BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 939


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          Date of Hearing:   June 14, 2016


                        ASSEMBLY COMMITTEE ON HUMAN SERVICES


                                Susan Bonilla, Chair


          SB  
          939 (Monning) - As Amended June 8, 2016


          SENATE VOTE:  34-0


          SUBJECT:  Continuing care contracts:  cancellation:  payments


          SUMMARY:  Imposes additional requirements on certain continuing  
          care contracts and continuing care retirement community  
          providers.



          Specifically, this bill:  



          1)Clarifies the definition of "repayable contract" by explicitly  
            defining it to mean a continuing care contract that includes a  
            promise to repay all or a portion of an entrance fee that is  
            conditioned upon reoccupancy or resale of the unit previously  
            occupied by the resident.  Further, specifies within this  
            definition that a provider may repay all or a portion of an  
            entrance fee before the resale of the unit, as specified.

          2)Prohibits a provider from charging a resident or his or her  
            estate a monthly fee once a unit has been permanently vacated  








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            by the resident, unless that fee is part of an equity interest  
            contract.  Further requires providers to supply statements  
            that describe this prohibition, as specified.



          3)Requires a continuing care contract to contain the policy or  
            terms for repaying a lump sum of any portion of the entrance  
            fee, alongside other information, as specified.  Further,  
            requires, for all contracts with a repayment of all or a  
            portion of the entrance fee conditioned upon resale of the  
            unit, to do the following:



             a)   State that the provider shall make a good-faith effort  
               to reoccupy or resell the unit; and 

             b)   State the average and longest amount of time that a  
               provider has taken to resell a unit within the last five  
               calendar years.



          1)Requires, by July 1, 2017, a provider to supply notice to all  
            current residents who have contracts with a repayment of all  
            or a portion of the entrance fee conditioned upon resale of  
            the unit with clarification of the resident's existing  
            contract that specifies that the provider shall make a  
            good-faith effort to reoccupy or resell a unit, as specified.

          2)Requires any balance of the lump sum due a resident per a  
            repayable contract entered into on or after January 1, 2017,  
            to accrue interest as follows:



             a)   Any amount owed a resident that is not paid within 180  
               days after the resident's termination of the repayable  








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               contract shall accrue simple interest at a rate of 4% of  
               the amount owed; 

             b)   Any amount owed a resident that is not paid within 240  
               days after the resident's termination of the repayable  
               contract shall accrue simple interest at a rate of 6% of  
               the amount owed; and





             c)   Any amount owed a resident that is not paid within one  
               year after the initial 240-day period after the resident's  
               termination of the repayable contract shall accrue compound  
               interest annually at a rate of 6%.

          3)Requires any interest accrued to be paid to the resident  
            within 14 calendar days after resale of the unit, as part of  
            the currently-required repayment of the lump sum within that  
            same time period.

          4)Requires that, after the death of a resident, the lump sum  
            owed, including any interest accrued, be made payable to the  
            resident's estate, and further provides for a one-year delay  
            in application of this requirement to projects in development  
            prior to January 1, 2017, as specified.



          5)Prohibits a provider from making any further charges to a  
            resident or his/her estate or charges against the lump sum  
            owed to the resident, as specified, except as otherwise  
            obligated by an equity interest contract.



          6)States that nothing in this bill shall be construed to limit  
            or alter any legal remedies otherwise available to a resident  








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            or his/her estate.



          EXISTING LAW:   



          1)Establishes the California Residential Care Facilities for the  
            Elderly Act to provide for the licensure and regulation of  
            Residential Care Facilities for the Elderly (RCFEs) as a  
            separate category within the existing licensing structure of  
            the Department of Social Services (DSS).  (HSC 1569 et seq.)


          2)Provides for the licensure and regulation of Skilled Nursing  
            Facilities (SNFs) by the Department of Public Health.  (HSC  
            1250 et seq.)



          3)Defines a "continuing care contract" to mean a contract that  
            includes a promise by a provider to provide one or more  
            elements of care to an elderly resident, as specified, in  
            exchange for an entrance fee and/or the payment of periodic  
            charges.  (HSC 1771(c)(8) and (9))



          4)Defines a "continuing care retirement community" (CCRC) to  
            mean a facility located in the state where services promised  
            in a continuing care contract are provided.  Further allows  
            that, when services are provided in residents' own homes, the  
            homes into which the provider takes those services are to be  
            considered a part of the CCRC.  (HSC 1771(c)(10))



          5)Provides for the certification and regulation of CCRCs by DSS.  








