BILL ANALYSIS Ó
SB 475
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Date of Hearing: July 14, 2015
ASSEMBLY COMMITTEE ON AGING AND LONG-TERM CARE
Cheryl Brown, Chair
SB
475 (Monning) - As Amended July 6, 2015
SENATE VOTE: 31-4
SUBJECT: Continuing care contracts: cancellation: payments.
SUMMARY: Forbids assessing a resident or his or her estate a
monthly fee once a unit has been permanently vacated by the
resident under certain conditions, and alters refund or
repayment requirements of a lump sum entrance fee, under certain
conditions.
Specifically, this bill:
1)Prohibits a Continuing Care Retirement Community (CCRC)
provider from making further charges to the resident or his or
her estate, or against the lump sum payment, for purposes of
continued monthly payments to the provider, or for maintenance
or housekeeping, after the unit has been vacated.
2)Provides that if a lump sum payment following termination of
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contract that is conditioned upon resale of a unit is not paid
within 120 days after the formerly occupied unit has been
vacated, then:
a. A 20% partial payment must be paid if the former
occupant is still living; and,
b. A 10% partial payment must be made to the estate of a
former occupant who is deceased.
3)In the event that a partial payment is made, interest accrues
at the rate of the U.S. Prime Lending rate on the remainder
balance until the 180th day when interest will accrue at a
rate of 2% + the rate of the U.S. Prime Lending rate.
4)Requires continuing care contracts to declare that monthly
fees do not accrue to vacated units unless the monthly fee is
part of a contract that guarantees an equity interest in the
facility.
5)Requires continuing care contracts to state that the provider
will make a good faith effort to market, sell or in other
words, re-occupy the unit for which a lump sum payment is
required.
6)Requires a continuing care contract state the longest, and
average amount of time a lump-sum fee refund has been delayed.
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EXISTING LAW:
1)Articulates legislative findings and declarations and
legislative intent that CCRCs offer an alternative delivery
mode for residential, social, and health needs of elderly
Californians which minimizes transfer trauma and the effects
of well-known, siloed and fragmented governmental oversight
and regulatory authorities; disclosure of terms and agreements
made between prospective residents and the provider, as well
as the operations of a CCRC, are necessary since consumers
expend significant portions of their savings in order to
purchase care in a CCRC, and typically expect to rely upon
that care for the rest of their lives; and, providers should
acquire certificates of authority from the California
Department of Social Services (CDSS) regulators, and that such
a certificate is neither a guarantee of performance, nor an
endorsement of services or contract provisions; and that
prospective residents must carefully consider the risks,
benefits, and costs before entering into continuing care
contracts, and should be encouraged to seek financial and
legal advice.
2)Provides for the licensure and regulation of Continuing Care
Retirement Community (CCRC) services, including
assisted-living and residential care services by the
Department of Social Services, and skilled nursing services by
the Department of Public Health.
3)Defines a "continuing care contract" to mean a contract that
includes a promise by a provider to provide one or more
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elements of care to an elderly resident, as specified, in
exchange for an entrance fee and/or the payment of periodic
charges.
4)Defines a "Continuing Care Promise" as a promise - expressed
or implied - to provide elements of care to an elderly
resident for a period of at least one year, though usually for
the duration of his or her life, including those promises
implied within marketing material, written or oral statements,
contracts, agreements, or advertising.
5)Defines a "Continuing Care Retirement Community" (CCRC) to
mean a facility located in the state where continuing care
promises in a continuing care contract are provided.
6)Requires a CCRC provider to hold a certificate of authority
from CDSS permitting the provider to contract for the
provision of continuing care services.
7)Requires a CCRC to pay refunds owed to a resident within 14
calendar days after a resident makes possession of the living
unit available to the provider or 90 calendar days after death
or receipt of notice of termination, whichever is later.
8)Prohibits characterizing as a refund, a lump sum payment
following termination of a continuing care contract that is
conditioned upon resale of the unit, and requires the payment
to be made within 90 days following resale of the unit.
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FISCAL EFFECT: This measure has been designated a "non-fiscal"
bill by the Office of Legislative Counsel.
