Report Title:

Long-Term Care

 

Description:

Establishes the Hawaii Long-Term Care Financing Program; Establishes a Board of Trustees who shall administer and establish criteria for the program; creates the Hawaii Long-Term Care Benefits Fund. (SB2416 HD1)

 

THE SENATE

S.B. NO.

2416

TWENTY-FIRST LEGISLATURE, 2002

S.D. 2

STATE OF HAWAII

H.D. 1


 

A BILL FOR AN ACT

 

RELATING TO the hawaii long-term CARE financing act.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The Congressional Budget Office expects the national expenditures for long-term care services for the elderly (people aged sixty-five and older) to grow through the year 2040 ("Projections of Expenditures for Long-Term Care Services for the Elderly", March 1999, Congressional Budget Office). The nation's population is aging and the elderly receive the most long-term care services because they are more likely than younger people to have some kind of functional limitation.

Many baby boomers will begin to reach age sixty-five in 2011. In addition, more elderly people will reach advanced ages (eighty-five and older) than in the past because of declining mortality rates. These trends will cause the proportion of the population that is elderly, which was just under thirteen per cent in 1995, to rise to twenty per cent in 2040. More importantly, the population over age eighty-five, the segment most likely to require long-term care, will grow over three times its current size by 2040.

In Hawaii, according to a report by the Hawaii Health Information Corporation and the HMSA Foundation ("Health Trends in Hawaii", Fifth Ed., 2001, hereinafter referred to as the "HMSA report"), the State's population growth was greatest among the elderly between 1990 and 1999. The number of residents aged sixty-five to seventy-four increased thirteen per cent (one per cent was the national average), while the number of those aged seventy-five and older increased by sixty-two per cent (twenty-four per cent was the national average). On a county level, all counties experienced significant growth in their elderly populations, with Honolulu experiencing the greatest increase from five per cent in 1970 to fourteen per cent in 1999. Overall since statehood, the proportion of elderly to total population has increased from roughly five per cent in 1960 to fourteen per cent in 1999, when the proportion of elderly in Hawaii's population just exceeded that of the U.S. population.

As the baby boomer generation ages, these figures are projected to increase and cause a host of social and economic demands. Aging brings concomitant chronic health diseases such as cancer, cardiovascular disease, and stroke, all of which necessitate intense daily care in the later years of life.

The legislature finds that people in Hawaii are simply living longer, due in large measure to the State's excellent health care. However, the irony would be if the State could not also care for the elderly who have benefited from the enhanced health care in their younger years. The implication, according to the HMSA report, is that "[t]he increasing proportion of elderly in Hawaii's population signals the need to monitor the ability of health care resources to meet the elderly's greater need for services, including the distribution of those services to the Neighbor Islands." Furthermore, according to the HMSA report, "[t]he proportion of the population deemed 'work age' (19-65) is decreasing relative to the elderly, raising questions about the social burdens this decreasing cohort must bear." These factors pose important questions for health care and public policy.

The legislature further finds that the whole dynamic of the extended family in Hawaii will radically change to place impossible financial and social hardship on Hawaii families. As people age or become disabled, they need services to help them with activities of daily living. The approach to helping Hawaii's elderly and disabled should be prompted by compassion and caring, although the problem is inextricably one of economics.

The legislature further finds that because increasing numbers of Hawaii's residents will need long-term care services, there is a compelling need to create an affordable method of financing those services. What Hawaii needs is a method of financing that is affordable and suitable for the majority of its residents. Current methods of financing long-term care in Hawaii involve predominantly medicaid, private insurance, and personal assets. Medicaid eligibility is qualified by income limits. Private insurance is not widespread, and most people do not have sufficient personal assets. Contrary to popular belief, medicare pays for only the initial hospitalization stay for acute care of a patient for a limited number of days.

This Act is a product of the joint special committee of the legislature, formed pursuant to Senate Concurrent Resolution No. 23, C.D. 1, 2001, to develop and implement a plan for a dedicated source of revenue to support the long-term care needs of all citizens in the State.

