BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 939|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: SB 939
Author: Monning (D)
Amended: 4/14/16
Vote: 21
SENATE HUMAN SERVICES COMMITTEE: 3-0, 4/12/16
AYES: McGuire, Hancock, Liu
NO VOTE RECORDED: Berryhill, Nguyen
SUBJECT: Continuing care contracts: cancellation: payments
SOURCE: California Continuing Care Residents Association
DIGEST: 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.
ANALYSIS:
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.)
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3) Provides for the regulation and licensure of skilled nursing
facilities by the California Department of Public Health
(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) Requires that, in addition to existing contract
requirements, a continuing care contract shall contain
certain defined disclosures including, but not limited to,
provisions describing changes in monthly fees, the policy or
terms for refunds or repayments, and a statement regarding
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the average and longest amount of time that it has taken to
resell a unit within the last five calendar years.
3) Requires that the full lump-sum owed, including any interest
accrued, shall be paid to the resident within 14 calendar
days after resale of the unit.
4) Requires that the resident is entitled to the repayment of a
specified portion of the full lump-sum owed if the unit
remains vacant 120 days after the resident's termination of
the contract, as specified.
5) Requires that, when a continuing care contract is terminated
by the death of a resident, at least 10 percent of the full
lump-sum owed shall be paid to the resident's estate within
120 days after the death of the resident.
6) 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 owed shall be paid to the
resident within 120 days after the resident's termination of
the contract.
7) Requires any payments that are not paid to the resident
within the 180-day period shall accrue simple interest, at a
rate of 4 percent.
8) Requires any payments that are not paid to the resident
within the 240-day period shall accrue simple interest, at a
rate of 6 percent.
9) Requires that any amount owed that is not paid to the
resident a year after the 240-day period shall accrue
compounded interested annually, at a rate of 6 percent.
10)Exempts projects in development prior to January 1, 2017,
from certain provisions of the bill, as specified.
11)Prohibits the provider from making any charges to the
resident or the resident's estate for purposes of maintenance
or housekeeping of the vacated unit, as specified.
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12)Makes other technical clean up changes.
Background
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 that this
popular contract model 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 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. 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 this is offered 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.
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A CCRC is defined in statute (HSC 1771) as a facility where
services promised in a "continuing 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. 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/Prior Legislation
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
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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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified 4/14/16)
California Continuing Care Residents Associations (source)
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
266 individuals
OPPOSITION: (Verified 4/14/16)
Erickson Living
ARGUMENTS IN SUPPORT: The California Continuing Care Residents
Association (CALCRA), which is the bill's source, states that
residents and families have been left waiting years to receive
payments from CCRCs across the state. CALCRA also states that
SB 939 would provide a much-needed incentive for CCRC providers
to repay entrance fees within a reasonable amount of time and
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ensures that CCRCs make a good faith effort to meet the terms of
the contract and re-sell vacant units.
ARGUMENTS IN OPPOSITION:Erickson Living opposes the bill unless
it is amended to give CCRCs greater flexibility in providing
seniors a retirement housing that better suits their needs and
ensures timely repayment of a portion of the entrance fee to
estates. The mechanics of SB 939 require that repayments to
estates take precedence over ensuring the financial stability of
more than 100 communities and tens-of-thousands of senior living
in California CCRCs. Erickson believes this requirement has
more to potential harm
Prepared by: Taryn Smith / HUMAN S. / (916) 651-1524
4/15/16 14:10:39
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