COMMENTS:
1)Author's Statement: "Under current law, Continuing Care
Retirement Community (CCRC) contracts that base the repayment
of a resident's entrance fee upon the resale of the unit and
not upon vacancy are unfair arrangements for consumers and
there is little incentive to resale those units in a timely
manner. In many cases the CCRC provider is able to take
advantage of this type of contract, which can lead to seniors
or their estates experiencing significant delays in the
repayment of entrance fees. For example, a CCRC in Pacific
Grove had not paid $530,600 to the estate of a resident who
died more than 3 years ago because the refund was conditioned
upon resale of the unit. SB 475 levels the playing field for
the CCRC resident in a manner that will result in more timely
repayments and adds an incentive for a CCRC to re-sell a unit
in the form of interest on the unpaid remaining balance. The
resident safeguards in the bill balance the need for steadfast
repayment while ensuring the CCRC can remain fiscally solvent
so the current residents are not adversely impacted."
2)Need for Bill: According to the author, Continuing Care
Retirement Community (CCRC) residents and their heirs have
experienced long delays in receiving reimbursements from
termination of contract payments from CCRC providers after the
resident terminates a contract, or passes away. Based upon
existing CCRC practices, providers have sometimes been
challenged to balance community needs with the needs of former
residents, or their estates. In some cases, there may be
little incentive to re-occupy a unit associated with an
entrance fee reimbursement. Some corporate practices may
favor marketing and selling unoccupied units, preferring to
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first sell and occupy units that do not have outstanding
entrance fees due to former or deceased residents. The author
additionally states that while the unit is unoccupied, some
CCRC contracts permit the provider to charge monthly
maintenance fees that are deducted from the entrance fees.
3)What is a CCRC? Continuing Care Retirement Communities, or
"CCRCs," offer people 60 years old and up a long-term
continuing care option that pairs their current health and
resources with an individualized contract that provides
community life and a range of levels-of-care, typically in a
campus-like community setting, and usually for a resident's
lifetime, and always for at least one year. Most CCRCs
require substantial entrance fees, along with monthly fees.
Entrance fees can reach well into the "seven-figures," though
rare. Most entrance fees for an individual are in the
hundreds-or-thousands of dollar range.
According to Health and Safety Code Section 1771, in
California, a Continuing Care Retirement Community is defined
as a facility located within the State where services promised
in a "continuing care contract" are provided. A "continuing
care contract" includes a "continuing care promise" made, in
exchange for an entrance fee, the payment of periodic charges,
or both. A continuing care contract may consist of one
agreement for continuous care, or a series of agreements
describing care, conditions for that care, and payment of it,
if and when it becomes necessary. "Continuing care promises"
are expressed or implied by a provider to provide care to an
elderly resident for at least one year, and usually for the
duration of his or her life. Any such promise or
representation, whether part of a continuing care contract,
other agreement, or series of agreements, or contained in any
advertisement, brochure, or other material, either written or
oral, is considered to be included as a continuing care
promise.
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4)Continuing Care Contracts Vary. There is no standardized
contract, though there are elements that must be in place in
order to be approved by the Department of Social Services.
Upon approval of a contract by CDSS, the CCRC community will
use that contract's structure for more individualized
contracts with residents, or couples. Each potential consumer
presents themselves to a CCRC with different health and
long-term care risks and needs, financial risks and needs, and
other factors which require contract flexibility, and each
CCRC offers differing provisions on costs, payment methods,
services provided, and other elements. CDSS does not oversee
or approve each resident's contract. Continuing care
contracts typically require an individual to pay an entrance
fee and monthly fees. Entrance fees can vary significantly
from one community to the next, and monthly fees vary
depending on the level of services included in the contract
and other factors associated with location, exclusivity,
business plan variations, and more. There are three "types"
of CCRC contracts:
a. Type A contracts (also known as life care contracts),
are the most expensive and are all-inclusive agreements
wherein all housing, services and healthcare are covered by
the entrance fee and monthly fees;
b. Type B contracts typically offer discounted healthcare
services for limited amounts of time, after which services
can be purchased; and,
c. Type C contracts offer the lowest entrance and monthly
fees, but require residents to be responsible for paying
for healthcare services at market rates.
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Continuing care contracts may be refundable or non-refundable.
Refundable contracts refund a portion of the entrance fees,
sometimes on a scale that decreases over time the percentage
of the entrance fee that is refunded. These types of
contracts require a CCRC to maintain a reserve for refunds (in
addition to other reserves required for the operation of a
CCRC), and generally, this is not the contract type which SB
475 is focused upon. Many CCRC providers choose instead to
offer a repayment of a designated portion of the entrance fee
- a "lump-sum payment" - that is conditioned upon resale of
the unit. A reserve is not required in this case, as it is
assumed that the resale of the unit will result in the new
resident's entrance fee covering the cost of repaying a
portion of the former resident's entrance fee. In California,
there are currently no requirements that resale and/or
repayment of entrance fees take place within a certain period
of time.
