BILL ANALYSIS Ó
SENATE COMMITTEE ON HUMAN SERVICES
Senator McGuire, Chair
2015 - 2016 Regular
Bill No: SB 939
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|Author: |Monning |
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|Version: |February 3, 2016 |Hearing |April 12, 2016 |
| | |Date: | |
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|Urgency: |No |Fiscal: |No |
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|Consultant|Taryn |
|: |Smith |
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Subject: Continuing care contracts: cancellation: payments
SUMMARY
This bill requires that continuing care contracts that contain
lump sum contract termination payments conditioned on resale of
the unit must meet a series of requirements and timelines, must
pay interest after a specified period of vacancy, and must meet
other requirements.
ABSTRACT
Existing law:
1)Provides for the licensure and regulation of Continuing Care
Retirement Communities (CCRCs) by the California Department of
Social Services (CDSS) to enact minimum requirements to
protect the wellbeing and financial security of residents of
CCRCs. (HSC 1770 et seq.)
2)Establishes the Residential Care Facilities for the Elderly
Act, which requires CDSS to license and regulate RCFEs as a
separate category within the existing community care licensing
structure of CDSS. (HSC 1569 et seq.)
3)Provides for the regulation and licensure of skilled nursing
facilities by the California Department of Public Health
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(CDPH). (HSC 1250 et seq.)
4)Requires a CCRC provider to hold a certificate of authority
from CDSS permitting the provider to contract for the
provision of continuing care, including medical care, in which
a resident over the age of 60 has paid in advance for more
than one year for that care. (HSC 1771.2)
5)Provides that the components of care provided by the facility
must be separately licensed as otherwise required by state
law, including Residential Care Facilities for the Elderly and
Skilled Nursing care. (HSC 1771.5)
6)Requires a CCRC to pay refunds owed to a resident within 14
calendar days after a resident makes possession of the living
unit available to the provider or 90 calendar days after death
or receipt of notice of termination, whichever is later. (HSC
1788.4 (a))
7)Prohibits characterizing as a refund, a lump sum payment
following termination of a continuing care contract that is
conditioned upon resale of the unit, and requires the payment
to be made within 90 days following resale of the unit. (HSC
1788.4 (e))
This bill:
1)Requires that a continuing care contract that includes a
promise to repay all or a portion of an entrance fee that is
conditioned upon re-occupancy or resale of the unit previously
occupied by the resident shall not be considered a refundable
contract, provided that this conditional promise of repayment
is not referred to by the applicant or provider as a "refund."
2)States that a provider may repay all or a portion of an
entrance fee that is conditioned upon resale of the unit
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before the resale of the unit. Requires that the repayment of
an entrance fee before the resale of the unit shall not cause
any other entrance fee to be subject to the refund reserve
requirements, provided that the provider does not promise, at
the time of contracting or thereafter, to make this type of
early repayment, represent that the provider intends to make
this type of early repayment, or indicate that the provider
has a practice of making this type of early repayment.
3)Requires that, in addition to existing contract requirements,
a continuing care contract shall contain all of the following:
a) A statement that the provider is prohibited from
charging the resident or his or her estate a monthly fee
once a unit has been permanently vacated by the resident,
unless the fee is part of an equity interest contract.
b) Provisions describing any changes in the resident's
monthly fee and any changes in the entrance fee refund
payable to the resident that will occur if the resident
transfers from any unit, including, but not limited to,
terminating his or her contract after 18 months of
residential temporary relocation, as specified.
c) The policy or terms for refunding or repaying a lump
sum of any portion of the entrance fee, in the event of
cancellation, termination, or death. Every continuing
care contract that provides for a refund or repaying a
lump sum of all or a part of the entrance fee shall
include, among other items required by existing law, the
following:
i. State the provider shall make a good-faith
effort to reoccupy or resell a unit for which a
lump-sum payment is conditioned upon resale of the
unit. No later than July 1, 2017, a provider shall
provide notice to all current residents with
contracts applicable to this subparagraph regarding
the statement required by this subparagraph as a
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clarification of the resident's existing contract.
ii. For all contracts with a repayment of all or
a portion of the entrance fee conditioned upon the
resale of the unit, the provider shall state the
average and longest amount of time that it has taken
to resell a unit within the last five calendar years.
1)Requires that a lump-sum payment to a resident after
termination of a continuing care contract that is conditioned
upon resale of the unit shall not be considered to be a refund
and may not be characterized or advertised as a refund.
2)Requires that the full lump-sum payment shall be paid to the
resident within 14 calendar days after resale of the unit.
3)Requires that the resident is entitled to the repayment of a
specified portion of the full lump-sum payment if the unit
remains vacant 120 days after the resident's termination of
the contract, as specified. Requires that this repayment shall
not cause the contract in question to be deemed a refundable
contract.
