BILL ANALYSIS
AB 1044
Page 1
Date of Hearing: April 28, 2009
ASSEMBLY COMMITTEE ON HEALTH
Dave Jones, Chair
AB 1044 (Jones) - As Amended: April 23, 2009
SUBJECT : Continuing care retirement communities: contracts.
SUMMARY : Transfers the oversight and regulation of continuing
care retirement communities (CCRCs) from the Department of
Social Services (DSS) to the California Department of Insurance
(CDI), except for oversight and regulation of programs and
services provided directly to residents of the communities,
which would remain with DSS. Specifically, this bill :
1)Makes various legislative findings and declarations, including
that:
a) California has the largest older adult population in
nation, and is home to nearly four million people over 65
years of age, and this number is expected to more than
double over the next several decades as the baby boomers
begin reaching this milestone;
b) CCRCs are an alternative for the long-term residential,
social, and health care needs of California's elderly
residents and seek to provide a continuum of care, minimize
transfer trauma, and allow services to be provided in an
appropriately licensed setting;
c) Because elderly residents often both expend a
significant portion of their savings in order to purchase
care in a continuing care retirement community and expect
to receive care at the CCRC for the rest of their lives,
tragic consequences can result if a CCRC provider becomes
insolvent or unable to provide responsible care;
d) The Legislature has recognized the importance of CCRC
provider solvency and the need for disclosure concerning
the terms of agreements made between prospective residents
and the CCRC provider, and concerning the operations of the
CCRC;
e) The Legislature defines continuing care contracts in
terms of a promise of the future provision of services
which are analogous to insurance products;
f) CCRCs have long-term obligations and may have a
corporate or capital structure similar to insurance holding
company systems, as defined in the Insurance Code; and,
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g) States legislative intent to transfer general regulatory
responsibility for CCRCs, except for oversight and
regulation of programs and services provided directly to
residents of the communities, from DSS to CDI.
2)Requires CDI to succeed to and be vested with all the duties,
powers, purposes, functions, responsibilities, and
jurisdiction of DSS over CCRC, except for oversight and
regulation of programs and services provided directly to
residents of the CCRC.
3)Requires CDI to create a Continuing Care Contracts Branch (CCC
Branch), which is required to succeed to and be vested with
the duties, powers, functions, responsibilities, and
jurisdiction of the former CCC Branch in DSS.
4)Requires all regulations, orders, and guidelines adopted by
DSS relating to CCRCs, including the former CCC Branch in DSS,
and any of its predecessors in effect immediately preceding
the operative date of this bill, to remain in effect and be
fully enforceable unless and until readopted, amended, or
repealed, or until they expire by their own terms.
5)Prohibits any action by or against DSS pertaining to matters
vested in DSS from being abated, requires these actions to
continue in the name of CDI, and requires CDI to be
substituted for DSS and any of its predecessors by the court
where the action is pending, and prohibits the substitution
from affecting the rights of the parties to the action.
Prohibits this substitution from being construed to affect the
continuing responsibility of DSS to provide oversight and
regulation of programs and services provided directly to
residents of the CCRC.
6)Requires all books, documents, records, and property of DSS
pertaining to functions transferred to CDI pursuant to this
bill to be transferred to CDI.
7)Requires all unexpended balances of appropriations and other
funds available for use in connection with any function or the
administration of any law transferred to CDI under this bill
to be transferred to CDI for use for the purpose for which the
appropriation was originally made or the funds were originally
available. Requires the Department of Finance, if there is
any doubt as to where those balances and funds are
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transferred, to determine where the balances and funds are
transferred.
8)Prohibits a contract, lease, license, or any other agreement
to which DSS is a party to from being void or voidable by
reason of this bill, but requires the contract, lease or
license or other agreement to continue in full force and
effect, with CDI assuming all of the rights, obligations, and
duties of DSS. Prohibits the assumption by CDI from in any
way affecting the rights of the parties to the contract,
lease, license, or agreement.
