BILL ANALYSIS �
AB 999
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Date of Hearing: May 27, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 999 (Yamada) - As Amended: May 11, 2011
Policy Committee: InsuranceVote:7 -
5
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill modifies the long-term care (LTC) insurance rate
development process and requires additional disclosures for
consumers. Specifically, this bill:
1)Requires every LTC insurer to post a specimen of each
individual or group policy form it sells on its internet
website.
2)Limits the approval of rate increases on policies issued
before 2002 to no more than once every five years.
3)Limits the approval of rate increases on policies issued after
2002 to no more than once every 10 years.
4)Provides that, notwithstanding any provision of law, the
Insurance Commissioner (IC) may approve rate filings if an
insurer demonstrates that the rates are necessary to protect
the financial condition of the insurer, including avoidance of
further reductions in capital and surplus.
FISCAL EFFECT
1)Costs associated with this legislation are minor and
absorbable for the Department of Insurance.
2)Potentially minor increase in costs for the Medi-Cal program
to the extent that freezing rates for five or 10 years results
in a spike at the end of the freeze that results in fewer
people being able to continue to afford their long-term care
insurance monthly premiums. Data from the California
AB 999
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Partnership for Long Term Care shows that over the last
decade, long-term care insurance has saved close to $30
million in Medi-Cal benefits.
If this rate freeze policy results in a 5% reduction in those
savings, it would cost the state approximately $150,000
($75,000 GF). However, insurers are currently applying for
rate increases that could have the same effect of increasing
premiums beyond that which consumers can afford. Therefore,
it is likely that with or without this legislation, there will
be rate increases which could price consumers out of the long
term care insurance market.
COMMENTS
1)Purpose . According to the author, this bill is intended to
modify the long-term care insurance ratemaking process to
protect consumers from the excessive rate volatility that has
characterized the long-term care insurance market. Despite
the "rate-stabilization" efforts enacted in 2000, and
implemented in 2002 and 2003, insurers have continued to
underestimate the real cost of long-term care insurance, and
consumers who purchase policies they expect to pay premiums on
for many years before needing the coverage have faced
unexpectedly large rate increases. The goal of this bill is
to have long-term care rates more accurately reflect the
actual costs so that consumers will know what they are buying.
The author is concerned that too many consumers become locked
into high-priced policies that they purchased with the
expectation of lower premiums.
2)Opposition . Opponents of the bill, members of the Long Term
Care Insurance provider community, argue that a rate freeze is
counterproductive and could result not only in a rate spike at
the end of the freeze, but in an overall increase in long term
care insurance premiums. The opponents further argue that
these increases in premiums could result in an increase in
Medi-Cal costs as fewer people are able to afford long term
care insurance and must rely on public benefits to pay for
their long term care.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081
AB 999
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