BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 939| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 SB 939 Page 3 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 Page 5 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 SB 939 Page 6 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 Page 7 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 Page 8 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 Page 9 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 **** END ****