[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
LONG TERM CARE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
APRIL 19, 2005
__________
Serial No. 109-46
__________
Printed for the use of the Committee on Ways and Means
_____
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
E. CLAY SHAW, JR., Florida CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York
ROB PORTMAN, Ohio WILLIAM J. JEFFERSON, Louisiana
PHIL ENGLISH, Pennsylvania JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona XAVIER BECERRA, California
JERRY WELLER, Illinois LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri EARL POMEROY, North Dakota
SCOTT MCINNIS, Colorado STEPHANIE TUBBS JONES, Ohio
RON LEWIS, Kentucky MIKE THOMPSON, California
MARK FOLEY, Florida JOHN B. LARSON, Connecticut
KEVIN BRADY, Texas RAHM EMANUEL, Illinois
THOMAS M. REYNOLDS, New York
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
SUBCOMMITTEE ON HEALTH
NANCY L. JOHNSON, Connecticut, Chairman
JIM MCCRERY, Louisiana FORTNEY PETE STARK, California
SAM JOHNSON, Texas JOHN LEWIS, Georgia
DAVE CAMP, Michigan LLOYD DOGGETT, Texas
JIM RAMSTAD, Minnesota MIKE THOMPSON, California
PHIL ENGLISH, Pennsylvania RAHM EMANUEL, Illinois
J.D. HAYWORTH, Arizona
KENNY C. HULSHOF, Missouri
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C O N T E N T S
__________
Page
Advisory of April 12, 2005, announcing the hearing............... 2
WITNESSES
Congressional Budget Office, Douglas Holtz-Eakin, Ph.D........... 7
______
University of Texas, Health Science Center at San Antonio, San
Antonio, Texas, Meghan Gerety, M.D............................. 31
Genworth Financial, Buck Stinson................................. 38
George Mason University, Center for Health Policy, Research and
Ethics, Arlington, Virginia, Mark R. Meiners, Ph.D............. 44
Lutheran Homes of Michigan, Frankemuth, Michigan, David M. Gehm.. 51
Georgetown Public Policy Institute, Judy Feder, Ph.D............. 55
SUBMISSIONS FOR THE RECORD
American Council of Life Insurers, Alane Dent, statement......... 72
Americans for Long Term Security, Laura Howard, statement........ 76
American Health Care Association, Hal Daub, statement............ 76
American Network of Community Options and Resources, Alexandria,
Virginia, Suellan Galbraith, statement......................... 79
Council for Affordable Health Insurance, Alexandria, Virginia,
Merrill Matthews, statement.................................... 84
Hometown Insurers, Inc., Saint Petersburg, Florida, Barbara
Haseldon, statement............................................ 90
LONG TERM CARE
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TUESDAY, APRIL 19, 2005
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 4:19 p.m., in
room 1100, Longworth House Office Building, Hon. Nancy L.
Johnson (Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
April 12, 2005
No. HL-5
Johnson Announces Hearing on Long Term Care
Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on
Health of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on long term care. The hearing will
take place on Tuesday, April 19, 2005, in the main Committee hearing
room, 1100 Longworth House Office Building, beginning at 4:30 p.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include officials from the Congressional Budget Office
(CBO) and representatives from the provider and insurer communities.
However, any individual or organization not scheduled for an oral
appearance may submit a written statement for consideration by the
Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
As our society ages, the question of how we finance long term care
services will become even more pressing. About 9 million adults
currently receive long term care assistance, either in community
settings or in nursing homes. Over 80 percent of those adults reside in
the community, not in institutions. Among those 85 and older, about 55
percent require long term care assistance. Nearly 60 percent of elderly
persons receiving long term care assistance rely exclusively on unpaid
caregivers, primarily children and spouses. Only 7 percent of the
elderly rely exclusively on paid services.
In 2004, according to CBO, approximately $135 billion was spent on
long term care for the elderly. Sixty percent of this amount was
financed through Medicaid and Medicare, one third through out-of-pocket
payments, and the remainder by other programs and private insurance.
This funding excludes the significant resources devoted to long term
care by informal caregivers (primarily spouses and children). The CBO
estimates that informal care is the largest single component of long
term care.
In announcing the hearing, Chairman Johnson stated, ``As the Baby
Boom generation ages, increasing strain will be placed on our system of
long term care. We must find new and innovative ways to encourage
individuals to prepare for their long term care needs. It is important
for us to develop a thorough understanding of how the current system is
financed, how care is delivered, and what challenges we face in helping
individuals plan for their long term care needs.''
FOCUS OF THE HEARING:
The hearing will focus on current financing for long term care
services; the range of services available in the continuum of care from
home- and community-based services to nursing home care; private long
term care insurance options, including the Long Term Care Partnership
programs; and the challenges ahead in financing needed services for an
aging population.
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noted above.
Chairman JOHNSON OF CONNECTICUT. Good afternoon, everyone.
Today I am pleased to Chair this hearing on long-term care. The
issues surrounding long-term care, how to prepare for it, how
it is delivered, how it is financed, will become ever more
pressing as the baby-boom generation retires. As a result we
must find new and innovative ways to encourage people to
prepare for their long-term care needs as part of the broader
examination of retirement security. Some of you may be
surprised to learn that long-term care is not just
institutional care, but encompasses a whole range of services.
According to the Congressional Budget Office, about 9 million
adults over the age of 18 currently receive long-term care
assistance, with more than 80 percent receiving care in the
community, not in institutions. Among those 85 and older, about
half, 55 percent, require long-term care. Informal unpaid care
by children and spouses is a critical component of long-term
care. More than half of elderly persons receiving long-term
care assistance rely exclusively on unpaid care givers, while
only 7 percent of the elderly rely exclusively on paid
services. The Congressional Budget Office (CBO) estimates that
informal care is the largest single component of long-term
care, and as we move forward in consideration of this subject
and what the public policy ought to be in regard to long-term
care, I believe we absolutely must never lose sight of the fact
that informal care is the largest single component of long-term
care.
Thus, as we consider this issue, we must consider the
impact not only on public and private finances, but on families
and communities. The formal financing of long-term care to date
has fallen largely on the public sector, primarily Medicare and
Medicaid. CBO estimates these two programs financed 60 percent
of formal long-term care spending on the elderly in 2004.
Nearly one-third of our Medicaid benefit spending goes for
long-term care services, and three-quarters of that one-third
is spent for beneficiaries who are dually eligible for both
Medicare and Medicaid. Thus, the interrelationship between
these two streams of financing must be considered when looking
at this issue. Most of the remainder of formal financing for
long-term care is made up through out-of-pocket payments by
beneficiaries themselves. To date, private long-term care
insurance has not played a significant role in financing long-
term care. For many years now, I have sought to draw attention
to the issue of long-term care and the burden it places on
individuals and families by introducing legislation to provide
tax incentives for the purchase of private insurance and to
provide relief for family care givers. Although sales of
private long-term care insurance are increasing, it still
covers a small portion of the population and, therefore, a
small portion of overall long-term care costs. Without a
significant change in the market for private insurance or in
the product itself, the burden of long-term care costs is
likely to continue to fall largely on the public sector and on
families. Ironically, the very existence of public sector
programs serves as a disincentive to some individuals to
purchase private insurance and will reduce the drive for
greater innovation in private insurance products. Thus, as we
move forward in examining the issue, we need to consider the
interplay of public and private financing and the incentives
created by each in order to develop a comprehensive solution
for the long-term care system.
I am pleased to have an outstanding array of witnesses here
today to help us lay the foundation of knowledge necessary to
understand the current state of long-term care and the changes
we face in the future. We will begin by hearing from Douglas
Holtz-Eakin, the Director of the Congressional Budget Office.
Dr. Holtz-Eakin will provide us with an overview of long-term
care financing, an update on the report CBO did last year on
long-term care financing for the elderly. And our second panel
will begin with Dr. Gerety. Dr. Gerety is President of the
American Geriatric Association and will provide a broad
overview of demographic and aging trends, how the baby boomers
will change the long-term care system, and how the industry
will need to respond to meet increased long-term care needs.
Buck Stinson, President of the Genworth Financial's Long-Tterm
Care Division, will provide us with a view from the private
insurance market. Genworth is the longest-tenured provider of
long-term care insurance in the United States and is the
largest provider of individually purchased long-term care
insurance. Mark Meiners, professor and director of the Center
for Health Policy, Research, and Ethics at George Mason
University, has done extensive research on long-term care and
directed the Robert Wood Johnson grant for the Long-Term Care
Partnerships. Dr. Meiners will discuss the partnership programs
and issues arising from the interrelationship between Medicare
and Medicaid in long-term care financing. David Gehm, President
and chief executive officer of the Lutheran Homes of Michigan,
will give us a provider's perspective by discussing the full
continuum of long-term care services that are available today,
including institutional and home- and community-based services,
along with the challenges care providers face in navigating
various financing mechanisms. And, finally, we will hear from
Judy Feder, Dean of the Georgetown Public Policy Institute. Dr.
Feder will discuss the Georgetown Long-Term Care Project that
she is co-directing, which has issued seven background papers
and is currently in the process of reviewing a wide range of
proposals for long-term care financing, and whose report we
look forward to reviewing when it is published in, I hope, the
not-too-distant future.
This hearing will lay the foundation of knowledge that this
Committee needs to consider the enormous challenge of long-term
care for the baby-boom generation. But I hope this hearing will
also be followed by those of you who know about small,
significant expandings where improvements are being made, where
new thoughts are being played out, and I hope to have some
futurists meet with our Committee to clearly elucidate how
current changes in medical science and those we can conceive of
will affect in 10 years or 20 years the nature of the long-term
care needs of our seniors and the structure of services that
they may need. I believe this is a very important hearing for
the Members of the Committee. It may in the end prove to be as
far as we can go. But it should be a beginning. In other
Congresses it has been an end. So, I thank those who are
testifying today, and I hope as they listen to each other and
as others listen to this hearing that you will consider this a
beginning, because I do not believe we know how to provide
long-term care services for the size population that is going
to need them in 10 years, and even more so in 20 years. And if
we do not begin to get ourselves more focused, realistic, and
profoundly knowledgeable about this, we will not be able to
adjust policies to begin to prepare for the future. So, with
that much introduction, let me yield to my colleague and
friend, Mr. Stark.
Mr. STARK. Thank you, Madam Chair. Today's hearing on long-
term care addresses a problem that is important and complex,
and like you, I hope that this may be the first in a series of
hearings that might lead to some action, although it seems to
me Dr. Feder and I will be able to remember the Pepper
Commission of some years back. And I think we went through this
once before.
Chairman Thomas has said that he thinks long-term care
should be part of the discussion on Social Security, and so
perhaps it is time to revisit the issue and look into a variety
of options. Medicare and Medicaid probably combine to be the
largest payer for long-term care services in the United States,
and if non-paid care is factored in, then individuals and their
families and friends clearly have their greatest burden. But I
think we have to remember that our family structures, as when
we were children most women did not work outside the household,
and now it seems with the ability for the nuclear families to
disperse geographically, we lack the neighborhood cohesiveness
of the family structure that often provided bed and board for
Grandpa or Grandma by all the relatives in the neighborhood.
And that is changing. So, I guess my question would be: Could
we determine what the Government role should be in the years
ahead? I personally think that long-term care is the poster
child and few benefits are better suited for social insurance.
It to me is the classic problem. Everyone might need it. Only
some actually do need it. It is probably actuarially impossible
to determine within age groups who is apt to need it. The
expense can bankrupt the family, even though our bankruptcy
bill did not do much to address that. It should be a program,
in my opinion, into which everyone pays a small amount and
everyone might or may benefit. In addition, I suppose a social
benefit for long-term care could relieve some of the Medicaid
pressures on the States, and, of course, that would be welcome
today.
So, I think there is a strong case that can be made that
this should be social insurance. The tax incentives for private
insurance I think are a weaker case. The private market is
flawed, it is failing. Without non-forfeiture protection, most
people are better off playing the slot machine or the office
baseball pool than they are buying private long-term care
insurance. But it is fine with me if people who can afford it
want to buy it and it supplements a core benefit. That would be
all right, I suppose, but I do not think that we should offer
tax incentives to purchase the insurance. That is throwing
billions of dollars at a flawed product which the market has
rejected. So, if we really believe in the marketplace, let's
let it work. To contemplate spending tax money when we are
poised to cut Medicaid really seems like we would be setting up
robbing me to pay Paul, and I think that is unwise. So, if we
can really engage in the issue of what the government role
should be, what the benefits should be for every American, we
might reopen that dialog of 15 or 20 years ago when we nibbled
around the edges of it. When we were in the majority, we had
not much luck, so maybe it is your turn. Thank you, Madam
Chair.
Chairman JOHNSON OF CONNECTICUT. I would just remind you, I
answered that Commission that Congressman Baird chaired and how
many times we wrote bills to provide prescription drugs for
seniors and how long it finally took us to do it. I think the
time has come for us to really sink our teeth into the
challenge of long-term care that the retirement of the baby-
boom generation poses to Americans. So, I welcome you all here
today. I am very pleased and I want to congratulate the
Committee Members for coming in early to attend this hearing. I
appreciate your doing it because it is hard in the very busy
days that we have in Washington to get such attendance. So,
thank you very much for making it your business to be here. Dr.
Holtz-Eakin?
STATEMENT OF DOUGLAS HOLTZ-EAKIN, PH.D., DIRECTOR,
CONGRESSIONAL BUDGET OFFICE
Mr. HOLTZ-EAKIN. Chairman Johnson, Congressman Stark, and
Members of the Committee, the Congressional Budget Office
thanks you for the opportunity to be here today. As the
Chairman mentioned in her opening remarks, we did produce a
report in this area last year. We have submitted a written
summary of that with an update as our written testimony. I will
devote my opening remarks to four points regarding that report.
Number one, with the aging of the baby-boom generation, the
United States will likely face rising demands for long-term
care services. Number two, the corresponding resource demands
will rise above their already substantial levels. Currently,
these are about 2 percent of gross domestic product, something
that is in the neighborhood of $25,000 per senior with
impairments. Distributing the burden for this care is a key
aspect of both the policy design and the long-term budget
outlook.
And, finally, the fourth point is that currently financing
is heavily influenced by rules that discourage people from
making their own financial preparations. Left unchanged, those
incentives will add to the financial demands for other
Government programs in the face of rising demographic changes
and rising health care costs. And so this problem must be
addressed within the context of these other demands. So, I
thought I would sketch the aspects of this problem. The aspects
are familiar to this audience because you are familiar with
health care programs, and they always break into two parts:
what will be the costs and how will those costs be financed.
The future costs of care are driven largely by demographics.
Our baseline projections suggest that the costs will rise over
the next four decades from about 2 percent of GDP to 2.3
percent of GDP. That is a rise of about 15 percent. It is
something that does not look as large as the roughly 50-percent
rise of Social Security benefits under current law, but it is
quite significant. It is driven by the rising share of the
population that is the oldest old. The share that is 85 or
older is going to more than triple from 1.5 percent to 5
percent by 2050. That group is the very dark line at the bottom
of that chart that I am showing you.
But our assumption that costs rise by that much assumes
that we get continued improvement in the incidence of
impairment among the people in this population. Impairment has
declined at about 6 percent per decade over the 20th century.
In the absence of that kind of improvement, costs could grow by
65 percent and rise to 3.3 percent of GDP. So, it seems clear
that there will be rising demands for resources in this area
and that the risks are largely on the upside if we fail to see
continued improvements in impairment. Now, what will be the
sources of financing for this care? A good starting point is
the current allocation of spending and how it is financed in
the United States. As the Chairman mentioned in her opening
remarks, of the roughly $25,000 per impaired senior, private,
non-market-donated care forms the vast majority. It is about
$9,000. It is the largest. It is extremely difficult to value.
The aggregate estimates range from $50 billion to $200 billion.
We include it in our estimates because it is clearly a very
important aspect of the current financing of long-term care. A
figure of that is in our report where over 50 percent--51
percent of highly impaired individuals rely exclusively on
informal care for their long-term care services.
Going forward, the demographics may affect the supply of
this kind of care as well as the demand. As Congressman Stark
mentioned, the demographics will affect both total family sizes
and also the availability of care givers given labor force
participation of women and divorce. Moving to the other sources
in the private sector, self-insured or out-of-pocket care is
about $5,000, and the key issue here is the degree to which
individuals will accumulate more in personal saving than they
do at the moment. It is unlikely that all but a significant
minority could afford to face long-term care expenses of any
magnitude by relying on this source. Private market long-term
care insurance is a small aspect of the financing at the
moment. Under 10 percent of people have policies, and this low
utilization is one of the striking features of the current
market. Instead, the vast majority comes in Medicare and
Medicaid, as mentioned at the outset, and these public programs
are bearing the largest fraction of the non-donated care.
So, going forward, what issues will remain? Well, first,
the larger budget context suggests that dollars will be scarce.
I don't have to repeat the litany of financial demands that
will be placed under current law. It will be the case that
Federal dollars will be scarce and need to be used wisely. This
will require balancing the programs as they stand, balancing
home- and community-based care versus nursing homes and
Medicaid; balancing Medicaid versus Medicare, which has become
a de facto long-term care program. Or it may involve limiting
those Federal programs by revising income and asset tests in
Medicaid, by providing more cost sharing in Medicare. Or it
could take the form of encouraging a greater reliance for those
who can use long-term care insurance provided by the private
sector.
The current low rates of utilization beg for an
explanation. A variety have been offered. High administrative
costs and the potential for adverse selection lead some to
believe that the policies are simply so unfavorable as to be
unwise to take up. Alternatively, it could be that premium
instability and the difficulty of insuring against large health
care cost shocks is underneath the problem. Or other research
suggests that some policies do look to be at least actuarially
fair, particularly for women, and the still low rates of take-
up are indicative of other sources being available, be they
private sources or public insurance programs, Medicaid and
perhaps Medicare. In any event, going forward, rebalancing this
mix to make sure that the dollars are used in the most
appropriate fashion is a pressing policy problem. The only good
news that I can offer to this group on this front is in the
demographics, where in contrast to most of the programs which
rise with the top line as people reach 65 and older, the
largest incidence of impairment is with the bottom line, those
85 and older. To the extent the public policies can be molded
and put in place, we have a bit more time for people to adjust
and for the budget to take advantage of those new policies. I
thank you for the chance to be here, and I look forward to your
questions.
[The prepared statement of Mr. Holtz-Eakin follows:]
Statement of Douglas Holtz-Eakin, Ph.D., Director, Congressional Budget
Office
Chairman Johnson and Members of the Subcommittee, thank you for the
opportunity to be here today to discuss the cost and financing of long-
term care (LTC) services. A Congressional Budget Office (CBO) report
from April 2004, Financing Long-Term Care for the Elderly, examines
these issues in greater detail. Long-term care is the personal
assistance that enables people with impairments to perform daily
routines such as eating, bathing, and dressing. Such services may be
provided at home by family members and friends; through home and
community-based services such as home health care, personal care, and
adult day care; or in institutional settings such as nursing or
residential care facilities.
