BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 999|
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THIRD READING
Bill No: AB 999
Author: Yamada (D)
Amended: 8/23/12 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE : 5-3, 6/13/12
AYES: Calderon, Corbett, Correa, Lieu, Lowenthal
NOES: Gaines, Anderson, Wyland
NO VOTE RECORDED: Price
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 42-33, 6/1/11 - See last page for vote
SUBJECT : Long-term care insurance
SOURCE : Department of Insurance
DIGEST : This bill revises long-term care (LTC) insurance
oversight to enhance consumer information and revise rate
calculation requirements.
Senate Floor Amendments of 8/23/12 provide the Insurance
Commissioner (Commissioner) with greater flexibility
relating to the LTC insurance rate review process for
proposed rate increase filings.
ANALYSIS :
Existing law:
CONTINUED
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1. Provides for the regulation of insurers by the
Department of Insurance (CDI), including insurers
issuing policies of LTC insurance.
2. Regulates the marketing or solicitation of LTC insurance
policies and, in that regard, requires specified
disclosures to prospective applicants or enrollees.
3. Requires the Commissioner to annually prepare a consumer
rate guide for LTC insurance and to include specified
information.
4. Requires the premium rate schedules for all individual
and group LTC insurance policies issued in this state to
be filed with, and receive the prior approval of, the
Commissioner before the policy may be offered, sold,
issued, or delivered to a resident of this state.
5. Requires an insurer of LTC insurance to submit to the
Commissioner for approval all proposed premium rate
schedule increases and to include specified information
with the rate application. Approval of all premium rate
schedule increases is subject to specified criteria.
This bill:
1. Requires an insurer of LTC insurance to clearly post on
its Internet Web site and provide written notice at the
time of solicitation that a specimen individual policy
form or group master policy and certificate form for
each policy form offered by the insurer is available
upon request and to provide that form within 15 calendar
days upon request.
2. Requires the annual consumer rate guide to include a
specimen outline of coverage for each product currently
marketed by each insurer listed in the rate guide.
3. Provides that if the premiums in any rate revision
filing calculated pursuant to those criteria produce a
lifetime expected loss ratio that is less than the
highest lifetime expected loss ratio for the policy form
in the initial filing or for requested premium rates in
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any filing made after January 1, 2013, the insurer would
be required to reduce the premiums in that filing such
that the current lifetime expected loss ratio is equal
to or greater than the highest filed loss ratio, as
specified.
4. Sets forth criteria for calculating the margin in the
determination of a lifetime expected loss ratio.
5. Prohibits, for those policies, an insurer from
justifying a rate increase prior to approval by the
Commissioner based upon asset investment yield rate
changes, except as specified, and requires all of the
experience on all similar LTC policy forms issued by an
insurer and its affiliates and retained within the
affiliated group to be pooled together and used as the
basis for determining whether an increase is reasonable
or shall be approved under specified provisions.
6. Requires similar LTC policy forms to be classified into
benefit classifications of nursing facility and
residential care facility only, home care only, or
comprehensive LTC benefits.
7. Allows the Commissioner to approve a rate increase, or a
series of increases over a set schedule, without
submission of certification under Insurance Code (IC)
Section 10236.13(a) by the insurer's actuary only if the
Commissioner determines that accepting a lower premium
rate schedule increase or increases is in the best
interest of California policyholders, the insurer makes
certain disclosures as specified, and the premium rate
schedule complies with the other requirements of IC
Sections 10236.14 (based on the information in the
actuarial memorandum).
8. Provides that the Commissioner must condition the
approval of proposed rate increases on the
administration of a contingent benefit on lapse, unless
that condition threatens the insurer's financial
condition as specified. That is, if the insurer
increases the premium above a defined threshold, the
insured has the option to convert the coverage to
paid-up coverage with a new maximum lifetime benefit
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equal to the amount of premiums paid for the coverage.
The insured will not lose all coverage, but the lifetime
benefit will be reduced proportionally. If the
Commissioner approves an incremental series of
increases, the qualification point for the contingent
benefit may be delayed because of the schedule.
9. Provides that the insured qualifies for the contingent
benefit upon the first increase in an approved series
based on the sum of the scheduled increases.
10.Requires the rate filings to comply with the requirement
for the Personal Worksheet related to suitability
standards pursuant to IC Section 10234.95 and the
Long-term Care Insurance Rate Guide pursuant to IC
Section 10234.6.
11.Provides that if the insurer seeks a lesser increase,
the lifetime anticipated loss ratio for a policy form
will be calculated using the total filed rate schedule
increase or series of increases, even if future
increases are not approved.
Background
The LTC marketplace . LTC insurance is a relatively new,
albeit very important, insurance product. As life
expectancies have increased, a growing number of people
find the need to have late-in-life LTC services, which can
be very expensive. Thus, an insurance product to help pay
for these expenses has developed. But LTC insurance is
different in many ways from most other insurance products.
While it is possible that a catastrophic event will result
in LTC needs in the early years of a policy, the general
expectation is that a policyholder will pay premiums for
many years before ever needing to make a claim. The
incentive to pay premiums for many years before needing the
insurance is based on the pricing mechanism that rewards
those who purchase during their relatively younger,
healthier years. As people age, and begin to have health
problems, they either face extremely high premiums or do
not qualify at all for this type of insurance.
The nature of LTC insurance - the expectation that claims
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will occur only years in the future - has made predicting
what the claim costs will be very difficult. It is widely
accepted that the insurance industry struggled in the early
development of LTC policies to analyze the potential for
future losses. In retrospect, many factors can be seen as
rendering that process difficult: increasing life
expectancies; life extending technology; faulty assumptions
on lapse ratios; and even basic predictions about what
nursing home care would cost. The result was that early
LTC buyers who bought policies they could afford faced
sharp and repeated premium increases as a clearer
understanding of expected loss costs emerged.
The industry and regulators in the late 1990s began to
address these problems by adopting new rate-making rules.
These rules have been termed "rate stabilization."
Policies sold pre-2002-03 are termed "pre-stabilization"
policies, and policies sold since then are termed
"post-stabilization" policies. According to the author and
sponsor, the CDI, the post-stabilization reforms have not
worked well, and the same issues that plagued the
pre-stabilization market continue to plague the
post-stabilization market.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 6/26/12)
Department of Insurance (source)
Alzheimer's Association, California Council
California Nurses Association
California Professional Firefighters
California School Employees Association, AFL-CIO
Consumer Federation of California
ASSEMBLY FLOOR : 42-33, 6/1/11
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Butler, Campos,
Carter, Cedillo, Chesbro, Davis, Dickinson, Eng, Feuer,
Fong, Furutani, Gordon, Hall, Hayashi, Roger Hern�ndez,
Hueso, Huffman, Lara, Bonnie Lowenthal, Ma, Mendoza,
Mitchell, Monning, Portantino, Skinner, Solorio, Swanson,
AB 999
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Torres, Wieckowski, Williams, Yamada, John A. P�rez
NOES: Achadjian, Bill Berryhill, Buchanan, Charles
Calderon, Conway, Cook, Donnelly, Fletcher, Beth Gaines,
Garrick, Gatto, Grove, Hagman, Halderman, Harkey, Hill,
Huber, Jeffries, Jones, Knight, Logue, Mansoor, Miller,
Morrell, Nestande, Nielsen, Norby, Olsen, Perea, Silva,
Smyth, Valadao, Wagner
NO VOTE RECORDED: Fuentes, Galgiani, Gorell, Pan, V.
Manuel P�rez
JJA:k 8/24/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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