9)Requires every officer and employee of DSS who is performing a
function transferred to CDI under this bill and who is serving
in the state civil service, other than as a temporary
employee, to be transferred to CDI. Prohibits the status,
position, and rights of these officers and employees from
being affected by the transfer and requires these persons be
retained by the person as an officer or employee of CDI, as
the case may be, pursuant to the State Civil Service Act,
except as to a position that is exempt from civil service.
10) Requires the Commissioner of CDI to review the
requirements of the CCRC body of law and make recommendations
to the Legislature as he or she deems necessary to improve the
oversight and regulation of the financial management of CCRCs
to protect consumers who enter into continuing care contracts.
11)Requires the Continuing Care Provider Fee Fund (Fund) to
consist of two accounts: a) The Insurance Account; and, b) The
State DSS Account, and requires 95% of fees received to be
deposited in the Insurance Account and 5% in the DSS Account.
12)Repeals existing law provisions on the use of money in the
Fund, including provisions requiring a continuing care
contracts program manager, supervising technical staff,
full-time legal counsel, a financial analyst and other
appropriate analytical and technical support positions,
provisions requiring contracts with technically qualified
persons including financial, actuarial and marketing
consultants to provide advice on the feasibility or viability
of CCRCs and providers, a cap on using no more than 5% in fees
collected for overhead costs, including facilities operation
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and indirect costs, and a requirement that if the balance in
the Fund is projected to exceed $500,000 for the next budget
year, the application fee and annual fees must be adjusted to
reduce the amounts collected.
EXISTING LAW :
1)Requires a CCRC to hold a currently valid provisional
certificate of authority or certificate of authority from DSS
before it may enter into a continuing care contract.
2)Requires the CCC Branch of DSS to enter and review each CCRC
in the state at least once every three years to augment the
Branch's assessment of the provider's financial soundness.
Requires, during its facility visits, the Branch to consider
the condition of the facility, whether the facility is
operating in compliance with applicable state law, and whether
the provider is performing the services it has specified in
its continuing care contracts.
3)Requires a continuing care contract to include a copy of the
current audited financial statement of the provider attached
to every continuing care contract. Requires, for a provider
whose current audited financial statement does not accurately
reflect the financial ability of the provider to fulfill the
continuing care contract obligations, the financial statement
attached to the continuing care contract to include all of the
following:
a) A disclosure that the reserve requirement has not yet
been determined or met, and that entrance fees will not be
held in escrow;
b) A disclosure that the ability to provide the services
promised in the continuing care contract will depend on
successful compliance with the approved financial plan;
and,
c) A copy of the approved financial plan for meeting the
reserve requirements; and,
d) Any other supplemental statements or attachments
necessary to accurately represent the provider's financial
ability to fulfill its continuing care contract
obligations.
4)Requires each continuing care provider that has obtained a
provisional or final certificate of authority and each
provider that possesses an inactive certificate of authority
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to submit an annual report of its financial condition,
consisting of audited financial statements and required
reserve calculations, with accompanying certified public
accountants' opinions, specified reserve information, a
continuing care provider fee and calculation sheet, evidence
of fidelity bond and certification that the continuing care
contract in use for new residents has been approved by DSS,
all in a format provided by DSS, and requires it to include
specified information, including information on reserves,
details on any increase in monthly care fees and any other
information DSS may require.
5)Requires all providers to annually file with DSS a financial
report disclosing key financial ratios and other key
indicators in a form determined by DSS.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, California's
CCRC residents are increasingly at risk and existing
California law does too little to protect them. Too often
cash is removed from facility-operator holding companies and
sent to unregulated out-of-state parent companies. The author
states the CCRC industry is now facing the possibility of
major revenue shortfalls. The CCRC industry, particularly the
recent rapid growth in the for-profit sector, is dependent on
a constant supply of new residents, a supply which is far from
certain, especially given the worst housing crisis since the
Great Depression.
The author states this bill addresses these problems at their
root. The author argues CCRC operators promise future
benefits in return for up-front and recurring fees, and that
this is an insurance promise. The author believes the CCRC
industry should be regulated as an insurance product by the
CDI, because CDI already regulates financial arrangements
commonly found in the CCRC industry. The author contends that
financial oversight differs considerably from the bulk of the
regulation that DSS is engaged in, and financial analysis is
not a typical role for state social services agencies to play.