The purpose of this Act is to establish a system that is reasonable, affordable, and equitable, to pay for long-term care expenses of Hawaii's citizens.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

HAWAII LONG-TERM CARE FINANCING PROGRAM

PART I. GENERAL PROVISIONS

§ -1 Purpose. This chapter establishes a program to provide an equitable and affordable system of long-term care.

§ -2 Definitions. As used in this chapter:

"Activities of daily living" means at least bathing, continence, dressing, eating, toileting, and transferring.

"Beneficiary" means an individual qualified under this chapter to receive reimbursement for long-term care services as determined by the board of trustees of the Hawaii long-term care financing program.

"Board of trustees" means the board of trustees of the Hawaii long-term care financing program.

"Department" means the department of health, executive office on aging.

"Fund" means the Hawaii long-term care benefits fund.

"Long-term care services" means a broad range of supportive services or goods needed by individuals with physical or mental impairments which assist the individual with activities of daily living.

"Program" means the Hawaii long-term care financing program.

"Trustee" means a member of the board of trustees of the Hawaii long-term care financing program.

PART II. bOARD OF TRUSTEES

§ -11 Establishment of board. There is established within the department of health, executive office on aging for administrative purposes the board of trustees of the Hawaii long-term care financing program. The general administration for the proper operation of the program and the fund is vested in the board of trustees subject to the administrative control vested in the department by sections 26-8 and 26-35. The board of trustees shall have and maintain a fiduciary obligation for the fund.

§ -12 Composition of board. (a) Beginning no later than July 1, 2002, the board shall consist of seven trustees appointed by the governor as provided in section 26-34.

(b) The trustees shall have experience in accounting, business, finance, law, or other similar fields, and experience equivalent to five years as an officer or manager of a viable business or community organization involved with insurance management, portfolio management, health care management, or similar field. The composition of the board shall represent a diversity of relevant experience.

(c) The board shall seek public input during the establishment of the proposed plan. The board shall also conduct an public educational program to educate citizens on the importance of long-term care.

§ -13 Term of a trustee; vacancy. The term of office of each trustee shall be six years. Initial appointments may be staggered in accordance with section 26-34(a).

A vacancy on the board shall be filled by appointment of the governor; provided that the criteria used for selecting the successor shall be the same criteria used for selecting the person's predecessor. The person appointed to fill a vacancy shall serve for the remainder of the term of the person's predecessor.

If, by the end of a trustee's term, a trustee is not reappointed or the trustee's successor is not appointed, the trustee shall serve until the trustee's successor is appointed.

§ -14 Chairperson. The trustees shall elect a chairperson from among the members.

§ -15 Compensation and expenses. Each trustee shall serve without compensation but shall be reimbursed for expenses, including per diem and travel expenses, necessary for the performance of their duties.

§ -16 Voting. Each trustee shall be entitled to one vote on the board of trustees. Four concurring votes shall be necessary for a decision by the trustees at any meeting of the board.

PART III. BOARD POWERS AND DUTIES

§ -21 Administration of the program. (a) The board shall administer and carry out the program.

(b) The board may require the department of taxation to assess, levy, and collect any tax that may be imposed under this chapter.

(c) Costs for the administration of the program upon implementation shall be paid from moneys in the fund as follows:

(1) Up to four per cent of the total monthly deposit into the fund to cover general administrative expenses; and

(2) Up to four per cent of the total monthly amount of claims paid out of the fund may be used to pay for administrative expenses related to claims processing.

(d) The board shall adopt rules pursuant to chapter 91 necessary for the purposes of this chapter.

§ -22 Fiduciary and other obligations. (a) The trustees shall:

(1) Discharge their duties solely in the best interests of the program;

(2) Not knowingly participate in or undertake to conceal an act or omission of a trustee, when the act or omission is known to be a breach of fiduciary responsibility; or fail to discharge specific fiduciary responsibilities in a manner that enables another trustee to commit a breach; or having knowledge of a breach, fail to take whatever action that is reasonable and appropriate under the circumstances to remedy the breach; and

(3) Act with the care, skill, prudence, and diligence under the circumstances then prevailing, that a prudent trustee, acting in a like capacity and familiar with similar matters would use in conducting an enterprise of similar character and purpose.

