BILL NUMBER: AB 2661 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Burke
FEBRUARY 19, 2016
An act to amend Section 1771 of the Health and Safety Code,
relating to continuing care retirement communities.
LEGISLATIVE COUNSEL'S DIGEST
AB 2661, as introduced, Burke. Continuing care retirement
communities: refundable contracts.
Existing law generally provides for the regulation of continuing
care retirement communities and continuing care contracts by the
State Department of Social Services. Existing law requires any
provider offering a refundable contract, defined as a continuing care
contract that includes a promise by the provider to pay an entrance
fee refund or to repurchase the transferor's 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 6th
year of residency, to maintain a refund reserve in trust for
residents of the continuing care community. That refund reserve
requirement does not apply to a continuing care contract that
includes a promise to repay all or a portion of an entrance fee that
is conditioned upon reoccupancy or resale of the unit previously
occupied by the resident, if the conditional promise of repayment is
not referred to by the applicant or provider as a "refund."
This bill would instead make the refund reserve requirement
inapplicable to a continuing care contract that includes a promise to
repay all or a portion of an entrance fee that is conditioned upon
reoccupancy or resale of any unit previously occupied by the
resident.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1771 of the Health and Safety Code is amended
to read:
1771. Unless the context otherwise requires, the definitions in
this section govern the interpretation of this chapter.
(a) (1) "Affiliate" means any person, corporation, limited
liability company, business trust, trust, partnership, unincorporated
association, or other legal entity that directly or indirectly
controls, is controlled by, or is under common control with, a
provider or applicant.
(2) "Affinity group" means a grouping of entities sharing a common
interest, philosophy, or connection (e.g., military officers,
religion).
(3) "Annual report" means the report each provider is required to
file annually with the department, as described in Section 1790.
(4) "Applicant" means any entity, or combination of entities, that
submits and has pending an application to the department for a
permit to accept deposits and a certificate of authority.
(5) "Assisted living services" includes, but is not limited to,
assistance with personal activities of daily living, including
dressing, feeding, toileting, bathing, grooming, mobility, and
associated tasks, to help provide for and maintain physical and
psychosocial comfort.
(6) "Assisted living unit" means the living area or unit within a
continuing care retirement community that is specifically designed to
provide ongoing assisted living services.
(7) "Audited financial statement" means financial statements
prepared in accordance with generally accepted accounting
principles principles, including the opinion of
an independent certified public accountant, and notes to the
financial statements considered customary or necessary to provide
full disclosure and complete information regarding the provider's
financial statements, financial condition, and operation.
(b) (reserved)
(c) (1) "Cancel" means to destroy the force and effect of an
agreement or continuing care contract.
(2) "Cancellation period" means the 90-day period, beginning when
the resident physically moves into the continuing care retirement
community, during which the resident may cancel the continuing care
contract, as provided in Section 1788.2.
(3) "Care" means nursing, medical, or other health-related
services, protection or supervision, assistance with the personal
activities of daily living, or any combination of those services.
(4) "Cash equivalent" means certificates of deposit and United
States treasury securities with a maturity of five years or less.
(5) "Certificate" or "certificate of authority" means the
certificate issued by the department, properly executed and bearing
the State Seal, authorizing a specified provider to enter into one or
more continuing care contracts at a single specified continuing care
retirement community.
(6) "Condition" means a restriction, specific action, or other
requirement imposed by the department for the initial or continuing
validity of a permit to accept deposits, a provisional certificate of
authority, or a certificate of authority. A condition may limit the
circumstances under which the provider may enter into any new deposit
agreement or contract, or may be imposed as a condition precedent to
the issuance of a permit to accept deposits, a provisional
certificate of authority, or a certificate of authority.
(7) "Consideration" means some right, interest, profit, or benefit
paid, transferred, promised, or provided by one party to another as
an inducement to contract. Consideration includes some forbearance,
detriment, loss, or responsibility, that is given, suffered, or
undertaken by a party as an inducement to another party to contract.
(8) "Continuing care contract" means a contract that includes a
continuing care promise made, in exchange for an entrance fee, the
payment of periodic charges, or both types of payments. A continuing
care contract may consist of one agreement or a series of agreements
and other writings incorporated by reference.
(9) "Continuing care promise" means a promise, expressed or
implied, by a provider to provide one or more elements of care to an
elderly resident for the duration of his or her life or for a term in
excess of one year. 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 a continuing care promise.