In my statement today I want to make the following points:
With the aging of the baby-boom generation, the United
States' elderly population is expected to grow rapidly over the next
several decades. The surge in the number of seniors will increase the
number of people with impairments and, in turn, the demand for long-
term care services.
The resources devoted to long-term care services are
already substantial. CBO estimates that spending on such care for the
elderly (including the value of donated care) totaled over $200 billion
in 2004--or approximately $24,000 per senior with impairments. In
reporting estimates of LTC spending, CBO chose to include the value of
donated care because it is an integral part of long-term care, even
though measuring it accurately is difficult.
Currently, donated care is the largest source of
financing for long-term care costs, followed by the combined public
programs--Medicaid and Medicare--and out-of-pocket expenditures.
Private long-term care insurance is a small portion of the current
financing.
Financing patterns for long-term care are heavily
influenced by the rules governing public LTC programs. Those rules
create incentives that discourage people from making their own
financial preparations and encourage them to rely on government
assistance. If left unchanged, those incentives will add to the
financial demands that government programs for retirees are already
facing as a result of demographic changes and rising health care costs.
Demographic Trends
The oldest members of the baby-boom generation become eligible for
early retirement under Social Security in 2008. According to estimates
by the Bureau of the Census, the number of elderly people (those age 65
and older) in the United States will increase by two and a half times
between 2000 and 2050. The share of the population claimed by the
oldest seniors, those age 85 and older--and those most likely to use
long-term care--will reach about 5 percent by 2050, more than triple
the 1.5 percent share they had in 2000 (see Figure 1). By comparison,
the proportion of the population accounted for by working-age people
(ages 20 to 64) will grow by only about 35 percent by 2050.
Figure 1. People Age 65 and Older as a Share of the U.S. Population,
Selected Years from 1900 to 2050
(Percent)
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: Congressional Budget Office based on Bureau of the Census,
U.S. Interim Projections by Age, Sex, Race, and Hispanic Origin, Table
2a, ``Projected Population of the United States, by Age and Sex: 2000
to 2050'' (March 2004), available at www.census.gov/ipc/www/
usinterimproj/natprojtab02a.pdf.
Although the number of the oldest seniors will rise, declines in
the prevalence of functional impairment could offset some of the
effects of that increase. Impairment among seniors appears to have
waned significantly during the 20th century. From 1910 to the early
1990s, the overall prevalence fell by about 6 percent per decade. From
the early 1980s to the present, the prevalence of impairment may have
fallen even faster, according to research findings from the National
Long-Term Care Survey. In contrast, some types of impairment, such as
those requiring the use of a cane to walk, have been increasing.
Impairment among people under age 65 may also be increasing, which
could eventually lead to higher future rates of impairment among
seniors. In fact, one recent study projects that the currently
declining trend in the prevalence of impairment among seniors will
reverse in the future, leading to greater rates of institutionalization
than those that exist today.\1\ As those conflicting trends suggest,
projecting the prevalence of impairment in future years and basing
estimates of spending on those projections are both difficult and
subject to a high degree of uncertainty.
---------------------------------------------------------------------------
\1\ Darius Lakdawalla and others, ``Forecasting the Nursing Home
Population,'' Medical Care, vol. 41, no. 1 (2003), pp. 8-20.
---------------------------------------------------------------------------
Demographic changes may affect the composition of LTC financing in
the future as well. Smaller families, lower fertility rates, and
increasing divorce rates may make donated LTC services less common in
the future. The size of the average family has declined, reducing the
number of adult children available to care for their elderly parents.
Family size fell from 3.8 members in 1940 to 3.1 members in 2000; if
current trends continue, it will decline to 2.8 people by 2040. At the
same time, the rate at which women participate in the labor force will
probably continue to grow, at least until 2010, further reducing the
availability of donated care. Those family-related trends, in sum,
could further stimulate the demand for formal, or paid, services.
Sources of Long-Term Care Financing
Long-term care is financed with both private resources and public
programs (see Figure 2). Private resources include donated care, out-
of-pocket spending, and private insurance. Public programs include
primarily Medicaid and Medicare, although the Department of Veterans
Affairs and the Social Services Block Grant program also fund long-term
care.
Figure 2. Estimated Shares of Spending on Long-Term Care for the
Elderly, 2004
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: Congressional Budget Office.
Private Sources
Most seniors with impairments who reside in the community,
including those with severe impairments (unable to perform at least
four activities of daily living, or ADLs), rely largely on donated care
from friends and family. And many people who pay for care in their home
also rely on some donated services.
The economic value of donated care is significant, although
estimates of it are highly uncertain. In 1998, the Department of Health
and Human Services estimated that replacing donated LTC services for
seniors with professional care would cost between $50 billion and $103
billion (in 2004 dollars). Another analysis, in 1997, estimated the
value of donated care for people of all ages who had impairments--
measuring it as the forgone wages of caregivers--at $218 billion.\2\
---------------------------------------------------------------------------
\2\ Peter S. Arno, Carol Levine, and Margaret M. Memmott, ``The
Economic Value of Informal Caregiving,'' Health Affairs, vol. 18, no. 2
(1999), pp. 182-188. CBO converted their estimate of $196 billion in
1997 dollars to $218 billion in 2004 dollars.
---------------------------------------------------------------------------
Out-of-pocket spending in 2004 accounted for about one-fifth of
total LTC expenditures, or roughly $5,000 per senior with impairments
(see Table 1). The federal government subsidizes a portion of out-of-
pocket spending through the tax code. Taxpayers with impairments (or
taxpayers who have dependents with impairments) may deduct LTC expenses
from taxable income along with other medical and dental costs, but only
the portion of total medical costs (LTC, medical, and dental expenses)
that exceeds 7.5 percent of adjusted gross income.
Table 1. Long-Term Care Expenditures for the Elderly, by Source of
Payment, 2004
(Billions of dollars)
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: Congressional Budget Office.
Notes: Donated care is measured as the cost of replacing that care
with professional services.
Numbers may not add up to totals because of rounding.
a. Includes local public programs, minor federal spending,
charity care, and so forth.
Private insurance for long-term care is a relatively recent
development and pays for only a small amount of care at present. Few
elderly people currently have private coverage--no more than 10
percent.\3\ However, that source of financing is growing--although the
precise extent of the growth is difficult to measure accurately. The
data on private LTC insurance generally capture payments that insurers
make directly to providers but do not always pick up insurers'
reimbursements to policyholders for covered services that policyholders
initially pay for out of pocket. Thus, estimates of LTC insurance
payments--and of out-of-pocket spending--should be interpreted with
caution because the former may be underestimated and the latter
overestimated.
---------------------------------------------------------------------------
\3\ Jeffrey R. Brown and Amy Finkelstein, The Interaction of Public
and Private Insurance: Medicaid and the Long-Term Care Insurance
Market, Working Paper No. 10989 (Cambridge, Mass.: National Bureau of
Economic Research, December 2004).
---------------------------------------------------------------------------
In 1995, private insurance paid about $700 million for LTC services
for seniors, or 0.8 percent of all such expenditures. In 2004, such
spending totaled about $6 billion, CBO estimates, or about 3 percent of
total expenditures. According to America's Health Insurance Plans, the
number of policies written yearly increased from about 300,000 in 1988
to more than 900,000 in 2002 (see Figure 3). About 9.2 million policies
were sold from 1987 through 2002; roughly 72 percent of them are still
in force.
Figure 3. Annual Number of Policies of Private Long-Term Care Insurance
Sold, 1988 to 2002
(Thousands)
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: America's Health Insurance Plans, Research Findings: Long-
Term Care Insurance in 2002 (Washington, D.C.: AHIP, June 2004), p. 15.
A typical LTC insurance policy pays the cost of nursing home care
and home and community-based care but specifies a maximum daily benefit
(such as $100 or $150) and may impose other limits. Policies with so-
called inflation protection increase the dollar value of their benefits
by a contractually specified percentage each year, usually 5 percent.
Although some policies offer coverage for an unlimited period, most
commonly cover services for a shorter time, such as four years, or
until benefit payments for a policyholder reach a preestablished
maximum lifetime amount. Policyholders typically become eligible to
collect benefits when they reach a specific minimum level of
impairment, usually defined as being unable to perform two or three
ADLs or having a cognitive impairment significant enough to warrant
substantial supervision.
Premiums for LTC insurance reflect the cost of services and the
risk that policyholders will require long-term care as they age. In
2002, the average annual premium for a typical policy with no inflation
protection or nonforfeiture benefit was $1,337 if the policy was
purchased at age 65; with those two added features, the premium rose to
$2,862. Premiums were three to four times higher if the policy was
purchased at age 79 (see Table 2). The lower premiums offered to
younger people reflect the lower risk of their requiring LTC services
at younger ages and the expectation that younger policyholders will pay
premiums over a longer period than will people who purchase coverage
when they are older. Thus, the average annual premium for the same
policy with inflation protection and a nonforfeiture benefit purchased
by a 40-year-old would be only $1,117 and by a 50-year-old, $1,474.
Table 2. Average Annual Premiums for Long-Term Care Insurance, 2002
(Dollars)
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: America's Health Insurance Plans, Research Findings: Long-
Term Care Insurance in 2002 (Washington, D.C.: AHIP, June 2004), p. 32.
Note: These premiums are for policies offering a $150 daily benefit
for four years of coverage and a 90-day elimination period.
In fact, fixed premiums are a key feature of LTC insurance
policies--that is, the premiums do not increase as the policyholder
grows older or as his or her health deteriorates, even though the risk
of requiring services rises. Instead, insurers calculate premiums to
ensure that the premiums' total, paid over the life of a policy, plus
the interest that accrues from investing them will be sufficient to
cover both the claims of the policyholder and insurers' profits and
overhead costs. However, insurers reserve the right to increase
premiums for a specific group, or rating class, of policyholders--such
as all policyholders in a state--if new data indicate that expected
claims will exceed the class's accumulated premiums and their
associated investment returns.
Government Programs
Medicaid is the biggest government source of payment for long-term
care. Jointly funded by the federal and state governments, Medicaid is
a means-tested program that pays for medical care for certain groups of
people, including seniors with impairments who have low income or whose
medical and long-term care expenses are high enough that they allow
those seniors to meet Medicaid's criteria for financial eligibility.
Within broad federal guidelines, the states establish eligibility
standards; determine the type, amount, duration, and scope of services;
set the rate of payment; and administer their own programs. The share
of each state's Medicaid expenditures that is paid by the federal
government is determined by a statutory formula; nationwide, the
federal share of the long-term care portion of Medicaid spending is
about 56 percent.
Medicaid generally pays for services provided both in nursing
facilities and in the home, although the specific benefits that the
program provides differ from state to state, as do patterns of
practice, the needs and preferences of beneficiaries, and the prices of
services. In total, Medicaid's expenditures for long-term care for
elderly people since 1992 have grown at an average annual rate of about
5 percent (see Figure 4). CBO estimates that in 2004, Medicaid's
payments for institutional care for seniors, including both state and
federal expenditures, totaled about $36.5 billion. Accounting for about
40 percent of total expenditures on nursing facilities, Medicaid's
payments cover the care of more than half of all elderly nursing home
residents.\4\
---------------------------------------------------------------------------
\4\ See Celia S. Gabrel, Characteristics of Elderly Nursing Home
Current Residents and Discharges: Data from the 1997 National Nursing
Home Survey, Advance Data no. 312 (Centers for Disease Control and
Prevention, National Center for Health Statistics, April 25, 2000). The
disparity between Medicaid's share of total spending on nursing
facilities (40 percent) and the proportion of patients covered by
Medicaid (56 percent) may result from one or more factors: Medicaid's
low average reimbursement rates; differences between the severity of
Medicaid enrollees' conditions and the conditions of patients using
other sources of payment; and enrollees' cost sharing, which counts as
out-of-pocket spending.
---------------------------------------------------------------------------
Figure 4. Medicaid Long-Term Care Expenditures for Elderly
Beneficiaries, Fiscal Years 1992 to 2004
(Billions of dollars)
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Sources: Personal communication by Brian Bruen of the Urban
Institute, and the Congressional Budget Office's estimates.
Medicaid's expenditures for home and community-based services
(HCBS), which include home health care, personal care services, and
spending under HCBS waiver programs, are much smaller than its spending
for nursing homes--HCBS expenditures constitute only about 23 percent
of total Medicaid LTC spending. (Under the waiver programs, states have
the option of providing people with impairments with enhanced community
support services not otherwise authorized by the federal statutes.)
Since 1992, Medicaid spending for home-based care for seniors has grown
faster than spending for institutional care, rising by about 11 percent
annually, on average, compared with about 3 percent growth for care in
nursing facilities.
Many people who are not eligible for Medicaid while they live in
the community become so immediately or shortly after being admitted to
a nursing facility because of the high cost of institutional care.
(Nursing home costs in 2004 averaged about $70,000 annually for a
private room.) According to a 1996 study, about one-third of discharged
nursing home patients who had been admitted as private-pay residents
became eligible for Medicaid after exhausting their personal finances;
nearly one-half of current residents had similarly qualified for
coverage.\5\ Medicaid coverage is especially common among nursing home
patients who have been institutionalized for long periods.
---------------------------------------------------------------------------
\5\ Joshua M. Wiener, Catherine M. Sullivan, and Jason Skaggs,
Spending Down to Medicaid: New Data on the Role of Medicaid in Paying
for Nursing Home Care (Washington, D.C.: AARP Public Policy Institute,
June 1996). Those proportions differ because discharged residents
include people who were institutionalized for only a short time, and
the sample of current residents includes more people who stay for
extended periods.
---------------------------------------------------------------------------
Medicare, the nation's health insurance program for the elderly,
covers care provided in skilled nursing facilities (SNFs) and at home,
but its benefits are designed primarily to help beneficiaries recover
from acute episodes of illness rather than to provide care for long-
term impairment.\6\ Medicare covers up to 100 days per spell of illness
for SNF care, and the stay must be preceded by a hospitalization
lasting at least three days. In contrast, Medicare's home health
benefit, while originally conceived to finance short-term
rehabilitation, has evolved into what some observers have described as
a de facto LTC benefit. To be eligible for reimbursement under the home
health benefit, the beneficiary must be homebound and require
intermittent care provided by a licensed professional, such as a
registered nurse or physical therapist. If those conditions are met,
Medicare will cover services provided by a home health aide, in
addition to skilled care; aide services are the assistive services that
typify long-term care.
---------------------------------------------------------------------------
\6\ Medicaid's nursing facility benefit (institutional care), in
addition to covering skilled care provided in a SNF, also covers
nonskilled care that may be provided in a SNF or nursing home.
Medicare's SNF benefit, however, covers only skilled care provided in
skilled nursing facilities.
---------------------------------------------------------------------------
By CBO's estimate, Medicare's LTC spending for seniors in 2004
totaled about $16 billion for care in skilled nursing facilities and
$18 billion for home health care (see Figure 5). Although the program's
outlays for those categories grew rapidly from the late 1980s to the
mid-1990s, expenditures actually declined near the end of the past
decade. A combination of factors was responsible, including changes to
reimbursement methods imposed by the Balanced Budget Act of 1997,
increased federal activities to counter providers' fraud and abuse of
the program's payment systems, and delays in processing claims. CBO
projects steady growth in spending for SNF and home health care over
the 2006-2015 period, averaging approximately 5 percent annually.
Figure 5. Medicare Spending for Skilled Nursing Facility Care and Home
Health Care for Elderly Beneficiaries, Fiscal Years 1992 and
2004
(Billions of dollars)
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: Congressional Budget Office.
Issues in Controlling Federal Long-Term Care Spending
CBO has projected that total LTC expenditures for seniors
(including the value of donated care) will rise from about $195 billion
in 2000 (2.0 percent of gross domestic product, or GDP) to $540 billion
(in 2000 dollars) by 2040, or 2.3 percent of GDP.\7\ That estimate of a
relatively modest increase in use of long-term care services
incorporated the assumption that the prevalence of impairment would
decline at a rate of about 1.1 percent per year. If impairment levels
instead remain about the same as they are today, use of services will
rise faster, to $760 billion by 2040, or about 3.3 percent of GDP.
Demand for care could be even higher if, as some researchers believe,
the prevalence of impairment actually increases in the future.
---------------------------------------------------------------------------
\7\ Congressional Budget Office, Projections of Expenditures for
Long-Term Care Services for the Elderly (March 1999).
---------------------------------------------------------------------------
The current mix of financing for long-term care, in which a
significant share of financing comes from government programs, adds to
the pressures that the federal budget will experience with the aging of
the baby-boom generation. Contributing to the strains that government
LTC programs will face are incentives created by those programs that
diminish the attractiveness of using private resources--especially
private insurance--as a means for seniors to finance their care.
Changes in those incentives might encourage more people to make their
own preparations for financing their care rather than rely on
governmental assistance.
Direct Approaches to Limiting Federal Spending for Long-Term Care
One approach to relieving the pressures on federal finances would
be to directly reduce the role of Medicaid and Medicare, the programs
responsible for the bulk of government-financed care. The most commonly
discussed options are tightening the financial qualifications for
people applying for Medicaid coverage and reducing Medicare's coverage
of home health care.
Medicaid's spending for long-term care could be constrained by
making it more difficult for middle-income people to qualify for
coverage by spending down their resources. The intent of Medicaid's
current rules is to restrict applicants to those who are destitute. Yet
despite that intention, many applicants manage to protect a significant
portion of their personal wealth and still qualify for Medicaid
coverage by taking advantage of certain rules regarding the disposition
of assets, a practice known as Medicaid estate planning. Strengthening
the rules to reduce the use of such strategies would delay the point at
which some people became eligible for benefits and would prevent others
from qualifying. It could also discourage some people from going
through the application process. However, it is unlikely that imposing
those additional restrictions would have more than a modest impact on
Medicaid's expenditures.\8\
---------------------------------------------------------------------------
\8\ Congressional Budget Office, An Analysis of the President's
Budgetary Proposals for Fiscal Year 2006 (March 2005). CBO estimated
that the President's proposal to change the penalty period for illegal
asset transfers would save $3 billion over 10 years.
---------------------------------------------------------------------------
Medicare's home health care benefit is relatively generous. Once a
person meets the physical qualifications for coverage, there are no
copayments or other coinsurance requirements. A modest cost-sharing
requirement for beneficiaries could decrease the program's LTC
expenditures because beneficiaries would probably reduce the amount of
care they used in response to that kind of financial incentive.
Challenges in Encouraging Private Financing of Long-Term Care
Future federal spending on long-term care could be lessened by
encouraging people to rely more on private resources for their LTC
needs. Out-of-pocket spending and donated care already account for a
very substantial share of LTC services, but private long-term care
insurance currently finances very little such care. CBO estimates that
the proportion of LTC spending that private insurance pays will rise to
about 17 percent in 2020; that share would be less than the shares of
either Medicaid or Medicare. Several factors underlie the limited rise
that CBO projects for the use of private insurance. Some factors affect
the availability and quality of insurance: they include issues related
to administrative costs, the instability of premiums, adverse
selection, and the inability to insure against certain risks unique to
long-term care. A final factor--the interaction of private insurance
and Medicaid--is critical in the way it affects demand for private
insurance.
