[Senate Hearing 107-494]
[From the U.S. Government Publishing Office]
S. Hrg. 107-494
OFFERING RETIREMENT SECURITY
TO THE FEDERAL FAMILY: A NEW LONG-TERM CARE INITIATIVE
=======================================================================
HEARING
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
APRIL 10, 2002
__________
Serial No. 107-23
Printed for the use of the Special Committee on Aging
80-168 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2002
____________________________________________________________________________
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SPECIAL COMMITTEE ON AGING
JOHN B. BREAUX, Louisiana, Chairman
HARRY REID, Nevada LARRY CRAIG, Idaho, Ranking Member
HERB KOHL, Wisconsin CONRAD BURNS, Montana
JAMES M. JEFFORDS, Vermont RICHARD SHELBY, Alabama
RUSSELL D. FEINGOLD, Wisconsin RICK SANTORUM, Pennsylvania
RON WYDEN, Oregon SUSAN COLLINS, Maine
BLANCHE L. LINCOLN, Arkansas MIKE ENZI, Wyoming
EVAN BAYH, Indiana TIM HUTCHINSON, Arkansas
THOMAS R. CARPER, Delaware PETER G. FITZGERALD, Illinois
DEBBIE STABENOW, Michigan JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri CHUCK HAGEL, Nebraska
Michelle Easton, Staff Director
Lupe Wissel, Ranking Member Staff Director
(ii)
C O N T E N T S
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Page
Opening Statement of Senator John Breaux......................... 1
Panel of Witnesses
Bertram Scott, President, TIAA-CREF Life Insurance Company, New
York, NY....................................................... 2
Frolly Boyd, Senior Vice President, Group Insurance/Long-Case
Pensions, Aetna, Inc., Hartford, CT, and Board Member,
Americans for Long-Term Care Security.......................... 19
Frank D. Titus, Assistant Director for Long-Term Care, and Acting
Associate Director, Retirement and Insurance, United States
Office of Personnel Management, Washington, DC................. 31
Paul E. Forte, Chief Executive Officer, Long Term Care Partners,
LLC, Charleston, MA............................................ 46
APPENDIX
Prepared Statement of Senator Debbie Stabenow.................... 73
Letter from Americans for Long-Term Care Security................ 74
Statement of the American Council of Life Insurers on Long-Term
Care Insurance................................................. 75
(iii)
OFFERING RETIREMENT SECURITY TO THE FEDERAL FAMILY: A NEW LONG-TERM
CARE INITIATIVE
----------
WEDNESDAY, APRIL 10, 2002
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The committee met, pursuant to notice, at 9:35 a.m., in
room SD-628, Dirksen Senate Office Building, Hon. John Breaux
(chairman of the committee) presiding.
Present: Senator Breaux.
OPENING STATEMENT OF SENATOR JOHN BREAUX, CHAIRMAN
The Chairman. The committee will please come to order. Our
guests, if they will, please take their seats, and our
witnesses, their positions at the table.
Good morning to everyone. Thank you very much for being
with us this morning in the Special Committee on Aging.
Today's hearing of our Aging Committee marks the 10th
hearing that the Aging Committee has held on long-term care
during this Congress. Our previous hearings have addressed the
broken nature of our long-term care system in this country. It
is clear that Medicaid costs are skyrocketing in a system that
is both inflexible and biased towards institutional care.
However, today's hearing offers us an opportunity to look at
one of the potential solutions for our long-term care crisis in
America.
In the fall of the year 2000, Congress passed and President
Clinton signed into law the Long-Term Care Security Act. This
legislation charged the Office of Personnel Management, OPM,
with establishing a new long-term care insurance program for
all of our Nation's Federal employees. Like many aspects of
Government, where things move very slowly, I am pleased to
report that this program is already up and running. The program
is significant because the Federal Government is the Nation's
largest employer. If the new Federal long-term care insurance
program is successful and proves to be popular, then it will
serve as a model for other companies and other employers. The
old adage of ``Lead by example'' definitely applies here.
As you will hear from our witnesses today, people are more
likely to buy the long-term care insurance and might at a
younger age if they are offered it by their employer. Since
most people don't know that the Government won't pay for their
long-term care needs, the consumer education that employers
offer to their employees about long-term care is critical
toward educating the public about this problem.
As 60 percent of those reaching 65 will need long-term
care, the 77 million baby boomers will literally break both
State and Federal budgets unless they take personal
responsibility for their care and purchase long-term care
insurance.
Financial planners now recommend that, in addition to
having 401(k) plans and IRAs to plan for retirement, people
should also have long-term care insurance. This will protect
their assets, offer choices of care, and provide peace of mind
for the entire family.
My wife and I plan to meet very soon with some of the
insurance agencies to discuss which type of plan is best for
us.
I look forward to hearing from our witnesses today about
the status of long-term care insurance and also to hear about
the specifics of the new Federal long-term care insurance
program.
We are pleased to have as our panel of witnesses Mr. Bert
Scott, who is President of TIAA-CREF Life Insurance Company of
New York; Frolly Boyd, who is Senior Vice President of Group
Insurance/Long-Case Pensions with Aetna; and a board member of
Americans for Long-Term Care Security and Mr. Frank Titus, who
is Assistant Director for Long-Term Care and Acting Associate
Director, Retirement and Insurance, with the Office of
Personnel Management; and Mr. Paul Forte, Chief Executive
Officer of Long Term Care Partners in Charleston, MA.
Lady and gentlemen, we are pleased to have you here. Mr.
Scott, you may begin.
STATEMENT OF BERTRAM SCOTT, PRESIDENT, TIAA-CREF LIFE INSURANCE
COMPANY, NEW YORK, NY
Mr. Scott. Thank you, Mr. Chairman. Good morning, Mr.
Chairman and members of the committee. Before I get started
with my formal remarks, I would like to congratulate you on the
birth of your first grandson.
The Chairman. Yes, we are getting into this aging process
aggressively and rapidly. [Laughter.]
Mr. Scott. My name is Bertram Scott. I am the President of
TIAA-CREF Life Company and Executive Vice President of TIAA-
CREF. As the world's largest and oldest pension company, our
focus has always been to provide our participants with the
financial tools to plan for a secure retirement. Therefore, at
a time when the largest segment of our population, the boomers,
are entering their retirement years, it is all the more
important that we address this critical threat that long-term
care expense puts on retirement security.
Mr. Chairman, we commend your efforts to bring attention to
this threat and your leadership in holding hearings on long-
term care insurance, in particular, the new Federal initiative.
Today, I hope to provide background on the long-term care
insurance market by discussing why it is important for
individuals to provide for their retirement security by
planning to cover long-term care expenses; industry data on
long-term care expenses and the vital role long-term care
insurance plays in protecting and preserving retirement assets;
the need to further educate consumers about long-term care
costs that are not covered by Medicaid; how the Federal
initiative will stimulate consumer and employer awareness and
interest in long-term care insurance; the potential benefit of
additional tax incentives as a complement to enhanced consumer
education.
To demonstrate a couple of key points that I will allude to
in my testimony, I have brought two ACLI charts that reference
attitudes and behaviors of long-term care policy holders. The
pie chart illustrates the importance long-term care policy
owners placed on owning a policy when preparing for their own
retirement. An astonishing 98 percent found it to be an
important part of their planning, with a full 70 percent saying
it was very important.
