1. INTRODUCTION. The Texas Department of Insurance proposes amendments to §33.2, concerning general provisions of continuing care retirement facilities (CCRCs); §33.204, concerning the application by a CCRC provider for a certificate of authority; and §§33.403 and 33.404, concerning CCRC escrow accounts.
Traditionally, CCRC operators have first built their facilities, next obtained their certificate of authority from the Department, and then began accepting residents. As a result, existing rules regulating CCRC providers address operators who function in that manner. However, certain CCRC providers have recently changed their manner of operation by opting to obtain their certificate of authority from the Department prior to facility construction, and subsequently building their facilities in phases on an as-needed basis, depending on demand. This deviation from traditional CCRC operations created a challenge for the Department and the phase-in CCRC provider, for whom existing regulations are not designed to address.
The 80th Texas Legislature, Regular Session, passed House Bill 2392, effective June 15, 2007, adding §246.0735 and §246.0736 to the Health and Safety Code, which authorize the Commissioner of Insurance to create different requirements for escrow release of entrance fees by which phase-in CCRC providers must abide.
Under the current rules, a continuing care provider operating a phase-in facility has to complete and submit multiple filings with an escrow agent, and subsequently with the Department, each and every time the provider wants to access funds in an entrance fee escrow account. However, under the proposed amendments, these providers will be allowed to make an initial filing with the escrow agent, and subsequently with the Department, and then further supplement the filing with quarterly reports showing the provider's ongoing financial fitness as a whole. This will avoid the submission of multiple reports that fail to provide the pertinent financial information necessary for efficient monitoring by the Department.
The proposed amendments to §33.2, 33.403, and §33.404 are necessary to implement a process by which continuing care providers who operate facilities that are built on a phase-in basis can access funds from statutorily created entrance fee escrow accounts without creating excessive reporting to the Department, but also while continuing to safeguard the continuing care providers' clients' funds. These proposed amendments are necessary to amend the definition of the term facility to account for phase-in facilities and to establish the process by which release of escrowed entrance fees to continuing care providers with phase-in facilities can be achieved. In addition, these amendments are necessary to revise existing rules to ensure that loan reserve fund escrow account requirements continue to apply to all CCRC providers.
Specifically, the proposed amendments to §33.2 redefine facility to account for CCRCs built on a phase-in basis, and the proposed amendments to §33.403 revise the requirements necessary for filing entrance fee escrow release forms with the Department. These changes take into consideration the nature of the phase-in model's method of operations as well as the Department's duty to monitor a provider's financial stability.
In addition, the proposed amendments to §33.404 retain the requirement for a provider to establish a loan reserve fund escrow account, but take into consideration those providers who lease their facilities, rather than purchase them outright. These proposed amendments are necessary because operators of phase-in facilities are likely to enter into lease agreements for their facilities, and by amending this definition to include lease agreements, this rule will apply to such providers.
CCRC providers who apply for a certificate of authority to operate in this state are required to submit up to nineteen particular items specified in paragraphs (1) - (19) of §33.204(a) to the Department, as applicable to their operations. Existing rules require an applicant to submit an original and two copies of only nine of those nineteen items, as applicable.
The proposed amendment to §33.204(a) is necessary to require an applicant to submit an original and two copies of items (1) - (19), as applicable, instead of only items (1) - (9), as applicable. The Department currently receives CCRC applications that provide information listed in items (1) - (19), but this revision will clarify to applicants what is expected of them. All 19 items are important to the Department for determining whether a Certificate of Authority should be granted to an applicant.
2. FISCAL NOTE. Godwin Ohaechesi, Director of Company Licensing and Registration, has determined that for each year of the first five years the proposed amendments will be in effect, there will be no significant fiscal impact to state and local governments as a result of the enforcement or administration of the amendments. Further, there will be no measurable effect on local employment or the local economy as a result of the proposal.
