BILL ANALYSIS                                                                                                                                                                                                    





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

          Bill No:             SB 1384        Hearing Date:    April 13,  
          2016
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          |Author:    |Liu                                                  |
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          |Version:   |March 29, 2016     Amended                           |
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          |Urgency:   |No                     |Fiscal:    |Yes              |
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          |Consultant:|Hugh Slayden                                         |
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             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.  










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            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  







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              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,  







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              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.







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                   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  







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              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:







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                   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  







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              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  







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                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 --