The bar graph shows the importance policy holders place on
insurance to cover long-term care expenses as compared to those
relying on personal savings. It illustrates that 86 percent of
those who place a high importance on long-term care planning
rely on their long-term care policies to cover their expense;
whereas, those who do not consider it important will rely on
their personal savings.
TIAA-CREF began providing long-term care insurance to its
participants over a decade ago in recognition of this emerging
need. Our position is heralded by support from the American
Council of Life Insurance and the Health Insurance Association
of America. They are focusing on the critical need for consumer
education about long-term expenses and tax incentives for
individuals to invest in their retirement security by
purchasing long-term care insurance.
The industry is encouraged that Congress made long-term
care insurance available to 20 million eligible Federal workers
and their families. This initiative serves to educate many
Americans on long-term care and the importance of planning
ahead to protect against the catastrophic cost of extended
care.
One of the greatest risks to individual savings is the
unanticipated cost of long-term care. Unfortunately, many
people underestimate the cost and are shocked and unprepared
when it hits home. Although 67 percent of Americans recognize
that the cost of long-term care is the greatest threat to
retirement security, only 35 percent have planned for it. A
recent ACLI study shows a link between retirement plan and
long-term care education. It found that when employers provided
potential enrollees with education about long-term care
policies, employees were much more likely to enroll for group
coverage. What is more, those who considered coverage tended to
be much younger, thus filling a gap for employees under 60 who
otherwise would not consider coverage. The report concluded
that employer-sponsored education about long-term care led
employees to consider it as an integral part of retirement
planning.
Despite the encouraging data among policy holders, they
still only comprise 10 percent or about 6 million of the
elderly, with even fewer younger owners. The reason may be the
decision to buy long-term care is difficult. There are many
choices. There is also the misperception that the cost of
coverage is too expensive.
The reality is that long-term care insurance is the most
economical solution when compared against the actual cost of
service. According to the U.S. Department of Labor, the
national cost of nursing home care averages $56,000 a year and
is expected to rise to $190,000 in 30 years. The industry has
adapted to meet the escalating cost of long-term care. As a
result, the face of long-term care insurance has changed
significantly over the past 10 years. Insurers now offer
comprehensive coverage with fewer restrictions. Consumers are
buying richer coverage, including inflation protection,
resulting in higher average premiums. Premiums have risen from
1995 from $1,500 to $1,700 in 2000, but today's policies are of
more value--you get more value for your dollar--than they were
5 to 10 years ago.
There are also significant cost differences over a 10- to
30-year period between total premiums paid if purchased at age
45 versus 55 or 65. Lower premiums and a higher likelihood of
qualifying for coverage at a younger age should be weighted
against higher premiums paid over a shorter period of time if
purchased at an older age. Some helpful considerations when
deciding whether to buy long-term care is an individual's
assets and retirement income, their ability to pay premiums
without adversely affecting lifestyle, and their ability to
absorb possible premium increases without causing hardship.
Increasingly, a 2001 ACLI study found that 70 percent of
long-term policy owners recognize the importance of planning
for long-term expense. The percentage is higher among less
affluent owners. Why? I believe because long-term care
insurance best serves moderate-income individuals and couples.
This is illustrated in a recent HIAA study. It shows that long-
term care insurance purchasers had a median income of $42,500
in 2000 and 70 percent of that group had liquid assets of more
than $100,000. While the income and assets of the average buyer
is on the rise, the average age for individual buyers is
lowering, according to industry studies, dropping from 69 to
67. The average age of purchasers in the group market is even
lower, at approximately 43.
As I mentioned earlier, only 10 percent of our elderly have
long-term care insurance coverage. Perhaps this is because
there is a common misperception that the Federal Government
covers long-term care costs for all Americans through Medicaid.
In reality, most long-term care services are paid out-of-pocket
or provided informally by family and friends. The more affluent
individuals have the means to self-insure for long-term care
insurance.
Regardless, many boomers, the age that will double the
number of elderly over the next 30 years, still believe that
the Government will take care of their long-term care needs.
This misperception will potentially result in burdens on the
Federal Government and States that will be impossible to meet
over the next 20 to 30 years.
The industry believes that education is the key to
correcting this misperception and encouraging the purchase of
long-term care insurance to address long-term care expenses. We
also believe that the new Federal initiative will complement
our efforts to educate the general public, raising awareness
about the high cost of long-term care, and emphasize that the
Government does not pay for care for the vast majority of the
population. It will reinforce the message that individuals must
take responsibility to protect themselves from the higher cost
of long-term services. The message should be clear: The
Government will not pay for long-term care expenses for most
Americans.
We are optimistic that the example set by the Federal long-
term care program will encourage more employers to offer long-
term care insurance as a voluntary employee benefit. There is
one final benefit of the Federal initiative that cannot be
overlooked. In the process of providing long-term care
insurance materials to policymakers and congressional staff, we
believe that policymakers will become sensitized to the need
for long-term care insurance. As a result, we hope that your
colleagues will join you in supporting legislation that
provides a Federal above-the-line tax deduction for the
purchase of long-term care insurance as well as a tax credit
for individuals and their caregivers.
Thank you for inviting me to testify today. We applaud your
leadership in encouraging all Americans to use long-term care
insurance as a vital planning tool for safeguarding their
retirement security.
[The prepared statement of Mr. Scott follows:]
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The Chairman. Thank you very much, Mr. Scott, for your
statement.
Next, Ms. Boyd.
STATEMENT OF FROLLY BOYD, SENIOR VICE PRESIDENT, GROUP
INSURANCE/LONG-CASE PENSIONS, AETNA, INC., HARTFORD, CT, AND
BOARD MEMBER, AMERICANS FOR LONG-TERM CARE SECURITY
Ms. Boyd. Good morning, Mr. Chairman. Thank you for this
opportunity to speak to you today. My name is Frolly Boyd. I am
the Senior Vice President of Aetna Life Insurance Company's
Group Insurance Division based in Hartford, CT. I would like to
request that the text of my formal statement be added to the
record.
The Chairman. Without objection.
Ms. Boyd. I would like to thank you, Mr. Chairman, Senator
Breaux, for cosponsoring S. 627.
As one of the Nation's oldest and largest providers of
health and related group benefits, Aetna has taken a leadership
role in group long-term care insurance. In addition to
representing Aetna, I am also here today on behalf of Americans
for Long-Term Care Security, ALTCS. I serve on the board of
ALTCS, a 34-member coalition of consumer and industry
organizations that seeks to build public awareness about long-
term care and advocates legislation to help Americans better
prepare for their retirement security. I believe you have a
list of the membership.
Aetna and Americans for Long-Term Care Security believe
that the Government must continue to provide a safety net for
the truly needy. At the same time, the Government should also
provide incentives for private sector solutions, such as long-
term care insurance.
Congress needs to act now. With the baby-boom generation
preparing to retire, the cost of long-term care will place an
intolerable strain on the Medicaid program.
Contrary to popular belief, Medicare pays virtually nothing
for long-term care services. Medicaid is the one and only
Government program providing long-term care coverage and pays
for over two-thirds of all nursing home patients in the United
States. This has put a tremendous strain on State budgets.