3. PUBLIC BENEFIT/ COST NOTE. Mr. Ohaechesi has determined that for each year of the first five years the proposed amendments to §§33.2, 33.403, and 33.404 are in effect, the public benefits anticipated as a result of the proposed amendments will be the elimination of multiple reports that fail to provide the pertinent financial information necessary for efficient monitoring by the Department for the escrow release process that would otherwise exist under existing rules for continuing care providers who build their facilities on a phase-in basis. The proposed amendments will benefit both the provider operating the phase-in facility who must submit filings with the Department for the release of escrow and Department staff, who must handle and process all of these administrative filings. Changing the manner in which escrow filings can be submitted for these providers will help facilitate a smoother system by which they can furnish their financial reports to the Department for review. There is no additional probable economic cost to persons required to comply with this section because all CCRC operators must comply with existing escrow release statutes and rules, and these proposed amendments prevent the incurrence of excessive costs on CCRC operators.
Mr. Ohaechesi has also determined that for each year of the first five years the amendment to §33.204 is in effect, the public benefits anticipated as a result of the proposed amendment will be a clear and unambiguous rule for applicants to follow and for the Department to implement, thereby alleviating uncertainty and increasing the efficiency of the application process for applicants and regulators alike. The probable economic cost to persons required to comply with this section is negligible; any additional cost will be incurred as a result of an applicant providing two additional copies of a particular document to the Department. For example, for a 500-page application, an applicant would have to spend an additional $150 to make and submit two additional copies of the original application if the price per page for a photocopy is $0.15. Thus, no significant adverse economic impact is anticipated for any CCRC applicant.
4. ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS FOR SMALL AND MICRO BUSINESSES. As required by the Government Code §2006.002(c), the Department has determined that the proposed amendments will not have an adverse economic effect on small or micro businesses because the proposed amendments do not apply to any small or micro-businesses. According to the Government Code §2006.001, small business and micro-business are each defined as a legal entity "formed for the purpose of making a profit". In anticipation of this analysis, the Department reviewed the files for the 25 licensed CCRC facilities in the state and determined that all 25 CCRCs operate as non-profit entities. Therefore, in accordance with the Government Code §2006.002(c), the Department has determined that a regulatory flexibility analysis is not required because such an analysis is inapplicable to non-profit entities.
5. TAKINGS IMPACT ASSESSMENT. The Department has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking or require a takings impact assessment under the Government Code §2007.043.
6. REQUEST FOR PUBLIC COMMENT. To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on September 22, 2008 to Gene C. Jarmon, General Counsel and Chief Clerk, Texas Department of Insurance, P.O. Box 149104, MC 113-2A, Austin, Texas 78714-9104. An additional copy of the comment must be simultaneously submitted to Godwin Ohaechesi, Director of Company Licensing and Registration, Texas Department of Insurance, P.O. Box 149104, MC 305-2C, Austin, Texas78714-9104. A request for public hearing on the proposal should be submitted separately to the Office of the Chief Clerk.
7. STATUTORY AUTHORITY. The amendments are proposed under Health and Safety Code §§246.003, 246.022, 246.0735, and 246.0736 and Insurance Code §36.001. Health and Safety Code §246.003 authorizes the Commissioner to adopt rules to administer and enforce Chapter 246 of the Health and Safety Code. Health and Safety Code §246.022 requires the Commissioner to adopt rules stating the information an applicant for a certificate of authority to operate a CCRC must submit. Health and Safety Code §246.0735 authorizes the Commissioner to create different escrow release requirements for providers that obtain a certificate of authority issued under Chapter 246 prior to facility construction. Health and Safety Code §246.0736 requires the Commissioner to adopt rules to implement the escrow release process. Insurance Code §36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance and other laws of the state.
8. CROSS REFERENCE TO STATUTE. The following statutes are affected by this proposal:
§§33.2 and 33.403 Health and Safety Code §246.0735
§33.204 Health and Safety Code §246.022
§33.404 Health and Safety Code §246.0736
SUBCHAPTER A. GENERAL PROVISIONS
§33.2. Definitions. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.
(1) - (12) (No change.)
Each separate] place in which a person undertakes to provide continuing care. A place is an establishment, complex
, or group of living units at which a provider engages in the business of providing continuing care. If two or more establishments
, campuses, or groups of living units are located on
one premise [
premises], they shall be treated as
one facility [
separate facilities] if their operations are
controlled by the same provider. If two or more establishments, complexes, campuses, or group of living units are located on one premise but controlled by separate providers, they shall be treated as separate facilities [
administratively independent of each other].