5)SB 475: The proposed changes in SB 475 would in effect do the
following:
a) Prevent a CCRC from charging an estate, or former
resident, monthly fees . SB 475 seeks additional CCRC
contract disclosure to include a statement that monthly
fees may not accrue against a former resident when they no
longer live at the CCRC. Under SB 475, monthly fees would
cease once a resident dies, or once a resident re-locates
from the facility. Monthly fees generally pay for supports
and services to help the resident maximize their
independence, such as custodial care, house-keeping, and
meals, but may also include other non-essential services
that support recreational or other voluntary services and
activities. An "equity interest" contract where a resident
has a standing as co-owner of the property, are treated
separately.
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b) Provides for lump-sum payments to former residents, or
estates of deceased residents, within 120 days of vacating
the unit. When a resident dies, or decides to vacate a
community, the estate of the deceased resident or the
former resident is typically entitled to re-payment of the
lump-sum, or "entrance fee" payment that most residents pay
as a condition to enter a CCRC. SB 475 was introduced
because a CCRC owed over $500,000 to the estate and heirs
of a former resident for 3 years. Though that estate was
settled after SB 475 was introduced, the bill has garnered
the attention of others who find themselves in similar
situations, some with unpaid balances which are over 5
years old. Under SB 475, as amended, a former resident, or
the estate of a former resident would be assured re-payment
of at least 20% of the upfront fee in the instance of a
living former resident, and at least 10% of the up-front
fee in the instance of a deceased former resident within
120 days. If full repayment is not made, an interest rate
is applied to the outstanding balance at the rate
equivalent to the U.S. Prime Lending Rate until the 180th
day when the interest rate increases to two points above
the U.S. Prime rate until full repayment is made.
6)Supporters Argue: The California Continuing Care Residents
Association (CalCRA) writes that CCRs offer a model of care
that is different than any other service model. When seniors
make the decision to move into a CCRC, it comes with a
substantial entrance fee and additional monthly fees in
exchange for lifetime care and residency. Some include an
entrance fee with a promise to return it, or a portion of it,
when the resident voluntarily leaves, or dies. These entrance
fees represent significant investments. Many seniors sell
their homes to pay the fee, and find security in a contract to
return it, if necessary. CalCRA asserts that when the fee is
"conditioned upon the resale of the unit," the obligation for
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the CCRC to return the fee is diminished - refunds can be
delayed for years, or indefinitely, and with no corresponding
interest rate to compensate for the slow process to refund the
fee. Sometimes, providers charge monthly maintenance and
upkeep against the balance of the fee while the refund awaits
issuance to the former resident, or the estate. Thus there is
little, sometimes no incentive to sell the unit. Former
residents have waited years, and sometimes engaged in
disheartening legal battles to obtain their refund. Current
law leaves families with little or no leverage or recourse to
demand fair return of entrance fees. SB 475 changes that and
helps seniors protect their investments.
The National Association of Social Workers, California Chapter
(NASW-CA) writes that
SB 475 protects consumers from unfair CCRC contracts. Rather
than waiting for the 14th day after the CCRC has sold a
vacancy at a CCRC, former residents are entitled to 20% after
waiting four months from the date of vacancy to see a partial
return of their entrance fee. NASW-CA also supports the
provision to prohibit fees accruing against an entrance fee
after the resident has vacated.
7)Opponents Argue: LeadingAge opposes, unless amended, due to a
punitive interest rate charged against outstanding entry fee
refund balances which could unintentionally restrict access to
CCRCs and create potential expenses for remaining residents of
CCRCs. LeadingAge is concerned that indexing interest rates
on unreimbursed entrance fee refunds could cause havoc as
interest rates have been known to soar, as they did in the
early 1980s. Furthermore, SB 475 holds CCRCs responsible for
housing market conditions that they are unable to control.
Combined with potentially unfavorable interest rates, the
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compounding impact could hobble the entire industry.
LeadingAge also argues that SB 475 could reduce a provider's
willingness to offer refundable contracts, (currently the most
favored model), and SB 475 does not offer protections against
a so-called "run" on a community, where a domino-like effect
of one resident exiting may cause others to seek to exit,
thereby de-stabilizing the entire community.