Because of the widespread practice of transferring and
sheltering assets to achieve Medicaid eligibility, the middle-
class elderly end up in nursing homes paid for by Medicaid
monies.
For America's 77 million baby boomers, paying future long-
term care costs is their largest looming expense. In 2020, one
out of every six Americans will be age 65 or older--roughly 20
million more seniors than today. By 2020, the number of
Americans 85 and older--the people most likely to need long-
term care--will double to 7 million.
It is no secret that long-term care is very expensive. The
average annual cost of a 1-year nursing home stay is $55,000.
But in some areas of the country, it is closer to $80,000. It
costs almost $16,000 annually for daily visits by a home health
care aide. Alarmingly, these expenses are projected to
quadruple over the next 30 years, eroding hard-earned
retirement nest eggs.
Medicaid will never be able to foot the bill for the
millions of baby boomers that will need long-term care services
in the near future. Helping people pay for these services
directly through quality long-term care insurance products
should be part of our Nation's answer to this crisis.
That is why Aetna and Americans for Long-Term Care Security
strongly support the Long-Term Care and Retirement Security Act
of 2001.
The bill would allow individuals an above-the-line Federal
income tax deduction for the premiums they pay to purchase
long-term care policies. Additionally, it provides up to a
$3,000 tax credit for family caregivers to help cover their
long-term care expenses. Most importantly, for employer group
long-term care products, it will also permit long-term care
insurance coverage to be offered under employer-sponsored
cafeteria plans and flexible spending accounts.
While not a complete panacea, this legislation will provide
some needed relief to the growing numbers of Americans who are
overwhelmed by caring for their disabled parents and relatives,
while encouraging many of those caregivers to begin preparing
for their own long-term care needs.
I believe the tax breaks contained in S. 627 will
dramatically increase the public's appetite for long-term care
products and provide needed relief to Federal and State
government programs.
Another important reason this legislation is needed: its
very passage will generate publicity and increase public
awareness. Consumer education is critical.
One of the barriers to growth in the marketplace is
consumers' misconception about who pays for long-term care and
their lack of awareness. A recent survey found that only 25
percent of people age 55 and older think they or their family
would be responsible for long-term care expenses. The truth is
most health plans do not cover long-term care, and Medicare
coverage within the health plans is very limited.
The cost of long-term care insurance is also cited as a
reason why few consumers own a policy today. Many people assume
insurance covering nursing home costs must be expensive. In
reality, long-term care insurance policies can be quite
affordable, especially when purchased at a younger age.
For example, a 40-year-old might pay an annual premium of
about $259 for a standard group long-term care policy. That
annual premium rate would apply for the life of the policy. The
same policy for a 50-year-old would cost $482, and for a 60-
year-old it would cost $1,136.
Long-term care policies have also dramatically improved.
Increasingly, insurers are offering comprehensive coverage for
the wide variety of benefit options and design flexibility.
Today's policies cover a variety of services, a variety of
providers, and a variety of care settings, such as both
facility- and home-based care. We strongly applaud and
encourage legislative efforts to develop uniform consumer
protection provisions so that the public can be assured that
the benefits that they expect will be paid on time, when
needed, and without hassle.
In conclusion, we believe that swift passage of this bill
will help families struggling with the staggering costs of
long-term care and enable others to protect themselves by
purchasing private coverage. As the baby-boom generation ages
into retirement, they must be encouraged to buy private
insurance now to provide for their own eventual long-term care
needs. Continued reliance on Medicaid and other programs is not
the answer. The tax relief embodied in S. 627 will go a long
way in providing aging Americans with retirement security.
Thank you, Chair.
[The prepared statement of Ms. Boyd follows:]
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The Chairman. Thank you very much, Ms. Boyd.
We have a few minutes left in this vote, which has started.
I want to recess the committee and return for the other two
witnesses just as soon as we can. [Recess.]
The committee will please come to order. When we left, Ms.
Boyd had just completed her testimony.
Mr. Titus.
STATEMENT OF FRANK D. TITUS, ASSISTANT DIRECTOR FOR LONG-TERM
CARE, AND ACTING ASSOCIATE DIRECTOR, RETIREMENT AND INSURANCE,
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT, WASHINGTON, DC
Mr. Titus. Thank you, Mr. Chairman and members of the
committee. Good morning. My name is Frank Titus. I am the
Assistant Director for Long-Term Care and the Acting Associate
Director for Retirement and Insurance at the United States
Office of Personnel Management, the sponsor of the Federal
Long-Term Care Insurance Program. I want to thank you for
inviting me this morning and for your support of this program.
Your letter of invitation indicated that you were
interested in basically five different areas: the process that
OPM used that resulted in the selection of John Hancock and
MetLife as Long-Term Care Partners, the companies that will
administer this program; the composition of the Federal family
that is eligible to apply for coverage under the program; the
early enrollment period that is now underway and the open
season that will begin on July 1 and run through the end of the
year; our outreach and consumer education efforts, both past
and planned; and how we will know whether we succeeded in this
important offering or not. I will address each of these briefly
in turn.
First, our selection process. As you know, the Long-Term
Care Security Act was signed into law in September of 2000, and
shortly thereafter we created the Office for Long-Term Care
Implementation in the U.S. Office of Personnel Management, and
I was selected as the Assistant Director of that office.
We began an outreach effort and held literally scores of
meetings with stakeholder groups, industry representatives, et
cetera, in an effort to understand as much as we could about
the product, and about our stakeholders' interests, so we could
develop a balanced group policy that would meet our stakeholder
needs and that would attract very competitive bids from the
insurance industry.
That process culminated in the creation of a request for
proposals that was issued on June 20, 2001. That request for
proposals, which is the standard Government vehicle for
contracting and obtaining services, contained evaluation
criteria that were divided between technical criteria and cost
criteria.
The RFP said that the technical criteria taken together
would be more important than cost, and it enumerated the
criteria that were most important. From a technical standpoint,
they were: education, marketing and enrollment, customer
service, underwriting, and claims administration.
Our cost evaluation was a bit different from standard
Government cost evaluations in that this was not simply a low-
cost effort. Our cost criteria did evaluate the absolute
premiums, but, more important, we evaluated the results that we
thought those premiums would produce in actual experience in
terms of something we called an experience fund.
We also looked at the profit that carriers proposed and the
proportion of that profit that they were willing to put at risk
for performance. We looked at the reasonableness of the
underlying economic and actuarial assumptions in terms of the
NAIC model that is designed to produce premium stability.
We assembled two interagency task forces for the evaluation
of the technical and cost aspects of the proposals we received.
They included members from OPM, Treasury, HHS, DOD, and the
Pension Benefit Guaranty Corporation.
We evaluated the initial proposals. We held meetings with
the offerors. We requested best and final offers by October 15,
and then the panels met again and made a recommendation to me
as contracting officer.
I am happy to say that while our competition was very
rigorous and keen, at the end of the day the Government was in
a no-lose situation. It was looking at highly rated proposals
that we just couldn't lose on. But both the technical and the
cost evaluation panels slightly favored the proposal that was
submitted by John Hancock and MetLife as Long-Term Care
Partners. My independent review of their proposal as the
contracting officer concurred with their evaluation, as did the
Director of the Office of Personnel Management, who ultimately
was the selecting official.