Administrative costs. Administrative costs contribute a substantial
amount to LTC insurance premiums because most policies are sold
individually rather than as group (employer-sponsored) policies.\9\ The
costs of marketing to and enrolling individuals are about double those
for groups, for which fixed administrative costs may be spread over
more people.
---------------------------------------------------------------------------
\9\ America's Health Insurance Plans, Research Findings: Long-Term
Care Insurance in 2002 (Washington, D.C.: AHIP, June 2004), p. 11.
---------------------------------------------------------------------------
On average, administrative costs as a percentage of premiums are
likely to fall in the future as group policies make up a larger share
of the private LTC insurance market. In 2002, group policies
constituted nearly one-third of new LTC policy sales.\10\ (By
comparison, nearly 90 percent of people with private health care
insurance hold group coverage.\11\) But group policies are accounting
for an increasing share of the LTC insurance market, a trend that is
likely to continue if more employers offer LTC coverage as an employee
benefit. If employers offer such a benefit, any part of the premiums
for their employees' LTC coverage that they pay for, like their
contributions for regular health insurance, is not included in
employees' taxable income.
---------------------------------------------------------------------------
\10\ America's Health Insurance Plans, Long-Term Care Insurance in
2002.
\11\ Carmen DeNavas-Walt, Bernadette D. Proctor, and Robert J.
Mills, Income, Poverty, and Health Insurance Coverage in the United
States: 2003, Current Population Reports, Series P60-226 (Bureau of the
Census, August 2004).
---------------------------------------------------------------------------
Instability of Premiums. Although LTC insurers typically offer
premiums that do not automatically increase as the policyholder grows
older or experiences deteriorating health, state insurance regulators
allow insurers to increase premiums for all holders of a given type of
policy in a state (known as a rating class) if they find that they have
miscalculated the expected cost of their claims. Some insurers have
boosted premiums several times for that reason, leading many
policyholders to cancel their coverage and in all likelihood deterring
some potential purchasers from acquiring LTC coverage.\12\ However,
premiums may be stabilizing: a survey of top-selling LTC insurance
carriers by the Health Insurance Association of America observed fairly
steady premium levelsfrom 1997 to 2001 after a sustained decline in
average premiums from 1990 to 1996.\13\
---------------------------------------------------------------------------
\12\ Ann Davis, ``Shaky Policy: Unexpected Rate Rises Jolt Elders
Insured for Long-Term Care,'' Wall Street Journal, June 22, 2000, p.
A1.
\13\ Susan A. Coronel, Long-Term Care Insurance in 2000-2001
(Washington, D.C.: Health Insurance Association of America, January
2003).
---------------------------------------------------------------------------
Policyholders can obtain some protection against large jumps in
premiums by purchasing nonforfeiture benefits with their policy. That
feature enables policyholders who cancel their coverage to recoup from
the insurer at least some of the premiums they have paid. Nevertheless,
although policyholders might get a proportion of their premiums back,
they do not receive the associated returns on the investment of that
money.
Adverse Selection. The relative newness of the market for LTC
insurance and the still fairly small number of policies being sold
suggest that the market may be affected by adverse selection. People
who purchase LTC insurance have greater expectations than nonpurchasers
of using services in the future, and those greater expectations are not
captured in the information that insurers collect as they enroll
purchasers of their policies. If insurers believed that adverse
selection was occurring, it might lead them to set premiums higher than
a policyholder's health status would suggest so as to incorporate the
greater likelihood that that policyholder would use the insurance. In
turn, the higher premiums might deter people who would purchase
coverage if the premiums reflected their relatively lower expectations
of using LTC services.
One recent study suggests, however, that although adverse selection
does exist in the LTC insurance market, it may not be producing higher
overall claims costs.\14\ According to that study, the higher costs of
policyholders with greater-than-average expectations of using services
in the future are offset by the lower costs of policyholders who are
averse to risk and whose probability of using services in the future is
actually lower than the average for the population at large. Because of
the market's youth, there are no clear data to resolve the question of
adverse selection.
---------------------------------------------------------------------------
\14\ Amy Finkelstein and Kathleen McGarry, Private Information and
its Effect on Market Equilibrium, Working Paper No. 9957 (Cambridge,
Mass.: National Bureau of Economic Research, September 2003).
---------------------------------------------------------------------------
The Inability to Insure Against Certain Risks. Private LTC
insurance may be unattractive to some consumers because it does not, in
general, insure against the risk of significant price increases for
long-term care. Most policies promise to provide contractually
specified cash benefits in the event that a policyholder becomes
impaired. To protect themselves against LTC price inflation, consumers
can purchase a rider to their policy under which the policy's benefits
grow at a specified rate each year (usually 5 percent); however, such
riders offer no protection against additional costs if prices rise at a
faster pace. Concerns about price increases of that kind are not
unjustified: Medicaid's average reimbursement rates for nursing
facilities grew at an average annual rate of 6.7 percent from 1979 to
2001.\15\ Over a 20-year period, a nursing facility benefit of $100 per
day in today's dollars would grow to $265 per day with an annual
inflation protection rider of 5 percent. But the benefit would need to
grow to $366 per day to keep up with a 6.7 percent annual growth rate,
should costs continue to grow that fast in the future.
---------------------------------------------------------------------------
\15\ Congressional Budget Office, Financing Long-Term Care for the
Elderly (April 2004), p. 19.
---------------------------------------------------------------------------
An additional risk is that a policy could become obsolete at some
point in the future. LTC services, and the private insurance policies
that cover such care, are steadily evolving as the LTC insurance market
matures. That fluidity may give some consumers pause, and indeed, one
prominent rating agency recommended in 2000 that people purchase LTC
coverage no earlier than age 60 to avoid the problem of obsolescent
coverage.\16\ Some consumers might also be reluctant to purchase LTC
insurance if they believed that changes in public policy at some point
could render their coverage obsolete.
---------------------------------------------------------------------------
\16\ See Weiss Ratings, Inc., Long-Term Care Policies Vary
Drastically in Cost to Consumers (Palm Beach Gardens, Fla.: Weiss
Ratings, Inc., April 5, 2000). Weiss Ratings evaluates the financial
condition of insurers (including companies that sell life, health,
property and casualty, and LTC insurance) as well as banks and savings
and loan institutions.
---------------------------------------------------------------------------
The Availability of Medicaid. The availability of Medicaid poses a
substantial disincentive for people considering the purchase of private
long-term care insurance. Although Medicaid in general serves people
with very low income and assets, it also provides assistance to people
with impairments who exhaust all of their private sources of financing
for their long-term care. Even people who have set aside significant
savings may eventually become eligible for Medicaid assistance. In that
way, Medicaid serves as an alternative form of insurance for people who
do not have private coverage and who are impaired for a significant
period. Indeed, Medicaid's impoverishment requirement may discourage
people from saving because the less they have, the more quickly they
will qualify for coverage. It also creates an incentive for people to
give away or hide their assets so that they can qualify for Medicaid.
There are substantial drawbacks to Medicaid coverage for long-term
care. As a means-tested program, Medicaid requires eligible applicants
to rely on out-of-pocket spending until they use up all of their
savings. In addition, because Medicaid generally pays lower fees for
services than those paid by private payers, beneficiaries may not
receive the same quality of care that private policyholders receive. In
some states, moreover, Medicaid might not be as flexible in the types
of services it covers as private insurance would be; a person who has
private coverage would probably have a broader choice of providers and
types of care than a Medicaid beneficiary would have.
Those drawbacks to Medicaid's coverage are balanced by features
that some people might consider advantageous. Medicaid is free from the
perspective of the beneficiary. In addition, Medicaid has a defined-
benefit structure--that is, it covers a specified set of services.
Private insurance, by contrast, only ensures that a policyholder will
have a specified monetary benefit to pay for care. It does not
guarantee that the money will be sufficient to pay for desired
services.
Although Medicaid's coverage differs in some respects from that of
private insurance, it may nevertheless reduce the demand for private
policies. Indeed, one recent study found that the availability of
Medicaid constitutes a substantial deterrent to the purchase of private
insurance, even for people at relatively high income levels.\17\
Medicaid's rules for financial eligibility affect people's decisions to
purchase private LTC insurance as well as how much insurance they buy
because the rules offer a low-cost alternative (by allowing people to
qualify for the program's benefits) to making personal financial
preparations for possible future impairment. People who buy private
insurance or accumulate savings substantially reduce the probability
that they will ever qualify for Medicaid's benefits, thereby forgoing
the value of the government-provided benefits that they might otherwise
have obtained. Thus, the availability of Medicaid raises the perceived
cost of purchasing private insurance or of saving. That increase is
small for relatively wealthy people who have little likelihood of ever
qualifying for Medicaid coverage, but it can be substantial for others.
---------------------------------------------------------------------------
\17\ Brown and Finkelstein, The Interaction of Public and Private
Insurance.
---------------------------------------------------------------------------
Conclusion
Currently, elderly people finance LTC services from various
sources, including both private resources and government programs.
Incentives inherent in the current financing structure have led to
increased reliance on and spending by government programs and may have
discouraged people from relying on private resources (savings, private
LTC insurance, and donated care) to prepare for potential future
impairment. The demographic changes projected for the coming decades
will bring increased demand for long-term care and heightened budgetary
strains.
Chairman JOHNSON OF CONNECTICUT. Thank you very much. I
would point out that that group on the bottom are exactly the
group that the Medicare Modernization Act aimed at, and the
urgency of passing the bill was really not the prescription
drug portion of the bill but the policy changes that will
enable us to meet the needs of the over-85 population, most of
whom have multiple chronic illnesses, so hopefully we will be
able to bend that uniformly, and help the appearance of that
chart. In your testimony, Dr. Holtz-Eakin, you mentioned that a
recent study found that the availability of Medicaid
constitutes a substantial deterrent to the purchase of private
insurance even for people a relatively high income levels. This
issue of the take-up rate of long-term care insurance has been
a long-term concern of mine as the chief sponsor of that
initiative. I would think that the greater prevalence now of
long-term care insurance being a cafeteria option and it being
now part of a Federal program that we might be seeing some
increase in uptake. The group insurance does lower the
administrative cost, it has a lot of advantages, and we do see
some greater activity. How much greater activity do we see
there, and what evidence does this report give that the
disadvantage to providing yourself with long-term care
insurance, that just the existence of the Medicaid offers is
something that affects people at all income levels and it does
work as a substantial deterrent?
Mr. HOLTZ-EAKIN. There has been some modest uptake in
private long-term care insurance. We would be happy to work
with you to get the numbers pinned down. The broader question
of what are the deterrents of the choice to take up long-term
care insurance in the private sector has been divided in the
research literature to supply kinds of issues associated with
really what amounts to unfair pricing from an actuarial point
of view, and then demand issues which is the fact that there
may be alternatives out there, be it Medicaid, the most direct
substitute, or Medicare to the extent that that it is a
substitute, and as a result people don't buy long-term care
insurance.
The literature is not definitive on this and I think that
is always frustrating when you don't have a clean solution, but
the most recent research is suggestive in that for those
instances where it appears that the supply problems, the
pricing is one which provides actuarially fair premiums, and
that would not likely be the men, but some of the women in
these studies looked at their insurance and do not take it up.
That then leads you to suspect there must be something else
that could provide the insurance as a substitute. And then
former models clearly show that in the presence of a choice
between Medicaid and private long-term care insurance the
Medicaid would crowd out the private market. So, former models
and actual real-world experience are a bit apart, but it is a
suggestive collection in recent research.
Chairman JOHNSON OF CONNECTICUT. I am going to yield to Mr.
Stark now as we proceed. But that has always been a mystery to
me. And I think the existence of the very large contingent of
people who make a living learning to help people to spend down
to Medicaid ineligibility indicates that in the long-term care
area Medicaid has lost that sort of negative aura that clearly
in the children's health care it has taken us years to battle.
So, that is interesting. Mr. Stark.
Mr. STARK. I would just like, doctor, to have you
elaborate. In your report and I guess in your testimony, you
are suggesting that the reason that long-term care insurance is
doing well is because everybody's waiting for Medicaid to bail
them out and that they are planning to cheat and hide assets
and do those sorts of things. Could you elaborate whatever data
or theories you have that say that people don't buy long-term
care insurance because they are counting on Medicaid?
Mr. HOLTZ-EAKIN. As I mentioned in my response to the
Chairwoman, there isn't a definitive study or set of research
in this area.
Mr. STARK. Is there any study?
Mr. HOLTZ-EAKIN. There are. The two most recent studies are
by Jeff Brown and Amy Finkelstein, and that----
Mr. STARK. That wasn't peer-reviewed but go ahead.
Mr. HOLTZ-EAKIN. That research does the following two
things, roughly speaking. The first takes a look at a sample of
actual policies and tries to determine the degree to which the
premiums charged are actuarially fair or not, because clearly
if buying a policy is an unfair bargain, people are not going
to buy it. And their, on-average they are not actuarially fair,
but the striking result is that they are far more fair, indeed
probably roughly actuarially fairer for women, but take-up
rates are the same. So, that is piece of evidence number one.
Mr. STARK. I guess what I want to hear though is why you
are suggesting that it is Medicaid that keeps them from doing
this because they think Medicaid is going to bail them out?
Mr. HOLTZ-EAKIN. It is far more conclusive--the suggestive
evidence is that if it is not the pricing, then it must be the
decision to buy, and presumably people value some sort of long-
term care insurance. This looks to be an important financial
risk. So, if you are not buying this insurance it could be
because you have some other type of insurance. Medicaid is
one----
Mr. STARK. What percentage of the Federal employees, let us
say that people who are in the Federal Employee Health Benefit
(FEHB) plan, what percentage of them buy long-term care
insurance now under our Federal employee plan?
Mr. HOLTZ-EAKIN. I don't know that number off the top of my
head, but I can certainly find out.
Mr. STARK. A small percent, 5 percent?
Chairman JOHNSON OF CONNECTICUT. Very small.
Mr. STARK. Very small. Now, most of these Federal employees
know that they are going to have a fairly generous pension,
right? They don't change that. In 30 years they will end up
with 70, 80 percent of their I-3. Most of the benefits that I
see in the Federal long-term care have a maximum value of 100
grand, maybe 3 years 36,000 bucks a year. So, they are going to
look at that and see if their pension is going to be anywhere
near 50. I think they aren't going to get Medicaid, are they?
Can you tell me a State where somebody with $50,000 worth of
income can qualify for Medicaid? Maybe I will move there.
Mr. HOLTZ-EAKIN. Well----
Mr. STARK. There aren't any. So, I just don't know who this
person is that says that Medicaid will replace whatever
responsibility they may have for building for their retirement,
which I think people do, and if they can live comfortably in
their retirement, many of them could figure out how to pay
for--they aren't going to get Medicaid. I think that is a
double dip and I am not sure it is fair, doctor, that is all.
Absent any kind of studies, Medicaid is in enough trouble
without having respected economists like yourself beating up on
it. We are having trouble getting health care for little kids,
and when experts like you begin to suggest that Medicaid is
keeping us from getting long-term care insurance to the market,
that borders on being a little bit irresponsible, not to the
long-term care people----
Mr. HOLTZ-EAKIN. I take exception to that.
Mr. STARK. All right.
Mr. HOLTZ-EAKIN. I think that it is the responsibility of
our office to examine all the potentia interactions between the
public sector and the private sector. It is well established
that individuals will look at interactions between what their
options are in the public sector and the private sector. As I
have tried to make clear, I think a comprehensive review of the
places that one would find----
Mr. STARK. I think you----
Mr. HOLTZ-EAKIN. --expenses.
Mr. STARK. --issues.
Mr. HOLTZ-EAKIN. I think we should comprehensively----
Mr. STARK. --abstinence training for high school students.
That might bring up some interesting things that you would have
a responsibility to report on.
Thank you, Madam Chair.
Chairman JOHNSON OF CONNECTICUT. Mr. McCrery.
Mr. MCCRERY. Thank you, Madam Chair.
Dr. Holtz-Eakin, we could spend a lot of time talking about
why people aren't buying long-term care insurance. The fact is
they aren't, at least not in very big numbers. Have you looked
at--and I think you mentioned in your testimony that your
projection for people purchasing long-term care insurance is
not very optimistic. In other words, it is going to go up a
little but not very much. Is that right?
Mr. HOLTZ-EAKIN. We don't have a formal projection for the
take-up. We have a projection of the costs of care. The costs
are growing. We currently have some long-term care, and we
don't have an elaborate forecast of what would happen in, for
example, to 2030 to the long-term care market. The question is,
how would it evolve in the presence of more improved
incentives?
Mr. MCCRERY. We provided some incentives in the past few
years through the Tax Code. What has been the experience just
in the last few years of people purchasing long-term care
insurance? Has it gone up?
Mr. HOLTZ-EAKIN. I think it is up modestly, but I don't
know the numbers off the top of my head. We can certainly give
you the past couple of years.
Mr. MCCRERY. It would be interesting, Madam Chair, I think
for us to explore a little more what the chances are of our
being able to incentivize individuals to purchase private
insurance for this purpose. I think you agree with me that that
would be the most desirable solution to this problem, but
clearly, what we have done so far hasn't worked. I am wondering
if we could develop through some of our smart folks in
government some conclusions as to how generous those incentives
would have to be in order for people to purchase that. If we
conclude that those incentives are so generous that we can't
afford them, then obviously we have to look at elsewhere for a
solution. I think this is an interesting discussion, but maybe
our next panel, some of our next panelists will have some
thoughts on this subject. Dr. Holtz-Eakin, what about
Medicare's home health benefits? You mentioned that in your
testimony, and how that has become kind of a de facto long-term
care benefit for folks. Can you elaborate on that?
Mr. HOLTZ-EAKIN. For many individuals it does appear to be
a substitute for Medicaid or some other form of long-term care
insurance. To the extent that it will be of interest to
directly control costs in that program, we have, for example,
done a budget option where we studied it at a 10 percent co-pay
per episode and showed the budget savings that came from that.
If people perceive it to be similar to Medicaid, and if there
is a genuine substitution of one kind of insurance for another,
it could also fit into the larger outcomes we are seeing with
choices of financing for long-term care costs. So, I do think
it is important to look at these comprehensively and think
about how they interact.
Mr. MCCRERY. Thank you.
Thank you, Madam Chair.
Chairman JOHNSON OF CONNECTICUT. Thank you.
Mr. Lewis?
Mr. LEWIS OF GEORGIA. Madam Chair, thank you very much.
