RS C.S.H.B. 1865 75(R) BILL ANALYSIS INSURANCE C.S.H.B. 1865 By: Maxey 78-9 Committee Report (Substituted) BACKGROUND During the interim, the House Human Services Committee studied private funding alternatives to Medicaid for long-term care related expenses. One option that was suggested was for the insured under a life insurance policy to obtain proceeds from the policy before death. This option, which is possible only when certain health conditions occur, is called an "accelerated benefit" or an "accelerated death benefit". Presently, an insurance company can offer accelerated benefits, but under fairly narrow circumstances (e.g. policyholder must have a life expectancy of 12 mos. or less; payout cannot be greater than 50 percent of the face value of the life insurance policy). Although not presently referenced in statute, the Department of Insurance has permitted the offering of accelerated benefits to individual life policies and group cash value policies. The legislation also brings Texas into line with federal law (Kennedy/Kassebaum) which established a preferred tax status for accelerated benefits under certain circumstances. PURPOSE The purpose of HB 1865 is to modify the provisions of Article 3.50-6, Insurance Code, to eliminate the restrictions on the permitted acceleration of death benefits for group policies. The provisions of the proposed bill modify the existing statute to encompass both individual and group life insurance policies (term and cash value). In addition, the permitted circumstances under which an individual may elect such an option offered by an insurance company include "terminal illnesses," defined as any illness or injury reasonably expected to result in premature death within two years; "long-term care illnesses," defined as any disabling condition that results in a need for long term care services; or "specified diseases," defined as any other illness or physical condition likely to cause permanent disability or premature death, such as AIDS or malignant tumors. The proposed changes would permit the offering of this option by insurance companies to Texas residents and enhance the accessibility of such alternatives. RULEMAKING AUTHORITY It is the committee's opinion that this bill does grant additional rulemaking authority to the Commissioner of Insurance in SECTION 1 of the bill (Subsection (c), Artice 3.50-6, Insurance Code). SECTION BY SECTION ANALYSIS SECTION 1 Amends Article 3.50-6, Insurance Code, to read as follows: ART 3.50-6. PAYMENT OF ACCELERATED LIFE INSURANCE BENEFITS (a) Definitions: Defines "Accelerated benefit," " Death benefit," "Long-term care illness," "Specified disease," and "Terminal illness." (b) Adds individual to group that accelerated benefit may be paid to if the company has been notified the person has a terminal illness, long-term care illness, or a specified disease and the accelerated benefit is deducted from the amount the insured would otherwise be entitled to. (c) The commissioner may adopt rules to implement this article. SECTION 2. - Effective Date September 1, 1997. SECTION 3. - Emergency Clause COMPARISON OF ORIGINAL TO SUBSTITUTE Currently insurance companies offer accelerated benefits for individuals who have a life expectancy of less than two years (e.g. one year). Under HB 1865 as originally written, such policies could no longer be offered to consumers. With the amended version, companies can offer accelerated benefits to policyholders with a two-year life expectancy as well as to individuals with a shorter life span.