The Chairman. Run that by me again. Who was it? You said
you had the two, Hancock and MetLife. Who was the third one you
were talking about?
Mr. Titus. Well, MetLife and Hancock came together as Long-
Term Care Partners, they formed a joint venture company to
administer this policy.
The Chairman. OK.
Mr. Titus. I will just run through the rest very quickly.
You asked who is eligible. The Federal family consists of
employees and members of the uniformed services, retired
employees and retired members of the uniformed services; their
current spouses, including surviving spouses, who are in
receipt of an annuity their adult children, adopted children,
and step-children age 18 or over; and the parents, parents-in-
law, and step-parents of employees. The total Federal family is
estimated to be some 20 million.
Our early enrollment period, as I say, is now underway. It
runs until May 15. It is for people who are already educated
about long-term and long-term care insurance and are in a
position to make an informed decision today.
The primary difference between the early enrollment and the
open season that will begin in July will be a tremendous
education and outreach effort that is designed to educate the
vast majority of people who are not knowledgeable about long-
term care and long-term care insurance so that they will be in
a position to make an informed choice during the open season.
The Chairman. You have another open season later on?
Mr. Titus. Yes, beginning July 1 and running through the
end of the year.
The Chairman. OK.
Mr. Titus. Now, finally, you asked about the consumer
education and outreach. As I say, during the early enrollment
period there's relatively little. During the open season that
commences in July, it will be the largest ever educational
campaign. It will be comprehensive and continuous. We have
established implementation coordinators at each agency. We will
be issuing 5 monthly bulletins entitled ``Get Smart about Your
Future.'' We already have 750,000 subscribers for those
bulletins, and thousands more are coming in each week.
We have conducted one satellite broadcast on March 6. We
have a satellite broadcast coming up on May 15 and another on
July 17. They increasingly focus on long-term care, long-term
care insurance, and then the Federal product. We have posters,
fliers, brochures, magnets for your refrigerators, all those
kinds of things.
We will have a big kick-off before July 1, and after that
we will have some 2,000 workplace meetings and community
meetings nationwide. Finally, we will have a website,
interactive decision support tools, and a toll-free number.
Finally, you asked how will I know and how will OPM know
whether we succeeded. Well, I was gratified to learn that you
and your wife are interested in purchasing a policy, and I was
very happy to deliver to you this morning an open enrollment
kit and a personal letter of invitation to become what we are
calling a charter member of the Federal Long-Term Care
Insurance Program. So I guess one of the ways I will measure my
success is to see whether you and your wife sign up.
The other way that I will measure my success is to look at
how many other charter members there are and the market
penetration that we achieve among the total Federal family.
GAO will be conducting independent reviews of our program
during its third and its fifth years, and there are possible
studies planned by HHS and others.
That concludes my remarks. I thank you very much.
[The prepared statement of Mr. Titus follows:]
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The Chairman. Thank you very much, Mr. Titus.
Mr. Forte.
STATEMENT OF PAUL E. FORTE, CHIEF EXECUTIVE OFFICER, LONG TERM
CARE PARTNERS, LLC, CHARLESTON, MA
Mr. Forte. Good morning, Mr. Chairman and members of the
committee. Thank you for this invitation to testify. My name is
Paul Forte. I am the Chief Executive Officer of Long Term Care
Partners LLC, a new joint venture company between John Hancock
Financial Services and MetLife. Long Term Care Partners is the
exclusive administrator of the Federal long-term care insurance
program. I am pleased to be able to participate in this
important hearing on the need for private long-term care
insurance, one of the key markets in the future, and on the
Federal program, a landmark event in the development of that
market.
Since the mid-1980's, John Hancock and MetLife have labored
to perfect our respective long-term care insurance products and
to serve our ever expanding books of business. We have
simultaneously participated in public policy initiatives,
recognizing that without them, the private long-term care
insurance market was not likely to grow.
But of all the public policy initiatives in which we have
been involved, none in our opinion is as significant to the
future of the private long-term care insurance market as the
establishment of the Federal program. This program will have
far-reaching effects on the entire U.S. population, not just
the 20-million-member Federal family.
More than 3 years in the making, the Federal program is
distinguished for its quality, its comprehensiveness, and its
value. I would like to present some evidence for this
assertion, but before I do, allow me to say a few words about
the entity that will be administering the Federal program since
that is near to my heart.
John Hancock and MetLife first began working closely
together on the Federal program in the fall of 2000. Our two
companies discussed the best way to support it if we were
fortunate enough to win the award. After much discussion, we
decided to build a dedicated company from scratch.
This company would have all of the expertise needed to
manage a large national long-term care insurance program, to
make it strong and to keep it strong. It would be responsible
for everything from marketing and underwriting to customer
service and claims adjudication. Further, it would make
extensive use of the Internet and other technology so that it
would be easy for Federal family members to access information
and benefits quickly, wherever they were. It would give OPM and
Federal family members a single point of contact. In short, it
would take the best of everything from both companies and put
it together under one roof.
Needless to say, this approach took a lot of thought and a
lot of hard work, and Long Term Care Partners is now underway.
We are building our organization, recruiting talent, setting up
systems, and developing service protocols. We are supporting
the early enrollment program, which began March 25 and will run
through May 15.
Now to the reasons that I think the Federal program is so
good:
First, a generous allowance for informal care benefits,
bringing friends, neighbors, and other non-professionals,
including relatives, into the caregiving process;
Second, care coordination and counseling services to help
insured consider the many options they have before them and to
access benefits when they need them;
Third, the right to appeal all disputed claim decisions to
an independent third-party examiner;
Fourth, flexibility in moving from a periodic method of
adjusting for inflation to an automatic compound increase
method, without evidence of insurability and with appropriate
adjustments to rates;
Fifth, international insurance coverage so that insureds
may receive benefits anywhere in the world.
These features illustrate the quality of the Federal
program and distinguish it from other long-term care offers
available in the market. Since I have commented on several of
these in my written testimony, let me say a few words about
rates.
The Federal program represents an excellent, overall
consumer value, but in order to see this, you must compare
Federal program benefits with those of other policies, because
long-term care insurance is not a commodity. Every policy is
different, with its own provisions, its own terms, its own
limitations. If adjustments are made in the rates of other
policies to allow for the benefits the Federal program offers--
for example, generous informal benefits, care coordination for
insureds and family members, assisted living facilities covered
at 100 percent of the daily benefit amount--the Federal program
will come out on top.
We estimate that Federal program rates are at least 15
percent less expensive on average than comparably designed
policies on a standard single-issue basis, and we expect these
rates to be stable. OPM's recommendation that we set rates
based upon ``moderately adverse'' actuarial assumptions means
it is likely that these rates will be sufficient to support
experience over the long term.
This approach to setting premiums is fully consistent with
the rate stabilization initiatives in the current National
Association of Insurance Commissioners model. In any event, all
rates quoted are guaranteed not to increase for the initial 7-
year contract period unless OPM approves the increase.
