BILL ANALYSIS                                                                                                                                                                                                    Ó





          SENATE COMMITTEE ON INSURANCE
                             Senator Richard Roth, Chair
                                2015 - 2016  Regular 

          Bill No:             SB 1091        Hearing Date:    April 13,  
          2016
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          |Author:    |Liu                                                  |
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          |Version:   |April 4, 2016    Amended                             |
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          |Urgency:   |No                     |Fiscal:    |Yes              |
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          |Consultant:|Hugh Slayden                                         |
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                         Subject:  Long-term care insurance


           SUMMARY     Establishes definitions for types of long-term care insurance  
          (LTCI) based on the benefits provided.  Also requires insurers  
          to provide written notice when they deny a request for treatment  
          for an alternate plan of care and to annually report the number  
          and reasons for denial to the California Department of Insurance  
          (CDI).

           
          DIGEST
            
          Existing law


            1.  Provides for the regulation of LTCI by CDI and prescribes  
              various requirements and conditions governing the delivery  
              of individual or group policies in the state. 


           2.  Requires approval of policy forms and rate schedules by CDI  
              before the insurer may begin issuing policies based on that  
              form.










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           3.  Requires insurers to provide a copy of any advertisement  
              intended for use in California to CDI for review at least 30  
              days before dissemination.  


          This bill


            1.  Makes findings and declarations regarding LTCI coverage.


           2.  Declares that it is the intent of the Legislature that LTCI  
              products provide benefits appropriate to consumers' needs. 


           3.  Defines "alternate plan of care" to mean a policy that  
              provides for benefits not specifically defined as a covered  
              service under the policy.


           4.  Requires insurers to provide written notice to the insured  
              within 40 days if they deny a request for treatment for an  
              alternate plan of care.


           5.  Requires insurers to report to CDI the number of denied  
              requests for an alternate plan of care, any reason used to  
              deny a request, and the number of requests denied for each  
              reason, and requires CDI to make that information available  
              to the public upon request.


           6.  Prohibits insurers from marketing a policy as "family  
              friendly" unless it contains certain benefits as specified.


           7.  Prohibits insurers from marketing a policy as  
              "catastrophic" unless the insured retains substantial risk  
              before the insured becomes eligible to receive benefits.


           8.  Prohibits insurers from marketing a policy as "deferred"  
              unless the policy provides coverage only after the insured  
              reaches an age specified in the policy.








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           9.  Prohibits insurers from marketing a policy as "short-term"  
              unless the policy benefits are designed to last for less  
              than one year.


           10. Prohibits insurers from selling policies as "standardized"  
              unless the policy provides benefits and other criteria as  
              determined by the insurance commissioner.


           COMMENTS
            
          1.  Purpose of the bill   According to the author, adults 65  
              years old and over comprise the fastest growing segment of  
              California's population. By 2030, this age group will make  
              up almost 20% of the state population. Projections are that  
              70% of those will require some form of long-term supports  
              and services (LTSS) and that 52% will require substantial  
              services and supports for chronic conditions. The ideal  
              scenario is for people to remain independent and in their  
              homes as long as possible - to "age in place." 

              Traditional LTCI has been viewed as the primary means of  
              protecting an individual's quality of life and assets when a  
              long-term, severe disability occurs.  However, LTCI premiums  
              have grown out of reach for most middle-income consumers who  
              don't have enough assets to afford the policies or pay out  
              of pocket. Nor do they qualify for low-income benefits. As a  
              result, they are left with few options other than exhausting  
              their savings or spending down their assets to meet the  
              strict eligibility criteria for Medi-Cal long-term care  
              benefits such as In-Home Health Services and Supports known  
              as IHSS.

              SB 1091 establishes a framework for the design flexibility  
              needed to develop more affordable LTCI options for middle  
              and low-income individuals.

           2.  Background   LTCI covers the of nonmedical or paramedical  
              services required when a person is unable to take care of  
              themselves.  Coverage is triggered when an insured develops  
              (1) a "chronic illness" typically defined as an inability to  
              perform a set number of "activities of daily living" such as  
              feeding, dressing, and bathing themselves, or (2) a  







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              cognitive impairment (such as Alzheimer's Disease).   
              (Chronic illness in this context is a way to measure  
              disability, not health.)  A policy may cover facility care  
              or home care or both.  Last year CDI reported that there  
              were approximately 600,000 policies in force in California.

              Insurers first sold LTCI covering nursing homes in the 1970s  
              and expanded coverage in the 1980s to cover other types of  
              facilities and home care.  Many insurers failed to  
              accurately estimate future costs and losses.  Although  
              insurers may not increase rates based on individual claim  
              history, they may increase rates on an entire block of  
              policies.  Increasing life expectancies, faulty assumptions  
              on lapses and cost of care, coupled with the poor  
              performance of investments, drove dramatic increases in LTCI  
              premiums.  Attempts to stabilize rates had limited impact  
              and some carriers are still waiting on approval for  
              additional rate increases.  