Thank you very much, Mr. Director, for being here today. In
your written testimony you claim that Medicaid is a barrier to
getting people to purchase long-term care insurance. You also
said middle income people shelter their assets in order to
qualify for Medicaid. However, you also said that there are
drawbacks to Medicaid, like using all saving and limits choice.
Now, with all of these drawbacks. With all of these drawbacks,
wouldn't people want to avoid Medicaid? Isn't it possible that
there are other reasons people don't buy long-term care
insurance?
Mr. HOLTZ-EAKIN. Well, it is certainly the case that any of
these decisions has many dimensions. So, it is neither the case
that people don't purchase long-term care insurance exclusively
because of the existence of Medicaid; neither would you view
any difficulties in getting Medicaid as a deterrent from using
it at all because in fact it is a wisely-used public program.
Instead, the programs interact. It is the case that there is a
large industry devoted to advising individuals about how to
shelter their assets under Medicaid, and that while I think it
is impossible to place a numerical estimate on the degree to
which assets are sheltered, there is an enormous amount of
smoke, and one would suspect that there is a fire. There are
web pages devoted to calculators and how they shelter assets.
There are web pages at Amazon.com showing the books on how to
do it. So, we know that that is an aspect of the incentives
presented by Medicaid, and it is a form of insurance that is
available. As I have said several times, I don't think it is a
panacea, it is not the exclusive solution to the problem for
the long-term care market and may be the case that long-term
care insurance in the private market is best suited for a
fraction that is higher income, but they do interact and we
simply wanted to highlight the potential for interaction.
Mr. LEWIS OF GEORGIA. Do you have evidence of people
sheltering their resources or is this just based on limited
evidence? Do you have data that would testify to the fact that
we have wholesale sheltering, people hiding their resources?
Mr. HOLTZ-EAKIN. As I said, I don't--it is not a question
of the sheltering, but there are--you can go to places that
say, www.Medicaidhelp.com that gives you a calculator. You plug
in your age and your assets and it tells you where you stand
relative to Medicaid and getting long-term care insurance.
There are lots of books. There are well-known strategies, half-
a-loaf strategies, where the moment you enter the Medicaid
program you give away a fraction of your assets, half of them,
and you get to shelter half very effectively with no risk. So,
I don't know the net asset transfer that comes from that. I
know that there is a lot of evidence of people thinking about
those activities.
Mr. LEWIS OF GEORGIA. Let me just try and ask you this in
another way, and maybe throw something else into here. As I see
it, if there is someone going to a nursing home, Medicaid looks
back 3 years to see if they have transferred any of their
resources. If so, that person is disqualified from Medicaid
benefits for a time. This means that in order to qualify for
Medicaid, an applicant would have to have transferred their
resources more than 3 years prior to doing long-term care
service. This would take some kind of crystal ball for any of
us, any of these seniors to know when they are going to need
long-term care. Do any of us know? So, how can you prepare? Do
we know in 2010 or sometime down the road we are going to need
long-term care?
Mr. HOLTZ-EAKIN. Well, there is not a crystal ball, but it
is the case that at the moment you enter the program you can
shelter half without any risk.
Mr. LEWIS OF GEORGIA. That is what I am trying to ask, we
don't know whether we are going to need it and then we don't
know when, we don't know the date or the time. So, what does
this seem to say, they must get rid of everything?
Mr. HOLTZ-EAKIN. What is going on--and the kinds of
policies you might like to put in place. What is going on I
think is a risk-free transfer of one half at the moment of
entry. Three years in advance, no one has a crystal ball, there
is some risk associated with that, there is no question. We
know, for example, from the waiver application of the State of
Connecticut, 30 percent of folks had undertaken some sort of
asset transfer. So, there is evidence out there. As I said
before, I don't think anyone has a firm numerical estimate of
the pervasiveness and scale, but this is an activity that is
provided--that the Medicaid program has provided an incentive
to undertake.
Mr. LEWIS OF GEORGIA. Madam Chairman, I know my time is up.
If I can have just a quick three seconds?
Chairman JOHNSON OF CONNECTICUT. Go ahead.
Mr. LEWIS OF GEORGIA. Mr. Director, you stated in your
prepared report that Medicaid spending for home-based care for
service was going faster than spending for institutional care.
Could you give us I guess the nature of why? Most people would
like to stay in their home and not go into a nursing home.
Mr. HOLTZ-EAKIN. If you divide costs into cost per person,
more people--that seems largely to be driven by the entry of
more beneficiaries into the home and community based care
program, perhaps as a substitute for the informal care that had
prevailed earlier because people would like to remain in their
home.
Mr. LEWIS OF GEORGIA. Thank you.
Chairman JOHNSON OF CONNECTICUT. Thank you.
Mr. Johnson of Texas.
Mr. JOHNSON OF TEXAS. Madam Chairman, I would like to
continue on that vein if I could. I think you are absolutely
right that people are not buying insurance because of the
reasons you state, and I just wonder--you point out again, and
it has been stated two or three times that home health care
under Medicare has become something of a defacto long-term
health care benefit. What implications has this had on Medicare
and how do home health benefits under Medicare and those
provided under Medicaid relate to each other?
Mr. HOLTZ-EAKIN. Well, the implications for Medicare for
2004, the numbers that we presented today, the total outlays
under Medicare are about $32 billion. So, this is not an
enormous share of the overall Medicare bill. Instead, it is
about 16 percent of the financing for long-term care costs. It
is an alternative to Medicaid, and, for that reason, I think it
is probably best bought comprehensively in thinking about
forward how are you going to do business.
Mr. JOHNSON OF TEXAS. Okay. Thank you. I don't have any
further questions, Madam Chairman.
Mr. THOMPSON Thank you, Madam Chair, and thanks for holding
this hearing. I want to--there are a couple of things that have
already been asked. Specifically, the issue of the look back
issue that Mr. Lewis mentioned. If you're still--you say if you
go back 5 years as opposed to the three that the savings would
be modest. So, and I want to stipulate that I think any effort
to hide money or disposed of money to get away from paying your
share is wrong. We ought to be able to figure out how to stop
that if we can. But I just wonder how widespread the abuse is.
If you add 2 years to the look back you only pick up modest
savings.
Mr. HOLTZ-EAKIN. Our last answers are based on or
discussions with the State-level Medicaid officials in charge
of this. How we got the numbers associated with three versus
five, I don't have off the top of my head, but I would be happy
to work with you. We could walk through it with your staff.
Mr. THOMPSON. Well, we ought to try and figure out what is
real and what is projected and not attainable, but at the same
time figure out how to stop those practices from happening. On
the home health care issue. It seems to me that is pretty
inexpensive way to deal with the problem. I know in California,
our in-home support services is about $8,000 a year where
facility care is about $50,000 a year. So, that is a fairly
substantial savings, and it seems to me we ought to be--and we
know it is cheaper and to do in-home health care vis a vis some
type of acute care. So, we probably should be looking at ways
to expand that to help solve this problem.
Mr. HOLTZ-EAKIN. Certainly my message today--this happens
to me all the time. I come. I talk about costs. There are some
things that are worth it. Those are the benefits and that is
certainly part of the picture. Designing this--I think the
basic message is we have to pick things that make sense in a
cost effectiveness send because, money will, in fact, be harder
to come by going forward, and if we can find those policies
that are most worth it, where the benefits are the highest,
then that is the place to go.
Mr. THOMPSON. And then the other thing that has already
been brought up and I don't want to beat a dead horse. But the
whole issue of tightening the Medicare eligibility to change
behavior. I am skeptical of that thesis. And if you look back
at the changes in Social Security in 1983, most economists will
agree that benefactors realize a real decrease in benefits. So,
using your theory, they would have saved more in order to deal
with the decrease in benefits. But we know that that has not
been the case. At the time that they '83 Social Security
changes took place, the personal savings were about 11 percent
of disposable income. And today, they are less than 2 percent.
I think less than a percent and half. So, using that as a model
would suggest that you can tighten these regulations or this
eligibility all you want, but it is not going to in itself
change the practices of individuals. And if you have any other
data that suggest otherwise, I would like to see those.
Mr. HOLTZ-EAKIN. We will certainly work with you on that.
Sure. I'm sympathetic to the notion that, as I said, that
formal models are not the answer to all our policy questions--
far from it. I am also sympathetic to the notion that
explaining the U.S. savings rate is pretty hard. If I could
explain the U.S. saving rate, I would be in a far better place
than I am right now. But, there is I think a sensible approach
to analyzing this important issue, which involves
comprehensively surveying all the available sources of
financing, comprehensively thinking about the incentives that
the present, and, then to the extent possible, comparing the
data--which is limited and is an issue--with the kinds of
potential responses that incentives predict. I am with you on
the notion that not all economic incentives turn out to be as
powerful as economists might think, myself included. But that
is ultimately a data base exercise.
Mr. THOMPSON. And I want to try and squeeze one more in. Is
there some way that we can figure out the cost of Medicare
expansion to include long-term benefits--kind of a menu. I know
it already covers some things, and I am not suggesting that we
move to expansion, but some folks are, and it may make sense.
If there was a way to see a menu of what it would cost if we
extended different benefits or how much for each benefit that
we extended. That would be I think very helpful.
Mr. HOLTZ-EAKIN. Nothing would make me happier than to
volunteer the staff's time. Why don't we figure out the----
[Laughter.]
Mr. THOMPSON. If looks could kill, you would be shot from
behind. Thank you.
Chairman JOHNSON OF CONNECTICUT. Thank you, Mr. Thompson.
Mr. Emanuel.
Mr. EMANUEL. Thank you, Mrs. Chair. With that answer, you
may need a food taster at the next staff meeting. Let me ask
you a question about your analysis on the partnership
expansion. As I understand it, the whole notion of the Robert
Wood Johnson--and I think there are about 10 States that do
this. It was supposed to save money. And your analysis of the
President's budget is that it actually cost Medicaid money. A,
what was the basis of, I don't want it line by line, but what
was the basis of why that is, and B, what do we got to do to
get to the savings for Medicaid so the whole intention of this
partnership was supposed to be a savings, not expenditure of
greater resources.
Mr. HOLTZ-EAKIN. Well, two part answer. The first is that
the analysis of the President's budget is economic changes from
whatever the current is. So, to the extent that there were
savings by instituting the program to begin with, that is
already in the baseline. We are only looking at the expansion.
With respect to the expansion, you can think of purchases
coming from two sources: people who would have bought a private
policy anyway and basically doesn't look any different, or
those people who will come into this market, buy a partnership
policy, and are new entrants and thus qualify for Medicaid for
the first time, it is our expectation that the modest costs
come from that group.
Mr. EMANUEL. Let me ask you based on the premise that the
partnership should save money, do you think we will ever see
that realization? Part of that whole premise--am I
misunderstanding the premise?
Mr. HOLTZ-EAKIN. I guess compared to what. I am trying to
figure out what--compared to what baseline. To the extent that
the partnership policy and expansion of the type that, was
proposed, those new people buying policies who ultimately
qualify for Medicaid that will cost Medicaid money, because
there will be new beneficiaries that would not have been there
otherwise and extension of that on a regular basis. Now, that
is one set of comparisons that you can make. A second set of
comparisons might be what would a world look like with
substantial private long-term care insurance, perhaps
engendered by the partnership policies and with some pressures
as a result on the delivery of services and savings rate there.
That is a different question and not one that we have priced. I
am sympathetic, but it is just past what that particular number
would contain.
Chairman JOHNSON OF CONNECTICUT. Excuse me. Would the
gentleman yield on this?
Mr. EMANUEL. Absolutely.
Chairman JOHNSON OF CONNECTICUT. And I'll take it on my
turn. Partnership policies the insurance pays for the first 2
years of care, so what percentage of seniors as a whole use
more than 2 years of nursing home care?
Mr. HOLTZ-EAKIN. I don't know. It is a number we will get
back to you on.
Chairman JOHNSON OF CONNECTICUT. It is relatively small.
Mr. HOLTZ-EAKIN. It is relatively----
Chairman JOHNSON OF CONNECTICUT. Well, it is a sign that
everybody who is bearing a partnership program is going to end
up being--using Medicaid dollars is in my estimation----
Mr. HOLTZ-EAKIN. It's not an expansion of everybody. It is
an expansion of the pool who will ultimately touch Medicaid
dollars.
Chairman JOHNSON OF CONNECTICUT. And it is an expansion of
a pool that won't touch Medicaid dollars until they have used 2
years of nursing home care, paid for by their insurance. So,
that is a very different pool than just those who would be
eligible for Medicaid, because it is those who will be eligible
for Medicaid and need a third year of nursing home care. So,
this is worth more conversation later.
Mr. HOLTZ-EAKIN. Certainly. You are right.
Chairman JOHNSON OF CONNECTICUT. I simply want to point out
that I did not agree with the answer that you were providing to
my colleague.
Mr. HOLTZ-EAKIN. Okay. We will be happy to work through the
nuts and bolts of the estimate with you. I think the spiel of
it, briefly and I won't oversell my expertise on the nuts and
bolts, but these are large numbers to begin with so it is not
as if everybody who touches this in the expansion is going
straight on to Medicaid. There are these features that you
pointed to, but it is the--the key features--it does make the
net pool of people who have the potential to touch Medicaid
larger because of the attractiveness of the policy. That is one
of the features.
Mr. EMANUEL. I don't want to belabor a point and I look
forward to when we do press this a little farther and have a
discussion and obviously, you're right: it is what benchmark
you are comparing it off of because it can change the picture.
As I remember, the whole bells and whistles around the
partnership was that there was going to be a savings, not a
greater expenditure. And my only question is based on your
analysis of the President's Budget, the partnership is A,
costing more money on Medicaid rather than less; therefore,
either we got sold a bag of goods as it relates to the bells
and whistles on the partnership, or we did not understand it
when we were dealing with it, and then we can press this point
later on. We don't have to use a lot of time here. And maybe
you have maybe a one staff person that doesn't mind a lot of
work gave you answer right there.
Chairman JOHNSON OF CONNECTICUT. We will also have a member
of the panel later who has done a lot of work in the
partnership area.
Mr. EMANUEL. Oh. That is fine.
Chairman JOHNSON OF CONNECTICUT. It is difficult in the
estimating area because there are only four States actually
that have the right to do this. So, nobody can develop a
product that could go nationwide.
Mr. EMANUEL. Okay. Thank you.
Chairman JOHNSON OF CONNECTICUT. Thank you. Mr. Pomeroy is
not a Member of the Subcommittee, but he has an high interest I
know these areas, and I am going to invite him to question.
Mr. HOLTZ-EAKIN. Could I speak on this issue about the
partnerships and make two points,. One big picture point which
is I hope the spirit of the opening remarks was conveyed that
there is a total cost to the demand or these services that
would be incurred by the economy and the financing issue is
about figuring out who bears them. So, savings in one piece, be
they Medicaid--it may not necessarily mean that the overall
bill is lower. That was my point.
Chairman JOHNSON OF CONNECTICUT. Right. Okay.
Mr. HOLTZ-EAKIN. Try to say more clearly. Number two, on
the partnerships, the key leading to big savings is to get
large increases in new purchasers, and it was our judgment that
the particular proposal we looked at would have incremental new
purchasers that were not large, but instead we would really
have just a big shift of the base, and that we the source of
the cost estimate. And I am happy to get us together and work
through the details on it.
Mr. EMANUEL. Can I--you mind if I? Or you want to move on?
Chairman JOHNSON OF CONNECTICUT. Well, can you make it
brief? I did interrupt you so.
Mr. EMANUEL. No. I'll make it----
Chairman JOHNSON OF CONNECTICUT. Sorry.
Mr. HOLTZ-EAKIN. If that is the basis and the premises and
the tipping point is you are looking for scale, and you don't
have the scale, and so, therefore, it is going to cost Medicaid
more money and until we do this on the scale to get an economy
of scale and the efficiencies out of it. Basically, with four
States and so forth, it is going to cost Medicaid more money
and it has to be a program that is expanded nationwide or
bigger.
Mr. EMANUEL. So, we can certainly work with you and give
you a feel for how that looks.
Chairman JOHNSON OF CONNECTICUT. Well, let us leave this
question open, because I think if you talk to some of the
States where they have used it, we might get a different
answer.
Mr. Pomeroy.
Mr. POMEROY. Well, Madam Chair, thank you so much for
letting me see in this hearing. I got some data from the States
themselves directly on the point. California issued 72,683;
enforced 61,273, in claim 735, exhausted 86. Exhausted and
assessed Medicaid 24. To me that's a very, very positive ratio.
It is similarly with like to the other four States. Connecticut
issued 36,613; exhausted 21. Indiana issued 32,800; exhausted
16 I think there is--these are the data report by the States
themselves. I think unlike a lot of long-term care insurance
issues, we have data here--10 years of records from the States
themselves and I am convinced that it is very positive; that
people are laying private third party protection is protecting
their assets and they are not following into Medicaid
eligibility. I also think for those that say, well, that is
just for those very affluent households that never would have
hit Medicaid eligibility, the dollar for dollar coverage model
is one that can be priced for--as limited a time as one year.
It is much affordable, and it protects assets dollar for dollar
of third-party coverage. I think we have an experiment here
that is working. We have got--I think with the States of
California, Connecticut, Indiana, and New York. We have a body
that we can really look at so it is not just conjecture or
philosophy. We actually have numbers we can draw conclusions
from. Dr. Holtz-Eakin, is that your brief?
Mr. HOLTZ-EAKIN. It is certainly the case that that tells
you performance in the presence of the partnership program. The
question from the point of view of cost effectiveness is what
would performance had been in the absence. That is the
unknowable and in those circumstances. It other States, it is
the reverse. You don't have the program, you ask what it would
like in the presence of it. The intricacy of doing the cost
estimates on these and evaluating the President's budget and
other things is, in fact, comparing both. And so you never get
to see both. You have one that we get to see in your case, and
we ask what it would have looked like for Medicaid in the
absence of the partnership program. This strikes me as of the
same character as the questions that Mr. Emanuel and
Congresswoman Johnson had. I would be happy to sit and work
with all of you.
Mr. POMEROY. And the Chairwoman as been very gracious in
giving me time here to make a point. I would just ask you
looking at what we've coming at us in terms of increased long-
term care expenses, and the need, the desperate need, to try
and get more private pay dollars into this mix. Is long-term
care an insurable risk?
Mr. HOLTZ-EAKIN. The question I think--the answer of
course, is yes from the broad point of view of the economy as a
whole. You can spread the risks of those expenses. The question
is whether the private market in isolation can they handle
that? The next step would be are there particular regulatory or
other government policies that we'll need to supplement a
private market to make it work, or is it something that simply
will not function in the absence of the government being the
entity that spreads the risk. I think it is about that, and I
don't think there is definitive answer, and I think this is the
source of the interesting. The partnership program, which is
the interaction between Medicaid and private long-term care
insurance. It is the source of the interest more generally in
the small scale, the current long-term care market.