I would like to note, Mr. Chairman, that neither John
Hancock nor MetLife has ever raised long-term care insurance
rates on any employer group contract, and we have hundreds of
them.
Before closing, I would like to assure this committee of
the commitment that Long Term Care Partners brings to the
Federal program. Some of us have been involved in long-term
care insurance for the better part of our adult careers and
have waited a long time for a stimulus of this magnitude. Many
of us have felt satisfaction at watching the Federal program
develop from its initial legislation into the impressive
structure it is becoming. All of us are dedicated to making the
Federal program a success because we believe in it and in the
people who are making it happen here in Washington.
On behalf of the staff of Long Term Care Partners and of my
associates at John Hancock and MetLife, I would like to thank
you again for this opportunity to appear before your committee
and for your valuable time. I will be happy to answer any
questions you may have.
[The prepared statement of Mr. Forte follows:]
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The Chairman. Thank you for your testimony.
Mr. Forte and Mr. Titus, I want to be a charter member of
your program. We will sit down and we will negotiate on the
premiums. [Laughter.]
I thank all of you. I just think this is so important. I
think the Federal effort with OPM and the partnership between
MetLife and Hancock is incredibly important because hopefully
we will get a lot of coverage on this, affecting not just
Federal employees but, as you said, Mr. Scott, all of the
civilian employees who also will be made better aware of the
nature of the problem and the need for insurance.
I am a very strong believer in insurance to spread the risk
and to deliver products at an affordable price. I think you
have all made some really good points, and most people think
the current programs cover long-term care. Most people think
they don't have a problem with it because they have Medicare,
and they don't have a problem with it because if they really
get poor, they have Medicaid.
The truth is that Medicare, being as inadequate as it is,
covering only 53 percent of an average senior's health care
costs in this country, simply doesn't provide any real long-
term care coverage. We have had hearings before this committee
in this room with Governors--the Governor of Kentucky was the
last one--who said their Medicaid program is going broke. Why
is it going broke? Principally because it is being used as a
stop-gap measure to provide long-term care. It was never
intended to do that. We are trying to put round pegs in square
holes and square pegs in round holes, and it just doesn't fit.
Medicaid was never intended to be a long-term care program for
the Nation's elderly, and yet, by default, it has become so. We
embarrass people and families by requiring them to spend all
their assets so they can become poor enough for the country to
give them some help.
So I really believe that hopefully this major effort on the
part of OPM is going to add to the coverage and publicity and
knowledge that individuals need about what they should be
purchasing and how they should go about doing it.
Let me ask you, Mr. Titus, the FEHB insurance for Federal
employees gives the employees a number of different options
with a number of different companies. I take it that with
regard to long-term care we have only one provider, which is
the partnership between the two companies we have been speaking
about.
Mr. Titus. That is correct.
The Chairman. Why do we not have a choice for employees to
pick, you know, amongst more than just one provider?
Mr. Titus. Well, as the name implies, long-term care
insurance is just that: You are establishing a long-term
relationship with the company. That is very different than
health benefits where your premium is based on the plan's
experience in only one year.
The premiums that have been set for long-term care are
premiums that basically have a life of more than 40 years, and
they are designed to be stable and to be level.
It is just a very different product, and we looked at both
models. There was a legislative proposal which would have
attempted to replicate the FEHB program in terms of long-term
care. In consultation with industry and experts and in
surveying what was done by other employers, we could not find
any model where employers were offering basically competing
insurance products.
As you know, and as has been testified this morning, not
many people purchase this product because it is not well
understood; and we felt that if people had to choose between
five or six different competing products, the result would be
not only much higher marketing and administrative costs in
terms of rolling out the program, but probably lower
participation rates.
We wanted to be in a position where we could stand up and
be advocates and cheerleaders for a very comprehensive and
flexible product, and we couldn't do that if we had competition
in the marketplace.
The Chairman. How long is the contract with the joint
venture program for?
Mr. Titus. It is a 7-year contract. We will be evaluating
their performance each and every year. As we approach the
seventh-year anniversary, we will do an industry survey to make
sure that the carriers are performing on a par with the best
available in the industry. If that determination is positive,
if we determine that there is no enrollee interest to be served
by a recompetition, then we will renew.
If we determine that we could get better performance at a
better price by recompeting the contract, then that is what we
will do.
The Chairman. I am a big believer in giving people as much
information as possible about products and then giving them
choices to pick the one that best fits their particular needs
and their family needs. But I understand the point that you
make is from a standpoint of efficiency and cost, et cetera.
Let me ask Mr. Scott and Ms. Boyd, is that, from your
knowledge, sort of a typical arrangement with large employers
where they would go out and negotiate and pick a particular
long-term care provider? Or is it more likely that they would
have several different choices?
Ms. Boyd. It is the former. Certainly an employer,
particularly in the area of life insurance, long-term care, and
disability insurance, these areas, an employer would pick one
supplier.
The Chairman. You would agree?
Mr. Scott. That is correct. I would agree, yes.
The Chairman. So they are consistent with what the private
market has been doing in this area.
Ms. Boyd. Yes.
Mr. Scott. That is correct.
The Chairman. It is really interesting that 5 million
people, I think is the figure that I had, approximately, have
long-term health care insurance being provided by 100
companies. What do you all in the private sector think that the
potential realistically is? I think this is a market that is
going to explode. If I was in the insurance business, I would
be running as fast as I could to design programs that are going
to be available for this explosion of seniors that we are about
to have in this country.
What do you think? Anybody, either one of you, have an idea
about the potential out there for what a program that today
covers 5 million people can be in the next 20 years? Any
projections?
Ms. Boyd. I think that it is indeed potentially explosive,
and for a couple of reasons. I think that, first of all,
awareness is growing because of the aging of the population.
But I believe the industry would reflect what Aetna has
experienced, and this goes back to under HIPA tax relief. It
was very limited. But even after that, certainly at Aetna we
saw a 40 percent increase in enrollment in our book of
business.
Now, as I said, part of that, I think, was due to general
awareness, but also I think even though those tax breaks were
limited, the signal was sent that individual accountability was
very, very important. So I think the Federal program will
indeed support that.
Second, the publicity and awareness and education around
the Federal program will send a very strong message. Employers
are beginning to look at, as Mr. Scott referred to, voluntary
products as they transfer costs to employees, and long-term
care bought on a group basis is very affordable.
So there is a great deal of interest, I think, in looking
by employers at this opportunity.
The Chairman. Do you have a number that you all could tag
to this potential number of people that might be involved in
purchasing this?
Ms. Boyd. Well, the population that is growing, you know,
those 65 or older, I think I mentioned was going to be 20
million in my testimony. So that is the extent. I don't think
we would expect to see that happen overnight. We saw a 40
percent increase in our own book. I think you could expect to
see that in this.
The Chairman. From your perspective as insurance people, is
there anybody who shouldn't have this insurance? I guess the
answer is probably obvious, but could you elaborate on that?
Ms. Boyd. Well, I think that like other parts of other
insurance coverages, there is always a need and there are
always different ways to solve that need. I think, again, Mr.
Scott referred to the average age as certainly most suitable
for somebody with a moderate income. But I have it, and I think
that anybody who wishes to protect their assets would want to
look at this seriously.
