BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 939|
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UNFINISHED BUSINESS
Bill No: SB 939
Author: Monning (D)
Amended: 6/16/16
Vote: 21
SENATE HUMAN SERVICES COMMITTEE: 3-0, 4/12/16
AYES: McGuire, Hancock, Liu
NO VOTE RECORDED: Berryhill, Nguyen
SENATE FLOOR: 34-0, 4/18/16
AYES: Allen, Anderson, Bates, Beall, Block, Cannella, De León,
Gaines, Galgiani, Glazer, Hall, Hancock, Hernandez, Hertzberg,
Hill, Hueso, Jackson, Lara, Leno, Leyva, Liu, McGuire,
Mendoza, Mitchell, Monning, Moorlach, Nguyen, Pan, Pavley,
Roth, Stone, Vidak, Wieckowski, Wolk
NO VOTE RECORDED: Berryhill, Fuller, Huff, Morrell, Nielsen,
Runner
ASSEMBLY FLOOR: 50-23, 6/27/16 - See last page for vote
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.
Assembly Amendments:
SB 939
Page 2
1)Delete requirement that a continuing care retirement facility
pay the full lump-sum payment that is conditioned upon resale
of a unit to a resident, including any interest accrued,
within 14 days after resale of a unit.
2)Delete the requirement that a continuing care retirement
facility, for contracts signed after January 1, 2017, pay a
resident or his or her estate a specified portion of the full
lump sum owed, notwithstanding a provider's documented
good-faith effort to resell the unit, if the unit remains
vacant 120 days after the resident's termination.
3)Define a repayable contract as 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.
4)Require any amount owed that is not paid to a resident or the
resident's estate within specified period of time after
termination of a repayable contract to accrue simple interest,
as defined, until the full amount owed is paid.
ANALYSIS:
Existing law:
1) Provides for the licensure and regulation of Continuing Care
Retirement Communities (CCRCs) by the California Department
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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 (RCFE), 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) 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)
4) 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)
5) 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))
6) 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)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 re-occupancy 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.
SB 939
Page 4
2)Prohibits a provider from charging a resident or his or her
estate a monthly fee once a unit has been permanently vacated
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 or
resident's estate per a repayable contract entered into on or
after January 1, 2017, to accrue interest as follows:
a) Any amount owed a resident or resident's estate that is
not paid within 180 days after the termination of the
repayable contract shall accrue simple interest at a rate
of 4% of the amount owed;
SB 939
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b) Any amount owed a resident or resident's estate that is
not paid within 240 days after the 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 or resident's estate that is
not paid within one year after the initial 240-day period
after the termination of the repayable contract shall
accrue interest at a rate of 6%, compounded annually.
3)Requires any interest accrued to be paid to the resident or
the resident's estate 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)Provides for a one-year delay in application of lump-sum
interest requirements 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 or the resident's estate, 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
or his/her estate.
Background
Continuing Care Retirement Communities (CCRCs). 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
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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.
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.
SB 939
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Prior Legislation
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. SB 475 was vetoed by Governor.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified 6/27/16)
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 Ombudsmam
249 individuals
OPPOSITION: (Verified6/27/16)
Erickson Living
ARGUMENTS IN SUPPORT: According to the author, there have been
documented cases where 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.
SB 939
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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.
ARGUMENTS IN OPPOSITION: Erickson Living (a CCRC provider that
currently does not operate in the state of California) opposes
SB 939 unless it is amended to give CCRCs greater flexibility in
providing seniors a retirement housing option that better suits
their needs and ensures timely repayment of a portion of the
entrance fee to estates. According to Erickson Living, the
mechanics of SB 939 require that repayments to estates take
precedence over ensuring the financial stability for more than
2100 communities and tens-of-thousands of senior living in
CCRCs. Per the opposition, this requirement has more potential
to harm frail, elderly consumers in California than it does to
help estates expedite asset recovery and that it will slow down
investment in CCRCs at a time when there is clear need for more
investment in senior housing and care options.
ASSEMBLY FLOOR: 50-23, 6/27/16
AYES: Alejo, Arambula, Bloom, Bonilla, Bonta, Brown, Burke,
Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh,
Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia,
Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Roger
Hernández, Holden, Irwin, Jones-Sawyer, Levine, Linder, Lopez,
Low, McCarty, Mullin, Nazarian, O'Donnell, Quirk,
Ridley-Thomas, Rodriguez, Salas, Mark Stone, Ting, Weber,
Wilk, Williams, Wood
NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,
SB 939
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Chávez, Dahle, Beth Gaines, Gallagher, Hadley, Harper, Jones,
Kim, Lackey, Maienschein, Mathis, Mayes, Melendez, Obernolte,
Olsen, Steinorth, Wagner
NO VOTE RECORDED: Atkins, Medina, Patterson, Santiago,
Thurmond, Waldron, Rendon
Prepared by:Taryn Smith / HUMAN S. / (916) 651-1524
6/29/16 15:56:18
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