BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 389|
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THIRD READING
Bill No: AB 389
Author: Saldana (D)
Amended: 6/15/09 in Senate
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMM : 11-0, 6/22/09
AYES: Calderon, Correa, Cox, Florez, Harman, Kehoe, Liu,
Lowenthal, Padilla, Runner, Wolk
NO VOTE RECORDED: Cogdill
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 77-0, 5/21/09 (Consent) - See last page
for vote
SUBJECT : Long-term care insurance
SOURCE : Department of Insurance
DIGEST : This bill modifies California long-term care
insurance rate oversight law to allow the California
Department of Insurance (CDI) to monitor the rate increases
of older long-term care policies and to assure that
adequate premium dollars are going to benefits rather than
the insurance company. Furthermore, this bill would
provide flexibility to CDI to use its own qualified
actuaries in addition to contracted outside professionals
to review long-term care rates.
ANALYSIS : Existing law:
CONTINUED
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1.Makes the sale of long term care insurance subject to
Department of Insurance oversight.
2.Benefits in relation to premiums paid is subject to
regulation and for individual long-term care insurance
policies issued prior to January 1, 2003, benefits are
deemed reasonable in relation to premiums if the expected
loss ratio is at least 60 percent, calculated in a manner
providing for adequate reserving of the long-term care
insurance risk.
3.Requires all actuaries used by the Department to review
long term care rate applications to be members of the
American Academy of Actuaries with at least five years of
experience in long-term care insurance industry pricing.
4.If the Department does not have sufficient actuaries on
staff with at least five years of experience in long-term
care insurance industry pricing, the Department is
required to contract with actuaries to review all rate
applications submitted by insurers.
This bill:
1.Provides for individual long-term care insurance policies
issued before new premium rate schedules are approved,
and for which rate revisions are filed on or after
January 1, 2010, benefits by the policy shall be deemed
reasonable by the Department of Insurance in relation to
the premium if the premium rate schedules have a lifetime
expected loss ratio of at least 60 percent of the premium
scale in effect on December 31, 2009 plus that of 70
percent of the premium increases filed on and after
January 1, 2010, calculated in a manner for adequate
reserving.
2.Authorizes, notwithstanding the specific rate authority
provided above, The Insurance Commissioner, for rate
revisions filed on or after January 1, 2010, is
authorized to approve a rate change application based on
less than a 70 percent loss ratio, but not less than a 60
percent loss ratio, for the part attributable to the rate
increase, if an insurer can demonstrate that the rates
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are necessary to protect the financial condition of the
insurer, including further reductions in capital and
surplus.
3.Clarifies the authority of the Department to retain
outside actuarial consultants and makes minor technical
changes to other provisions of law
Background
The California Department of Insurance states:
As the baby-boomer generation ages, the number of
elderly Americans and the demand for services and
long-term care is increasing. As a result, long-term
care insurance, with more than eight million
customers, has a particular appeal to Californians
reaching retirement age.
Prior to 2002, too many long-term care policies were
under priced, resulting in an influx of policyholders
but inadequate funds to assure long-term solvency for
the insurers. The Legislature addressed that problem
in 2002 for new policies in particular, but the law
leaves open the possibility that insurers could impose
rate increases for existing older policies that keep
too much of each premium dollar in the increase for
the insurer's expenses, rather than for benefits to
the policyholder.
In addition, current law assures that only qualified
actuaries can review rate applications submitted by
long-term care insurers. However, due to an
oversight, the statute can prohibit CDI actuaries who
are qualified to review rates from playing any role.
This adds both time and expense to approving new
rates. In addition, while it is normal practice to
bill long-term care insurers for the hours spent
reviewing rates, the statute is not clear about this
authority, which is standard in most other lines of
insurance.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
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SUPPORT : (Verified 6/29/09)
Department of Insurance (source)
Peace Officers Research Association of California
ARGUMENTS IN SUPPORT : According to the Department of
Insurance, this bill will allow it to monitor the rate
increases of older long-term care policies and assure that
adequate premium dollars are going to benefits rather than
the insurance company. This bill provides flexibility to
the Department to use its own qualified actuaries in
addition to contracted outside professionals to review
long-term care rates. Finally, it makes other
non-substantive technical changes the baby-boomer
generation ages, the number of elderly Americans and the
demand for services and long-term care are increasing. As
a result, long-term care insurance, with more than eight
million customers, has a particular appeal to Californians
reaching retirement age.
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Duvall, Emmerson, Eng, Evans, Feuer, Fletcher,
Fong, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Krekorian, Lieu,
Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning,
Nestande, Niello, Nielsen, John A. Perez, V. Manuel
Perez, Portantino, Price, Ruskin, Salas, Silva, Skinner,
Smyth, Solorio, Audra Strickland, Swanson, Torlakson,
Torres, Torrico, Tran, Villines, Yamada, Bass
NO VOTE RECORDED: Fuentes, Nava, Saldana
JA:nl 6/30/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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