4)Requires that, when a continuing care contract is terminated
by the death of a resident, at least 10 percent of the full
lump-sum payment shall be paid to the resident's estate within
120 days after the death of the resident.
5)Requires that, when a continuing care contract is terminated
for reasons other than death of a resident, at least 20
percent of the full lump-sum payment shall be paid to the
resident within 120 days after the resident's termination of
the contract.
6)Requires any payments that are not paid to the resident within
the 180-day period shall accrue simple interest, to be
compounded annually, at a rate of 4 percent.
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7)Requires any payments that are not paid to the resident within
the 240-day period shall accrue simple interest, to be
compounded annually, at a rate of 6 percent.
8)Clarifies that, after the death of a resident, a lump-sum
payment that is conditioned upon resale of a unit shall
include the re-payment and interest, if any, and shall be
payable to the resident's estate.
9)Exempts, until January 1, 2018, projects in development prior
to January 1, 2017, for which contracts were entered into on
or before January 1, 2018, from certain requirements regarding
refunds, lump-sum charges and repayment, and interest
payments, as specified.
10)Prohibits the provider from making any charges to the
resident or the resident's estate against the lump-sum payment
that is due to the resident for purposes maintenance or
housekeeping of the vacated unit, except as otherwise
obligated by an equity interest contract, once the unit has
been vacated.
11)Requires that nothing in the bill shall be construed to limit
or alter any legal remedies otherwise available to a resident
or his or her estate.
12)Makes other technical clean up changes.
FISCAL IMPACT
This bill has not yet been analyzed by a fiscal committee.
BACKGROUND AND DISCUSSION
Purpose of the bill:
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According to the author, there have been documented cases where
Continuing Care Retirement Communities (CCRC) residents, and/or
their heirs, have experienced significant delays in receiving
their lump-sum payments from entrance fees that are conditioned
upon resale of their CCRC unit. The author states this popular
type of contract model that conditions repayment, which is
typically 70 to 90 percent of the resident's entrance fee, upon
resale of the unit only works when the unit is resold quickly.
According to the author, if the CCRC provider has a disincentive
to resell in a timely manner or the unit is unable to sell, then
the moving resident or their estate is forced to wait with no
definitive timeline for when repayment must be made.
The author additionally states that these conditional refunds
can create an incentive for CCRC providers to fill empty units
prior to filling units that have repayment requirements. Or, in
some cases, a unit might go unsold until a neighboring unit is
unoccupied because the provider wants to make renovations. The
problem of delayed repayment can prevent an elder resident from
moving or tie up an estate. Ironically, one reason why this
contract model is popular is it provides the resident assurance
that this lump-sum payment will be available to them should
something happen or they pass away, the author states. In
addition, some contract provisions allow the provider to
continue to charge a monthly maintenance fee that is deducted
from the resident's entrance fee months after the CCRC is
vacated.
Continuing Care Retirement Communities
CCRCs offer people 60 years old and up a long-term continuing
care option that pairs their current health and resources with
an individualized contract that provides community life and a
range of levels-of-care, typically in a campus-like community
setting, and usually for a resident's lifetime, and always for
at least one year. Most CCRCs require substantial entrance
fees, along with monthly fees. Entrance fees can range from
$50,000 to more than $2 million.
According to Health and Safety Code Section 1771, a CCRC is
defined as a facility where services promised in a "continuing
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care contract" are provided. A continuing care contract
includes a continuing care promise made, in exchange for an
entrance fee, the payment of periodic charges, or both. A
continuing care contract may consist of one agreement for
continuous care, or a series of agreements describing care,
conditions for that care, and payment of it, if and when it
becomes necessary.
Continuing care contracts vary. There is no standardized
contract, though there are elements that must be in place in
order to be approved by CDSS. Rather than overseeing or
approving each resident's contract, CDSS approves basic elements
of the contract and the CCRC facility uses that structure to
create more individualized contracts with residents. Each
potential consumer has different health and long-term care risks
and needs, financial risks and needs, and other factors that
require contract flexibility, and each CCRC offers differing
provisions on costs, payment methods, services provided, and
other elements. Continuing care contracts typically require an
individual to pay an entrance fee and monthly fees. Entrance
fees can vary significantly from one community to the next, and
monthly fees vary depending on the level of services included in
the contract and other factors associated with location,
exclusivity, business plan variations, and more.
Continuing care contracts may be refundable or non-refundable.