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             (HSC 1770 et seq.)



          6)Requires an applicant for a certificate of authority to  
            operate a CCRC to obtain appropriate licenses for the entire  
            CCRC as otherwise required by law, including RCFE and/or SNF  
            licenses.  (HSC 1771.5)



          7)Requires a continuing care contract to contain numerous  
            specified elements including, but not limited to, the duration  
            of the contract, the list of services that will be made  
            available to the resident as required to provide the  
            appropriate level of care, an itemization of the services  
            included in the monthly fee and services available for an  
            extra charge, and others.  Further requires additional  
            information and disclosures to be attached to the continuing  
            care contract.  (HSC 1788(a), (d) through (h))



          8)Establishes requirements regarding the cancellation of a  
            continuing care contract.  (HSC 1788.2) 



          9)Requires a lump-sum payment that is conditioned upon resale of  
            a unit to be paid to the resident within 14 calendar days  
            after resale of the unit.  Futher requires that this payment  
            not be considered, characterized, or advertised as a refund.   
            (HSC 1788.4(e))



          FISCAL EFFECT:  None.










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          COMMENTS:  



          Continuing Care Retirement Communities:  One long-term care  
          option for older Californians is a CCRC, which offers  
          individuals ages 60 and older housing and long-term care  
          services, typically for the lifetime of the resident.  Residents  
          sign a long-term continuing care contract, which is an agreement  
          between a provider and a resident promising that a range of  
          services will be provided to the resident at the CCRC (sometimes  
          at an additional cost, depending on the type of contract).   
          These services include housing, residential services, and  
          nursing care.





          CCRCs can offer a variety of continuing care contracts with  
          differing provisions on costs, payment methods, services  
          provided, and other elements.  Typically, these contracts  
          require a   prospective resident to pay an entrance fee and  
          monthly fees.  Entrance fees can range widely, often from  
          $100,000 to $1 million, and monthly fees vary depending in part  
          on the level of services included in the contract.  Continuing  
          care contracts are sometimes referred to by three "types":  Type  
          A contracts (also known as life care contracts), are the most  
          expensive and are all-inclusive agreements wherein all housing,  
          services and healthcare are covered by the entrance fee and  
          monthly fees; Type B contracts typically offer discounted  
          healthcare services for limited amounts of time, after which  
          services can be purchased; and Type C contracts can offer the  
          lowest entrance and monthly fees, but may require residents to  
          be responsible for paying for healthcare services at market  
          rates. 










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          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 the percentage of  
          the entrance fee that is refunded.  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).  However,  
          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; these contracts are  
          sometimes referred to as "repayable" versus refundable.  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.





          As of June 2015, there were nearly 100 CCRCs in California, with  
          the capacity to serve close to 30,000 residents.  The Community  
          Care Licensing Division of DSS oversees CCRCs by: a) ensuring  
          that licensing laws and regulations are followed (CCRCs are  
          required to obtain a certificate of authority and an RCFE  
          license; they must also obtain a SNF license through the  
          Department of Public Health (DPH) if offering skilled nursing  
          services), and b) reviewing and approving CCRC applications and  
          monitoring CCRCs' financial condition and their ability to  
          uphold their contractual obligations to residents.



          Need for this bill:  Proponents of this bill argue that it is  
          necessary because instances exist where years pass before  








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          individuals or their estates receive their repayment, and there  
          is nothing in statute to prohibit this from occurring.   
          According to the author:

            "Under current law, Continuing Care Retirement Community  
            (CCRC) contracts that base the repayment of the resident's  
            entrance fee, also referred to as the lump-sum payment owed,  
            upon the resale of the unit are unfair arrangements for  
            consumers and in some cases there is little incentive to  
            resell those units in a timely manner. In these cases the CCRC  
            provider is able to take advantage of this type of contract,  
            which can lead to seniors or the family members of the  
            deceased resident experiencing significant delays in the  
            repayment of lump-sum payment owed. 