The California Association of Continuing Care Retirement
Communities (CACCRC) urges opposition (unless amended) because
the "accelerated" reimbursement of entry fees could place an
unmanageable financial obligation upon communities. CACCRC
echoes the concerns about a "run" on the community that
LeadingAge expressed. The association also is concerned that
repayment requirements that are misaligned with unit re-sale
processes could trigger a requirement that reserves be
established, an element not currently part of most CCRC
business models.
8)Chronology of SB 475 Amendments: For orientation purposes,
the following describes the amendment history of SB 475 thus
far. Based upon discussion with committee members, and other
stakeholders, a range of amendments are proposed on the
following pages to reflect stakeholder discussions and
committee member preferences.
February 26, 2015 - Introduction
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Requires CCRC providers to repay residents, or their
estates, the full lump sum of their entrance fee no later
than 90 days after the unit had been vacated. If
repayment could not be made in 90 days, the provider
would be required to pay an interest at a rate equal to
10% of the remaining balance owed until the full lump sum
could be repaid.
Would apply to all existing and prospective
repayment contracts.
Prohibits a provider from charging the resident, or
estate, for any monthly payments, maintenance or
housekeeping once the unit has been vacated.
May 5, 2015 - Amended in Senate Human Services Committee
Revised full repayment at 90 days to no less than
20% of the entrance fee amount owed to the resident
within 90 days of the unit becoming vacant.
Limited application prospectively to contracts
signed after January 1, 2016.
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Revised 10% interest to 2% plus the U.S. Prime
Lending Rate. If entrance fee remains unpaid after 180
days: 5% plus the U.S. Prime Lending Rate.
Interest provisions would apply to all existing and
prospective residents.
Added requirement for the provider to make a good
faith effort to reoccupy or resell a unit that is
harboring an entrance fee repayment to a past or deceased
resident.
June 25, 2016 - Amended Prior to Assembly Human Services
Committee Hearing
Extends the 90 day 20% repayment to 120 days.
Lowers the interest rate to the U.S. Prime Lending
Rate until 180 days. After 180 days to 2% plus the U.S.
Prime Lending Rate.
Exempts equity interest contracts from provisions
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that prohibit the continued monthly charges after a unit
has been vacated.
Requires the provider to disclose the average and
longest length of time the lump-sum payment has been
delayed by the resale.
Clarifies that the requirement in SB 475 only
impacts lump-sum payment contracts that condition
repayment upon resale of the unit.
July 6. 2016 - Amended in Assembly Human Services Committee
Lowers the 20% repayment to 10% for estate
repayments.
For living residents who decide to leave the
facility, providers would be required to return 20% of
the entrance fee repayment within 120 days, if the unit
has not been resold or the full repayment has not
otherwise been made. This repayment would ONLY apply to
contracts signed after January 1, 2016.
1)Proposed/Recommended Amendments : Based upon discussions
coordinated by the author's office, the author has proposed
the following changes to the current version of SB 475 to
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address the concerns of committee members, and those opposing
SB 475.
a. "Fix" the interest rate. Representatives for LeadingAge
have indicated that for business purposes, a floating
interest rate on outstanding debts to former residents
creates a range of complexities which could be remedied by
establishing a specific interest rate.
Senator Monning has proposed the following as an author's
amendment:
HSC 1788.4 (e) (3) Any payments that are not paid to the
resident within the 120-day period pursuant to paragraph (2)
will accrue interest at a rate no lower than four percent. the
United States prime lending rate.
(4) Any payments that are not paid to the resident within the
180-day period pursuant to paragraph (2) will accrue interest at
a rate no lower than six percent. 2 percent plus the United
States prime lending rate.
b. Clarify repayment permission for CCRC providers. CCRC
providers have expressed concern that CDSS would resist the
repayment of a lump-sum to a former resident or their
estate. Based upon technical assistance provided by the
CDSS, it is unknown if such a scenario has ever evolved in
California. The author proposes the following change:
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HSC 1771 (r) (1) "Refund reserve" means the reserve a provider
is required to maintain, as provided in Section 1792.6.