The author argues that DSS is overly reliant on key indicator
projections by regulated facilities as opposed to third party
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certifications as to the actuarial soundness of an entire
operator. While DSS does require some CCRC providers to file
an actuarial report, it occurs only once every five years,
with the first actuarial report after a facility opens being
due after the first fiscal year. The author states this
snapshot during initial occupancy, the period of a facility's
highest revenue, may not provide an accurate guide to future
costs. The author states CDI already has a regulatory regime
that would provide better oversight of CCRC finances,
including reserve requirements, holding company systems,
dividend limits, and self-dealing limits.
The author points to several states, including Arizona, Florida,
Iowa, North Carolina, and New York that all require some level
of oversight of CCRC financing from their state departments of
insurance. In addition, the author states CDI brings a wealth
of actuarial expertise and trained financial personnel that
are not found at DSS, and CDI is best suited to guide CCRC
operators through today's treacherous economy toward the
fulfillment of the "continuing care promise." The author
concludes that if CDI regulates CCRC finance, DSS will be free
to pursue its mission "to promote the health, safety, and
quality of life of each person in community care" and DSS
would no longer need to reinvent CDI's financial expertise,
but would continue to ensure the highest quality of services
for residents.
2)BACKGROUND . CCRCs offer a long-term continuing care contract
that provides housing, residential services, and nursing care,
usually in one location, and usually for a resident's
lifetime. Most, but not all CCRCs provide three levels of
care: independent living; assisted living; and, skilled
nursing. A resident may begin in the independent living
setting, but move to a higher level of care as his or her care
needs change.
The entire CCRC is licensed as a residential care facility for
the elderly by the Community Care Licensing Division (CCLD) of
DSS, which has two branches that participate in the regulation
of CCRCs. The Senior Care Program monitors CCRC providers for
compliance with licensing laws and regulations regarding
buildings and grounds, accommodations, care and supervision of
residents, and quality of service. The CCC Branch is
responsible for reviewing and approving applications to
operate a CCRC and monitors the ongoing financial condition of
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all CCRC providers and their ability to fulfill the long-term
contractual obligations to residents. If a skilled nursing
facility is operating on the CCRC campus, it must be licensed
by the Department of Public Health (DPH).
Once a provider is issued a Certificate of Authority by the CCC
Branch to enter into continuing care contracts, audited
financial statements and reserve reports must be submitted to
the CCC Branch on an annual basis. Various financial reserve
requirements are mandated by the continuing care contract
statutes. The reserves help to assure that providers will
have sufficient financial liquidity to meet their ongoing
business expenses, including anticipated repairs and upgrades
and unanticipated expenses from fire or flood damage,
increased costs, or reduced revenues. CCRCs must show their
compliance with the reserve requirements each year and submit
reports to the CCC Branch with their annual audited financial
statements.
California currently has 79 CCRCs serving approximately 20,000
older adults. They largely offer services to persons who have
the means to invest a significant sum in an entrance or
admission fee. Theses fees commonly range into the hundreds
of thousands of dollars. According to the CCC Branch, there
are 15 CCRCs which serve persons in lower income levels, but
the growth in the industry is in the higher cost CCRCs.
Before accepting a deposit from a prospective resident, CCRCs
must provide a disclosure statement that includes their
operating income, operating expense, net income, interest
expense, unrestricted contributions, non-operating income or
expense, net income or loss, net cash flow, the average
monthly service fees, the percentage changes in the average
fee from year to year, and financial ratios for the three most
recent years including the debt-to-asset ratio, operating
ratio, debit service coverage ratio, and days cash-on-hand.
In the event that DSS determines that a provider is in unsound
financial condition, DSS has the statutory authority to
require the provider to submit a financial plan. When a
provider fails to comply with the specified statutory
requirements, DSS may levy administrative fines, file liens on
the property, or seek a court-appointed administrator to take
over operation of an ailing community.