Mr. Scott. Mr. Chairman, I am remiss not to have a specific
number for you, but I am sure we can get some better feel for
that as time goes on here. I think the boom is quite
significant, though, and I think we are all trying to position
ourselves to take full advantage of that increase.
The Chairman. I really think it is something that would be
recommended, I mean looking at it, for people of all income
levels. If you are fortunate enough to be wealthy, you would
want to protect your assets, not have to spend them all.
Mr. Scott. Absolutely.
The Chairman. Have something to pass on to your children
and grandchildren, et cetera. If you have a moderate income,
you need it. Obviously you need it if you are very poor.
Mr. Scott. That is the way we try to counsel people when
they inquire about long-term care. Obviously we sell direct. We
don't have intermediaries representing us in the marketplace.
So when we counsel people about long-term care, we try to
stratify them basically in the way you just indicated.
If you happen to be independently wealthy or can self-
insure some of this, we still try to encourage you to protect
those assets so you can pass those assets on to your heirs and
not have them eroded by paying for long-term care--open-ended
actually, because you don't know how long you are going to be
paying for this, so you don't know what the impact will be on
your assets.
For those that are in greater need, we try to offer a more
comprehensive program where it would cover more of the risk for
them, and certainly for those that are on the lower end, we
talk about Medicaid but we still try to talk about the
importance of them buying coverage, too.
The Chairman. I would like some discussion, if I can, on
the type of long-term care that these insurance programs would
cover. As we all know, there is a huge bias toward
institutional care, which drives me crazy. You basically in the
public now get Medicaid, and Medicaid covers nursing homes.
Now, for some people a nursing home is absolutely
essential, and there are wonderful facilities that take care of
people who need 24-hour-a-day, 7-day-a-week care from an
institutional setting and with medical professionals being on
call the entire time. But there is a large number of people who
are elderly who don't need 24/7 care.
What does the Federal program cover when you say that we
will provide $150 or $100 a day benefit? What type of care and
who selects it and how does that work under the plan? Paul, do
you want to elaborate on that?
Mr. Forte. Yes. Well, the Federal program, Mr. Chairman,
will offer enrollees a wide variety of options for how they get
long-term care in the future. It will cover, of course, all
kinds of institutional care, for example, nursing care and
assisted living facilities care, and other kinds of care that
would be provided in an institution. But it will offer, we
think, an unprecedented degree of flexibility for home- and
community-based care.
I noted earlier in my remarks that this program will not
only have a generous home care benefit, but it will have an
informal care benefit that is really strong, namely, you will
be able to get a significant amount of benefit each day from
people who are non-professionals. These could be people living
in your community. They could be neighbors. They could be
friends. They could even be family members--provided that those
family members are not living in your household at the time
that you become benefit-eligible, in other words, at the time
that you submit your claim.
So you will have an opportunity to get care from people who
are known to you, with whom you are comfortable, people who may
be available, retirees, others in your neighborhood.
The Chairman. Is the Federal Government going to have a
formulary of providers that you negotiate with, say, in order
to get the price down? Or do you say anybody in assisted living
you can take your money and go into where you want to go?
Mr. Forte. We will have, through our information and
counseling service, we will make people aware of networks of
providers who are willing to offer, say, assisted living at
lower than market rates.
The Chairman. All right. When you have coverage for
prescription drugs, the providers negotiate with the suppliers
to get the best price, et cetera. Are we going to do that with
your companies? Can they pick any nursing home they want? Can
they pick any assisted living facility? Can they pick any home
health care deliverer they want?
Mr. Forte. They have total freedom to choose any facility
that they want.
The Chairman. Do you look to a point when you would
negotiate with the providers to establish formularies from a
price standpoint to say, all right, whoever is going to make
the best offer, we will cover them, but we will restrict who
you can go to?
Mr. Forte. This is something that hasn't been strictly
formalized right now, but we are in the process of discussing
that.
The Chairman. OK. How do the private companies deal with
this issue?
Ms. Boyd. Mr. Chairman, as a health company, we certainly
are able to--we also pay out a dollar amount or reimburse
services, so we do not restrict where someone can go for care.
But we are able to leverage the buying power that we have to
create discounts for them.
The Chairman. How many customers do you have in your long-
term care?
Ms. Boyd. We have 90,000.
The Chairman. 90,000?
Ms. Boyd. Yes. We would expect in the future to really
leverage that ability.
The Chairman. So if you are leveraging 90,000, you have got
a potential 20 million. Can we talk? [Laughter.]
Mr. Forte. We have every expectation that not only in terms
of the cost of services but in terms of the quality of
services, we will certainly have negotiating leverage, and we
expect that one of the things that this program is going to do
is raise the bar for all providers across----
The Chairman. I mean, you have the ability to do that. You
are going to be the largest provider of long-term care by far.
You have the ability to influence the quality of the services
as well as the price. It is not just who can do it the
cheapest. You can do it the cheapest if you do it, you know, in
your back garage somewhere and say that is a long-term
facility. But I don't think anybody would want to go there,
although it might be the cheapest. So, I mean, it is a question
of quality and price together, which I think is very, very
important.
We are trying to get as much information out there to
people to make, you know, educated decisions about where they
want to go.
Mr. Scott, how about your operation?
Mr. Scott. We operate pretty much in a similar vein.
However, we try to intercede with the participant to get them
some direction as to what the best level of care and the most
appropriate care might be for them. A little bit of the early
version of the managed care activities that we have seen.
I see this business kind of evolving over time to looking a
little bit more like managed care, where from the standpoint of
working with the participants and making sure they get the
appropriate level of care at the right type of institution, in
addition to that negotiating arrangements with those
institutions to make sure that the price is fair and you are
buying volume.
The Chairman. I take it in the private sector the insurance
enrollee can pretty much decide what facility they need to go
to.
Mr. Scott. That is correct.
The Chairman. Whether it is assisted living or whether it
is a nursing home.
Mr. Scott. That is correct.
The Chairman. You just have a blanket amount. What is the
normal--I mean, I think in the case of OPM, at least the thing
they printed out for me, daily benefits amount--under three
different plans, Plan A is $100, Plan B is $150, Plan C is $150
daily benefit amount. How does that compare to what your
policies are? Is that in the ballpark?
Ms. Boyd. Very similar.
Mr. Scott. Very similar to what we offer.
Ms. Boyd. Ours range from $150 to $300.
I would just like to make one correction point. We talked
about this buying power. From an Aetna perspective, we have 50
million health members, so it is the leverage on the health.
The Chairman. The total thing.
Ms. Boyd. So we have already proved that negotiating power,
so I think it will be very valuable.
Mr. Forte. Mr. Chairman, I would like to make one
observation. Since long-term care insurance is a relatively new
form of protection and many people who are buying the product
now may not have need of that product for many years, as Frank
was indicating earlier, we think it is very important to give
them the assurance that they are going to have an enormous
amount of control over the kind of care that they get and how
they get it.
Now, we use care coordinators who will be working with the
insured's own health care practitioner, and we will make a
number of recommendations for how that person could get care in
an optimal fashion, the best care for the best needs. But we
want to indicate--I would like to indicate that this is what we
consider patient advocacy and not gatekeeping. We are not going
to prevent people from accessing care because they do not use
providers or facilities that we have designated. This is
extremely important. I think we can all agree that in the world
of health care where there are, you know, millions of claims
each day and costs going up, that might be a necessity. We all
will use our health plan at any point. It could be today. With
long-term care, that is not desirable from a marketing or
management viewpoint.
