BILL ANALYSIS Ó SENATE COMMITTEE ON INSURANCE Senator Richard Roth, Chair 2015 - 2016 Regular Bill No: SB 1384 Hearing Date: April 13, 2016 ----------------------------------------------------------------- |Author: |Liu | |-----------+-----------------------------------------------------| |Version: |March 29, 2016 Amended | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Hugh Slayden | | | | ----------------------------------------------------------------- Subject: California Partnership for Long-Term Care Program SUMMARY Moves the California Partnership for Long-term Care Program ("Partnership") from the Department of Health Care Services (DHCS) to the Department of Aging, requires the program to offer a lower-priced inflation protection option, and requires the program to permit insurers to offer home care-only policies. DIGEST Existing law 1. Provides for the regulation of long-term care insurance (LTCI) by the California Department of Insurance (CDI) and prescribes various requirements and conditions governing the delivery of individual or group LTCI in the state. 2. Establishes the Medi-Cal program, administered by the DHCS, under which low income individuals are eligible for long-term care services. SB 1384 (Liu) Page 2 of ? 3. Requires DHCS to claim against the estate of a deceased Medi-Cal beneficiary an amount equal to the payments for medical and long-term care services received up to the value of the estate ("estate recovery"). 4. Establishes the Partnership within the DHCS to link private LTCI with Medi-Cal and In-Home Supportive Services (IHSS) program eligibility requirements and Medi-Cal estate recovery. 5. Requires that policies certified by the Partnership program be approved by CDI as compliant with most, but not all, provisions the Insurance Code applicable to LTCI. 6. Requires that policies and plans certified by the Partnership also contain the following benefits or features: a. Individual assessment and case management by a coordinating entity designated and approved by DHCS. b. Inflation protection (existing regulations require a minimum 5% annual compound inflation escalator). c. A periodic explanation of insurance payments or benefits paid that count toward Medi-Cal asset protection. d. Compliance with applicable regulations adopted by DHCS or the Department of Social Services (DSS). 1. Authorizes DHCS to establish, by adopting emergency regulations, the minimum level of coverage required for certification including the amount and types of services that a policy must cover. Existing regulations require all policies to include nursing home coverage. 2. Disregards an equivalent value of qualified benefits SB 1384 (Liu) Page 3 of ? received under a certified Partnership policy for the purposes of determining eligibility in the Medi-Cal or IHSS programs and in determining the amount subject estate recovery (the benefit is referred to as "asset protection"). This bill 1. Updates references from the "Department of Health Services" to the "Department of Health Care Services." 2. Moves the Partnership program from DHCS to the Department of Aging. 3. Requires Partnership policies to offer lower-cost inflation protection, as permitted under federal law, in addition to the 5% annually compounded currently required. 4. Requires the Partnership to certify home-care only policies, without nursing home coverage, but requires those policies to cover electronic or other devices used for remote monitoring of the insured. COMMENTS 1. Purpose of the bill According to the author, almost 20% of California's population will be age 65+ by 2030. Seventy percent of those will require some form of long term care services and supports (LTSS), yet 67% underestimate their future needs. Only 8% of seniors have purchased LTCI. The California Long Term Care Partnership was created to provide LTCI options for middle class consumers who cannot afford to pay directly for LTSS that allow them to age in their homes. Without affordable LTCI, these consumers' 1) impoverish themselves to qualify for MediCal services, 2) rely on family members for care, or 3) go without. Of the three remaining participating insurers, one no longer issues new policies, another's credit worthiness has been downgraded, and CalPERS can only offer coverage to CalPERS members and their eligible family members. In comparison, SB 1384 (Liu) Page 4 of ? Washington advertises 12 participating issuers of Partnership policies; Oregon, 19; New York, 3, and North Dakota, 21. Partnership policy sales have declined nationally, but most significantly in California. In 2004, 13,369 consumers applied for Partnership policies (8,425 were granted), but only 858 applied in 2014 (611 were granted). SB 1384 will enable the California Partnership to make affordable, practical LTCI available for middle-class consumers. 2. Background Early in the 1990s, four states joined with the federal government to establish the four original Partnership programs. However, subsequent changes in federal law discouraged new states from establishing their own programs. The federal Deficit Reduction Act of 2005 (DRA) opened the door for more states to establish their own programs. About 40 states now operate Partnership programs. In California, the program is jointly administered by CDI and DHCS. CDI reviews and approves policies in accordance with the Insurance Code and DHCS establishes minimum standards and certifies that the policies meet program requirements pursuant to the Welfare and Institutions Code. Partnership policies were intended to target middle-class consumers whose pension and savings are adequate for retirement so long as they do not experience a serious chronic disability. This approach encouraged responsible financial planning and gave those consumers a way to preserve some of assets if their LTCI coverage runs out. For every dollar of benefit received under a Partnership policy, a dollar is disregarded for the purposes of determining Medi-Cal eligibility (for applicants subject to an asset test) and Medi-Cal's estate recovery action. Additionally, DHCS regulations require other features and consumer protections including the following: Agents that sell Partnership policies must receive 8 hours of special training every two years in addition to the normal 8 hours of LTCI training. SB 1384 (Liu) Page 5 of ? Premiums are waived when the insured is receiving qualified institutional care. Insurers are subject to additional limitations on rate increases. Care Coordination and Management. Partnership policies also provide another consumer-friendly feature, care coordination and management by an agency that is independent of the insurer. According to the Partnership program, care coordinators assess the needs of the insured and recommend alternatives for meeting those needs. Care coordinators must consider how the policy benefits can help meet the insured's needs, and how the needs might also be met through other sources, such as community services, or the insured's health