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AB-1209 Long-term care benefits.(2019-2020)

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Date Published: 06/25/2019 09:00 PM
AB1209:v96#DOCUMENT

Amended  IN  Senate  June 25, 2019
Amended  IN  Assembly  April 22, 2019
Amended  IN  Assembly  March 28, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill
No. 1209


Introduced by Assembly Member Nazarian
(Coauthor: Assembly Member Voepel)

February 21, 2019


An act to amend Section Sections 10235.40 and 10236.11 of, and to add Section 10235.45 to, the Insurance Code, relating to insurance.


LEGISLATIVE COUNSEL'S DIGEST


AB 1209, as amended, Nazarian. Long-term care benefits.
Existing law generally regulates classes of insurance, including life and long-term care insurance. Under existing law, a life insurance policy may accelerate long-term care benefits as an alternative to a life settlement. Existing law authorizes an accelerated death benefit to be added to a life insurance policy to provide for the advance payment of a part of the death proceeds if a qualifying event, including a terminal or chronic illness, occurs. Existing law imposes requirements on an insurer before the lapse or termination of a long-term care insurance policy or certificate, and requires a long-term care insurance policy or certificate to provide for reinstatement of coverage if the insured has a cognitive impairment and specified criteria are met.
This bill would require an insurer to allow an insured to access or take a policy loan or cash withdrawal against the cash value of a life insurance policy issued, amended, or renewed issued on or after January 1, 2021, while the insured receives payment of long-term care benefits, except as specified. The bill would authorize the payment of an accelerated death benefit for long-term care to be applied toward repayment of a pro rata portion of an outstanding policy loan if the payment results in a pro rata reduction in the cash value of the life insurance policy. The bill would require an insurer to notify provide a statement to a policyholder or certificate holder 15 at least 30 days before the first payment and no later than 30 days after every payment of an accelerated death benefit for long-term care if that payment will prohibit or limit the policyholder’s right to access or take a policy loan against the cash value of the life insurance policy. that includes specified information, including an explanation of policy changes that would or did occur due to the payment. If an insurer approves a loan against or withdrawal from the cash value of a life insurance policy that accelerates benefits for long-term care, the bill would require the insurer to send the policyholder or certificate holder a statement with specified information, including a notice that a loan or cash withdrawal may adversely affect government benefits and may be taxable. Beginning January 1, 2021, the bill would require an insurer to offer to an applicant for a universal life insurance policy that accelerates benefits for long-term care an option to purchase a benefit that would guarantee the policy will not lapse due to insufficient cash value if the applicant pays a no-lapse premium amount.
Existing law requires a premium rate schedule for an individual or group long-term care insurance policy to be filed with and approved by the Insurance Commissioner before a policy is offered, sold, issued, or delivered.
This bill would prohibit the Insurance Commissioner from approving an initial premium rate schedule for individual or group long-term care insurance that includes scheduled rate increases based on the attained age of the insured or the policy duration.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 10235.40 of the Insurance Code is amended to read:

10235.40.
 (a) No An individual long-term care policy or certificate shall not be issued until the applicant has been given the right to designate at least one individual, in addition to the applicant, to receive notice of lapse or termination of a policy or certificate for nonpayment of premium. The insurer shall receive from each applicant one of the following:
(1) A written designation listing the name, address, and telephone number of at least one individual, in addition to the applicant, who is to receive notice of lapse or termination of the policy or certificate for nonpayment of premium.
(2) A waiver signed and dated by the applicant electing not to designate additional persons to receive notice. The required waiver shall read as follows:
“Protection Against Unintended Lapse.
I understand that I have the right to designate at least one person other than myself to receive notice of lapse or termination of this long-term care insurance policy for nonpayment of premium. I understand that notice will not be given until 30 days after a premium is due and unpaid. I elect not to designate any person to receive the notice.
Signature of Applicant
Date”
(b) The insurer shall notify the insured of the right to change the written designation, no less often than once every two years.
(c) When If the policyholder or certificate holder pays the premium for a long-term care insurance policy or certificate through a payroll or pension deduction plan, the requirements contained in subdivision (a) need not be met until 60 days after the policyholder or certificate holder is no longer on that deduction payment plan. The application or enrollment form for a certified long-term care insurance policy or certificate shall clearly indicate the deduction payment plan selected by the applicant.
(d) No An individual long-term care policy or certificate shall not lapse or be terminated for nonpayment of premium unless the insurer, at least 30 days prior to before the effective date of the lapse or termination, gives notice to the insured and to the individual or individuals designated pursuant to subdivision (a), at the address provided by the insured for purposes of receiving notice of lapse or termination. Notice shall be given by first-class United States mail, postage prepaid, not less than 30 days after a premium is due and unpaid.
(e) Each A long-term care insurance policy or certificate shall include a provision which, that, in the event of lapse, provides for reinstatement of coverage, if the insurer is provided with proof of the insured’s cognitive impairment or the loss of functional capacity. This option shall be available to the insured if requested within five months after termination and shall allow for the collection of a past due premium, where if appropriate. The standard of proof of cognitive impairment or loss of functional capacity shall not be more stringent than the benefit eligibility criteria on cognitive impairment or the loss of functional capacity contained in the policy certificate.
(f) Beginning January 1, 2021, an applicant for a universal life insurance policy that accelerates benefits for long-term care shall be offered an option to purchase a benefit that would guarantee the policy shall not lapse due to insufficient cash value if the applicant pays a no-lapse premium amount specified by the insurer.
(1) The insurer may specify the no-lapse premium amount at the time the policy is purchased or may declare an annual no-lapse premium amount on each policy anniversary.
(2) If the no-lapse guarantee is lost or impacted due to an untimely or insufficient premium payment, the policyholder or certificate holder shall be permitted to restore the no-lapse guarantee by making an additional payment. The insurer shall notify the policyholder or certificate holder within 10 days after the due date for the no-lapse premium amount if the premium is not paid in the amount or within the timeframe required to maintain no-lapse protection, and shall describe the additional payment amount required to restore the policy’s no-lapse guarantee.
(3) A no-lapse guarantee may be subject to reasonable conditions and limitations, but shall not be limited to a specified age of less than 110 years of age.

SECTION 1.SEC. 2.

 Section 10235.45 is added to the Insurance Code, immediately following Section 10235.40, to read:

10235.45.
 (a) A life insurance policy issued, amended, or renewed issued on or after January 1, 2021, that accelerates benefits for long-term care shall not prohibit or otherwise limit the policyholder’s right to access or take out a policy loan against the cash value of the life insurance policy access to policy loans or cash withdrawals due to the payment of long-term care benefits, except as provided in paragraphs (1) and (2).
(1) Payment of an accelerated death benefit for long-term care shall result in no more than a pro rata reduction in the cash value of the life insurance policy. A reduction in cash value shall be proportionally equal to the percentage of death benefits accelerated to produce the accelerated death benefit payment. Future access to policy loans may be limited to the remaining cash value.
(2) Notwithstanding paragraph (1), payment of an accelerated death benefit for long-term care, plus any administrative expense charges, future premiums, and accrued interest, care may be considered a lien against the death benefit of the life insurance policy, and access to the cash value of the life insurance policy may be restricted to the excess of the cash value over the sum of any outstanding policy loans and the lien. Future access to policy loans and cash withdrawals may also be limited to the excess of the cash value over the sum of any outstanding policy loans and the lien.
(b) If payment of an accelerated death benefit for long-term care results in a pro rata reduction in the cash value of the life insurance policy issued, amended, or renewed on or after January 1, 2021, policy, the payment may be applied toward repayment of a pro rata portion of outstanding policy loans. The amount of the loan repayment shall be proportionally equal to the percentage of death benefits accelerated to produce the accelerated death benefit payment.

(c)If payment of an accelerated death benefit for long-term care will prohibit or otherwise limit the policyholder’s right to access or take a policy loan against the cash value of the life insurance policy issued, amended, or renewed on or after January 1, 2021, the insurer shall send the policyholder or certificate holder a statement demonstrating the effect of the acceleration on any remaining death benefit, cash value or accumulation account, policy loan, and premium payment. The statement shall include a notice explaining that the payment of accelerated death benefits for long-term care will reduce and potentially eliminate any remaining death benefit. The statement shall be provided at least 15 days before payment of the accelerated death benefit.