The Chairman. Well, can you all make recommendations as to
which plan is suitable? You can, can't you?
Mr. Forte. Absolutely. We----
The Chairman. You can?
Mr. Forte. Pardon me?
The Chairman. You can.
Mr. Forte. Yes, we have----
The Chairman. I have got three choices, A, B, and C. You
can look at my situation and recommend A over B or B over C?
Mr. Forte. We will--we can certainly ask questions about
where you are living, what kind of care you might be interested
in, what kind of care we think might be appropriate for your
particular health condition, and we can make recommendations as
to how you set that benefit.
By the way, those are just three pre-packaged options. You
can buy under the early enrollment program, Mr. Chairman, up to
$300 a day on the Federal program. Under the open season, you
will have an option for an unlimited plan. There will be no
length of time that you can receive benefits, and I just
thought I would mention that since that is a little unusual
with respect to group programs. Most group programs do not
offer unlimited coverage.
What you are looking at is just sort of some pre-packaged
options to sort of help you get a read on it quickly. But you
can customize a plan by either calling our 800 line or going to
our website.
The Chairman. The $100 to $150 is just a particular
concept, it is not only features that you are offering? You can
buy $300 a day if you want it?
Mr. Forte. You could certainly buy $300 a day. I mean,
people are going to be eligible for this program all over the
world, and costs vary from place to place.
The Chairman. In the private sector, can you recommend
which is the best one for an individual?
Ms. Boyd. I think this is an important point, that long-
term care is very complex and it is not only which plan but it
is what are your circumstances. The trend certainly that we are
following is that we will profile.
The Chairman. What is the Boehner bill all about, if you
can make recommendations on what you are selling, is it just
different from retirement plans?
Mr. Forte. This is different than retirement plans. The
Boehner bill would allow us to make broader recommendations on
some of----
The Chairman. That doesn't make any sense. We have got one
standard if you are selling a retirement plan or a different
standard if you are selling a long-term health insurance as far
as what you can do with your customers?
Mr. Forte. We can make recommendations to people today on
health insurance. We have just chosen not to do that in many
ways because what we are trying to do is allow the person to
kind of walk down the path to make their own decision.
Mr. Scott. The Boehner bill is an investment advice bill,
so that is different.
The Chairman. This is advice on long-term care. It is just
as important as investments. I mean, I don't see the
distinction. It is a distinction without a difference that
companies that sell products for pension retirement cannot
advise their clients as to which one is the best. But if you
are selling long-term health care insurance, which is an
investment for the rest of your life, you can. That doesn't
make any sense, does it?
Ms. Boyd. Well, I think that what you are actually advising
on is not necessarily which facility to use, but based on your
family situation and your needs----
The Chairman. You tell them which plan best fits them. That
is advice.
Mr. Scott. Yes.
Ms. Boyd. Which plan.
The Chairman. Yes.
Mr. Scott. What we should be doing and what we do often is
walk through the person's background, what they have, what are
their assets, what are they able to afford in retirement, if
they are annuitized, like many of our participants are, how
much money do they get each year in their annuity plan, can
they afford the premium, and what is the likelihood--what is
their health history.
The Chairman. You make a recommendation.
Mr. Scott. We make--well, we will give them several
choices. We may not make a specific recommendation. We could.
We are not limited.
The Chairman. You can do that?
Mr. Scott. Yes.
Mr. Forte. We could--one of the first things I would want
to know, for example, is what part of the country you plan to
retire in and whether you think that----
The Chairman. South. [Laughter.]
Ms. Boyd. Right on.
Mr. Forte. That would be Louisiana, sir?, The Chairman.
Maybe even further south.
Obviously, if you were going to retire to a very high cost
area, like Miami Beach, you know, you are going to be looking
at a plan that is closer to $300 a day. You would want maybe
the top level daily benefit that was currently offered. Then,
of course, you would also want to think about how you were
going to adjust for inflation.
The Chairman. I understand everything you are telling me,
but the point I am trying to figure out in my own mind is why
we have Federal laws that say if you are selling a pension plan
to people, to a person, that you can present what you have to
offer but you can't recommend which aspect of it is best for
that client. If you are selling long-term care insurance to the
same client the next day, you can show him all the options and
you can recommend which one is the best for them, but you can't
do it if you are selling a pension plan. It ought to be the
same, as far as I am concerned, one way or the other.
All right. Let's go to restrictions. If I am 58 years old
and have early stages of Alzheimer's, are you going to sell me
a long-term care plan?
Mr. Forte. Mr. Chairman, each person's underwriting profile
is different, and our underwriters will take a look at your
profile. If you are already an Alzheimer's patient, it is
likely that you would not be accepted for coverage. The
application that you have in front of you, which I believe is
what we refer to as the short form----
The Chairman. You have seven questions.
Mr. Forte. It has got seven questions. Those begin by
asking you about your ability to perform certain activities of
daily living. Then it goes on to make inquiry into any one of a
number of very serious illnesses that might cause you to become
dependent in the activities of daily living and so forth.
The Chairman. If you answer any one of these----
Mr. Forte. If you answer yes to any one of those, we
recommend that you do not go any further with your application.
You should wait for the open season, at which time we may be
able to offer you something else, a non-standard policy whose
underwriting terms you could pass successfully.
The Chairman. OK. How close are we to adverse risk
selection in this?
Mr. Forte. Pardon me?
The Chairman. How close are we to adverse risk selection if
you are only going to insure people who are fairly healthy?
Mr. Forte. Well, this is not--this plan will cover people
who do not have perfect health. There are a number of health
conditions, of course, that you might have that are not on that
part of the seven questions. We will, of course, accept people
whose health is not perfect.
Take someone, for example, who has diabetes, whose diabetes
is controlled through oral medication, it was adult onset. That
person might very well be accepted for coverage. Someone, on
the other hand, who was an insulin-dependent diabetic from
childhood might be declined.
So it really depends on your situation. But to your point
about not accepting people who are currently not healthy, this
is a true insurance program. We are accepting people into the
program whose health is reasonably good. We are not accepting
people who already constitute a potential claim. In fact, the
statute expressly makes reference to the fact that this program
is not for people who will become--either are now a claim or
will become a claim almost immediately. If we were to do that,
sir, it would be almost impossible for us to offer this program
at competitive rates and to make it attractive enough to those
people who are in very good health and who would have the
option to go to an individual long-term care insurance
underwriter and get a policy for them.
The Chairman. How does it work in the private sector, Mr.
Scott?
Mr. Scott. In the group business, we have what we call
simplified underwriting, something very similar to what you
have in front of you. If we are offering to a group employer,
we ask a limited number of questions to get a sense of the
health history. Because it is group, you are going to be
spreading the risk among a larger number, so, therefore, you
can take people with a somewhat questionable health history
because you assume you will have healthier people.
On the individual side, we have a much more extensive
health care questionnaire where we ask detailed questions about
the person's history and background and then make an
underwriting decision based upon how they answer those
questions.