            These lump-sum payments can range from $100,000 to sometimes a  
            million dollars, and it is often a resident's entire "nest  
            egg" they want to pass on.  However, they did not intend to  
            experience long delays or passing on years of waiting to their  
            family members on the lump-sum payment owed.  For example, a  
            CCRC in Pacific Grove had not paid $530,600 to the estate of a  
            resident who died more than 3 years ago because the repayment  
            was conditioned upon resale of the unit.  [This bill] levels  
            the playing field for the CCRC resident in a manner that will  
            result in more timely repayments and adds an incentive for a  
            CCRC to resell a unit in the form of interest on the unpaid  
            remaining balance.  The resident safeguards in the bill  
            balance the need for steadfast repayment while ensuring the  
            CCRC can remain fiscally solvent so the current residents are  
            not adversely impacted."





          The sponsors of this bill, the California Continuing Care  
          Residents Association (CALCRA), add that, "[This bill] provides  
          a much needed incentive for CCRC providers to repay entrance  
          fees within a reasonable time and ensures that CCRCs make a good  








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          faith effort to meet the terms of the contract and re-sell  
          vacant units?[Imposing] interest increases the likelihood that  
          the CCRC, who has entered into a repayment contract, has some  
          obligation and incentive to work in good faith to get a  
          resident's unit resold and to refund the senior or their estate  
          within a reasonable time after their termination or death.   
          Under the current law, there are no safeguards to protect  
          against CCRC providers who may take advantage of the  
          'conditioned upon resale' contract and simply not re-sell a unit  
          in order to delay their obligation to repay an entrance fee."


          Opposition:  Writing in opposition to this bill, Erickson Living  
          (a CCRC provider that currently does not operate in the state of  
          California) argues that the requirement to pay accrued interest  
          "will be paid for by the senior consumers living in the CCRCs,  
          raising the price on them and jeopardizing the economics of the  
          CCRC, particularly, challenging in middle-income geographies?The  
          cost of these new payments to estates and trusts would be born  
          solely by the existing and future residents of CCRCs, who would  
          derive no benefit whatsoever from this mandate."



          Staff comments:  Last year, a similar but more expansive version  
          of this bill, SB 475 (Monning), was vetoed.  The Governor's veto  
          message stated that, "While it is important that residents who  
          buy into these communities be treated fairly, this bill would  
          change the terms of contracts entered into by willing  
          participants.  It would also insert the department into the  
          resolution of contract disputes."  Provisions contained in SB  
          475 relating to early repayment of a portion of lump-sum  
          payments and DSS investigation of complaints are not included in  
          the current version of this bill.



          The sponsors state that, during the process of developing SB 475  
          last year, a variety of stakeholders were consulted and  








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          provisions of the bill were negotiated; this included  
          determining the proper timeframe after which interest would be  
          charged, and the amount of interest to be charged (originally,  
          interest was set at the U.S. Prime Lending Rate, but the  
          sponsors report that some CCRC providers with whom they worked  
          on the bill preferred a set, predictable rate).



          Recommended amendments:  In order to make clear that lump-sum  
          and interest payments are due not only to residents upon  
          termination of a contract, but also to residents' estates in  
          cases where the resident passes away while living in the CCRC,  
          and to make other clarifying technical changes, committee staff  
          recommends the following amendments:


          
             1)   Beginning on line 7 of page 27, committee staff  
               recommends the following amendments:  
             
               7


            (e)A lump-sum payment  to a resident  after termination of a


               8


           continuing care  repayable contract  , as defined in paragraph (3)  
          of subdivision (r) of Section 1771,   that is conditioned upon  
          resale  
               9


           of the unit  shall not be considered to be a refund and may not  
          be 
              10








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          characterized or advertised as a refund. The full lump sum owed,  

              11


          including any interest accrued, shall be paid to the resident  or  
          the resident's estate  within 
              12


          14 calendar days after resale of the unit.



