In two weeks, SB 1248, as amended, introduced by Senators Grimes and Glazer, the California Partnership for Long-Term Care program will be submitted to the governor’s office for approval.
Indicators show no opposition from either party and full support from the following organizations:
- Association of California Life and Health Insurance Companies
- California Association of Health Underwriters
- California Health Advocates, the state’s leading consumer group
- National Association of Insurance and Financial Advisors of California
- California Long-Term Care Insurance Services and
- Senior Insurance Training Services
The Governor will have up to thirty days to sign the bill, with an effective date of January 1, 2019. However, as soon as the bill is signed, the various approved LTC Insurance carriers can begin the process of filing new or existing products for approval prior to January 1, 2019. (I’ll explain here shortly)
As many of you may recall, I’ve been writing about the demise of California Partnership since the second quarter of 2012 when John Hancock reintroduced its new California Partnership product in March 2012 with a 300% premium load for the mandatory 5% compound inflation feature for any individual under the age of 70, thus making the product completely unaffordable for the target market.
This ultimately led to its withdrawal from the program in 2013. Based on that reality, John Hancock, Bankers Life and Met Life all withdrew from the program that same year, followed by New York Life in 2014. As of today, Genworth is the only approved actual California Partnership company (other than CALPERS), but based on his rate assumptions, like John Hancock they have priced 5% compound inflation out of the market.
In January 2015, I wrote a scathing email regarding the demise of the program to a group of elected officials of which one responded and asked me to follow up with a letter highlighting what I felt were the key issues leading to the program’s demise. The following represents a brief overview from my May 18, 2015 letter.
Ladies and Gentlemen:
Since last fall, I have had many conversations with various state officials and staff regarding the current and future viability of the California Partnership Program.
My hope with this correspondence is to address many of the questions and concerns that have been expressed and to help set a course of action that will once again bring the state’s partnership program back to a position of strength and serving California’s rapidly growing senior population.
Here are the key issues as I see them:
- Modification of the mandatory 5% compound inflation requirement
- New and or improved product innovations
- Expansion of new and existing partners in the program
- Timely product review and approval
- Reciprocity between the 43 actual partnership States
- Implementation of the Deficit Reduction Act (2006) and California SB 48
- Inflation conversion guidelines regarding existing partnership policies.
On March 17, 2015, the Partnership conducted an Agent Advisory meeting to address the current issues surrounding the program.
After reviewing the quarterly production report for the 2nd quarter of 2014, the Partnership revealed that since the 2nd quarter 2013, Partnership policies issued had dropped by over 95% from an all-time high of 16,146 in partnership policies in calendar year 2002 to only 836 new policies were issued from July 2013 through June 2014. Only 8 (eight!) new policies were issued for the entire year of 2017.
The dawning of S.B. 1384 (Liu) in 2016 was designed to do three things:
- Allow partnership carriers to offer a more affordable inflation protection option in addition to the five percent compound option
- and to add a fourth product offering to the partnership a home community and R.C.F. only protection with notes with no nursing home coverage
However, due to the lack of industry and partnership participation throughout the bill process, a third piece was added to the bill.
The state established a task force to consider reforms to the program and it included representatives from various state departments that had any interest in Long-Term Services and Supports (LTSS) and LTC Insurance.
It was designed to be an oversight requirement to hold the various State agencies and insurance companies accountable and to see if there was any interest in reviving the Partnership program.
In fact, only after the passing of the bill did the insurance carriers step up and say the bill was to vague on its inflation offering. It wasn’t until after the election results that various State agencies called and say we need to talk.
In January 2016, the California Partnership and the task force began the process to save the Partnership Program. SB 255 (Mendoza) is the lead bill, however it becomes clear that the carriers have a hidden agenda. The bureaucratic process associated with a Department of Health and Consumer Services is endless.
- Specifically, what percentage of inflation would be allowable?
- The minimum daily benefit is to high
- It takes way too long for rate approval and product approval
- Will the partnership allow innovative product design?