(10) "Continuing care retirement community" means a facility
located within the State of California where services promised in a
continuing care contract are provided. A distinct phase of
development approved by the department may be considered to be the
continuing care retirement community when a project is being
developed in successive distinct phases over a period of time. When
the services are provided in residents' own homes, the homes into
which the provider takes those services are considered part of the
continuing care retirement community.
(11) "Control" means directing or causing the direction of the
financial management or the policies of another entity, including an
operator of a continuing care retirement community, whether by means
of the controlling entity's ownership interest, contract, or any
other involvement. A parent entity or sole member of an entity
controls a subsidiary entity provider for a continuing care
retirement community if its officers, directors, or agents directly
participate in the management of the subsidiary entity or in the
initiation or approval of policies that affect the continuing care
retirement community's operations, including, but not limited to,
approving budgets or the administrator for a continuing care
retirement community.
(d) (1) "Department" means the State Department of Social
Services.
(2) "Deposit" means any transfer of consideration, including a
promise to transfer money or property, made by a depositor to any
entity that promises or proposes to promise to provide continuing
care, but is not authorized to enter into a continuing care contract
with the potential depositor.
(3) "Deposit agreement" means any agreement made between any
entity accepting a deposit and a depositor. Deposit agreements for
deposits received by an applicant prior to the department's release
of funds from the deposit escrow account shall be subject to the
requirements described in Section 1780.4.
(4) "Depository" means a bank or institution that is a member of
the Federal Deposit Insurance Corporation or a comparable deposit
insurance program.
(5) "Depositor" means any prospective resident who pays a deposit.
Where any portion of the consideration transferred to an applicant
as a deposit or to a provider as consideration for a continuing care
contract is transferred by a person other than the prospective
resident or a resident, that third-party transferor shall have the
same cancellation or refund rights as the prospective resident or
resident for whose benefit the consideration was transferred.
(6) "Director" means the Director of Social Services.
(e) (1) "Elderly" means an individual who is 60 years of age or
older.
(2) "Entity" means an individual, partnership, corporation,
limited liability company, and any other form for doing business.
Entity includes a person, sole proprietorship, estate, trust,
association, and joint venture.
(3) "Entrance fee" means the sum of any initial, amortized, or
deferred transfer of consideration made or promised to be made by, or
on behalf of, a person entering into a continuing care contract for
the purpose of ensuring care or related services pursuant to that
continuing care contract or as full or partial payment for the
promise to provide care for the term of the continuing care contract.
Entrance fee includes the purchase price of a condominium,
cooperative, or other interest sold in connection with a promise of
continuing care. An initial, amortized, or deferred transfer of
consideration that is greater in value than 12 times the monthly care
fee shall be presumed to be an entrance fee.
(4) "Equity" means the value of real property in excess of the
aggregate amount of all liabilities secured by the property.
(5) "Equity interest" means an interest held by a resident in a
continuing care retirement community that consists of either an
ownership interest in any part of the continuing care retirement
community property or a transferable membership that entitles the
holder to reside at the continuing care retirement community.
(6) "Equity project" means a continuing care retirement community
where residents receive an equity interest in the continuing care
retirement community property.
(7) "Equity securities" shall refer generally to large and
midcapitalization corporate stocks that are publicly traded and
readily liquidated for cash, and shall include shares in mutual funds
that hold portfolios consisting predominantly of these stocks and
other qualifying assets, as defined by Section 1792.2. Equity
securities shall also include other similar securities that are
specifically approved by the department.
(8) "Escrow agent" means a bank or institution, including, but not
limited to, a title insurance company, approved by the department to
hold and render accountings for deposits of cash or cash
equivalents.
(f) "Facility" means any place or accommodation where a provider
provides or will provide a resident with care or related services,
whether or not the place or accommodation is constructed, owned,
leased, rented, or otherwise contracted for by the provider.
(g) (reserved)
(h) (reserved)
(i) (1) "Inactive certificate of authority" means a certificate
that has been terminated under Section 1793.8.
(2) "Investment securities" means any of the following:
(A) Direct obligations of the United States, including obligations
issued or held in book-entry form on the books of the United States
Department of the Treasury or obligations the timely payment of the
principal of, and the interest on, which are fully guaranteed by the
United States.
(B) Obligations, debentures, notes, or other evidences of
indebtedness issued or guaranteed by any of the following:
(i) The Federal Home Loan Bank System.