(b) The board may contract with a qualified entity to:

(1) Administer the program, process claims for benefit payments, or both; provided that the entity shall be appropriately licensed under chapter 431; or

(2) Assume the risk of underwriting loss under the program at a capitated rate of payment to the entity; provided that:

(A) The entity shall be appropriately licensed under chapter 431 and be adequately capitalized; and

(B) The entity contracted shall perform the functions under paragraph (1), in addition to assuming the risk.

Selection of the entity shall be subject to chapter 103D. The board may request the advice of the insurance commissioner in the selection of the entity.

(c) The board's primary function from July 1, 2002, to June 30, 2003, shall be to design a tax-based, long-term care financing program, including but not limited to:

(1) Determining the amount, type of tax or fee, and means of collection;

(2) Determining the nature of and amount of benefits;

(3) Recommending a third-party administrator;

(4) Contracting with a primary law firm, without regard to chapter 103D, to conduct research on whether a long-term care financing scheme is preempted by or violates the Health Insurance Portability and Accountability Act or the Employee Retirement Income and Security Act; and

(5) Recommending appropriate legislation, if necessary.

§ -23 Program financing. The board shall establish a proposed method for financing the program and shall take the necessary measures to prepare to implement the financing mechanism.

§ -24 Eligibility. (a) The board shall establish eligibility criteria to determine who can qualify as a beneficiary consistent with this chapter to ensure that eligible persons will benefit from this program.

(b) In addition to the criteria specified by the board, the individual shall have a written certification from a physician licensed under chapter 453 or 460, or an advanced practice registered nurse under section 457-8.5.

(c) An eligible beneficiary of this program shall meet the following criteria, in addition to the criteria specified by the board:

(1) The individual is unable to perform, without substantial assistance from another individual, at least two of six activities of daily living for a period of at least ninety days due to a loss of functional capacity; or

(2) The individual requires substantial supervision to protect the individual from threats to health and safety to themselves or others due to severe cognitive impairment including Alzheimer's disease or dementia.

§ -25 Program benefits. (a) The board shall establish a benefits package ready to be implemented on December 31, 2004.

(b) The board shall determine the services that may be covered by the program and how the funds shall be disbursed.

(c) The board shall determine and establish specific criteria describing how long benefits shall be provided to a beneficiary.

(d) Benefit payments shall not be subject to state income tax.

§ -26 Actuarial report. (a) The board of trustees shall cause to be prepared an actuarial report and actuarial opinion on the proposed plan for the program, as defined by the Actuarial Standards Board of the American Academy of Actuaries. The report and opinion shall be prepared by a member of the American Academy of Actuaries who is a fellow of the Society of Actuaries, certifying that the program is in actuarial balance. Costs of the actuarial report shall be deemed an administrative expense under this chapter.

(b) The actuarial report shall contain a statement by the actuary certifying that the techniques and methods used are generally accepted within the actuarial profession and that the assumptions and cost estimates used are reasonable. The report shall include:

(1) A statement of the assets and disbursements from the fund during the preceding fiscal year;

(2) An estimate of the expected future income to and disbursements to be made from the fund during each of the next ensuing ten fiscal years;

(3) A projection of the long-term care tax rates or fees necessary to keep the trust funds actuarially sound over the short-range and long-range future periods;

(4) A statement of actuarial assumptions and methods used to determine costs and a detailed explanation of any change in actuarial assumptions or methods;

(5) The projected number of participants and beneficiaries and the current and projected paid-in taxes or fees, benefit payments, current and permanent benefit credits earned, and the like, aggregated by current and past Hawaii taxpayer status and age;

(6) The current value of accumulated assets of the system and the value of assets used by the actuary in any computation of the amount of required taxes; and

(7) The results of short-range and long-range actuarial sensitivity analyses.

(c) All work products, papers, documents, and data used or prepared by the actuary in preparing the actuarial report shall be public documents within the meaning of chapter 92F.

PART IV. BENEFITS FUND

§ -31 Hawaii long-term care benefits fund; establishment. (a) There is established in the state treasury the Hawaii long-term care benefits fund.

