Honolulu, Hawaii
                                                     , 1999

                                   RE:  S.B. No. 131
                                        S.D. 1

Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii


     Your Committees on Health and Human Services and Commerce
and Consumer Protection to which was referred S.B. No. 131


beg leave to report as follows:

     The purpose of this measure is to establish minimum
standards for long-term care (LTC) insurance.  Specifically, this

     (1)  Requires employers to offer LTC insurance policies to
          their employees;

     (2)  Appropriates funds for an actuarial study; and

     (3)  Appropriates funds for the insurance division to hire a
          LTC actuary.

     Your Committees received testimony in support of this
measure from the Department of Human Services, Executive Office
on Aging, Hawaii State Commission on the Status of Women,
Department of Community Services of the City and County of
Honolulu, Office of Aging of the County of Hawaii, American
Association of Retired Persons, Hawaii State Retired Teachers
Association, Hawaii Coalition for Affordable Long Term Care, Maui
Economic Opportunity, National Association of Retired Federal
Employees, Policy Advisory Board for Elder Affairs, the Joint
Advocacy Committee on Senior Affairs, ILWU Retirees, the

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consultant to the Joint Legislative Committee on Long-Term Care,
and five private citizens.  Informational testimony was submitted
by the Insurance Commissioner, Hawaii State Association of Life
Underwriters, Hawaiian Electric Company, and Faith Action for
Community Equity.  Testimony in opposition was received from the
American Council of Life Insurance, ILWU Local 142, and a private

     This measure is based on the recommendations of the Joint
Legislative Committee on Long-Term Care (JLC), established by
Act 339, Session Laws of Hawaii 1997.  The JLC undertook an
eighteen month study to develop a sound financial plan to address
a problem of compelling state interest, the current and future
LTC needs of the people of Hawaii.  The JLC members are Senator
Suzanne Chun Oakland and Representative Dennis Arakaki, co-
chairs, and members Senators Les Ihara, Jr., (replacing Senator
Rosalyn Baker), Andrew Levin, and Sam Slom, and Representatives
Marcus Oshiro, Paul Whalen, and Nobu Yonamine.

     Your Committees find that Hawaii's population of age seventy
and over is the fastest growing segment of the overall
population.  The population of disabled residents is also
increasing gradually.  As people age or become disabled, they
need help in daily living, which can be little or nonexistent
except for care from family members.  Caring for a family member
can be physically, financially, and emotionally draining for the
average two-spouse working family or single working parent,
particularly with Hawaii's high cost of living. 

     Current methods of financing LTC involve predominantly
Medicaid, private insurance, and personal assets.  Medicaid is
limited to financially qualified persons of low income, however
Medicaid matching funding from the federal government cannot be
relied upon in the future, due to the recent cutbacks in federal
funding for Medicaid.  Medicaid funding from the State is a drain
upon the general fund, due largely to the increase in the target
population and the escalating costs of providing LTC.  Because of
high premiums, private insurance is not widespread.  Most people
do not have sufficient personal assets to afford to pay for LTC.

     Your Committees are convinced that the State needs a method
of financing LTC that is affordable and suitable for the majority
of residents who do not qualify for Medicaid, do not currently
have private LTC insurance, and do not have sufficient personal
assets.  Encouraging the purchase of LTC insurance is a feasible
and reasonable method that can be immediately implemented,
without risk to the State as in setting up a trust fund and
without the burden of a mandatory tax.  Your Committees believe
that LTC insurance can become universal and affordable, while

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providing quality benefits at the time of payout and protecting
the policyholder throughout the life of the policy.

     Hawaii's LTC insurance statutes were first enacted in 1989
and have not undergone any revision since 1991.  During this
time, LTC insurance policies have developed and proliferated to
the point today of becoming a matured insurance product that can
be actuarially evaluated.  However, Hawaii's LTC insurance
statutes have not kept pace with the product or with the
development of LTC insurance law in other states.   Current LTC
insurance statutes in Hawaii are basically enabling legislation
that need to be updated in order to upgrade the quality of the
LTC insurance product to provide the kind and quality of benefits
and protections which your Committees desire.

     The insurance provisions of this measure are recommended by
Dr. Larry Nitz, consultant to the JLC.  He contracted for comment
and analysis with a certified mainland actuarial, John C. Wilkin
of Actuarial Research Corporation.  Wilkin is a consultant for
the LTC plan of the California Public Employees Retirement System
and a consultant to the federal government on LTC insurance.

     To increase the number of people covered by an LTC insurance
policy, this measure requires that employers and other groups
offer to their employees or members an LTC insurance policy for
optional purchase, without requiring the employer to pay any
premiums unless the employer agrees to it as an employee benefit.
To encourage the purchase of LTC insurance policies, premiums are
made more affordable in separate measures that provide for an
income tax deduction or an income tax credit for premiums paid. 

     Your Committees emphasize that any tax benefit should be
linked to this measure in order to assure that the tax benefits
go to paying for a high quality product.  Your Committees are
concerned that there are many LTC policies on the market that
were sold under current law and may not afford as much protection
or benefits as they could.