(ii) The Export-Import Bank of the United States.
(iii) The Federal Financing Bank.
(iv) The Government National Mortgage Association.
(v) The Farmer's Farmers Home
Administration.
(vi) The Federal Home Loan Mortgage Corporation of the Federal
Housing Administration.
(vii) Any agency, department, or other instrumentality of the
United States if the obligations are rated in one of the two highest
rating categories of each rating agency rating those obligations.
(C) Bonds of the State of California or of any county, city and
county, or city in this state, if rated in one of the two highest
rating categories of each rating agency rating those bonds.
(D) Commercial paper of finance companies and banking institutions
rated in one of the two highest categories of each rating agency
rating those instruments.
(E) Repurchase agreements fully secured by collateral security
described in subparagraph (A) or (B), as evidenced by an opinion of
counsel, if the collateral is held by the provider or a third party
during the term of the repurchase agreement, pursuant to the terms of
the agreement, subject to liens or claims of third parties, and has
a market value, which is determined at least every 14 days, at least
equal to the amount so invested.
(F) Long-term investment agreements, which have maturity dates in
excess of one year, with financial institutions, including, but not
limited to, banks and insurance companies or their affiliates, if the
financial institution's paying ability for debt obligations or
long-term claims or the paying ability of a related guarantor of the
financial institution for these obligations or claims, is rated in
one of the two highest rating categories of each rating agency rating
those instruments, or if the short-term investment agreements are
with the financial institution or the related guarantor of the
financial institution, the long-term or short-term debt obligations,
whichever is applicable, of which are rated in one of the two highest
long-term or short-term rating categories, of each rating agency
rating the bonds of the financial institution or the related
guarantor, provided that if the rating falls below the two highest
rating categories, the investment agreement shall allow the provider
the option to replace the financial institution or the related
guarantor of the financial institution or shall provide for the
investment securities to be fully collateralized by investments
described in subparagraph (A), and, provided further, if so
collateralized, that the provider has a perfected first security lien
on the collateral, as evidenced by an opinion of counsel and the
collateral is held by the provider.
(G) Banker's acceptances or certificates of deposit of, or time
deposits in, any savings and loan association that meets any of the
following criteria:
(i) The debt obligations of the savings and loan association, or
in the case of a principal bank, of the bank holding company, are
rated in one of the two highest rating categories of each rating
agency rating those instruments.
(ii) The certificates of deposit or time deposits are fully
insured by the Federal Deposit Insurance Corporation.
(iii) The certificates of deposit or time deposits are secured at
all times, in the manner and to the extent provided by law, by
collateral security described in subparagraph (A) or (B) with a
market value, valued at least quarterly, of no less than the original
amount of moneys so invested.
(H) Taxable money market government portfolios restricted to
obligations issued or guaranteed as to payment of principal and
interest by the full faith and credit of the United States.
(I) Obligations the interest on which is excluded from gross
income for federal income tax purposes and money market mutual funds
whose portfolios are restricted to these obligations, if the
obligations or mutual funds are rated in one of the two highest
rating categories by each rating agency rating those obligations.
(J) Bonds that are not issued by the United States or any federal
agency, but that are listed on a national exchange and that are rated
at least "A" by Moody's Investors Service, or the equivalent rating
by Standard and Poor's Corporation or Fitch Investors Service.
(K) Bonds not listed on a national exchange that are traded on an
over-the-counter basis, and that are rated at least "Aa" by Moody's
Investors Service or "AA" by Standard and Poor's Corporation or Fitch
Investors Service.
(j) (reserved)
(k) (reserved)
(l) "Life care contract" means a continuing care contract that
includes a promise, expressed or implied, by a provider to provide or
pay for routine services at all levels of care, including acute care
and the services of physicians and surgeons, to the extent not
covered by other public or private insurance benefits, to a resident
for the duration of his or her life. Care shall be provided under a
life care contract in a continuing care retirement community having a
comprehensive continuum of care, including a skilled nursing
facility, under the ownership and supervision of the provider on or
adjacent to the premises. No A change
may shall not be made in the monthly
fee based on level of care. A life care contract shall also include
provisions to subsidize residents who become financially unable to
pay their monthly care fees.
(m) (1) "Monthly care fee" means the fee charged to a resident in
a continuing care contract on a monthly or other periodic basis for
current accommodations and services services,
including care, board, or lodging. Periodic entrance fee
payments or other prepayments shall not be monthly care fees.