Mr. POMEROY. I'll allow you it is an insurable risk, and
that viewed not on the micro--not on the macro, but on the
micro for an individual household that doesn't want to face
just spend down to get Medicaid eligibility it can be viable
risk protection tool. Now, admittedly, we need to advance this
topic, but I don't think that when an individual household has
the kind of cost exposure that long-term care brings them, we
can afford to be just dismissive of this as something that can
never work. Indeed, we've got now plenty of market data that I
think suggests this can be a valuable protection to families
and you can have sufficient consumer protection, so they are
getting something meaningful for their premium dollar. I yield
back, Madam Chair.
Chairman JOHNSON OF CONNECTICUT. Thank you very much, Mr.
Pomeroy. We will get together and discuss this at greater
length after this panel and in the course of these
deliberations. But we have all recognized and we all recognize
in our daily life that the performance of a market depends in
part on the evaluation of value. And as you pointed out and
several others would point out in their testimony, many people
don't evaluate the current policies as offering very much
value. But these partnership policies offer a different value.
And they have provided particularly to modest income families a
cheaper product that guarantees them the right to pass some
inheritance on to their children and these are not big savers
who have any other inheritance.
So, it is worth looking at the motivation, at the structure
of the product, and, therefore at the nature of the savings or
cost to the system. So, we look forward to working with you on
that. Thank you very much, Dr. Holtz-Eakin. We appreciate your
being here today. And now we will call the next panel forward
altogether. And we will start with Dr. Gerety. I numerated
your--the institutions that you represent as I had my
introductory remarks, but as you sit down, Dr. Gerety is the
Professor of Medicine, Geriatrics and Extended Care, the
University of Texas in San Antonio, and represents the
Geriatric Society. Buck Stinson is with Genworth Financial.
Mike Meiners is from George Mason University, and Dr. Gehm
represents the Lutheran Homes from Michigan. And we have been
joined--by Dr.Feder has been before us before and we welcome
you back. And we have been joined by our Committee Member, Mr.
Camp, whose plane just arrived from Michigan, and I would like
to recognize him.
Mr. CAMP. Thank you. I just wanted to welcome Mr. Gehm from
Michigan and not from my district, but from an area near my
district, and I wanted to thank him for all the good work that
Lutheran homes does and to welcome him to the Committee and
just to mention I look forward to your testimony.
Chairman JOHNSON OF CONNECTICUT. Thank you, Gary. Dr.
Gerety, you probably are familiar you have 5 minutes. The
yellow light will remind as you are coming to the end and red
light will indicate when the 5 minutes is up, and your entire
statement will be included in the record. If you have trouble
seeing it and you all sort of get the picture from the rest.
They'll be nodding. Thank you for being with us.
STATEMENT OF MEGHAN GERETY, PROFESSOR OF MEDICINE, GERIATRICS
AND EXTENDED CARE, UNIVERSITY OF TEXAS, HEALTH SCIENCE CENTER
AT SAN ANTONIO, SAN ANTONIO, TEXAS
Dr. GERETY. Members of the Subcommittee. You have already
introduced me and my title, so I won't repeat that. But I will
tell you that I am a geriatrician, and that geriatricians are
primary care oriented physicians who do at least 1 year of
additional training after initial specialty certification. We
specialize in the care of older persons and are experts in the
delivery of care across all settings, but particularly in long-
term care settings. Today as you are discussing long-term care,
I think it is important that we recognize that long-term care
cannot be defined as a list of settings or a defined set of
services. And it is also not possible to accurately predict a
person's long-term care choices based simply on a knowledge of
his or her diseases or functioning. In addition to these
factors, one has to have a comprehensive picture of an older
person, both their social resources, psychological states and
their personal preferences. Too often today, our system creates
a gap between medical services and the essential non-medical
services that are part of long-term care. In long-term care,
these services are inextricably intertwined and are most
effective when delivered together.
Today our long-term care system is a fragmented patchwork
of payers, providers, settings and formal and informal care.
And too often this results in extra costs and poor outcomes,
and I would like to illustrate this for you with an example,
which is something that I see virtually on a daily basis in my
practice. An 88-year-old woman who lives at home. She falls.
She breaks her hip. She is admitted to the acute care hospital,
has a hip repair, and following that she is transferred to a
skilled nursing facility where Medicare will pay for the first
21 days of her benefit without a significant co-pay on her
part. At the conclusion of her therapy unfortunately, she
hasn't gained sufficient independence to be able to return
home. Now, she could go home with extensive--with some
supportive services in the home, but Medicare's home health
benefit only pays for an average of 42 days of care, and most
of those visits are not skilled but rather unskilled. So, she
does qualify for Medicaid and remains in the nursing home.
Several months later, she develops a urinary tract infection
requiring IV fluids and IV antibiotics. Medicaid won't pay for
that in the nursing home, but Medicare will in the hospitals.
So, she returns there to the hospital with all of its
associated risks and potential complications.
This is a sort of payment driven kind of chaotic care that
is played out thousands of times every day in this country.
When integrated properly, however, long-term care services can
serve many purposes, completing care from hospitals, smoothing
transitions between care settings, providing relief to care
givers and indeed potentially preventing hospitalizations and
emergency room services. That structure today, however, this
long-term care system has a long way to go to fill its
potential. And I believe as we face my aging--I am one of the
baby boomers--we have got to modernize the system to meet our
needs. I also believe that long-term care today is undergoing a
transformation that acute care underwent a couple decades ago.
Payment systems are modernizing to become resource-based rather
than charge-based. But as acute care was then, long-term care
still is now largely institutionally based. And providers and
consumers now understand that what we once thought was safe to
provide within only in institutional walls can be as safely
potentially more economically and more comfortably provided at
home. But long-term care's financing and eligibility has not
caught up with this. It has not adopted the change in public's
preferences or to the expanded array of long-term care
services, settings, and technology. We believe that public
policy must adopt a shift in its paradigm that acknowledges
these changes, updating and reforming the long-term care system
of today. We also believe that system inequities can be
addressed by a series of fixes that should be carefully studied
and considered.
First, public and private financing systems should develop
coherent methods to allocate resources across institutional and
non-institutional programs. In doing so, we believe services
should be targeted to high-risk populations and titrated
according to need, potential benefit, and consumer preference.
Second, while Medicaid provides permanently only a safety net,
we must find a more comprehensive way to meet long-term care
needs. As you know, a woman age 65 today can expect to live
about 20 more years; five of those or more will be spent with
some disability and she has about 40 percent chance of spending
some time in a nursing home. Now private long-term care
insurance vehicles are increasing in number, but they are not
very accessible to people with modest means. And premiums as
unpredictable over the long term, causing some people to drop
coverage at an age when they most need it. I myself have not
purchased long-term care insurance, because I find the policy
options not as valuable as I might think and because it is
difficult, in fact, to calculate the risks and benefits that I
would receive from those policies. Third, prescription of long-
term care should be preceded by a comprehensive assessment
prior to long-term care services.
Too often today, care is not--is delivered based on
eligibility, not on a thoughtful care plan that elicits
preferences, assesses need and establishes goals. And although
long-term care comprises many disciplines, typically these
disciplines are not integrated into a team that provides
compassionate competent care. And as we move toward--am I in
the red? Okay. I'm sorry. I would just say that I believe that
this Committee and the House itself faces many challenges in
trying to address long-term care: the challenge of trying to
marry public and private financing, the challenge to make
insurance for long-term care sensible and accessible and
affordable, and the challenge of creating a workforce that is
going to be able to provide care for these people. So, I thank
you for the opportunity to participate today, and will close my
remarks.
[The prepared statement of Dr. Gerety follows:]
Statement of Meghan Gerety, M.D., Professor of Medicine, Geriatrics and
Extended Care, University of Texas, Health Science Center at San
Antonio, San Antonio, Texas
Chairman Johnson, Congressman Stark and Members of the
Subcommittee. Thank you for inviting me to testify today on a critical
issue--long term care.
I am Dr. Meghan Gerety, a Board certified geriatrician and
Professor of Medicine at the University of Texas Health Sciences Center
at San Antonio and Associate Chief of Staff and Service Line Manager
for Geriatrics and Extended Care at the South Texas Veterans Health
Care System. I have had a geriatric practice for twenty years and have
practiced and overseen health care in virtually every form of long term
care. I have experience in surveying nursing homes, serving as a
nursing home and home care medical director and have provided care to
many persons in assisted living facilities.
I currently serve as President of the American Geriatrics Society.
I appreciate the opportunity to participate in today's hearing on
behalf of the American Geriatrics Society (AGS), an organization of
over 7,000 geriatricians and other health care professionals dedicated
to the care of older adults.
Geriatricians are physicians who specialize in caring for older
persons in all settings of care. Geriatric medicine promotes preventive
care and care management that helps patients maintain functional
independence in performing daily activities and improves their overall
quality of life. When maintenance of function is not possible,
geriatricians seek to optimize quality of life in the context of
limited functioning. With an interdisciplinary approach to medicine,
geriatricians typically work with a coordinated team of other
providers, caring for the most complex and frail of the elderly
population.
Many geriatricians spend part or all of their time in long term
care settings, including a broad range of medical, social, personal
care and supportive services provided to persons with limitations in
basic and instrumental activities of daily living (ADLs), such as
bathing, dressing, or eating. It is important to recognize that we
cannot define long term care as a list of settings or as a set of
defined services. Equally important to understand, it is not possible
to accurately predict a person's long term care choices by knowing his
or her diseases, functional status, or cognitive abilities. Instead,
one must have a comprehensive picture not only of these factors but
also social resources (the scope and depth of the caregiving network),
psychological states, and personal preferences. At the present time,
our current, fragmented long term care system too often creates an
artificial gap between the medical components of long term care and the
equally as important non-medical components. In a long term care
population, medical needs and supportive care are inextricably
intertwined.
Today I will focus on the following areas:
Long term care: The past and present
Long term care policy: How we allocate resources
Comprehensive assessment: A method to assess needs
Attaining an adequate long term care workforce
Long term care: Costly but often inefficient
Modernization: Using successful intervention studies to
shape long-term care
The Baby Boomers and the future
Long term care--The Past and Present
When employed properly, long term care services can serve many
purposes. Long term care can complete essential medical care begun in
acute care hospitals, smooth the transitions between hospital and
nursing home or nursing home to home, fill unmet need for basic or
instrumental activities of daily living, defer the need for
institutional care, provide relief to caregivers, and prevent
unnecessary hospitalizations and emergency room visits. As it is
structured in our nation, however, long term care has yet to fulfill
its potential. As we face the demographic imperative of the aging baby
boomers (a group to which I proudly belong) it is imperative that we
organize long term care to fulfill its potential over the next 40 years
after which most of us will be gone and need will decline.
Our current long term care system is not well designed to provide
ongoing support of chronically ill, functionally impaired persons. A
woman reaching age 65 can now expect almost twenty additional years of
life, but over five of those years are likely to be spent with some
degree of disability, and she has a 40 percent chance of spending some
time in a nursing home. Interestingly, despite an increase in the
number of aged persons, nursing home use has remained relatively static
during the last decade, a fact which may in part be explained by older
persons preferences for other long term care settings such as assisted
living and in part by slight declines in disability rates in old age.
Today, unpaid family caregivers provide most long term care
informally, but many persons must rely on formal or paid care as a
supplement or a sole source of care. Unfortunately, our nation's system
of long term care is neither integrated nor comprehensive, but rather a
fragmented patchwork of payers, providers and settings, government and
private programs, and formal (paid) and informal (unpaid) caregivers.
This mix of programs provides varying services and often has confusing
and differing eligibility criteria, enrollment processes, access points
and financing systems. Access to long term care varies significantly
from state to state and from payer to payer. Today, we face the
challenge of modernizing care to include proven methods, accommodate
consumer expectations, incorporate new technologies, and maximizing the
partnership between private and public sources of funding.
This is best explained through a common patient example. An 88
year-old woman lives in her home, falls and breaks her hip. She is sent
to the hospital where Medicare covers her care. Following her surgery,
she is sent to a nursing home for rehabilitation, also covered by
Medicare. However, when her therapy is completed she is less
independent and therefore cannot return to her home. She qualifies for
Medicaid coverage in the nursing facility, but NOT for enhanced
services that would allow her to return safely home. After several
months at the nursing home, she develops a urinary tract infection and
needs antibiotics and IV therapy. Unfortunately, Medicaid will not
cover this service in the nursing home, but Medicare will cover it in
the hospital. The woman is transferred back to the hospital. This
chaotic, payment-driven approach to care is played out thousands of
time each day throughout the country. It does not serve the patient
well.
Long term care today is undergoing a transformation similar to that
experienced by acute care over the last two decades. As acute care was,
long term care today is still largely provided in institutional
settings with only a few states spending more on home--and community-
based care than on nursing homes. Many long term care payment systems
have become resource-based rather than charge-based, forcing providers
to carefully evaluate the mix, intensity and duration of services that
can be offered, resulting in marked variations in service availability
and quality across the nation.
At the same time, providers and consumers have come to understand
that services once thought to be safe only within institutional walls
can be safely, more economically, and more comfortably provided in
home--and community-based settings. Consumers of care, their families
and caregivers are no longer satisfied accepting the settings and
services that some agency or authority prescribes. Instead, they expect
services that fill the needs they perceive and services that are more
easily consumer-directed or modified. Long term care financing and
eligibility systems have not yet adapted to changes in the public's
attitudes or to the expanded array of long term care settings, services
and technologies. In many ways, while long term care delivery has
evolved, our public policy and financing have remained static. Public
policy must adopt a paradigm shift that acknowledges these changes;
updating and reforming the long term care system of today.
Long term care Policy: How we allocate resources
At the present time, publicly and privately funded long term care
systems do not have a coherent method of allocating resources across
programs or targeting services according to an individual's need or
potential benefit. Instead, any person who satisfies eligibility
criteria is entitled to receive a service package that often is not
matched to need or titrated to potential benefit. Despite their
recognition of the importance of institutional and home- and community-
based long term care services, there is no consensus among private or
public payers about the role of these services, the population to which
they should be targeted, or the scope and duration of services that
should be provided. Long term care services are popular with consumers
and have been codified in statute and regulation as entitlements to
eligible persons who have severe functional impairments, skilled needs,
or who are at risk for institutionalization. The status quo has become
ingrained and made changes in eligibility for, targeting of, or defined
limitations of scope or amount of long term care difficult to propose
or evaluate.
One interesting approach to allocation of long term care resources,
as proposed by William Weissert in a recent Journal of Aging and Health
article, would be to characterize the eligible long term care
population with respect to different types of risk, e.g., risk of
hospitalization, functional decline and/or institutionalization. Each
of these risk profiles may benefit from different intensities and mixes
of services. For instance, those at risk of hospitalization may require
more nursing than unskilled care. The plan of care might include a
focus on patient/caregiver education and illness management. In
contrast, moderately frail persons at risk for functional decline may
benefit from rehabilitation-oriented interventions that restore
function and lower risk for decline or institutionalization. Persons at
the highest risk for institutionalization (those with more functional
disabilities who require heavier care) may be able to defer
institutionalization if more home care provides sufficient unskilled
services to meet functional needs.
First, under this system, the government would establish clear
financing for services for persons with long term care needs. Once
eligibility for services has been established, a systematic method
could be used to `titrate' services on the basis of risk of adverse
outcomes, effectiveness of the in-home services of mitigating the risk,
and the value (or cost) of the outcome to be avoided. Long term care
providers could be provided with an individual patient's profile of
estimated risks of death, functional decline, hospitalization and
nursing home admission. A projected budget could be developed based on
each person's risk of each of the outcomes and a plan of care developed
within that budget. For instance, persons at high risk of
institutionalization (the most costly outcome) would have a higher
monthly budget for care than persons at low risk. A person with high
risk of all of the adverse outcomes: hospitalization,
institutionalization, functional decline and death would have the
highest budget.
Our current long term care system would make such a system
difficult to propose or to evaluate. Most significantly, the current
system utilizes a cliff approach whereby Medicaid covers the majority
of long term-care services for persons in nursing homes. Those who do
not meet the eligibility criteria for spend down or the limited
Medicare benefits do not receive government-financed long term care.
Medicaid is not a satisfactory solution. It's a critical safety net,
but we need to find a more comprehensive and even way to meet the long
term care needs so the burden doesn't fall to the states. We must
change this approach through the development of a meaningful long term
care benefit for all that need it. The reallocation of resources
discussed above could help defray some of the costs of such a benefit.
Comprehensive assessment--a method to assess needs
The AGS believes that a comprehensive assessment by qualified
providers of geriatric care should precede the prescription of long
term care. Often long term care services are allocated according to
eligibility, rather than being based on a care plan derived from a
comprehensive assessment that evaluates needs, elicits preferences, and
establishes goals. For any person, it is very difficulty to create a
package of long term care services that addresses both medically
necessary care for illnesses and supportive care for the functional
deficits that are the consequence of disease. The package should also
address personal preferences for care design.
The ability to perform assessment is limited by the different
eligibility criteria and different methods of resource allocation
employed by the States and the federal government. Medicare provides
short-term nursing home care for persons recovering from acute illness
and injury and provides medically necessary skilled home health care
services to homebound Medicare beneficiaries. Personal care and
homemaker services are restricted to situations in which they are
incident to the skilled care needs and in cases where they facilitate
treatment or to maintain health. So, Medicare home care largely focuses
on medical needs and does not support the functional needs that are
present in many persons requiring long-term care. States provide
nursing home care for very low income persons who meet minimum
functional criteria. Access to Medicaid funded alternatives to nursing
home care, such as in-home personal care or chore services, adult day
health care or care in assisted living settings is highly variable from
State to State. Hence a person who requires both skilled care and
personal care must rely on a patchwork of programs that are not
integrated, not based on identified needs or treatment goals. Too
often, the program fragmentation deters appropriate assessment to
promote the highest level of quality care and patient choice.
Long term care--An adequate workforce
We are faced with growing workforce shortages in all long term care
settings. The AGS highly values direct caregivers in our nation's
nursing homes, home care agencies and other long term care settings.
Not only must they have the requisite knowledge and skills, but also
their attitudes while delivering hands-on care can influence the
success of care and affect quality of life for vulnerable elders.
Compassionate, competent care must be our goal.
National policy and action will be required to create and maintain
a workforce qualified to deliver skilled, competent compassionate
geriatric care. There is already a shortage of physicians, nurses,
social workers, and personal care providers who are trained in
geriatric care. Unless action is taken to meet future need, drastic
shortages will occur over the next decade. Our current long term care
financing system is not designed to support a workforce sufficient in
numbers, skills, stability, and commitment to geriatric care. To
increase recruitment into geriatric disciplines, trainees must envision
a bright future in geriatric care, have role models who enjoy their
work and feel satisfied with their lifestyle. Given the current low
recruitment rates, measures to ``jump-start'' recruitment into the
geriatrics disciplines are justified and are urgently needed. The
measures should include loan-repayment for geriatric trainees and
support for advanced fellowships to train geriatricians in research,
administrative, and educational skills.
