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 SB 939 Page 2 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 SB 939 Page 3 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 SB 939 Page 4 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. SB 939 Page 5 (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. SB 939 Page 6 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 aprospective 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. SB 939 Page 7 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 SB 939 Page 8 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 SB 939 Page 9 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 SB 939 Page 10 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 paymentto a residentafter termination of a 8continuing carerepayable contract , as defined in paragraph (3) of subdivision (r) of Section 1771,that is conditioned upon resale9of the unitshall not be considered to be a refund and may not be 10 SB 939 Page 11 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 afterthe residentstermination 32 of a repayable contract shall accrue interest at a rate calculated 33 SB 939 Page 12 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 afterthe35resident'stermination 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 . Thisparagraph39 subdivision shall apply only tocontinuing carerepayable contracts 40 entered into on or after January 1, 2017. SB 939 Page 13P28 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 SB 939 Page 14(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 accruecompoundinterestannuallyat 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 SB 939 Page 15 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 is23conditioned upon resale of a unit shall be subject to subdivision24(f) and the lump sum owed shall include any interest accrued and25shall be payable to the residents estate. SB 939 Page 1626(2)Until January 1, 2018, this subdivision shall not apply to a27project that is in development prior to January 1, 2017, including28current repayable agreements, current deposit agreements that29contemplate repayable entrance fees, and other projects that have30received department approval to market units pursuant to Section311771.4, or have received issuer, lender, or bond insurer approval32to obtain bond financing, or other governmental approval based33on a repayable entrance fee option, if the initial contract for the34 SB 939 Page 17project 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: SB 939 Page 18 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 SB 939 Page 19 Analysis Prepared by:Daphne Hunt / HUM. S. / (916) 319-2089