              As a means of financing LTSS, traditional LTCI is looking  
              less and less viable, particularly for middle and  
              lower-income people.  Individuals who have not been able to  
              save enough for retirement are unlikely to be able to afford  
              LTCI premiums.

              The LTCI market is now at a critical juncture.  Every year,  
              fewer carriers are actively issuing new policies.  Six years  
              ago, 16 insurers were actively issuing policies.  Last year,  
              there were 11 insurers actively issuing policies.  Some  
              insurers are exploring options to traditional LTCI.  Some  
              life insurers offer "accelerated benefits" that draw down  
              the death benefit on a life insurance policy when the  
              insured suffers from a qualifying disability.  While these  
              policies may offer a sort of two-for-one coverage, they are  
              not necessarily more affordable, nor are they as likely to  
              provide dollar-for-dollar equivalent coverage for LTCI.

              California has a program specifically intended to target  
              middle-income consumers, known as the California Partnership  
              for Long-Term Care ("Partnership").  Partnership policies  
              provide Medi-Cal eligibility and "asset protection" benefits  
              if the insured eventually receives Medi-Cal long-term care  
              benefits.  There is general agreement that these policies  
              are now too expensive for most middle-class consumers.  SB  
              1384 (Liu) is intended to realign some of those standards  







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              with the Partnership's target market.

              A national effort to establish affordable LTCI coverage is  
              also under way.  In 2013, the U.S. Commission on Long-term  
              Care called for greater design flexibility in LTCI policies.  
               More recently, the Bipartisan Policy Center, SCAN  
              Foundation, LeadingAge, Society of Actuaries, American  
              Academy of Actuaries, and others issued studies or reports  
              on alternative LTCI designs.  These efforts have served as  
              the starting point for this bill.  The author has worked  
              with this committee, the Senate Select Committee on Aging  
              and Long-term Care, the Assembly Aging and Long-Term Care  
              Committee, and a variety of stakeholders, to explore policy  
              design options that may provide consumers with affordable  
              alternatives or provide existing policies with the  
              flexibility to adapt to future challenges.
              
              Proposed Categories of LTCI.  Cost and complexity make  
              choosing an LTCI product difficult for consumers.  (Agents  
              and brokers are required to take eight hours of training  
              every year for the first four years they are licensed and  
              eight hours every two years thereafter.)  Consumers must  
              chose a daily maximum benefit, coverage period, maximum  
              lifetime benefit, inflation protection, etc. based on an  
              estimate of need that may not arise until decades later.

              To make shopping for LTCI easier and establish forms of  
              coverage that meets specific needs, such as affordability,  
              this bill would define categories of LTCI and prohibit  
              marketing policies using these terms unless they meet  
              specified criteria.


                   Catastrophic.  One way to lower the cost is to require  
                consumers to pay upfront.  For example, LTCI typically  
                requires a waiting or "elimination" period usually 30, 90,  
                or 100 days.  Once insureds develop a qualifying  
                disability, they must cover their own costs for that  
                period and must pay those upfront costs through some other  
                mechanism such as savings, other insurance, a reverse  
                mortgage, etc.  One proposal suggests an elimination or  
                waiting period for the first three years.


                   Deferred.  Another design option would "defer  







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                coverage" so that eligibility would be locked in and  
                premium payments would begin immediately, but coverage  
                would not apply until after a certain age, such as a proxy  
                retirement age.  However, according to the American  
                Association for Long-Term Care Insurance (AALTCI), over  
                90% of claims do not begin until after age 70, and about  
                59% will not begin until after age 80.  To significantly  
                reduce the cost of the policy, coverage would have to be  
                delayed well into the 70s or longer.


                   Short-term.  Another way to decrease premium is to  
                reduce the coverage period and shift the consumer's risk  
                to the backend of a disability period.  LTCI policies  
                usually offer coverage of two years or more.  Research by  
                the AALTCI indicates that 41% of all LTCI claims last one  
                year or less.  This bill defines short-term policies as  
                those that provide coverage for one year or less.   
                Although short-term policies may be more affordable, the  
                consumer will likely pay more in premium for every dollar  
                in benefits.


                   Family-friendly.  According to a study by sponsored by  
                Prudential Financial, about two-thirds of disabled older  
                people receive chronic illness care from family  
                caregivers, and usually wives or adult daughters.  Many of  
                these caregivers, even if they only provide care  
                part-time, must sacrifice their jobs (including benefits,  
                social security credit, etc.), mental and physical health,  
                and freedom.  Typically, LTCI will not pay family members  
                to provide care.  Some policies offer features that assist  
                the family members in arranging home care.  For example,  
                Partnership policies offer a care coordination/care  
                management benefit that provides expert assistance,  
                independent of the insurer, in assessing care needs and  
                obtaining services, even those not covered under the  
                policy.  These responsibilities are often left to family  
                members unfamiliar with convoluted LTSS system.  Some  
                policies permit family members to provide the paid care  
                and others provide caregiver training.  This bill would  
                establish standards to identify products featuring  
                benefits targeted at family members and other informal  
                caregivers.  