(b) The fund shall consist of contributions, interest, income, dividends, refunds, rate credits, legislative appropriations, and other returns. The department shall cause the moneys to be deposited in federally insured financial institutions in Hawaii, so as to preserve the balance and ensure a reasonable return under prevailing interest rates. Investments of the moneys may be made subject to subsection (c).

(c) With the advice of the director of finance to ensure investment soundness, the board shall invest moneys in the fund solely in:

(1) Obligations of any of the following classes:

(A) Obligations issued or guaranteed as to principal and interest by the United States or by any state thereof or by any municipal or political subdivision or school district of any of the foregoing; provided that the principal of and interest on such obligations are payable in currency of the United States, or sovereign debt instruments issued by agencies of, or guaranteed by, foreign governments;

(B) Revenue bonds, whether or not permitted by any other provision hereof, of the State or any political subdivision thereof, including the board of water supply of the city and county of Honolulu, and street or improvement district bonds of any district or project in the State; and

(C) Obligations issued or guaranteed by any federal home loan bank including consolidated federal home loan bank obligations, the Home Owner's Loan Corporation, the Federal National Mortgage Association, or the Small Business Administration;

(2) Obligations eligible by law for purchase in the open market by federal reserve banks;

(3) Securities and futures contracts in which in the informed opinion of the board, it is prudent to invest funds of the program, including currency, interest rate, bond, and stock index futures contracts and options on such contracts to hedge against anticipated changes in currencies, interest rates, and bond and stock prices that might otherwise have an adverse effect upon the value of the program's securities portfolios; covered put and call options on securities and stock; whether or not the securities, stock, futures contracts, or options on futures are expressly authorized by or qualify under the foregoing paragraphs, and notwithstanding any limitation of the foregoing paragraphs; and

(4) Any other investments deemed secure on the advice of the state director of finance.

(d) Expenditures from the fund shall be made solely for the purpose of making benefit payments and costs of administering the program.

(e) Notwithstanding any law to the contrary, moneys in the fund shall not be transferred to another fund at any time for any purpose.

(f) The board shall maintain proper books of accounts and records of the administration of the program.

(g) The auditor shall conduct an audit of the fund annually for the first three years from the date the fund first receives deposits, and at a minimum, every three years thereafter. The auditor shall publish a report of the results of every audit, including any recommendations.

§ -32 Reports. The board shall submit to the legislature, no later than twenty days prior to each regular session, an annual report for the preceding fiscal year. The annual report shall include but not be limited to information regarding:

(1) Investments detailed by type and amount;

(2) Current balance in the fund;

(3) Projected liabilities for the upcoming fiscal year;

(4) Current reserve requirements to meet the projected liabilities;

(5) Amount of claims paid and moneys received by the fund; and

(6) Information that may be used to determine the fiscal soundness of the fund."

SECTION 3. The board shall consider an income tax based funding mechanism for the program based on the following:

(1) A mandatory long-term care income tax, to be collected by the department of taxation, in the amount of $10 a month, in addition to the taxes assessed in section 235-51, from each individual who has an annual adjusted gross income of at least $10,000 and files a resident tax return.

(2) A five per cent annual premium increase for the first five years following implementation of the program;

(3) Providing a benefit payment of at least $70 a day up to a cumulative period of three hundred sixty-five days;

(4) Providing that the benefit payment is primary to private insurance and medicaid benefits; and

(5) Providing a vesting period of ten years, but requiring the individual to continue to pay the long-term care income tax.

SECTION 4. (a) The board shall provide a detailed proposal of the benefits package and method of financing the program, including a detailed evaluation of the plan proposed in section 3, to the legislature no later than December 31, 2002.

(b) The board shall submit necessary legislation to implement the program no later than twenty days prior to the convening of the regular session of 2003.

(c) A final package with all administrative regulations, pro forma contracts, and institutional relationships shall be submitted to the legislature no later than twenty days prior to the regular session of 2004 and ready to be implemented by January 1, 2005.

SECTION 5. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2002-2003 for the purpose of implementing the Hawaii long-term care financing program. The executive office on aging shall assist and provide support to the board until the program is implemented.

The sum appropriated shall be expended by the executive office on aging for the purposes of this Act.

SECTION 6. This Act shall take effect upon its approval; provided that section 5 shall take effect on July 1, 2002.