BILL ANALYSIS
AB 1044
Page 1
ASSEMBLY THIRD READING
AB 1044 (Jones)
As Amended May 5, 2009
Majority vote
AGING 4-2 HEALTH 13-6
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|Ayes:|Bonnie Lowenthal, V. |Ayes:|Jones, Ammiano, Block, |
| |Manuel Perez, Torres, | |Carter, De La |
| |Yamada | |Torre, De Leon, Hall, |
| | | |Hayashi, Hernandez, |
| | | |Bonnie Lowenthal, Nava, |
| | | |V. Manuel Perez, Salas |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Hagman, Nestande |Nays:|Fletcher, Adams, Conway, |
| | | |Emmerson, Gaines, Audra |
| | | |Strickland |
| | | | |
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APPROPRIATIONS 12-5
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|Ayes:|De Leon, Ammiano, Charles |
| |Calderon, Davis, Fuentes, |
| |Hall, John A. Perez, |
| |Price, Skinner, Solorio, |
| |Torlakson, Krekorian |
| | |
|-----+---------------------------|
|Nays:|Nielsen, Duvall, Harkey, |
| |Miller, |
| |Audra Strickland |
| | |
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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)Requires CDI to succeed to and be vested with all the duties,
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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.
2)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.
3)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repealed, or until they expire by their own terms.
4)Requires, by January 1, 2011, the Insurance Commissioner, the
State Public Health Officer, and the Director of DSS to
jointly develop and adopt regulations regarding standards,
staff training, policies, and procedures to ensure maximum
coordination and consistency of implementation of the
transfers required by this bill.
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
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available. Requires the Department of Finance, if there is
any doubt as to where those balances and funds are
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
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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
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.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, annual increased fee-supported special fund costs of
$1 million to CDI to provide a higher level of oversight with
respect to financial surveillance, legal analysis, information
technology, and overhead. Actual costs may be lower to the
extent CDI is able to provide new regulatory infrastructure and
scrutiny of the CCRC industry in the early years following
enactment of this legislation and permanent workload is less.
COMMENTS : 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 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
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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.
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 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
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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. These 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.
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
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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.
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.
Analysis Prepared by : Scott Bain / HEALTH / (916) 319-2097
FN: 0001340