- DHCS’s bureaucratic process is out of control
- Staffing and budget issues
We began a two year process and a lot of debates and discussion in 2017 which led to agreement that all of the carrier issues would be addressed and in 2018 the third and final attempt to save and expand the Partnership began. SB 1248 was the final push.
By the end of 2017, four critical issues were addressed and agreed upon by the task force.
- First a timely review and approval would be achieved with a new and updated California Department of Insurance “product checklist” which was released in mid-summer with the caveat of timely carrier response to Department of Insurance requests, explanations and verifications. The department has vowed to expedite Partnership filings assuming the Carriers follow the new checklist.
- Inflation protection minimum will be 3% compound at any age and the 3% sample at age 70 plus. Carriers can offer 3%, 4% and 5% at any age if they so choose.
- The new minimum daily benefit will be no longer be based on the State’s annual average daily private pay rate (ADPPR) of nursing home care. It will follow the current California Department of Insurance code section 10232.9 (7)(d).
Every comprehensive long-term care policy or certificate that provides for both institutional care and home care and that sets a daily weekly or monthly benefit payment maximum, shall pay a maximum benefit payment for home care that is at least 50% of the maximum benefit period payment for institutional care. In no event shall home care benefits be paid at a rate less than $50 per day.
Therefore, the new daily benefit minimum will be $100 per day, no less than $3,000 per month.Also, based on this assumption, if the company wants to continue to offer calendar year plans like one to three years, the new annual minimum must be at least $73,000 or if a company chooses a pool of money approach, the minimum can start at $75,000, $100,000, $150,000, etc.
(This will be discussed in greater detail in the next article which will focus on the State’s new suitability consumer best interest)
- Innovative plan design – Companies can continue to offer old school approaches according to California Code Section 10232.1, such as:
- Facility only policies – nursing home and R.C.F.
- Home care only
- Home and community based including R.C.F. but no nursing home and
- Comprehensive LTC Insurance or they can just offer just one comprehensive and move it have it reflected in pools of money rather than calendar year – One Year (365 days), Two Year (730 days), Three Years (1,085 days), etc.
The plans can also have a co-insurance approach like an 80/20 or 70/30 co-pay plan design. Also, the deductible has been modified to straight calendar accumulation vs benefit day accumulation and the elimination or deductible could be no greater than 90 days.
The Partnership will still require the benefits we paid on a reimbursement basis. Shared Care and waiver for home care are both allowed.
Because of all these changes, the task force expressed concerns about the issues of suitability, plan design, value proposition and the new issue of consumer best interest standards associated with hybrids versus traditional and partnership.
The challenge is to get appropriate level of coverage for each consumer. By lowering the benefits, there’s a greater risk that the purchases will be underinsured and the effects that they may have on asset protection.
This is where Senior Insurance Training Services has been working with the selected task force members and putting together a series of illustrations worksheets and educational tools that agents can use to better educate their clients on purchasing and plan design decisions.
We have been the only C.E. provider throughout the entire five-year process driving all the new changes in order to make the Partnership program more affordable, easier, in line with the value proposition discussion as well as to conform to the consumer best interests as it relates to LTC Insurance and the California Partnership in the state and soon nationwide.
Coming to the SITS Partnership course very soon:
- California suitability best interest worksheet.
- New and improved plan design worksheet
- understanding the claim process illustration
- Updated and new consumer educational tools guide the agent in the educational process and to help your clients and prospects better understand the issues, risks and solutions associated with long-term care including alternatives
Don’t miss out on the new generation of education tools you can use in educating your clients on the catastrophic event that could affect their retirement. It is not if anymore, it’s simply a matter of when and for how long.
Come learn about the new revival, the new dawning of the California Partnership for Long-Term Care. Just when you thought Traditional was dead!
Call and reserve a seat in the new classes or book a private meeting with Tom Orr and receive a deeper understanding of what went behind all the decisions regarding all the changes to the California Partnership and why! 800.460.7487.