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                   Standard Policy.  This bill authorizes the insurance  
                commissioner to adopt regulations that would define a  
                basic, standard policy that would cover the needs of a  
                typical consumer.

              Alternate Plan of Care.  LTCI pays for services, covered  
              under the policy, that are determined by plan of care  
              prepared by the insured's doctor or a medical team and  
              describes the kind of care needed and the frequency of the  
              required services.  Some LTCI policies permit an alternate  
              plan of care that provides benefits not otherwise covered  
              under the policy so long as the insurer, the insured, and  
              the insured's doctor all agree.  For example, some insurers  
              will pay for durable medical equipment or modifications to  
              the home if that would allow the insured to stay in their  
              own home even though the condition might otherwise require  
              care in a facility and the policy would not normally cover  
              the equipment or home modification.  
              
              At this time, available data on these plans is difficult to  
              find or nonexistent.  This bill takes an initial step in  
              normalizing the use of alternate plans of care by requiring  
              the insurer to give written notice to the insured if it  
              declines a request for an alternate care plan and to report  
              specified data related to the denial of requests.

           1.  Support   


              a.    The AALTCI supports the bill and writes that its  
                research indicates that consumers seek and are willing to  
                buy more affordable options that enable them to receive  
                long-term care in their own home as well as in skilled  
                facilities.  One way to provide such options would be to  
                establish standards for policies the provide  
                shorter-benefit periods.  SB 1091 defines "short-term"  
                policies which are an important first step for California  
                to catch up with some 40 states that have approved  
                short-term care insurance policies.


              b.    The California Commission on Aging writes that models  
                for long-term care are shifting away from institutional  
                care and toward less formalized, home-based care.  As more  







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                Californians live longer and require longer periods of  
                care, alternative plans of care will be a critical piece  
                of the long-term care regime.  In fact, the commission  
                suggests that including alternate plans of care in the  
                list of services covered by LTCI will provide important  
                options for families seeking to keep loved ones at home.

           2.  Opposition   None received.
           
            3.  Questions  


              a.    Anticipating the types and costs of available care  
                decades in the future poses one of the most significant  
                challenges in financial planning for consumers and  
                insurers alike.  Alternate plans of care give the insurer  
                and the insured flexibility to adapt to changing demands  
                and services.  Under traditional contract law, both  
                parties can typically agree to amend the contract,  
                however, long-term care insurance forms and premium rate  
                schedules must be approved by CDI before an insurer can  
                issue policies based on that form.  In the absence of an  
                express enabling provision in the policy, would it be  
                necessary to authorize an insurer in statute to agree to  
                an alternate care plan?  If so, should additional consumer  
                protections be in place, such as the agreement by a  
                medical practitioner?  


              b.    The California Collaborative for Long Term Services  
                and Supports ("Collaborative") suggests that a process  
                similar to that used to model Medicare Supplement benefit  
                packages, or "Medigap" policies, could bring variety and  
                clarity to the LTCI market.  Medigap polices are  
                standardized and offer the same benefits regardless of the  
                insurer.  Could the Medigap model be applied to LTCI  
                policy types defined in this bill? 

           1.  Suggested Amendments 


              a.    Stakeholder discussions have revealed that deferred  
                LTCI would not likely be more affordable unless deferred  
                far beyond a retirement age.  The author may wish strike  
                subdivision (c) of proposed Insurance Code Section 10233.8  







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                that defines "deferred" policies.


              b.    The definition of "alternate plan of care" should be  
                revised to mean "  a plan of care authorized by a provision  
                in  a policy, rider, endorsement, or amendment  containing a  
                provision  that allows benefits for long-term care services  
                that are not specifically defined as a covered service  
                under the policy."
           
          1.  Prior and Related Legislation   


              a.    SB 1384 (Liu, 2016) would move the Partnership from  
                DHCS to the Department of Aging, and would require the  
                program to certify policies that offer home care-only  
                benefits and lower-cost inflation protection.


              b.    SB 575 (Liu), Chapter 544, Statutes of 2015, requires  
                LTCI carriers to annually remind policyholders with a  
                vested nonforfeiture benefit, and any designated  
                third-party, that the benefit is available.


              a.    AB 332 (Calderon, 2015) would have established a task  
                force to design a statewide, public long-term care  
                insurance program.  Vetoed.  A similar bill, SB 1438  
                (Alquist, 2012), was held in the Senate Appropriations  
                Committee.


              b.    AB 1553 (Yamada, 2014) would have prohibited the use  
                of gender as a factor to determine premium. Held in the  
                Assembly Insurance Committee.


              c.    AB 999 (Yamada), Chapter 627, Statutes of 2012,  
                revised the standards to approve changes to rate  
                schedules.
           

          POSITIONS
            
          Support







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          American Association for Long-term Care Insurance
          California Commission on Aging
          California Long-term Care Insurance Services/NorthStar Network  
              Insurance Agency  

          Oppose
           
          None received

                                      -- END --