LTC Bullet: California Aborts AB-999
Tuesday, June 28, 2011
LTC Comment: Finally California does
something right in LTC financing policy.
LTC BULLET: CALIFORNIA ABORTS AB-999
LTC Comment: The Center for Long-Term Care Reform conducted a major study of long-term care financing in California last year. The Pacific Research Institute published our report, "Medi-Cal Long-Term Care: Safety Net or Hammock," in January of this year.
We found that California does just about everything wrong when it comes to LTC financing policy. The state makes Medi-Cal LTC eligibility easy to obtain, exempts $750,000 of home equity, flouts federal law by failing to enforce asset transfer limits and other provisions of OBRA '93 and DRA '05, pays families to provide care they'd otherwise give for free, and chokes off a private LTC insurance market with excessive and unreasonable regulation.
So I wasn't surprised when the lower house of the California state legislature, the Assembly, passed AB-999, a bill intended to impose up to a ten year ban on LTC insurance premium rate increases. Following is the letter we submitted on Center for Long-Term Care Reform stationery criticizing the legislation which was then before the state Senate for consideration.
June 8, 2011
To Whom It May Concern:
I am president of the Center for Long-Term Care Reform (www.centerltc.com). I speak and publish throughout the United States on the issues of Medicaid and long-term care financing. The Pacific Research Institute published my report in January on how California can reduce Medi-Cal expenditures and expand private LTC insurance coverage.
California Assembly Bill 999 passed the Assembly on Wednesday, June 1, 2011, and was referred to the Senate. AB-999 requires companies selling long-term care (LTC) insurance to offer [up to] a ten-year rate guarantee to policyholders.
The legislation's goal is to prevent policyholders from facing unexpected rate increases, which might lead them to lapse their coverage. Another objective is to encourage insurers to price their products adequately initially and not to base pricing considerations on possible future rate increases.
While AB-999's intentions are good, its unintended consequences would negate its goals if legislated. Insurance carriers base premiums on actuarial estimates of risk. Arbitrarily limiting rates or rate increases for other purposes, however desirable, only interferes with this calculation and distorts normal market decisions.
For example, if a carrier sets a rate too low, but cannot seek an increase to compensate, it will (1) have to seek a higher increase later making it harder for policyholders to adapt and (2) have to incur greater risk making it necessary to charge more regardless of actuarial data and less likely to offer the coverage at all, resulting in (3) more people relying on Medi-Cal in the future at far greater expense to the safety net program.
It would be far more desirable for the State of California to work constructively with LTC insurance carriers to facilitate expansion of the market as an alternative to future Medi-Cal dependency. For ideas on how to achieve that objective, see the report "Medi-Cal Long-Term Care: Safety Net or Hammock" published by the Pacific Research Institute with the Center for Long-Term Care Reform: http://www.pacificresearch.org/docLib/20110104_LongTermCare_final(2).pdf.
Stephen A. Moses
LTC Comment: On Monday, June 20, I received a telephone call from the California Department of Insurance, Legislative Office asking for a copy of our letter in opposition to AB-999. We faxed it to them within the hour. Two days later on June 22, at a Senate Insurance Committee hearing, according to John Hancock's "LTC Newslink," "AB 999 was withdrawn from consideration and changed status to a 'two-year bill.' This means that AB-999 will be held by the Senate Insurance Committee for the remainder of the year without further action, but could be heard again next year."
Thank goodness for small successes. Now, if we could just get California to stop giving away what the LTCI industry is trying to sell, and to the very people who ought to buy it, we might make some really big strides forward.