(2) "Refundable contract" means a continuing care contract that
includes a promise, expressed or implied, by the provider to pay
an entrance fee refund or to repurchase the transferor's unit,
membership, stock, or other interest in the continuing care
retirement community when the promise to refund some or all of
the initial entrance fee extends beyond the resident's sixth
year of residency. Providers that enter into refundable
contracts shall be subject to the refund reserve requirements of
Section 1792.6. A continuing care contract that includes a
promise to repay all or a portion of an entrance fee that is
conditioned upon re-occupancy or resale of the unit previously
occupied by the resident shall not be considered a refundable
contract for purposes of the refund reserve requirements of
Section 1792.6, provided that this conditional promise of
repayment is not referred to by the applicant or provider as a
"refund." A provider may repay all or a portion of the entrance
fee that is contingent upon resale of the unit before the resale
of the unit, if it chooses to do so. Such an early payment will
not cause any other entrance fee to be subject to the refund
reserve requirements of Section 1792.6, provided that the
provider does not, at the time of contracting or thereafter
promise to make such a payment, represent that it intends to
make such a payment, or indicate that it has a practice of
making such a payment.
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Section 1788 (33)(E) of Health and Safety Code to align with
language above:
(E) For a lump-sum payment, the provider shall state the average
and longest amount of time that a lump-sum payment has been
delayed.
(E) For all contracts with a repayment of all or a portion of
the entrance fee contingent upon resale of the unit, the
provider shall state the average and longest amount of time that
it has taken to resell a unit within the last five calendar
years.
c.Retrospective vs. Prospective application: The cornerstone of
the CCRC industry is the CCRC contract between a provider and
the resident. These contracts articulate specific
deliverables that each party to the contract must perform.
Though some scenarios brought to light by the introduction of
SB 475 have raise alarm that good-faith performance may not be
standard practice, particularly in the case of vacated units
not getting the same marketing support as new, previously
unoccupied units with no associated re-payment obligations,
members of the committee have generally insisted that the
re-payment provisions of SB 475 only apply prospectively; only
to new contracts. To address the potentially unfair treatment
of vacated units which are subject to existing contracts, the
author proposes giving new power to the Department to
investigate whether the CCRC is making sufficient efforts to
re-let the unit. The author has proposed the following
language:
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HSC 1784 (e) (2) Any payment balance that has not been paid to
the resident within 120 days shall accrue interest at a rate
calculated pursuant to paragraph (3). Any payment balance that
has not been paid to the resident within 180 days will accrue
interest at a rate calculated pursuant to paragraph (4).
Interest shall continue to accrue until the date the full
lump-sum payment is paid to the resident. This paragraph shall
apply only to existing and prospective continuing care contracts
beginning January 1, 2016 .
HSC 1788 (b) (33) (D) (i) State the provider shall make a good
faith effort to reoccupy or resell a unit for which a lump-sum
payment is conditioned upon resale of the unit. No later than
July 1, 2016, a provider shall provide notice to all current
residents with contracts applicable to this subparagraph
regarding the statement required by this subparagraph as a
clarification of the resident's existing contract.
(ii) The Department, in response to a complaint from a resident
or estate, may determine when a provider has not made sufficient
good faith effort to reoccupy or resell a unit for which a lump
sum payment is conditioned upon resale of a unit. An
insufficient effort on behalf of the provider shall include, but
not be limited to, failure to undergo the facility's
refurbishment process for re-letting, failure to make needed
repairs, failure to reasonably market the unit to potential
residents, failure to show the unit to prospective residents, or
the period of 36 months from the date of vacancy has elapsed.
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(iii) Providers who fail to act in good faith, pursuant to
subparagraph (ii) shall repay the full lump sum payment owed to
the resident or estate within 14 days of the department's
determined finding and reimburse the Department for any costs
associated to the investigation of good faith.
REGISTERED SUPPORT / OPPOSITION:
Support
California Continuing Care Residents Associations (CALCRA) -
Sponsor
California Advocates for Nursing Home Reform (CANHR)
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California Commission on Aging (CCoA)
California Long-Term Care Ombudsman Association (CLTCOA)
Consumer Federation of California (CFC)
National Association of Social Workers, California Chapter
(NASW-CA)
Numerous Individuals (about 150).
Opposition
American Baptist Home of the West
The British Home in California, Ltd.
California Association of Continuing Care Retirement Communities
- Oppose Unless Amended
Channing House
Episcopal Communities & Services
Episcopal Senior Communities
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Erickson Living - Oppose Unless Amended
Forest Hill
La Costa Glen, Carlsbad
Lake Park, Community Care Retirement Community
LeadingAge - Oppose Unless Amended
Los Angeles Jewish Home for the Aging
O'Connor Woods
Spring Lake Village
Stoneridge Creek Pleasanton
Analysis Prepared by: Robert
MacLaughlin / AGING & L.T.C. / (916) 319-3990 Click here
to enter text.
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