Long term care is costly but often ineffective
About 10 million people in the U.S. need long term care, with about
two-thirds of this population comprised of the elderly. Most of these
individuals live in the home and community, but as their needs progress
they may require long term nursing home care. According to the Centers
for Medicare and Medicaid Services (CMS), national health expenditures
for nursing home and home care were approximately $139 billion dollars
in 2002. Of that cost, approximately 55% is funded by the Federal and
State Governments, 32% comes from out of pocket payments by consumers
and 11% from private insurance. Although long term care insurance
vehicles are increasing in number, a relatively small number of
individuals have purchased such insurance.
Long term care insurance is not yet a viable option for many
Americans. Private options tend to be less appropriate for those with
modest means. Tax incentives for private long term care insurance
primarily benefit the higher income. Additionally, premiums are often
unpredictable over the long term. Long term care insurance premiums
often increase dramatically as individuals age, meaning that people
drop their policies just when they need them most. In fact, as a baby
boomer and a geriatrician I have neglected to purchase a long term care
policy because it is of limited value.
Despite these large expenditures described above, our fragmented
system is inefficient, costly and lead to poor outcomes. Lack of
coordination among settings and providers of care is a serious problem.
Often there is inadequate transmission of information among providers,
inadequate assessment of patient needs, poor care during transitions,
and both under- and over-medication and health care utilization.
Vulnerable persons often find themselves in long term care programs
that use a `one size fits all' approach where services are not matched
to their needs or available in a timely fashion when need arises. The
absence of flexibility in long term care programs poses a barrier to
`just in time care' which has the potential to prevent hospitalization
or emergency room care.
The current system lacks proper incentives for promoting
alternative delivery systems. For instance, many consumers have
indicated a preference for care in the home and community. But, our
current system of financing has a strong institutional bias. While the
majority of persons with long term care needs (83 percent) live in the
community, 78 percent of their help is from unpaid sources such as
family and friends. Government financing as well as long term care
insurance favors institutional settings. Congress should promote
alternative delivery systems, such as early intervention and care
management in nursing homes and the community, as well as greater use
of home and community based care when appropriate.
The long term care system needs modernization and we urge Congress
to thoughtfully consider these issues before enacting sweeping change
in long term care programs. Improvement in the long term care delivery
systems requires innovation and investment in development and testing
of new models of care. We urge Congress to fund evaluation of new
models of long term care and use the results to modernize the system.
Modernization: Using successful intervention studies to shape long term
care
To achieve improvements in functioning and achieve reductions in
avoidable health care utilization, long term care programs must have
the flexibility to pattern themselves after proven interventions. The
most effective models of care incorporate coordinated interdisciplinary
team care. Although most nursing homes and home and community-based
services are delivered under a plan of care approved by a physician,
there is no real integration of health care professionals and personal
care providers into a functioning interdisciplinary team that
coordinates medical, social, rehabilitative, and other services. Case
management models that use either nursing or social work personnel that
are not members of integrated teams do not appear to either avoid costs
or promote function. In the last decade, numerous examples of models of
care that are characterized by integrated interdisciplinary teams have
emerged. Policy makers in a position to influence the direction of home
and community based services may wish to incorporate lessons learned
from these trials.
One model of care is based on comprehensive geriatric assessment.
In this model an integrated interdisciplinary team assesses the patient
and, in consultation with the patient and caregiver, develops a plan of
care. Part or all of the assessment may be conducted at home and home
visits may be a part of the intervention.
A different and successful model of care targets short-term home
care services not toward meeting needs for ADL support or skilled care,
but rather to the mitigation of specific risks or conditions. An
interdisciplinary assessment followed by a twelve-week intervention to
reduce risk of falls was highly successful in reducing fall risk by
almost one-third. A highly focused short-term rehabilitation
intervention in the home has been shown to significantly reduce the
risk of functional decline in persons who are only moderately frail and
have not yet developed significant ADL disability. These interventions
suggest that highly focused, intensive, short-term, home-based care can
be successful in addressing common geriatric conditions and preventing
functional decline, often in persons who would not meet either skilled
need or disability criteria for home and community based long term
care. Despite these positive outcomes, today's long term care system is
not structured to permit such uses of home care or rehabilitation
services.
Long term care and Baby Boomers--The Future
Long term care needs will explode in the next few decades as baby
boomers like me age. Baby boomers are less likely to be satisfied with
a narrow range of long term care programs or to be forced into one size
fits all programs like traditional nursing home or home care. We are
informed consumers and expect to be able to pick and choose among
services to select those that we feel may best meet our needs. Indeed
the long term care marketplace is evolving quickly and providing an
large array of available services: assisted living, retirement
communities, personal assistants, shopping and transportation services,
personal care homes among others. Baby boomers have increasing
sophistication about program characteristics such as quality
indicators, and are willing to embrace new technologies such as
telehealth.
The challenge to today's policy makers will be how to most
effectively marry public and private funding for long term care. How
can we encourage the purchase of long term care insurance? What is the
optimum cost-sharing methodology that will permit access to necessary
care, encourage participation of families and caregivers in care, and
discourage over-utilization? What public policies will support the
development and maintenance of a workforce of providers highly skilled
in geriatric care? What set of regulations and policies will give long
term care providers the flexibility to target resources according to
need and to potential benefit? What is the appropriate mix of provider
directed and consumer directed care? All of these questions will need
careful deliberation by public and private entities as we move to
modernize the system.
The American Geriatrics Society would like to work with the
Subcommittee to resolve the issues these issues. We thank you for
including us in today's important hearing.
Chairman JOHNSON OF CONNECTICUT. Thank you very much, Dr.
Gerety. Mr. Stinson.
STATEMENT OF BUCK STINSON, PRESIDENT OF LONG TERM CARE
DIVISION, GOVERNMENT RELATIONS, GENWORTH FINANCIAL
Mr. STINSON. Thank you, Mrs. Johnson. Distinguished Members
of the Committee, thank you for inviting Genworth Financial to
testify at today's hearing. We believe that long-term care is
an often overlooked, yet critically important Federal policy
issue and are pleased that you have decided to have an open
discussion about our Nation's long-term care needs. I am the
President of Genworth Financial's Long Term Care Insurance
Division. Genworth Financial is a Richmond, Virginia based
company which provides life, health, retirement, and mortgage
insurance products to more than 15 million customers in 22
countries. We are the largest and most experienced long-term
care insurance provider in the country, with more than 30 years
experience and more than $500 million in claims being paid
every year.
We will submit more extensive information in our written
testimony to the Committee, but for now I think it would be
most helpful if I touch on a couple of the populations that we
have learned over the years and what we think it means to long-
term care marketplace. As a private long-term care insurance
company, we take our job very seriously. We believe that we
provide policies that protect people from potentially
catastrophic consequences and allow them access to quality care
environments. The expected growth in the number of people
needing long-term care is staggering. Based on Genworth's
unique 30 years of long-term insurance claims history, 60
percent of those reaching age 65 use long-term care at some
point in their lives. There are more than 6.2 million Americans
that own long-term care insurance today. Since 1996, the
average age of purchase of long-term care insurance has
radically dropped 10 years, from age 69 to age 59. This
customer is married and likely to be college educated. Where
our customer used to be post-retirement, today's customers are
baby boomers who purchased the product as part of a larger
financial plan.
The long-term care insurance market has evolved from
nursing home only to one that offers flexible care options and
numerous consumer protections. For example, of the top long-
term care insurance salaries, coverage now includes flexible
plans covering nursing homes, assisted living facilities, home
health care, hospice care, and respite care; strict adherence
to consumer protections in line with HIPA and the National
Association of Insurance Commissioners (NAIC); benefits
including case management services, home care, or chore
services; coverage of some medical equipment; survivor benefits
and care giver training. Due to consumer interest in limited
pay policies, some companies offer these types of policies as
well in different variations. For example, single pay, 10 pay,
or pay to 65. Benefits through policies are triggered when the
policyholder has cognitive impairment, as an example suffering
from Alzheimer's or they need assistance in performing two or
more activities of daily living, such as bathing or dressing.
Plans are guaranteed renewable, meaning that the insurer cannot
change the terms of the policy coverage as long as the policy
holder continues to pay the premium.
Rates cannot be raised without approval from the State
Departments of Insurance. Coverage also includes a 30-day free
look period, and some companies offer a return of premium
feature that allows the refunding of premiums paid if the
policy ever dies before a certain age. We believe that over the
time the long-term care insurance market will continue to
expand as a result of aging demographics, increasing health
care and nursing care cost, growing awareness of the
limitations of government programs, and increasing public
awareness of the benefits of private long-term care insurance.
However, more must be done. We believe that a public education
effort must be a critical component of the expanding awareness
of the true cost and likelihood of long-term care needs. Many
non-buyers mistakenly believe that their health insurance or
Medicare provides coverage for long-term care. Generally
speaking long-term care is very expensive. Depleting the
perspective according to a 2004 Genworth Study on the cost of
care, the average nursing in the United States cost $65,200 per
year. Yet only 7 percent of seniors have said enough money to
cover even 1 year of nursing home care.
Assisted living facilities cost on average $28,800 per
year. There is no magic wind that will solve the long-term
financing problems that are looming for millions of Americans.
In the end, many different approaches will have to be applied
if we are to solve the problem. We believe it is important for
private industry to be a part of the solution. Two partial
solutions that we urge the Subcommittee to explore are tax
incentives for long-term care insurance and public education. A
great example of an effective awareness campaign is the recent
Department of Health and Human Services (HHS) and Center for
Medicare and Medicaid Services (CMS) ``Own Your Future''
program, which was launched earlier this year and in five pilot
States--Virginia, Nevada, Arkansas, Idaho, and New Jersey. We
believe this type of program--this is the type of program that
should expanded nationwide. Madam Chairwoman, we want you to
know that we applaud your efforts to bring attention to this
issue from these hearings today, to the legislation that you
have proposed to enact an above the line tax deduction for
long-term care insurance premiums.
As the market leader, we fully support tax incentives for
the purchase of long-term care insurance, and we offer your
support to help you achieve this goal. Just last month, we
hosted a forum on Capitol Hill to present focus group findings
on long-term care policy to many of your staff. The research
confirmed what many of us in the industry have long suspected
that many Americans do not understand that they have a huge
potential long-term care financing burden hanging over their
heads. We would be happy to present it to you and your staff
members, as well as discuss other ways we can develop research
and find answers to the long-term care policy problems. Let me
close by telling you that we are committed to being a partner,
a resource, and an asset to this Committee on both sides of the
aisle. We are eager to work with you and your staff to share
our abundant data and to conduct new research as needed. We
know that long-term care insurance is not the solution for
everyone; however, we believe it has to be a part of the
broader solution that leads to a better long-term care strategy
for our country. Thank you for the opportunity to be here
today.
[The prepared statement of Mr. Stinson follows:]
Statement of Buck Stinson, President of Long Term Care Division,
Government Relations, Genworth Financial
Genworth Financial is a Richmond, Virginia based company, which
provides life, health, retirement and mortgage insurance products to
more than 15 million customers in 22 countries. Our long-term care
business is the largest and most experienced provider in the country,
with more than a million customers and over $500 million in claims
being paid every year.
We believe that long-term care is an often overlooked, yet
critically important federal policy issue and are pleased that you have
decided to have an open discussion about our nation's long-term care
needs. As a private long-term care insurance company, we take our job
very seriously. We provide policies that protect families from
potentially catastrophic consequences and allow them access to quality
care environments.
Current Trends in Caring for Our Aging Population
Americans are living longer with the oldest of the 77 million baby
boomers reaching retirement age in 2008. The most significant growth
will be among those 85 and older, a segment that will more than triple
in size to 5.2 percent of the population by 2050. This surge in our
elderly population will create an acute demand for long-term care (LTC)
services.
Long-Term Care Differs
Long-term care is different than what most of Americans think of as
health care, and it isn't usually covered by health insurance policies,
HMO plans or Medicare supplemental policies. Both Medicare and most
health insurance policies are designed to cover expenses resulting from
ordinary doctor care or hospital stays.
The Congressional Budget Office estimates that total expenditures
for long-term care services for the elderly in 2004--excluding the
value of donated care--will total $135 billion. Of that, nearly a third
is paid out of pocket.
Long-term care needs are typically triggered by the need for
assistance with activities of daily living, including bathing, eating
or dressing, as well as cognitive impairment resulting from illness
including dementia and Alzheimer's disease. Long-term care can range
from basic help with chores and activities in your own home, assistance
with activities of daily living in an assisted living facility or
highly skilled care in a nursing facility. The possibility of needing
long-term care due to an illness or physical disability is something
most people don't like to think about. But as we age, and because
Americans are living longer, the likelihood that we will need some kind
of assistance is very real.
The expected growth in the number of people needing long-term care
is staggering. Sixty percent of those reaching the age of 65 are
expected to need long-term care at some point in their lives[1]
According to the AARP, seven million people over the age of 65 needed
long-term care in 2001 and by 2020, the number is expected to increase
to 12 million.
Caregiver Changes
Traditionally, long-term care needs are taken care of within the
family, with nearly 70 percent of elderly individuals receiving
volunteer help from their personal network. Over the next several
decades, that number is expected to drastically decline due to several
factors. With the size of the American family getting smaller, there
are fewer adult children to take care of elderly parents--and these
children live farther away from their parents than they did a
generation ago. In addition, there are more women--the traditional
caregivers--in the workforce, and studies have shown that care giving
at home suffers proportionately with hours of employment[2]
Long-Term Care Payment
Beyond their families, Americans have several options when it comes
to receiving and paying for long-term care, but few are prepared for
the financial reality or the impact on their assets.
We often underestimate the costs of long-term care. With nursing
home care averaging $65,200 (daily rate of $179) per year, savings and
assets may be quickly diminished. According to the 2004 Genworth Cost
of Care Survey, the problem is even more acute in urban areas, where
nursing home care costs are 20 percent higher than in rural or suburban
areas. In some states, such as New York, California and Minnesota, the
cost of urban area care was more than 40 percent greater than in non-
urban areas of those states. The survey queried more than 6,000
providers in 88 separate regions, including nursing homes, assisted
living facilities and home care providers. These numbers become
especially daunting when we consider that ten percent of those entering
nursing homes will stay there for five or more years.\3\
Average Costs of Long Term Care in the United States:
------------------------------------------------------------------------
------------------------------------------------------------------------
Nursing Homes $179.00 per day
------------------------------------------------------------------------
Assisted Living Facilities $79.00 per day
------------------------------------------------------------------------
Certified Home Care $20.08 per hour
------------------------------------------------------------------------
Source: 2004 Genworth Cost of Care Survey for Nursing Homes, Assisted
Living Facilities and Home Care Providers
Most Seniors Unprepared
Most seniors are not financially prepared to pay for these long-
term needs. According to a study done by the Bureau of Census, only
seven percent of American seniors have enough saved to cover even one
year of nursing home care.\4\
Most Americans are also not wealthy enough to fully fund their
long-term care needs through private savings. Many rely on public
programs provided at taxpayer expense by the state and federal
government. However, the majority of Americans are unaware of the fact
that Medicare is not intended to cover the majority of long-term care
expenses, and Medicaid coverage for long-term care only becomes
available if and when an individual depletes most of their savings and
assets or that Medicaid can recoup long-term care expenses after a
covered individual's death by foreclosing on that individual's house.
State Medicaid programs force seniors to ``spend down'' their assets,
essentially spending all of their savings and assets before they will
cover expenses such as nursing home care. In fact, according to the
Department of Health and Human Services, this accounts for more than
half of the nursing home residents, who ``have become poor enough'' to
qualify for Medicaid coverage.
Nearly one-third of all long-term care bills are paid by
individuals and families out-of-pocket. As a result, 70 percent of
single people and 50 percent of married couples who require long-term
care become destitute.\5\
Even those seniors who believe they have saved enough may still be
in trouble. The one thing that none of us can predict is the length or
extent of any impairment that may befall us.
Long-Term Care Insurance Helps Americans Plan for Long-Term Care Needs
Long-term care insurance allows people to pay certain, smaller
payments now in order to ensure that they can afford the long-term care
coverage they likely will need later in life, instead of taking the
financial risk of losing their life savings in order to become eligible
for government programs.
In addition to ``sharing the risk'' with others to mitigate the
costs, long-term care insurance often allows policyholders more choices
and greater quality of care.
According to LIMRA International, there are 6.2 million Americans
who own long-term care insurance today. Despite those positive numbers,
there remains a general lack of understanding with respect to LTC
insurance that leaves many people baffled, discouraged and, in the end,
unprepared to meet their own needs.
With more than 30 years of experience, Genworth has also been at
the forefront of identifying emerging trends and working with health
and advocacy experts to develop better forms of coverage and
protections. Most significantly, Genworth has determined that nearly 50
percent of all the company's claims paid over time have been for care
provided to patients with Alzheimer's and other forms of dementia. With
four and a half million Americans currently diagnosed with Alzheimer's,
and the number projected to grow to 14 million in coming decades, this
is an important chronic illness to plan for early on in life.
Policy Coverage and Offerings
Planning for future long-term needs by securing a long-term care
insurance policy is one way Americans can help ensure that they retain
their independence and quality of life as they age. Industry trends
indicate that the baby boom generation is gaining an appreciation for
long term care insurance as evidenced by more Americans planning for
their long-term needs earlier. The average age of people buying long-
term care insurance has shifted dramatically from post-retirement to
pre-retirement. Since 1996, the average age of individuals purchasing
long-term care insurance has dropped from 69 to 59. One explanation of
this trend can be attributed to the baby boomers planning ahead, as
they see how their parents' needs for long-term care are addressed.
Of the top 13 companies providing long-term care insurance, there
have been more than $8 billion in claims paid through 2002. The 13
largest companies offer policies to individuals ranging in ages from 18
to 99, provide a $50-$600 per day benefit, guarantee renewability and
offer many different options for coverage and inflation protection.
In addition to ``sharing the risk'' with others to mitigate the
costs, long-term care insurance often allows policyholders more choices
and greater quality of care. For instance, the market has evolved from
nursing home-only to one that offers flexible care options and numerous
consumer protections.
Most policies allow customers to choose between in-home care,
assisted living facilities and nursing homes, encouraging the
individual and their families to customize his or her care needs. In
addition, policies offer the services of a local care coordinator that
meets with a policyholder at the time of claim to help craft a plan of
care and identify local care providers. There is a chart in the
appendix that illustrates the typical coverage offered by the top long-
term care insurance sellers.
The most recent study of industry-wide data and trends was
conducted by America's Health Insurance Plans (AHIP) in 2002.
At that time AHIP found that:
Approximately 80 percent of all long-term care insurance
policies were sold through the individual market. Ninety-four percent
of long-term care insurers sold in this market.