A facility that is constructed on an as-needed basis and for which a certificate of authority is obtained from the department prior to facility construction shall be considered a phase-in facility.
(14) - (22) (No change.)
SUBCHAPTER C. APPLICATION BY CONTINUING CARE PROVIDER FOR CERTIFICATE OF AUTHORITY
§33.204. Contents of Application for Certificate of Authority.
(a) The applicant shall submit an original and two copies of the items listed in paragraphs (1) -
(9)], as applicable.
(1) - (19) (No change.)
(b) (No change.)
SUBCHAPTER E. ESCROW ACCOUNTS
§33.403. Release of Funds from the Entrance Fee Escrow Account to Provider.
(a) The escrow agent shall notify the department of a request for release of funds from the entrance fee escrow account for a facility to the provider in writing within three banking days of receipt of the request. The notice shall be sent to the department on CCRC Form #9 (Notice of Request to Release Entrance Fee Escrow Funds).
(b) The conditions listed in paragraphs (1) - (5) of this subsection must be met before funds in the entrance fee escrow account may be released to the provider.
(1) At least 50% of the living units in the facility must be reserved for residents or prospective residents. In support of this, the provider must have sufficient binding continuing care contracts and at least 10% of the entrance fees designated in the binding continuing care contracts on deposit in the entrance fee escrow account. For phase-in facilities, in lieu of the 10% deposit, the provider shall deposit in the entrance fee escrow account an amount equal to 10% of the amount of entrance fees required for the facility and provide evidence that the resident has full occupancy of the living unit.
(2) The sum of the entrance fees received or receivable by the provider under binding continuing care contracts; the anticipated proceeds of any first mortgage loan or other long-term financing commitment described under paragraph (3) of this subsection; and funds from other sources in the provider's actual possession must be equal to or more than the sum of at least 90% of the aggregate cost of constructing
or leasing, equipping, and furnishing the facility; at least 90% of the funds estimated as necessary to cover initial losses of the facility as stated in the current disclosure statement on file with the department; and at least 90% of the amount of the loan reserve fund escrow account required under §33.405 of this title (relating to Loan Reserve Fund Escrow Accounts).
(3) The provider must have commitments for all permanent mortgage loans
and] other long-term financing
, and lease payments described in the statement of anticipated source and application of funds included in the current disclosure statement on file with the department.
(4) - (5) (No change.)
(c) The provider shall deliver a completed CCRC #14 (Calculations Concerning Conditions for Release of Entrance Fees to Provider) to the department for release of entrance fees for a facility.
(d) (No change.)
(e) If the initial release of an entrance fee by an escrow agent for a particular facility has met the criteria under subsection (b) of this section, the department may authorize an escrow agent to continue to release escrowed entrance fees for that facility to the provider without further proof of satisfying the requirements specified in subsection (b) of this section if the provider meets the following conditions:
(1) the provider provides a quarterly report to the department reflecting an accounting of the activities of the entrance fee escrow account for that particular facility;
(2) the accounting reflects a beginning balance, dates of each withdrawal from escrow during the reporting period, and an ending balance. This accounting must be verified, attested to in regards to its accuracy, and signed by both the bank escrow agent and the facility's Chief Financial Officer or person of likewise authority; and
(3) the provider immediately informs the department of any problems, issues, and/or irregularities encountered in the release of entrance fee escrow funds as set forth under this subsection.
§33.404. Loan Reserve Fund Escrow Account.
(a) (No change.)
(b) The amount required to be maintained in the loan reserve fund escrow account is equal to the total of all principal and interest payments due during the next 12 months on all first mortgage loans
or] other long-term financing arrangements for the facility
, or 12 months of lease payments if the provider and facility are operating under a lease agreement. If no principal payments
or lease payments are due during the next 12 months, the provider shall maintain in the loan reserve fund escrow account an amount equal to interest payments due during the next 12 months.
(c) - (d) (No change.)