(c) At least 30 days before the first payment of an accelerated death benefit for long-term care, the insurer shall send the policyholder or certificate holder a statement that includes all of the following:
(1) The scheduled payment date and an option to cancel the payment before the payment date. The policyholder or certificate holder may cancel the payment by contacting the insurer at the insurer’s address or telephone number at any time before the payment date.
(2) An explanation of any changes to the policy that would occur as a result of the payment, including, but not limited to, a prohibition or limitation of access to loans or cash withdrawals.
(3) A numerical demonstration of the effect of the payment on the remaining death benefit, cash value or accumulation amount, policy loan value, outstanding policy loan amount, no-lapse guarantee, policy lien, and premium payments or cost of insurance charges.
(4) A notice stating: “WARNING: Payment of an accelerated death benefit for long-term care will reduce and may potentially eliminate your death benefit. Receipt of an accelerated death benefit for long-term care may be taxable and may also adversely affect your eligibility for Medicaid or other government entitlements. Please consult a financial advisor.”
(d) The statement required by subdivision (c) is required only once per policy, or once per policyholder if a policy has multiple policyholders, and does not need to be provided for later accelerated death benefit claims by the same policyholder.
(e) No later than 30 days after every payment of an accelerated death benefit for long-term care, the insurer shall provide the policyholder or certificate holder with a report that includes all of the following:
(1) The accelerated death benefits paid out during the prior month.
(2) An explanation of any changes to the remaining death benefit, cash value or accumulation account, policy loan value, outstanding policy loan amount, no-lapse guarantee, policy lien, and premium payments or cost of insurance charges.
(3) The amount of the remaining benefits that can be accelerated.
(f) If an insurer approves a request for a loan against or withdrawal from the cash value of a life insurance policy that accelerates benefits for long-term care, at least 30 days before the payment or withdrawal, the insurer shall send the policyholder or certificate holder a statement that includes all of the following:
(1) The scheduled payment date and an option to cancel the payment before the payment date. The policyholder or certificate holder may cancel the payment by contacting the insurer at the insurer’s address or telephone number at any time before the payment date.
(2) An explanation of any changes to the policy that would occur as a result of the loan or withdrawal.
(3) A numerical demonstration of the effect of the payment on the remaining death benefit, cash value or accumulation amount, policy loan value, outstanding policy loan amount, no-lapse guarantee, policy lien, premium payments or cost of insurance charges, and daily, monthly, or lifetime long-term care benefits.
(4) If sent before payment of a loan, a notice stating: “WARNING: Loans may reduce and potentially eliminate your death benefit and your long-term care benefits. Receipt of a loan may adversely affect your eligibility for Medicaid or other government entitlements, and loan proceeds may be taxable at your death if the loan is not repaid. Please consult a financial advisor.”
(5) If sent before payment of a cash withdrawal, a notice stating: “WARNING: Cash withdrawals may reduce and potentially eliminate your death benefit and your long-term care benefits. Receipt of a cash withdrawal may be taxable and may also adversely affect your eligibility for Medicaid or other government benefits or entitlements. Please consult a financial advisor.”
(6) A description of circumstances in which a loan or withdrawal may result in or contribute to the lapse of the policy.
(7) If applicable, a hypothetical demonstration of how loan repayment may be deducted from a future payment of an accelerated death benefit for long-term care.
(8) If applicable, a notice explaining the rate at which the loan will accrue interest and stating the projected outstanding loan amount after five years, assuming that the interest rate does not change, no loan repayments are made, and no additional loans are taken.
(g) The statements and notices required by this section shall be in at least 12-point type.

SEC. 2.SEC. 3.