Refundable contracts refund a portion of the entrance fees,
sometimes on a scale that decreases over time. These types of
contracts require a CCRC to maintain a reserve for refunds (in
addition to other reserves required for the operation of a
CCRC), and generally, this is not the contract type which SB 939
is focused upon. Many CCRC providers choose instead to offer a
repayment of a designated portion of the entrance fee - a
"lump-sum payment" - that is conditioned upon resale of the
unit. A reserve is not required in this case, as it is assumed
that the resale of the unit will result in the new resident's
entrance fee covering the cost of repaying a portion of the
former resident's entrance fee. In California, there are
currently no requirements that resale and/or repayment of
entrance fees take place within a certain period of time.
Related legislation:
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AB 2661 (Burke, 2016) allows for CCRC contracts that condition
lump-sum payments based upon resale of "any" unit - as opposed
to the unit previously occupied by the resident - to not be
considered a "refundable contract," making the refund reserve
requirements inapplicable in such circumstances. This bill is
scheduled to be heard in Assembly Human Services Committee April
26, 2016.
SB 475 (Monning, 2015) was substantially similar to this bill
and would have required prospective and future CCRC contracts
which condition lump sum contract termination payments on resale
of the unit to meet a series of requirements and timelines, to
pay interest after a specified period of vacancy, and to meet
other requirements. SB 475 was vetoed by the Governor.
COMMENTS
SB 939 contains many of the provisions in SB 475 (Monning,
2015), which was vetoed by the Governor. According to the
Governor's veto message for SB 475, "this bill would change the
terms of contract entered into by willing participants. It
would also insert the department into the resolution of contract
disputes." SB 939 does not contain the language referenced in
the Governor's veto message.
For purposes of clarity, the committee recommends the following
amendments:
Amendment #1:
1788.4. (e) A lump-sum payment to a resident after termination
of a continuing care contract that is conditioned upon resale of
the unit shall not be considered to be a refund and may not be
characterized or advertised as a refund. The full lump-sum
payment owed, including any interest accrued, shall be paid to
the resident within 14 calendar days after resale of the unit.
Amendment #2:
1788.4 (f) (1) For contracts signed on and after January 1,
2017, notwithstanding a provider's documented good-faith effort
to resell the unit, the resident is entitled to the repayment of
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a specified portion, pursuant to subparagraphs (A) and (B), of
the full lump-sum payment owed if the unit remains vacant 120
days after the resident's termination of the contract. This
repayment shall not cause the contract in question to be deemed
a refundable contract, as defined in paragraph (2) of
subdivision (r) of Section 1771.
(A) When a continuing care contract is terminated by the death
of a resident, at least 10 percent of the full lump-sum payment
owed shall be paid to the resident's estate within 120 days
after the death of the resident.
(B) When a continuing care contract is terminated for a reason
not described in subparagraph (A), at least 20 percent of the
full lump-sum payment owed shall be paid to the resident within
120 days after the resident's termination of the contract.
(2) Any payment balance of the lump sum owed that has not been
paid to the resident within 180 days shall accrue interest at a
rate calculated pursuant to paragraph (3). Any payment balance
of the lump sum owed that has not been paid to the resident
within 240 days shall accrue interest at a rate calculated
pursuant to paragraph (4). Interest shall continue to accrue
annually pursuant to paragraph (5) until the date the full
lump-sum payment owed is paid to the resident. This paragraph
shall apply only to continuing care contracts entered into on or
after January 1, 2017.
(3) Any payments amount owed that are is not paid to the
resident within the 180-day period pursuant to paragraph (2)
shall accrue simple interest , to be compounded annually, at a
rate of 4 percent of the amount owed .
(4) Any payments amount owed that are is not paid to the
resident within the 240-day period pursuant to paragraph (2)
shall accrue simple interest, to be compounded annually, at a
rate of 6 percent of the amount owed .
(5) Any amount owed that is not paid to the resident a year
after the 240-day period pursuant to paragraph (4) shall accrue
compounded interest annually, at a rate of 6 percent.
(5) (6) Until January 1, 2018, this subdivision shall not apply
to a project that is in development prior to January 1, 2017,
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including current repayable agreements, current deposit
agreements that contemplate repayable entrance fees, and other
projects that have received department approval to market units
pursuant to Section 1771.4, or have received issuer, lender, or
bond insurer approval to obtain bond financing, or other
governmental approval based on a repayable entrance fee option,
if the initial contract for the project is entered into on or
before January 1, 2018.
Amendment #3:
(g) (1) After the death of a resident, a lump-sum payment owed
that is conditioned upon resale of a unit shall be subject to
subdivision (f) and the lump-sum owed shall include payment and
any interest accrued , if any, and shall be payable to the
resident's estate.
POSITIONS
Support:
California Continuing Care Residents Associations (Sponsor)
AARP
California Advocates for Nursing Home Reform
California Commission on Aging
Consumer Federation of California
National association of Social Workers
Office of the State Long-Term Care Ombudsman
249 individuals
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Oppose:
Erickson Living
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