coverage, etc. These other sources can help reduce the out-of-pocket expenses and make the policy benefits last as long as possible. Care coordinators live in and must be familiar with the community in which the insured resides so that he or she can locate quality providers. Care coordinators also implement and monitor care by contacting caregivers and arranging for them to be in the home to provide care at the required times, negotiate rates of payment, and monitor the quality of the services. Affordability Problems. Unfortunately, the consumers that the program is intended to help can't afford the policies. Some of the standards required by DHCS regulations make the costs of these policies unaffordable or unattractive to the target market. In 2007, the US Government Accountability Office released a study of the original Partnership states and concluded that many of the consumers who could afford to purchase a Partnership policy would never use the asset protection benefit or qualify for Medicaid/Medi-Cal. The problem is that consumers with some assets that might enroll in Medi-Cal would not likely be able to afford the policy. Because LTCI is a long-term planning product, inflation protection is critical to maintaining the value of the benefit. However, the Partnership requires that all certified policies include a 5% inflation escalator that is compounded annually. (An inflation escalator automatically SB 1384 (Liu) Page 6 of ? increases the policy's daily and lifetime maximum benefit limit.) In contrast, the inflation rate for home and community based care has been at 2% and nursing home care at 4% over the last 5 years. California Long Term Care Insurance Service (CLTCI), an LTCI brokerage firm, submitted examples of the potential impact that different inflation escalator options may have on premium. The following example is based on a policy issued by major carrier with a 3-year benefit limit, a 90-day elimination period, and $190 day benefit. Annual Premium: Female ---------------------------------------------- |Inflation Escalator |Age 57 |Age 67 | |----------------------+-----------+-----------| |None |$2,897 |$5,383 | |----------------------+-----------+-----------| |3% Compound |$4,549 |$8,153 | |----------------------+-----------+-----------| |5% Compound |$11,135 |$16,428 | | | | | ---------------------------------------------- Annual Premium: Male ---------------------------------------------- |Inflation Escalator |Age 57 |Age 67 | |----------------------+-----------+-----------| |None |$2,106 |$3,892 | |----------------------+-----------+-----------| |3% Compound |$3,053 |$5,607 | |----------------------+-----------+-----------| |5% Compound |$7,187 |$11,304 | | | | | ---------------------------------------------- Notably, the impact becomes more pronounced as the insured ages, especially for females, but the need for inflation protection also decreases. Originally, the first four Partnership states required 5% compound escalator, but now there are a variety of options in other states. The DRA only requires inflation protection based on the consumers age at date of purchase: SB 1384 (Liu) Page 7 of ? Age 60 or younger must have annual compound inflation protection; Age 61 but younger than 76 must have some type of inflation protection; and Age 76 or older are not required to purchase any inflation protection option. Other states offer more affordable options based on the DRA. For example, the New York State Partnership program, one of the original Partnership states, offers a 3.5% inflation escalator. In 2014, New York consumers purchased 2,184 Partnership policies; over 72% of those chose the 3.5% inflation option instead of the 5%. This bill would require the California Partnership to also offer a lower-cost inflation protection option, along with the 5% compound escalator. But since inflation protection is so important, the bill would also require that consumers be presented with an illustration of the potential impact for each option at the point of sale. Coverage Choices. Most consumers prefer to be at home, rather than in an institution, when they suffer from a disability. Of those age 65 or older receiving chronic illness care, 80% live in private homes. New techniques and technology are making it easier to keep people with severe disabilities at home longer. SB 1384 would permit insurers to offer Partnership policies that provide home care-only policies, but would also require those policies to cover electronic and other monitoring devices that would enable family members and caregivers to monitor the insured remotely. Double-referral. This bill is double-referred and will be heard in Health Committee next week. 1. Support CLTCI supports the bill because the 5% compound inflation escalator has become impractical for existing SB 1384 (Liu) Page 8 of ? rates and makes these policies completely unaffordable to the middle class. 2. Opposition None received 3. Questions California Health Advocates (CHA) recommends reconstituting the advisory committee that designed the original Partnership program. Would an ongoing advisory committee be more responsive to current market trends then the task force proposed in AB 332 (Calderon, 2015) last year? The Partnership already has an advisory committee for agents and brokers that meets periodically. Could that infrastructure be modified to accommodate the CHA proposal without significant additional cost? 4. Prior and Related Legislation a. SB 1091 (Liu, 2016) would establish definitions and standards for new forms of LTCI. b. AB 4212 (Connelly), Chapter 1290, Statutes of 1990, established the Partnership as pilot program; set a period in which qualified policies may be issued between July 1, 1991, and June 30, 1996, and created a task force to provide advice and assistance in designing and implementing the program. The task force consisted of several administrative agencies and legislative staff and consulted with consumer advocates, insurers, providers, employers, academic specialists in long-term care and aging, and others. c. AB 2039 (Connelly) Chapter 1147, Statutes of 1991, revised the criteria for qualified policies and extended the period in which qualified policies may be issued to June 30, 2000. d. SB 738 (Senate Insurance Committee), Chapter 802, Statutes of 1999, extended the period in which qualified policies may be issued to January 1, 2005, and required CDI approval of policies prior to certification by the SB 1384 (Liu) Page 9 of ? program. e. SB 1103 (Senate Budget and Fiscal Review Committee), Chapter 228, Statutes of 2004, required Partnership-certified insurance issuers to reimburse the state $20,000 annually to the state for common educational and outreach activities and eliminated the closing date for the period in which qualified policies may be issued. POSITIONS Support American Association for Long-term Care Insurance California Long-Term Care Insurance Services/NorthStar Network Insurance Agency Oppose None received -- END --