 Section 10236.11 of the Insurance Code is amended to read:

10236.11.
 The premium rate schedules for all individual and group long-term care insurance policies issued in this state shall 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.
All initial rate filings shall be subject to the following:
(a) No An approval for an initial premium schedule shall not be granted unless the actuary performing the review for the commissioner certifies that the initial premium rate schedule is sufficient to cover anticipated costs under moderately adverse experience and that the premium rate schedule is reasonably expected to be sustainable over the life of the form with no future premium increases anticipated. The certification may rely on supporting data in the filing. The actuary performing the review may request an actuarial demonstration that the assumptions the insurer has used are reasonable. The actuarial demonstration shall include either premium and claim experience on similar policy forms, adjusted for any premium or benefit differences, relevant and creditable data from other studies, or both.
(b) The insurer shall submit to the commissioner for approval a rate filing for each policy form that includes at least all of the following information:
(1) An actuarial memorandum that describes the assumptions the insurer used to develop the premium rate schedule. The actuarial assumptions shall include, but not be limited to, a sufficiently detailed description of morbidity assumptions, voluntary lapse rates, mortality assumptions, asset investment yield rates, a description of all expense components, and plan and option mix assumptions. The memorandum shall also include the expected lifetime loss ratio and projections of yearly earned premiums, incurred claims, incurred claim loss ratios, and changes in contract reserves.
(2) An actuarial certification consisting of at least all of the following:
(A) A statement that the initial premium rate schedule is sufficient to cover anticipated costs under moderately adverse experience and that the premium rate schedule is reasonably expected to be sustainable over the life of the form with no future premium increases anticipated.
(B) A statement that the policy design and coverage provided have been reviewed and taken into consideration.
(C) A statement that the underwriting and claims adjudication processes have been reviewed and taken into consideration.
(D) A complete description of the basis for contract reserves that are anticipated to be held under the form, to include all of the following:
(i) Sufficient detail or sample calculations provided so as to have a complete depiction of the reserve amounts to be held.
(ii) A statement that the assumptions used for reserves contain reasonable margins for adverse experience.
(iii) A statement that the net valuation premium for renewal years does not increase.
(iv) A statement that the difference between the gross premium and the net valuation premium for renewal years is sufficient to cover expected renewal expenses, or if that statement cannot be made, a complete description of the situations in which this does not occur and the type and level of change in the reserve assumptions that would be necessary for the difference to be sufficient. An aggregate distribution of anticipated issues may be used as long as the underlying gross premiums maintain a reasonably consistent relationship. If the gross premiums for certain age groups appear to be inconsistent with this requirement, the commissioner may request a demonstration under subdivision (a) based on a standard age distribution.
(E) A statement that the premium rate schedule is not less than the premium rate schedule for existing similar policy forms also available from the insurer except for reasonable differences attributable to benefits or a comparison of the premium schedules for similar policy forms that are currently available from the insurer with an explanation of the differences.
(c) Premium rate schedules and new policy forms shall be filed by January 1, 2002, for all group long-term care insurance policies that an insurer will offer, sell, issue, or deliver on or after January 1, 2003, and for all previously approved individual long-term care insurance policies that an insurer will offer, sell, issue, or deliver on or after January 1, 2003, unless the January 1, 2002, deadline is extended by the commissioner. Insurers may continue to offer and market long-term care insurance policies approved prior to before January 1, 2002, until the earlier of (1) 90 days after approval of both the premium rate schedules and new policy forms filed pursuant to this section or (2) January 1, 2003. Insurers that have filed premium rate schedules and new policy forms by March 1, 2002, may continue to offer and market long-term care insurance policies approved prior to before January 1, 2002, until the earlier of (1) 90 days after approval of both the premium rate schedules and new policy forms filed pursuant to this section or (2) June 30, 2003.
(d) This section shall not be construed as prohibiting an insurer from filing new group and individual policy forms, or from relieving an insurer of the obligation to file these forms, with the commissioner after January 1, 2003, if the policy form meets all the requirements of this chapter.
(e) (1) The commissioner shall not approve an initial premium rate schedule that includes scheduled rate increases based on the attained age of the insured or the duration of the policy.
(2) On and after January 1, 2021, a long-term care policy shall not be issued using a premium rate schedule that includes scheduled rate increases based on the attained age of the insured or the duration of the policy.
(3) Notwithstanding paragraphs (1) and (2), this subdivision does not prohibit or impact the pricing of benefits that allow for the purchase of additional coverage if the cost of the additional coverage is based on the insured’s attained age at the time the additional coverage is added.