(2) "Monthly fee contract" means a continuing care contract that
requires residents to pay monthly care fees.
(n) "Nonambulatory person" means a person who is unable to leave a
building unassisted under emergency conditions in the manner
described by Section 13131.
(o) (reserved)
(p) (1) "Per capita cost" means a continuing care retirement
community's operating expenses, excluding depreciation, divided by
the average number of residents.
(2) "Periodic charges" means fees paid by a resident on a periodic
basis.
(3) "Permanent closure" means the voluntary or involuntary
termination or forfeiture, as specified in subdivisions (a), (b),
(g), (h), and (i) of Section 1793.7, of a provider's certificate of
authority or license, or another action that results in the permanent
relocation of residents. Permanent closure does not apply in the
case of a natural disaster or other event out of the provider's
control.
(4) "Permit to accept deposits" means a written authorization by
the department permitting an applicant to enter into deposit
agreements regarding a single specified continuing care retirement
community.
(5) "Prepaid contract" means a continuing care contract in which
the monthly care fee, if any, may not be adjusted to cover the actual
cost of care and services.
(6) "Preferred access" means that residents who have previously
occupied a residential living unit have a right over other persons to
any assisted living or skilled nursing beds that are available at
the community.
(7) "Processing fee" means a payment to cover administrative costs
of processing the application of a depositor or prospective
resident.
(8) "Promise to provide one or more elements of care" means any
expressed or implied representation that one or more elements of care
will be provided or will be available, such as by preferred access.
(9) "Proposes" means a representation that an applicant or
provider will or intends to make a future promise to provide care,
including a promise that is subject to a condition, such as the
construction of a continuing care retirement community or the
acquisition of a certificate of authority.
(10) "Provider" means an entity that provides continuing care,
makes a continuing care promise, or proposes to promise to provide
continuing care. "Provider" also includes any entity that controls an
entity that provides continuing care, makes a continuing care
promise, or proposes to promise to provide continuing care. The
department shall determine whether an entity controls another entity
for purposes of this article. No homeowner's association,
cooperative, or condominium association may be a provider.
(11) "Provisional certificate of authority" means the certificate
issued by the department, properly executed and bearing the State
Seal, under Section 1786. A provisional certificate of authority
shall be limited to the specific continuing care retirement community
and number of units identified in the applicant's application.
(q) (reserved)
(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 reoccupancy or
resale of the any 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."
(3) "Resale fee" means a levy by the provider against the proceeds
from the sale of a transferor's equity interest.
(4) "Reservation fee" refers to consideration collected by an
entity that has made a continuing care promise or is proposing to
make this promise and has complied with Section 1771.4.
(5) "Resident" means a person who enters into a continuing care
contract with a provider, or who is designated in a continuing care
contract to be a person being provided or to be provided services,
including care, board, or lodging.
(6) "Residential care facility for the elderly" means a housing
arrangement as defined by Section 1569.2.
(7) "Residential living unit" means a living unit in a continuing
care retirement community that is not used exclusively for assisted
living services or nursing services.
(8) "Residential temporary relocation" means the relocation of one
or more residents, except in the case of a natural disaster that is
out of the provider's control, from one or more residential living
units, assisted living units, skilled nursing units, or a wing,
floor, or entire continuing care retirement community building, due
to a change of use or major repairs or renovations. A residential
temporary relocation shall mean a relocation pursuant to this
subdivision that lasts for a period of at least nine months but that
does not exceed 18 months without the written agreement of the
resident.
(s) (reserved)
(t) (1) "Termination" means the ending of a continuing care
contract as provided for in the terms of the continuing care
contract.
(2) "Transfer trauma" means death, depression, or regressive
behavior, that is caused by the abrupt and involuntary transfer of an
elderly resident from one home to another and results from a loss of
familiar physical environment, loss of well-known neighbors,
attendants, nurses and medical personnel, the stress of an abrupt
break in the small routines of daily life, or the loss of visits from
friends and relatives who may be unable to reach the new facility.
(3) "Transferor" means a person who transfers, or promises to
transfer, consideration in exchange for care and related services
under a continuing care contract or proposed continuing care
contract, for the benefit of another. A transferor shall have the
same rights to cancel and obtain a refund as the depositor under the
deposit agreement or the resident under a continuing care contract.