cristina Garcia,
Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray,
Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones,
Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Atkins
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NO VOTE RECORDED: Frazier
Prepared by:Hugh Slayden / INS. / (916) 651-4110
8/28/15 16:07:14
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