     Your Committees have amended this measure by:

     (1)  Deleting the requirement that the measure apply to
          policies issued after October 14, 1998, to avoid
          possible challenges based on retroactive impairment of

     (2)  Adding "retiree organization" to the employer entity

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     (3)  Setting out as a separate statutory section the
          provision requiring all insurers to make available
          group long-term care insurance policies;

     (4)  Clarifying the portability requirements by deleting
          references to conversion or to continuing coverages
          with another employer, since most policies are
          presently portable and since "conversion" is a term of
          art in the insurance business that allows for a new
          policy to be issued with higher premiums;

     (5)  Requiring lapse to occur after one hundred fifty days
          instead of sixty days to conform with current policies;

     (6)  Deleting the provision for reinstatement by payment of
          premium within sixty days from a lapse, and inserting
          language to allow the policy provisions to control

     (7)  Changing "brain diseases" to "brain disorders";

     (8)  Clarifying the provision for age-graded premiums to
          allow further rate adjustment after the age of sixty-
          five, on the recommendation of the Insurance
          Commissioner who can regulate the rates anyway;

     (9)  Providing for Internal Revenue Code conformity for
          policies for federal tax benefit purposes;

    (10)  Inserting language from the Insurance Commissioner to
          subject health maintenance organizations offering long-
          term care policies to the Life and Disability Guaranty

    (11)  Providing that a group long-term care insurance policy
          may be substituted with an individual long-term care
          insurance policy if a group policy is not made
          available to the employer;

    (12)  Providing that the terms "group long-term care
          insurance policy" and "individual long-term care
          insurance policy" are interchangeable;

    (13)  Adding a severability clause; and

    (14)  Making technical, nonsubstantive amendments for
          purposes of clarity and style.

     As amended, this measure provides the following:

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     (1)  Minimum required coverages in group LTC insurance
          polices for home- and community-based care, adult
          residential homes, and respite care, and optional
          coverage for nursing home care, hospice care, and
          assisted living facilities; minimum coverages for
          individual LTC insurance policies for one or more of
          home- and community-based care, adult residential
          homes, nursing home care, respite care, or assisted
          living facilities;

     (2)  Requiring employers, labor organizations, retiree
          organizations and other entities to offer LTC insurance
          policies to their employees or members, without
          requiring them to purchase and without requiring the
          employer, labor organization, retiree organization, or
          other entity to pay for premiums, unless they so

     (3)  Requiring all LTC insurers to make available an LTC
          policy to employers, labor organizations, retiree
          organizations, and other entities;

     (4)  Allowing a person to purchase an LTC insurance policy
          that covers the person, the person's spouse or
          reciprocal beneficiary, as well as their parents and
          grandparents, including in-laws;

     (5)  Prohibiting policy lapses for nonpayment of premium for
          a minimum period of 150 days;

     (6)  Coverage for LTC resulting from Alzheimer's and brain

     (7)  Requiring an LTC policy option for inflation

     (8)  Age-graded premiums to be fixed over the life of the
          policy unless changes are allowed by the Insurance

     (9)  Conflict with the Health Insurance Portability and
          Accountability Act (HIPA), so that HIPA controls;

     (10) Conformance with federal tax law for qualifying LTC
          policies for tax benefits purposes;

     (11) Interchangeability of terminology between "group
          long-term care insurance" and "individual long-term
          care insurance";

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     (12) Allowing a member of the Public Health Fund to purchase
          an LTC insurance policy that covers the person, the
          person's spouse or reciprocal beneficiary, as well as
          their parents and grandparents, including in-laws;

     (13) Requiring the Insurance Commissioner to adopt LTC
          insurance rules by September 1, 1999;

     (14) Requiring specified loss ratio standards for evaluating
          LTC policies;

     (15) Requiring mutual benefit societies to belong to the
          Life and Disability Guaranty Association for that part
          of their business in selling LTC insurance;

     (16) Extending the sunset date for the JLC to June 30, 2000,
          with an interim report by December 1, 1999, and a final
          report by December 30, 1999;

     (17) Making an appropriation for the Insurance Commissioner
          to hire a qualified LTC actuary to provide services to
          the Insurance Division, as distinguished from making an
          appropriation for an LTC actuarial study which requires
          an actuary firm rather than an individual actuary;

     (18) Making an appropriation for the JLC to conduct a
          comprehensive LTC actuarial study to provide an
          analysis and report on a universal LTC plan, as
          distinguished from making an appropriation to the
          Insurance Commissioner to hire an LTC actuary;

     (19) Making an appropriation for JLC expenses to conducting
          statewide public briefings of the result of its
          actuarial study; and

     (20) A severability clause.

     The Insurance Commissioner has proposed that this measure be
amended to incorporate selected provisions from the Model Long-
Term Care Act, as revised in 1998.  However, your Committees have
been informed that those amendments are not ready for this draft
but should be ready later during this session as this measure
progresses through the legislature.  The Insurance Commissioner
is in the process of examining recent federal tax legislation for
its effect on the model act, so the Commissioner has advised your
Committees to proceed with this draft in the meantime.

     As affirmed by the records of votes of the members of your
Committees on Health and Human Services and Commerce and Consumer

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Protection that are attached to this report, your Committees are
in accord with the intent and purpose of S.B. No. 131, as amended
herein, and recommend that it pass Second Reading in the form
attached hereto as S.B. No. 131, S.D. 1, and be referred to the
Committee on Ways and Means.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committees on Health and Human
                                   Services and Commerce and
                                   Consumer Protection,

____________________________       ______________________________
BRIAN KANNO, Co-Chair              SUZANNE CHUN OAKLAND, Chair


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