BILL ANALYSIS Ó
SB 939
Page 1
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