BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: SB 1091 Hearing Date: April 13,
2016
-----------------------------------------------------------------
|Author: |Liu |
|-----------+-----------------------------------------------------|
|Version: |April 4, 2016 Amended |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Urgency: |No |Fiscal: |Yes |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Consultant:|Hugh Slayden |
| | |
-----------------------------------------------------------------
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.
SB 1091 (Liu) Page 2
of ?
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.
SB 1091 (Liu) Page 3
of ?
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
SB 1091 (Liu) Page 4
of ?
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
SB 1091 (Liu) Page 5
of ?
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
SB 1091 (Liu) Page 6
of ?
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.
SB 1091 (Liu) Page 7
of ?
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
SB 1091 (Liu) Page 8
of ?
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
SB 1091 (Liu) Page 9
of ?
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
SB 1091 (Liu) Page 10
of ?
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 --