In contrast, as of December 31, 2002, 28 percent of the
2002 long-term care insurance carriers sold policies in either the
employer-sponsored or life insurance markets. This is in comparison
with only 14 percent in 1988. The employer-sponsored and life insurance
markets also represented 21 percent of all long-term care policies sold
as of 2002, up from less than 3 percent in 1988.
This study validates the persistency of long-term care
insurance coverage. Findings from this study show significantly lower
than expected lapse rates.
Long-term care insurance carriers paid more than $8
billion in benefits to their claimants through 2002.
More than 280,000 new long-term care insurance
policyholders, representing almost one-third of all policies sold in
2002, purchased their coverage though their employer. A significant
portion of this growth can be attributed to the launching of the
Federal Long-Term Care Insurance Program. This program made long-term
care insurance available to federal government employees and annuitants
and their qualified dependents and relatives.
As in previous years, the long-term care insurance market was
concentrated among a relatively small number of sellers. Thirteen
companies represented approximately 80 percent of all individual
policies sold in 2002. AHIP also conducted an in-depth look at the top
sellers' latest policies and found that these insurers offer policies
with a wide range of benefit options and design flexibility at
moderately priced premiums. Its key findings were:
All companies offer plans covering nursing home, assisted
living facility, home health care, hospice care, respite care, and
alternate care services.
Other common benefits include case management services,
homemaker or chore services, restoration of benefits, reimbursement of
bed reservations in long-term care facilities, coverage of some medical
equipments, survivorship benefits, and caregiver training.
Spousal discounts are more prevalent and offer
significant reductions in premiums. The discount ranges from 10 to 40
percent.
There appears to be consumer interest in limited pay
policies and some companies are beginning to offer these types of
policies in different variations, such as single pay, 10-pay, and pay
until 65 options.
Criteria used for benefit eligibility is deficiency in
performing activities of daily living (ADLs) and cognitive impairment.
All plans are guaranteed renewable, have a 30-day ``free
look'' period, cover Alzheimer's disease, have a waiver of premium
provision, and offer unlimited or lifetime nursing home maximum
periods.
All companies use a six-month or less preexisting
condition limitation.
Age limits for purchasing continue to expand. Companies
offer individual policies to people as young as 18 and as old as 99.
All plans offer the National Association of Insurance
Commissioners (NAIC) Long-Term Care Model Act and Regulation inflation
protection requirement of benefits increasing at an annual 5 percent
compounded rate, funded with a level premium.
All companies offer plans that have a nonforfeiture
benefit; shortened benefit period is the most common type offered.
Future Outlook
Over time, the long-term care insurance market will continue to
expand as the result of aging demographics, increasing healthcare and
nursing care costs, growing awareness of the limitation of government
programs and the increasing public awareness of the benefits of private
long-term care insurance.
However, more must be done. There is no magic wand that will solve
the long-term care financing problems that are looming for millions of
Americans. In the end, many different approaches will have to be
applied if we are to solve the problem.
While Congress has done a great deal to encourage private
retirement planning, long-term care planning has been largely
unaddressed. We believe it is important for private industry to be
part of the solution, both in terms of educational awareness and
legislative policymaking.
There are several policies that could make a great impact on both
American's long-term care needs and the federal budget. Financial
incentives, most notably in the form of some level of tax
deductibility, would most likely produce the greatest stimulus for more
Americans to better plan for their future health needs. Public
education and greater cooperation between the public and private
sectors could also make a very significant contribution to easing the
pressures that are currently building.
Genworth recognizes, as part of its corporate mission, an
obligation to raise the public's awareness of the impending long-term
care challenges. The company is also fully committed to working in
partnership with policymakers and consumer advocates to better serve
the needs of the nation's aging population.
Just last month, we hosted a forum on Capitol Hill to present focus
group findings by noted researchers Bill McInturff of Public Opinion
Strategies and Geoff Garin of Peter D. Hart Research on long-term care
policy to many of your staff.
The research confirmed what many of us in the industry have long
suspected--that many Americans do not understand that they have a huge
potential long-term care financing burden hanging over their heads.
We would be happy to present it to you or your staff members, as
well as discuss other ways that we can develop research that finds
answers to our long-term care policy problems.
A great example of an effective awareness campaign is the recent
HHS and CMS ``Own Your Future'' program which was launched early this
year in five pilot states (VA, NV, AR, ID and NJ) We believe this
should be expanded nationwide.
In closing, we want to assure Members of the Committee, as well as
staff, that we are committed to being a partner, a resource and an
asset on both sides of the aisle. We are eager to work with you to
share our abundant data and to conduct new research as needed. We do
not have all of the answers, but we hope to be part of the solution
that leads to a better long-term care strategy for our country.
Thank you for the opportunity to provide this testimony to the
Committee.
Appendix
Source: American Health Insurance Plans; Long-Term Care Insurance
in 2002
---------------------------------------------------------------------------
\1\ Employee Benefit News, A Federal Case for Long Term Care, 2/02/
03.
\2\ The Tradeoff Between Hours of Paid Employment and Time
Assistance to the Elderly, Urban Institute, February 2000.
\3\ U.S. Department of Health and Human Services.
\4\ 1996 Survey of Income and Program Participation, U.S. Census
Bureau, adjusted by CBO for 2000.
\5\ Fischer Center for Alzheimer's Research Foundation, Why Should
I Buy Long-Term Care Insurance?
---------------------------------------------------------------------------
Chairman JOHNSON OF CONNECTICUT. Thank you very much, Mr.
Stinson. Doctor Meiners?
STATEMENT OF MARK R. MEINERS, PH.D., PROFESSOR AND DIRECTOR,
CENTER FOR HEALTH POLICY, RESEARCH AND ETHICS, GEORGE MASON
UNIVERSITY, ARLINGTON, VIRGINIA
Mr. MEINERS. Thank you for inviting me to speak on a topic
that has been new and dear to me for many years. In my
testimony today, I want to focus on two of the programs I have
been working on-the Partnership for Long-Term Care and the
Medicare-Medicaid Integration Program. Each of these programs
provide excellent case studies of the creativity and
perseverance States have demonstrated in carrying out their
long-term care responsibilities in the face of often times
great barriers. It is the barriers with which we need your
help. States are hungry for workable models to deal with their
long-term care responsibilities. There is general recognition
of the need to improve the health care delivery system for
those with chronic care needs. A commonly accepted premise is
that to make progress, we must improve the integration and
coordination of acute and long-term care. To do this, health
plans and providers must experiment with systems of care and
financing. But I want to start with the financing option that
is known as the Partnership for Long-Term Care because, as many
of you know, form tends to follow finance in health care.
The Partnership for Long-Term Care is a state-based program
developed with the support of the Robert Wood Johnson
Foundation. The program is designed to stimulate long-term care
insurance market by helping to balance the difficult competing
pressures between product value and price. Four States-
California, Connecticut, Indiana, and New York-are currently
operating the public-private partnership which provides
consumer special protection against depletion of their assets
in the financing of long-term care. The Partnership long-term
care insurance policies work in the following way: By buying a
Partnership Policy, a person qualifies for Medicaid benefits
under special Medicaid rules. When a Partnership Policy is
exhausted, the policyholder is permitted to retain assets equal
to the amount his or her insurance has paid out. There are some
nuances to this that allow for total assets model. We can talk
about that another time. The person is then eligible for
coverage under Medicaid without having to be impoverished.
Insurers participating in the Partnership must meet the program
certification standards. These standards ensure the
participating long-term care policies are of a high quality.
Among the standards required in each State are inflation
protection, minimum benefit amounts, and agent training.
Participating insurers are also required to provide the State
with information on purchasers of certified products and on the
utilization of benefits.
The program is fiscally conservative, helps middle income
people avoid impoverishment, serves as an alternative to
Medicaid estate planning, promotes better quality insurance
products which promote consumer protection efforts, enhances
public awareness regarding long-term care needs and options,
and helps maintain public support for the Medicaid program.
About $43 million in asset protection has been earned to date,
but the vast majority of that protection will never actually be
needed because in most cases the insurance covers the needs of
beneficiaries until they die. This is one of the unique
strengths of the Partnership. It provides a meaningful
incentive to prepare for the risk of long-term care with
insurance, while costing relatively little. Indeed, early
estimates and recent experiences suggest that the program can
save Medicaid costs. At least some of you Committee Members are
quite familiar with the Partnership Program having had a hand
in grandfathering the current States, giving them the right to
operate the program and it is part of the 1993 Omnibus Budget
Reconciliation Act. The same legislation, however, put
restrictions on wider State replication of this idea, which has
proved to be a major barrier to broadening the success of the
program. Without the repeal of the OBRA '93 restrictions on
partnership style asset protection, it has not been possible to
stimulate the multi-State interest necessary to justify the
commitment of resources by insurers and their agents to support
these alternative marketing strategies.
We respectfully ask you all to work with your colleagues on
the Ways and Means Committee to remove the OBRA restrictions on
the Partnership Program. In addition to financing innovations
like the Partnership, there is a profound need for new systems
of care that integrate the financing, delivery, and
administration of primary, acute, sub acute, and long-term
care. The current Medicaid crisis along with the new Medicare
prescription drug benefit and the increased recognition of the
high cost and unique care needs of many special needs
populations, including those eligible for both Medicare and
Medicaid, the dually eligible, has prompted renewed interest in
the integration of Medicare and Medicaid managed care.
Effective care management for such a population can best be
accomplished when health plans have the ability to coordinate
the service delivery and financing the entire continuum of
health and long-term care services. The current financing
delivery system contains many obstacles to the development of
such integrated care models. The Medicare-Medicaid Integration
Program, with the support of the Robert Wood Johnson
Foundation, has been working with States to help end the
fragmentation of financing, case management and delivery, and
service delivery that currently exists with our two main public
financing programs.
The ultimate goal of these efforts is to help evolve an
effective way for all populations in need of or at risk for the
full continuum of acute and long-term care services to get care
more efficiently and effectively. The Partnership for Long-Term
Care is a strategy that can help broaden the market for long-
term insurance. But financing is only part of the problem to be
solved. There needs to be systems of care that integrate acute
and long-term care so that the limited resources available are
spent wisely on behalf of the consumer. Together, Medicare and
Medicaid have an enormous impact on our health care delivery
system as well as on the private insurance market. We must
begin to recognize the critical interrelationship between these
two programs and approach Medicare-Medicaid modernization
efforts in tandem. Systems of care that integrate Medicare and
Medicaid for dual eligibles are beginning to show us how to
deal with the complex clinical, operational, and financial
problems that will increasingly confront us as our population
ages. These State-based efforts should be supported as good
investments in our future. Thank you.
[The prepared statement of Mr. Meiners follows:]
Statement of Mark R. Meiners, Ph.D., Professor and Director, Center for
Health Policy, Research and Ethics, George Mason University, Arlington,
Virginia
Chairman and members of the Subcommittee, my name is Mark Meiners.
I am a professor at George Mason University where I direct the Center
for Health Policy, Research, and Ethics. I specialize in the economics
of aging and health as it relates to public policy. For over 30 years I
have worked with the Federal government, state governments, the Robert
Wood Johnson Foundation and many others to develop and direct state
programs designed to improve our Nations' long-term care financing and
delivery systems. In my testimony today I want to focus on two of the
programs I am working on--the Partnership for Long-Term Care and the
Medicare-Medicaid Integration Program. Each of these programs provide
excellent case studies of the creativity and perseverance states have
demonstrated in carrying out their long-term care responsibilities in
the face of great barriers. It is the barriers with which we need your
help.
The Medicaid Crisis and State Initiatives in Long-Term Care
It is not surprising that states have been the focal point in
reform of long-term care. Much of long-term care is related to daily
living needs rather than health care needs. This tends to make the
approach to care more the concern of individuals and their communities.
Perhaps even more important, financing and administration of long-term
care under the Medicaid program has been an increasing burden for
states. Their desire to find alternatives to nursing home care has
provided most of the experience with program innovation.
States are hungry for workable models to help deal with their long-
term care responsibilities. There is general recognition of the need to
improve the health care delivery system for those with chronic care
needs. A commonly accepted premise is that to make progress we must
improve the integration and coordination of acute and long-term care.
To do this, providers must experiment with new systems of care and
financing.
The Partnership for Long-Term Care
The Partnership for Long-Term Care is a state-based program
developed with the support of the Robert Wood Johnson Foundation. The
Partnership program is designed to stimulate the long-term care
insurance market by helping to balance the difficult competing
pressures between product value and price. Four states (California,
Connecticut, Indiana, and New York) are currently operating this
public-private partnership which provides consumers special protection
against depletion of their assets in the financing of long term care.
The Partnership long term care insurance policies work in the
following way. By buying a Partnership policy, a person qualifies for
Medicaid benefits under special Medicaid rules. Once a non-Partnership
policy runs out, an individual must spend virtually all of their
savings before they qualify for Medicaid. In contrast, when a
Partnership policy is exhausted, the policyholder is permitted to
retain assets equal to the amount his or her insurance paid out (IN and
NY have allowed some policy holders to keep all remaining assets). The
person is then eligible for coverage under Medicaid without having to
be impoverished.
Insurers participating in the Partnerships must meet the program
certification standards. These standards ensure that participating
long-term care policies are of high quality. Among the standards
required in each state are inflation protection, minimum benefit
amounts, and agent training. Participating insurers are also required
to provide the state with information on purchasers of certified
products and on the utilization of benefits.
The Partnership states selected the strategy of linking the
purchase of long-term care insurance to Medicaid eligibility after
considering numerous alternatives. The program is fiscally
conservative, helps middle income people avoid impoverishment, serves
as an alternative to Medicaid estate planning, promotes better quality
insurance products which promote consumer protection efforts, enhances
public awareness regarding long term care needs and options, and helps
maintain public support for the Medicaid program.
Each of the four Partnership states maintains a web page full of
useful information that, among other things, tracks the experience of
their program for consumers, agents, and policy makers. For example,
approximately 238 thousand applications have been taken in the four
states since the start of the program. The average age of purchasers is
in the range of 58-63 and women comprise 55-60 percent of the
purchasers. For more information see: www.umd.edu/aging and go to the
Partnership for Long-Term Care. Links for each or the Partnership
States can be made from this web page.
About $43 Million of asset protection has been earned to date but
the vast majority of that protection will never be actually be needed
because in most cases the insurance covers the needs of the beneficiary
until they die. That is one of the unique strengths of the Partnership;
it provides a meaningful incentive to prepare for the risk of long-term
care with insurance while costing relatively little. Indeed early
estimates and recent experience suggest that the program can save
Medicaid costs. During the planning phase of the program (1991) we used
the Brookings-ICF Long-Term Care Financing Simulation Model and
identified potential savings gradually increasing so that by the final
estimation period of 2016-2020 there was a 7 percentage point decline
in Medicaid's share of the long-term care bill. More recently, the
Partnership states that are using the dollar-for-dollar model have
developed their own estimation strategy which shows their cumulative
Medicaid savings to date as being in the range of $8-10 million. While
it is always difficult to estimate with certainty the behavior change
that would come from a National Partnership model it seems clear that
the current Partnership States' experience are going in the direction
of the savings that were originally anticipated from the earlier
simulations.
The Partnership Balancing Act
Partnership policy sales indicate steadily growing interest in
public-private long-term care insurance policies. However, the numbers
also reveal that the public is still wary about the need for such
policies and needs positive reinforcement to consider such an
investment in their future. There are good reasons for this that
involve the differences in perspectives that have fueled the status
quo.
In the early stages of program development, arguments against the
Partnership were raised primarily by social insurance advocates who
viewed the program as an incremental step which would erode support for
more ambitious reform. As the Partnership was implemented, insurers
voiced their own dissatisfaction with certain aspects of the program
design because it deviated from some of the standard approaches used to
market this coverage and required extra attention beyond that for non-
partnership products. Not satisfying everyone exactly to their liking
is, after all, what we believe to be necessary for a workable public-
private partnership.
Most of the arguments for and against the Partnership share common
issues viewed from different perspectives. Central to the strategy is
the fact that Medicaid is the primary public payer for long-term care
that states are the key decision makers regarding Medicaid rules and
insurance regulation, and that the states need to be at least budget
neutral in their efforts to provide a positive incentive to the
insurance market.
OBRA '93 Language A Major Barrier to Replication
At least some of your committee members are quite familiar with the
Partnership program having had a hand in grandfathering the current
Partnership States the right to operate their programs as part of the
1993 Omnibus Reconciliation Act. That same legislation, however, put
restrictions on wider state replication of this idea which has proved
to be a major barrier to broadening the success of this program.
At the time when the Partnership programs were initiated, two
countervailing forces clashed. First, state interest in the Partnership
grew well beyond the four states funded by the Robert Wood Johnson
Foundation. In fact, 12 states passed enabling legislation to create
programs modeled on the RWJF program. Second, the Omnibus
Reconciliation Act of 1993 (OBRA '93), enacted the same year as the
RWJF Partnership was implemented, contained language with both indirect
and direct impact on the expansion of Partnership programs. Indirectly,
the Act closed several loopholes in the Medicaid eligibility process,
thereby providing further incentives for persons to purchase private
insurance for long-term care. The Act also makes specific mention of
Partnership programs. The statute contains a ``grandfather'' clause
which recognizes as approved the four initial states, plus a future
program in Iowa and a modified program in Massachusetts (protecting
only the home from estate recovery). These states were allowed to
operate their partnerships as planned since the Health Care Financing
Administration had approved their state plan amendments before May 14,
1993.
While states obtaining a state plan amendment after that date are
allowed to proceed with Partnership programs, they are also required to
recover assets from the estates of all persons receiving services under
Medicaid. The result of this language is that the asset protection
component of the Partnership is in effect only while the insured is
alive. After the policyholder dies, states must recover what Medicaid
spent from the estate, including protected assets. At the very least
this becomes a very complicated and convoluted message for consumers.
It also removes one of the major incentives people have to plan for
their long-term care needs. The effect has been to significantly stifle
the growing interest in replicating the Partnership in other states.
Promising efforts in Colorado, Illinois, Iowa, Maryland, Michigan, and
Washington, to name a few, were sidetracked by the impression that
Congress did not support this program.
Next Steps
Without the repeal of the OBRA '93 restrictions on Partnership
style asset protection, it has not been possible to stimulate the
multi-state interest necessary to justify the commitment of resources
by insurers and their agents to support these alternative marketing
strategies. But there is growing recognition that States need
flexibility in dealing with the pressures on the Medicaid system and
that private long-term care insurance is a needed alternative to public
financing. The National Governor's Association has for some time now
been calling for elimination of federal barriers to public-private
insurance partnerships like those in the RWJF states and the expansion
of authority to all states to implement such programs.
When the OBRA '93 restrictions are repealed, the current
Partnership States suggest the following core benefit and
administrative features be considered for a National Long-Term Care
Insurance Partnership Program. The idea is that a Partnership Rider be
created that could be attached to a federally tax-qualified long term
care insurance policy. The purpose of the proposed features is outlined
in brackets.
Rider Benefit Standards:
1.