             2)   Beginning on line 30 of page 27, committee staff  
               recommends the following amendments:



              30


            (f)(1)Any balance of the lump sum owed that has not been 


              31


            paid to the resident  or the residents estate  within 180 days  
          after  the residents  termination 
              32


            of a repayable contract shall accrue interest at a rate  
          calculated 
              33









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            pursuant to paragraph  (3).  (2). Any balance of the lump sum  
          owed 
              34


            that has not been paid to the resident  or the resident's  
          estate  within 240 days after  the  
              35


             resident's  termination of a repayable contract shall accrue  
          interest 
              36


            at a rate calculated pursuant to paragraph  (4).  (3). Interest  
          shall 
              37


            continue to accrue annually pursuant to paragraph  (5)  (4)  
          until the 
              38


            date the full lump sum owed is paid to the resident  or the  
          resident's estate  . This  paragraph  
              39


             subdivision shall apply only to  continuing care  repayable  
          contracts 
              40


            entered into on or after January 1, 2017.










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          P28    
               1


            (3)
                2


            (2)Any amount owed that is not paid to the resident  or the  
          residents estate  within the 
               3


            180-day period pursuant to paragraph  (2)  (1) shall accrue  
          simple 
               4


            interest at a rate of 4 percent of the amount owed.
               5


             (4)
                6


            (3)Any amount owed that is not paid to the resident  or the  
          residents estate within the 
               7


            240-day period pursuant to paragraph  (2)  (1) shall accrue  
          simple 
               8


            interest at a rate of 6 percent of the amount owed.
               9








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             (5)
               10


            (4)Any amount owed that is not paid to the resident  or the  
          residents estate  within one 
              11


            year after the 240-day period pursuant to paragraph  (4)  (3)  
          shall 
              12


            accrue  compound  interest  annually  at a rate of 6 percent  ,  
          compounded annually  .
               13


            (5)Until January 1, 2018, this subdivision shall not apply to  
          a 
              14


          project that is in development prior to January 1, 2017,  
          including 
              15


          current repayable agreements, current deposit agreements that 
              16


          contemplate repayable entrance fees, and other projects that  
          have 
              17









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          received department approval to market units pursuant to Section  

              18


          1771.4, or have received issuer, lender, or bond insurer  
          approval 
              19


          to obtain bond financing, or other governmental approval based 
              20


          on a repayable entrance fee option, if the initial contract for  
          the 
              21


          project is entered into on or before January 1, 2018.
                22


             (g)(1)After the death of a resident, a lump sum owed that is 
               23


           conditioned upon resale of a unit shall be subject to  
          subdivision 
               24


           (f) and the lump sum owed shall include any interest accrued and  

               25


           shall be payable to the residents estate.








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               26


             (2)Until January 1, 2018, this subdivision shall not apply to  
          a 
               27


           project that is in development prior to January 1, 2017,  
          including 
               28


           current repayable agreements, current deposit agreements that 
               29


          contemplate repayable entrance fees, and other projects that  
          have 
               30


           received department approval to market units pursuant to Section  

               31


           1771.4, or have received issuer, lender, or bond insurer  
          approval 
               32


           to obtain bond financing, or other governmental approval based 
               33


           on a repayable entrance fee option, if the initial contract for  
          the 
               34








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           project is entered into on or before January 1, 2018.
              35


            (h)Except as otherwise obligated by an equity interest  
          contract, 
              36


          once the unit has been vacated and made available to the  
          provider, 
              37


          the provider shall not make any further charges to the resident  
          or 
              38


          his or her estate or charges against the lump sum owed to the 
              39


          resident  or the resident's estate  for purposes of continued  
          monthly payments to the 
              40


          provider or for maintenance or housekeeping on the vacated unit.
           
          DOUBLE REFERRAL  .  This bill has been double-referred.  Should  
          this bill pass out of this committee, it will be referred to the  
          Assembly Aging and Long Term Care Committee.



          PRIOR LEGISLATION:








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          SB 475 (Monning), 2015, was similar to this bill but contained  
          additional provisions, including imposing early repayment of a  
          portion of the lump-sum payment and requiring complaint  
          investigation duties of DSS.


          REGISTERED SUPPORT / OPPOSITION:




          Support


          California Continuing Care Residents Association (CALCRA) -  
                                                                                       Sponsor
          AARP
          California Advocates for Nursing Home Reform
          California Alliance for Retired Americans
          California Commission on Aging
          California Long-Term Care Ombudsman Association
          Consumer Attorneys of California
          Consumer Federation of California
          National Association of Social Workers, California Chapter
          Office of the State Long-Term Care Ombudsman
          22 Individuals


          Opposition


          Erickson Living










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          Analysis Prepared by:Daphne Hunt / HUM. S. / (916)  
          319-2089