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3)SUPPORT . The California Alliance for Retired Americans (CARA)
writes in support that this bill will protect residents of
CCRCs by insuring that these facilities have the financial
resources to provide for residents' future needs. CARA writes
that CCRC residents typically use the proceeds from the sale
of their home to pay the entrance fee to the CCRC, but the
entrance fee rarely provides any financial stake in the
facility and is paid with the understanding that residents'
future needs will be met as they age. CARA argues after
spending their life savings to enter CCRCs, seniors should not
have to worry whether their facilities will have the resources
to provide care. Gray Panthers Association of California
Networks (Gray Panthers) writes in support that DSS currently
monitors the financial condition of CCRCs, and while it is
well-suited to monitor quality of care issues at CCRCs, it
lacks the resources and expertise to ensure that providers are
financially sound. Gray Panthers argues CDI has the
experience, the resources and the appropriate regulatory
structure to take on that responsibility.
4)OPPOSITION . Aging Services of California (ASC) writes in
opposition that DSS is responsible for comprehensive oversight
of the residential and continuing care components of CCRCs,
and this bill seeks to parse out these duties between DSS and
CDI. ASC states it is unclear how this bill would result in
any cost savings, efficiencies, or better oversight of CCRCs,
and ASC argues this bill simply adds another state agency with
differing interests and priorities to the task of regulating
CCRCs. ASC states this bill assumes that CCRCs should be
overseen in the same manner as large insurance companies, and
ASC argues that CCRCs are unique in the senior living and
long-term care arena. ASC states the specialists at DSS with
intimate knowledge of all aspects of CCRC operations are best
suited for the task of comprehensive oversight. Finally, ASC
states this bill was not the result of any stakeholder input,
and it seeks to make extensive changes to the regulation of
very complex entities, and that any change in this area should
be a result of serious discussion and analysis, which includes
input from all stakeholders.
5)PREVIOUS LEGISLATION .
a) AB 2550 (Steinberg), Chapter 129, Statutes of 2004
implemented recommendations of the Actuarial Study Review
Panel regarding requirements for actuarial studies,
operating expense reserves, and annual financial reports
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for continuing care providers, including requiring all
CCRCs to annually file a "Key Indicator Report" containing
financial ratios and statistical information, including
occupancy rates and liquidity indicators.
b) SB 1212 (Torlakson), Chapter 529, Statutes of 2006,
requires that CCRC annual financial reports include the
disclosure of any funds accumulated for identified projects
or purposes and any funds maintained or designated for
specific contingencies.
6)RELATED LEGISLATION .
a) AB 407 (Beall) imposes requirements on CCRCs in the
event of the facility's permanent closure. AB 407 is
scheduled to be heard in the Assembly Appropriations
Committee on April 29, 2009.
b) AB 1169 (Ruskin) requires that continuing care contracts
include a disclosure that resident funds will not be
transferred to any other entity and will not be expended
for any purpose other than for the benefit of the
residents. AB 1169 is awaiting hearing in the Assembly
Appropriations Committee.
7)POLICY QUESTIONS .
a) CCRCs are subject to oversight from DSS and, for those
who offer skilled nursing services, DPH as well. Do the
benefits of oversight by CDI outweigh the potential
increase in the fragmentation of the administration of CCRC
oversight?
b) The DSS CCC Branch is supported by funds from the Fund,
which is financed by annual licensing fees paid by
providers. Is the proposed division of funds between DSS
(5%) and CDI (95%) sufficient to operate two distinct
branches of oversight?
c) Given the complexities of dividing oversight between two
or three departments, how will this bill ensure adequate
communication and coordination between DSS, DPH, and CDI,
particularly given the potential penalties and revocation
of licensure for failure by a CCRC to remain
fiscally-sound?
8)DOUBLE REFERRAL . This bill is double-referred; it was heard
in the Assembly Aging and Long-Term Care Committee on April
21, 2009 and passed on a vote of 4-2.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Alliance for Retired Americans
Gray Panthers Association of California Networks
Opposition
Aging Services of California
Analysis Prepared by : Scott Bain / HEALTH / (916) 319-2097