The Chairman. How many people do you think that currently
are applying for long-term health care insurance are denied
access to it because of pre-existing conditions?
Mr. Scott. About 10 percent. That is our number. Our number
is about 10 percent.
The Chairman. Ms. Boyd.
Ms. Boyd. I mostly would agree with that, yes.
The Chairman. About 10 percent?
Mr. Forte. Mr. Chairman, that is also true on the group
side, about 10 percent, particularly for actively--on the
retiree side, it could be a little higher.
The Chairman. OK. A final point. What--maybe two points.
What would be the optimum age, if there is one, for someone to
purchase these packages? Is there an optimum age, best age?
Mr. Forte. I am not sure that there is an optimum age. I
would say that if you are approaching age 50 and you haven't
yet purchased long-term care, you really ought to give it very
serious thought because you are close to retirement, because at
that age, actuarially, your risk of contracting some kind of
illness goes up fairly significantly.
The Chairman. Your thoughts?
Ms. Boyd. In the employer market, I would say average age,
about 35 to 40 would be a very good age.
The Chairman. 35?
Ms. Boyd. Yes. The earlier that you purchase, the cheaper
and more affordable the product is going to be. Although you
would be accumulating over a long period of time, you still
would be paying in a lot less than you would have to pay out.
Remember also that the need for long-term care is not just an
elderly issue. You can have a need for long-term care at any
time in life. There are as many people under the age of 65 in
need of long-term care or in nursing homes as there are over.
The Chairman. Could something like what we are offering
here in the private sector be a way to provide this type of
coverage to Medicare patients through the Medicare program with
the Government paying a portion of the premium? Could it be
adaptable to that? Mr. Forte?
Mr. Forte. I am not sure I understand the question, Mr.
Chairman. Are you asking----
The Chairman. Medicare doesn't cover long-term care, and,
you know, I am thinking about trying to see--there is a big
debate on adding prescription drug coverage to Medicare, and
many of us are fighting for a private delivery system of
prescription drugs instead of having a micromanaged, top-to-
bottom, federally run, federally fixed prices on prescription
drugs, to do it through an insurance program. If we were to
want to add long-term care to Medicare, couldn't we just
incorporate this type of delivery system as a portion of
Medicare, have the Government pay a portion of the premium?
Mr. Scott. That is a good question. I really haven't
thought about that. I am not sure. I would have to take a
little bit of time to think about it.
I guess funding would be an issue and how you would
underwrite that would be two issues that come to mind that
could be problematic.
The Chairman. Well, the way this would work would be the
Medicare program would just do what OPM did, do a request for
proposals from various providers and select one or several that
we would make part of the Medicare program; and a Medicare
recipient would pay a portion of the premium, the Federal
Government would pay a portion of the premium, and private
companies would deliver the product. Most of the people that
you are going to be selling this to are Medicare-eligible. They
just won't get it through the Medicare program.
Mr. Scott. That is correct.
The Chairman. This is like a Medigap add-on, what we are
talking about here. I would just like to make it part of
Medicare itself. I think Medicare should cover prescription
drugs. Medicare should cover long-term health care. If we are
going to have a program that takes care of seniors' health
needs, obviously prescription drugs is one of them. Also,
obviously, long-term care is another. Yet Medicare doesn't
cover either one of them. You know, we have got a program that
is frozen in the 1960's. What was needed in the 1960's is not
what the priorities are in the year 2002.
Mr. Scott. Again, not having given this a lot of thought,
but the only thing I can--another item that I think might be
problematic is the fact that people might wait now until they
are Medicare-eligible and then assume it is going to get paid
for and not buy long-term care insurance and then increase the
burden of Medicare disproportionate to what you might think it
would be initially.
You know, one of the nice things with that--``nice'' maybe
is not the best term--is that because Medicaid and Medicare
don't pay for this, we have a better opportunity to try to
educate people about the need to do this earlier in their lives
and to pay for it now. If you eliminate that, then we put a lot
more pressure on all of us to educate people about the
importance of doing it early.
The Chairman. Well, this has been very, very helpful. I
think we have made a good record for what you all are
attempting to do. I congratulate OPM for moving aggressively in
this area, for the companies that have participated in the
joint venture. I think that getting this information out will
be a lot easier now that you have got a potential target of 20
million people who are Federal employees and their families
that will be able to benefit from it. I think that will be
helpful to the private sector because more people will know
about it who are not Federal employees.
I just think this is a huge, huge potential area that we
are going to be moving into in the future because it is
absolutely essential and necessary, and I think we have got
some positive things that are happening in regard to this.
With that, this will conclude our hearing. We thank you all
very much for being with us.
[Whereupon, at 11:01 a.m., the committee was adjourned.]
A P P E N D I X
----------
Prepared Statement of Senator Debbie Stabenow
Chairman Breaux and Senator Craig, thank you for holding
today's hearing on ``Offering Retirement Security to the
Federal Family--the Long Term Care Initiative.'' As a member of
the Budget Committee, and a strong supporter of many health
care and senior programs, I think it is critically important
that we not only examine these issues but also celebrate
success.
For the first time, approximately 20 million members of the
Federal family--federal and postal service employees and
annuitants, members and retired members of the uniformed
services and qualified family members--can apply for federally-
sponsored long term care insurance. This benefit was created
under the Long-Term Care Security Act, Public Law 106-265,
which was enacted in September of 2000.
One of the greatest threats facing older people and their
families today may be the financial, social, psychological and
family consequences of needing long term care. Long term
personal or ``custodial'' care is not covered by most health
care programs, including the Federal Employees Health Benefit
Program and TRICARE. In making this important long term care
insurance program available, OPM has worked carefully to ensure
the insurance coverage offers the kinds of benefits and
features that would be most beneficial to members of the
federal family. This includes key benefits for care in the
home, care in nursing homes, in assisted living facilities and
a variety of other facilities.
According to statistics reported by OPM, six out of every
ten Americans who reach the age of 65 will need long term care
services. In addition, 40 percent of people receiving long term
care today are between the ages of 18 and 64. This points up
the importance of long term care insurance not only for older
Americans, but for our population in general. Data indicates
that long term care insurance is as necessary as homeowner's,
automobile or medical insurance.
An example of how important it is recently came up in terms
of the Farm Bill. While the Farm Bill terminates certain
federal appointments of Extension Service employees, it retains
eligibility for some specific federal benefits, such as the
Federal Employees Health Benefits Program, the Federal Employee
Group Life Insurance Program and the Civil Service Retirement
System.
Some constituents contacted me and told me that they had
concerns about the Farm Bill because it did not include the
federal long term care benefit on the list of programs these
people would continue to be eligible for. While chances are
that, by virtue of their continued eligibility for the Federal
Employees Health Benefit Program, these individuals may have
been determined to be eligible for the long term care benefit,
I was advised by OPM to specifically add language to the Farm
Bill to ensure that this benefit was explicitly available to
these employees. I am currently working with my Agriculture
Committee colleagues during conference negotiations on the Farm
Bill to make sure long term care insurance is added to the list
of benefits. It will not cost the federal government any money,
but will provide a very important benefit to members of the
federal family.
I look forward to hearing from all of our witnesses today.
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