Compound inflation protection at 5% annually for both the daily and maximum
benefit for all ages. [To protect both the consumer and the state's
Medicaid program.]
2.
Maximum lifetime benefit options must include 1 or 2 year plans (according
to state law/regulations). [Opens the market to the middle income consumer
who is most at risk of having to go through Medicaid spend-down. Protects
the state's Medicaid program.] Maximum lifetime benefit paid out in a pool
of money.
3.
Minimum daily benefit--calculation to be determined later. [To protect both
the consumer and the state's Medicaid program.]
4.
Tax-qualified plan that includes an assessment and plan of care developed
by a licensed health care practitioner who is independent of the insurance
company. ``Independent'' = not on the staff of the insurance company. [To
provide some level of standardization and to protect the consumer.]
5.
Reduced benefit offer, in place of lapsing, at original issue age and
taking into account accrual of inflation protection over time. [To protect
both the consumer and the state's Medicaid program.]
6.
Asset protection--start with the dollar for dollar model. [Currently in
existence are three models--dollar for dollar, total asset protection and a
combination of both dollar for dollar and total asset protection. Starting
with the dollar for dollar model would be the easiest for states to
implement with a budget neutral stance for Medicaid.]
7.
Coordination of benefits. [Protects the state's Medicaid program.]
Administrative/Regulatory Standards:
1.
Existing partnership programs would be allowed to remain as they are.
2.
Companies wanting to participate would sign a National Participation
Agreement. One agreement would suffice for all states. An Officer of the
company would sign the agreement. It would state the following:
a.
Partnership Riders may not be attached to home care only policies.
b.
Partnership Riders may be attached to tax-qualified policies that calculate
premiums based on issue age. No attained age premiums. [Protects the
consumer and the state's Medicaid program.]
c.
A Partnership Rider must be offered with all eligible tax-qualified
policies, with premium for the Rider being equal to the policy with a 5%
compounded inflation protection feature.
d.
The company agrees to abide by the reporting requirements (some type of
uniform system--could be the Uniform Data Set already in existence).
Reporting requirements are for the purpose of tracking participation and
tracking asset protection. The companies would submit data to a central
repository on a regular basis. States would have access to the data.
(Funding of the repository to be determined later.) [Protects the consumer
and the state's Medicaid program.]
e.
The company agrees to abide by the reporting requirements even if they
later decide to stop issuing Partnership riders.
f.
The company agrees to be audited by a State (in-person) after the first
Partnership policyholder has gone into benefit status. An audit performed
by one state will be accepted by all other states. However, any state may
perform an audit of that state's policyholders' records via mail or
electronic means. The purpose of the audit is to ensure accurate tracking
of asset protection. [Protects the consumer and the state's Medicaid
program.]
g.
The company agrees to provide quarterly asset protection reports to
policyholders who are in benefit status; and providing service summary
reports to policyholders who have exhausted policy benefits, lapsed their
policies, or upon the policyholders' requests. A copy of such reports will
be sent to the State. [Protects the consumer and the state's Medicaid
program.]
h.
The company agrees to obtain from, and provide a copy to, the applicant
consent to release information to the State as well as a disclosure form
(content to be determined later) that provides information about asset
protection and Medicaid. [Protects the insurer, the state's Medicaid
program, and the consumer.]
i.
The company agrees to accept applications for policies with Partnership
Riders from, and pay commissions to, agents who show completion of a five-
hour continuing education course on the Partnership program. [Protects the
consumer.]
Medicare/Medicaid Integration
I have started my testimony with the Partnership program because I
believe that overturning the OBRA '93 restrictions is a relatively easy
to accomplish next step that can lead to even more creative efforts
that are needed to help reform Medicare and Medicaid. Further, form
follows finance and, in the absence of appropriate financing mechanisms
and incentives, delivery reform will be nearly impossible to
accomplish. In addition to financing innovations like the Partnership,
there is a profound need for new systems of care that integrate the
financing, delivery and administration of primary, acute, sub acute,
and long-term care services. The current Medicaid crisis along with the
new Medicare prescription drug benefit and the increased recognition of
the high cost and unique care needs of many special needs populations,
including those eligible for both programs (the dually eligible), has
prompted renewed interest in the integration of Medicare and Medicaid
managed care.
There are more than six million individuals in this country who are
eligible for both Medicare and Medicaid. The dually eligible represent
a costly subset of the Medicare population. More than $200 billion is
likely to be spent on duals in 2005--roughly the same amount spent on
either population alone, despite the relatively small case load in each
program. While only about one-sixth of Medicare beneficiaries were
dually eligible in 2001, they accounted for over a quarter of total
Medicare expenditures. With Medicaid where duals comprise a little over
a sixth of the population, the costs even more disproportionate, with
the duals accounting for about a third of all Medicaid costs. Total
spending across all payers for duals was more than double the amount
for Medicare-only beneficiaries in 2001.
Many in this group have complex medical care needs due to multiple
chronic conditions. Twice as many duals are in poor or fair health as
non-duals, they have more chronic conditions than Medicare-only
enrollees and 75% have functional limitations. Comorbid medical
conditions and disabilities require the use of multiple care providers
and care management services to coordinate care among multiple
providers to ensure appropriate care, optimize health outcomes and
prevent adverse health events. Consider, for example, that Medicare
beneficiaries with 5 or more chronic conditions, on average, sees 14
different physicians annually, has 40 office visits and fills 50
prescription drugs.
Effective care management for such a population can best be
accomplished when health plans have the ability to coordinate the
service delivery and financing of the entire continuum of health and
long-term care services. The current financing and delivery system
contains many obstacles to the development of such an integrated
system. Of major concern to the development of managed care programs is
the fragmentation of financing and responsibility for patient care.
Medicare and Medicaid currently maintain wholly separate contracting,
reimbursement and quality standards for managed care organizations, in
spite of overlapping populations. If managed care providers are to be
effective in accessing the most appropriate and cost effective care for
their patients they must have the flexibility to provide whatever
combination of care and services is the most clinically effective and
economically efficient.
Getting Medicare and Medicaid policy to work together can be quite
difficult. Unnecessary hospitalizations of those in nursing homes are
encouraged by low Medicaid reimbursements, bed hold day payments, and
DRG related payment incentives for short stay hospital admissions.
Medicare physician payments are biased toward hospital care instead of
care in the office, home, or nursing home. More emergency room visits,
medical transportation, and readmissions result. Too little home and
community care is available to serve as an alternative to nursing home
care. Improved managed care models are again being looked to as a way
to handle these problems. Integrated care programs represent an
opportunity for better care outcomes and greater cost-efficiencies by
improving the attention to detail that is often missing for people when
there is no systematic effort to coordinate care.
The model of nursing home care originally demonstrated by Evercare
is a case in point of improved care management and outcomes through
integrated care. Evercare provides care management, aggressive primary
care services and early identification and treatment of acute illness
to long-term nursing home residents. While beneficiaries with four or
more chronic conditions are 99 times more likely to be hospitalized for
an ambulatory care sensitive condition that could have been prevented
with appropriate ambulatory care, Evercare has reduced hospital use
among nursing home residents by 45%, including preventable
hospitalizations. Reductions in hospitalization result in significant
cost-savings to both the acute and long-term care systems when one
considers risks associated with hospitalization for seniors--
infections, depression, falls, irreversible functional decline that may
require life-long supportive services, loss of bone mass and other
forms of decline that can lead to life-long decline in health status
and increased acute and long-term care costs.
The PACE model is probably the best known example of successful
integration of acute and long-term care under managed care
arrangements. Full integration is made possible by a pooling of
Medicare and Medicaid resources; over 95% of PACE members are dually
eligible. Now that PACE has been made a permanent option within
Medicare there is growing interest in making this model of care more
appealing to private pay populations who need similar care. The
challenge will be to get middle class seniors to substitute private
insurance or financing for long-term insurance for Medicaid dollars and
to make a commitment to the prescribed delivery system. One approach
that might work is to offer this care approach as a preferred provider
arrangement under long-term care insurance contracts. Other options for
expanding alternative financing, contracting and care arrangements
warrant examination to determine the potential for PACE alternatives to
serve large numbers of Medicare beneficiaries.
The Medicare/Medicaid Integration Program, with the support of the
Robert Wood Johnson Foundation, has been working with states to help
end the fragmentation of financing, case management, and service
delivery that currently exists with our two main public financing
programs. The ultimate goal of these efforts is to help evolve an
effective way for all populations in need of or at risk for the full
continuous of acute and long-term care services to get their care more
efficiently and effectively.
Arizona, Florida, Massachusetts, Minnesota, Texas, New York, and
Wisconsin are among the states that have made considerable progress in
integrated care program development with the help of the Center for
Medicare and Medicaid Services (CMS). Other states (CA, GA, NJ, MD, WA)
have been working at it and are interested in doing more. Though the
initial focus is on public pay clients the delivery system development
lessons are equally relevant to long-term care insurance links that
might be made with Medicare managed care products as the private market
alternative for those not eligible for Medicaid. The growth of Medicare
managed care products designed to serve special needs populations will
eventually stimulate the development of products in the private sector
that could well benefit from the type of incentives offered by the
Partnership program as a way to encourage the purchase of comprehensive
shorter-term coverage that is appealing and affordable to middle and
modest income purchasers. Indeed the group most at risk for spend-down
to impoverishment if they need long-term care could benefit greatly by
being in a system of care that managed chronic illness well. That way
unnecessary accidents, behavior, and transition mistakes associated
with the client's special needs could be better avoided and help keep
people from needing Medicaid all together.
Currently the conflicting Medicare and Medicaid financing and
administrative rules continue to result in significant duplication,
fragmentation, and costs. The new Medicare Special Needs Program (SNP)
statute and regulations could be a way to begin to mainstream the types
of care system improvements that have begun to be tested in the various
state integrated care demonstrations. The current SNP regulations do
not as yet provide states and health plans the authority to integrate
financing, care delivery and administration that has been achieved
under the current dual demo waivers. It is important to allow Medicare
demonstrations seeking designation as SNPs to convert to SNP
demonstrations with the authority to retain previously approved waivers
so that they can continue to refine and enhance the models developed
under demonstration authority. Consideration should also be given to
allow states to waive Federal Medicaid rules where they conflict with
Federal Medicare rules and to add requirements for long-term care
benefits that are not addressed in Federal regulations.
States should also be allowed to integrate Medicare and Medicaid
administration and expand eligibility through state plan amendments.
This could allow for creative upstream program development for pre-
duals that could be linked with Partnership type asset protection
incentives in exchange for voluntary participation in managed care plan
programs involving care coordination and/or chronic care management
strategies.
Conclusions
Medicare and Medicaid often share in the delivery of health and
social services to high-cost chronically ill elderly and disabled
individuals. But Medicare does not cover long-term care so private
insurance enters the picture as a way to help people prepare for this
risk and avoid having to depend on Medicaid. The Partnership for Long-
Term Care is a strategy that can help broaden the market for long-term
care insurance. But financing is only part of the problem to be solved.
There needs to be systems of care that integrate acute and long-term
care so the limited resources available are spent wisely on behalf of
the consumer. Together, Medicare and Medicaid have an enormous impact
on our health care delivery system as well as on the private sector
insurance market. The incremental development of these two programs has
created many distortions and inefficiencies in providing care to
individuals who qualify for both programs, as well as in the delivery
system as a whole. We must begin to recognize the critical inter-
relationship between these two programs and approach Medicare and
Medicaid modernization efforts in tandem. Only through a unified
approach to care for the dually eligible, can we optimize health care
outcomes and contain the cost of care for the highest-cost subgroup in
the health care system. Systems of care that integrate Medicare and
Medicaid for dual eligibles are beginning to show us how to deal with
the myriad of complex clinical, operational, and financing problems
that will increasingly confront us as our population ages. These state
based efforts should be supported as good investments in our future.
Chairman JOHNSON OF CONNECTICUT. Thank you very much. Mr.
Gehm.
STATEMENT OF DAVID GEHM, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
LUTHERAN HOMES OF MICHIGAN, FRANKEMUTH, MICHIGAN
Mr. GEHM. Thank you. Madam Chairman and Members of the
Subcommittee, I am pleased to have the opportunity to testify
today on behalf of Lutheran Homes of Michigan and the American
Association of Homes and Services for the Aging, of which we
are a member. Lutheran Homes of Michigan is a non-profit
Christian agency providing a full range of services to God's
oldest children. Our facilities provide round-the-clock
Medicare-certified skilled nursing care, certified home care,
senior housing, hospice, and private-duty services to hundreds
of Michigan seniors and their families of all faiths. Lutheran
Homes' history tracks the trends in long-term care over the
last several decades and the ways in which our field has in
some ways come back to the future. Over the last 114 years,
Lutheran Homes has evolved from a housing provider for
impoverished elderly to adding services as needed. Post
enactment of Medicare and Medicaid in the sixties, we became
predominantly a nursing home provider and now we are back to
the future as we evolve back to housing, with services leading
the way. In that context, I want to mention the need to finance
supportive and health-related services in affordable housing
settings. Public payments for nursing home care bundle housing
costs together with the cost of health care and supportive
services. For short stay skilled nursing patients and some very
frail longer stay residents, this arrangement has proven to be
a cost-effective way of ensuring that they receive the level of
care they require.
However, we are seeing the unbundling of the services can
make much more sense for people who don't need the entire
package of services that nursing homes are required and bound
to provide. But if housing and supportive services are
unbundled, they must both available and affordable to people if
people are to have a realistic alternative to nursing home
care. The full Ways and Means Committee has jurisdiction over
the Nation's largest affordable housing program, the low-income
housing tax credit. I would hope that this Committee can
spearhead discussions with other congressional Committees that
oversee housing and supportive services to overcome some of the
obstacles to coordinating affordable housing with services that
enable people to age with dignity in place. In the future, we
believe that housing plus services can help many people avoid
or postpone entry into nursing homes. I want to emphasize that
although Medicaid and Medicare to a lesser extent are an
important source of funding for long-term care, our community
also plays large role in financing the services our clients and
residents receive.
Lutheran Homes and providers like us across the Nation
create life enriching opportunities for our elders by
leveraging the social capital in our communities. Last year
alone, Lutheran Homes logged over 19,000 hours of volunteer
time in support of our services. We also received donated funds
nearing $1 million to help offset unfunded needs and create
additional services seniors need. Future policy should find a
way to strengthen this public and private partnership. Because
Medicaid is primarily a health care program, long-term care
developed an excessively medical and institutional bias that is
difficult to overcome. And the lack of realistic financing
alternatives at least for the current generation of seniors has
made Medicaid a de facto long-term care insurance program for
middle class individuals, although it is important to keep in
mind that families still provide the preponderance of long-term
care on an informal and unpaid basis.
The increasing trend of asset divestitures to qualify
prematurely for Medicaid coverage of nursing home costs has
negative consequences for the Medicaid program, for long-term
care providers, and for consumers, both those who access
Medicaid and those who use their own resources to pay for their
care. People are often surprised by the price of long-term
care, which reflects constantly rising costs for staff and
other elements of top notch services. In most States, Medicaid
reimbursement does not keep up and private room rates become
higher than they otherwise would have to be in order for a
facility to break even. The burden of cost inadequately covered
by Medicaid now falls unequally on the narrow segment of
nursing home residents who pay their own way because they end
up paying more than they otherwise would have to, drawing down
their savings more rapidly. The question isn't is long-term
care properly funded? But rather what is it we want the program
to buy? If the intended outcome is the bare survival of
residents, then Medicaid probably is adequate. However, if the
intent is to have nursing home residents and elders in the
community thrive according to the spirit of the nursing home
standards in OBRA 87, we have a long way to go.
The future of long-term care when innovatively and
successfully created will be led by a government, provider,
consumer partnership that leverages emerging care technologies
and fully embraces the consumer-focused culture change movement
that is now underway. To be successful, we will need
regulations rethought for this new world, and we will need
innovative funding design which aligns with what seniors and
their care givers want. In closing, I just want to mention a
project that Lutheran Homes has initiated, which we are calling
Operation Enduring Thanks. In early June, we plan to bring
approximately 30 of our World War II veteran residents here to
Washington to see the new World War II Memorial on the Mall.
Congressman Camp is a member of our honorary steering Committee
for this project, and we greatly appreciate his generosity in
helping us help these older veterans achieve this recognition.
Once again, I appreciate the opportunity to discuss these
issues with you today, and I look forward to working with you
on the future of aging services. Thank you.
[The prepared statement of Mr. Gehm follows:]
Statement of David M. Gehm, President and Chief Executive Officer,
Lutheran Homes of Michigan, Frankemuth, Michigan
Madame Chairwoman and members of the subcommittee, I am pleased to
have the opportunity to testify today on behalf of Lutheran Homes of
Michigan and the American Association of Homes and Services for the
Aging (AAHSA), of which we are a member. Lutheran Homes of Michigan is
a non-profit Christian agency providing a full range of services to
God's older children. Our facilities provide round-the-clock Medicare-
certified skilled nursing care, certified home care, senior housing,
hospice, and private-duty services to hundreds of Michigan seniors of
all faiths. In addition to basic housing, nutrition, and medical care,
Lutheran Homes provides a number of life-added programs whose cost is
completely covered by private fundraising. Sixty percent of our
residents are dually eligible for Medicare and Medicaid.
Our history tracks the trends in long-term care over the last
several decades and the ways in which our field in some ways is turning
back to the future. Lutheran Homes began 114 years ago primarily to
give low-income seniors an affordable place to live, adding whatever
services were necessary. Over the next several decades, we developed a
long history of finding ways to meet seniors' varied needs. With the
establishment of the Medicare and Medicaid programs in the 1960s, we
became primarily nursing home oriented. While that so-called medical
model and the government programs that finance it continue to fill a
critical need, we are finding that consumers strongly prefer to receive
services in the places they call home. We therefore are diversifying
our services once more to approximate the kind of care we originally
provided, with affordable housing as the focal point for the delivery
of supportive services. In fact, within the next fifteen years we see
ourselves moving away from providing skilled nursing facility care
except for short-term rehabilitation and some levels of dementia.
In that context, I want to mention the need to finance supportive
and health-related services in affordable housing settings. Public
payments for nursing home care bundle housing costs together with the
costs of health care and supportive services. For short stay skilled
nursing patients and some very frail longer stay residents with more
extensive care needs, this arrangement has proven to be a cost-
effective way of ensuring that they receive the level of care they
require.
However, we are seeing that unbundling the services can make much
more sense for people who don't need the entire package of services
that nursing homes provide. But if housing and supportive services are
unbundled, they must both be available and affordable if people are to
have a realistic alternative to nursing home care.
The full Ways and Means Committee has jurisdiction over the
nation's largest affordable housing program, the low-income housing tax
credit. I would hope that this committee can spearhead discussions with
other congressional committees that oversee housing and supportive
services programs to overcome some of the obstacles to coordinating
affordable housing with services that enable people to age in place. In
the future, we hope that housing plus services can help many people
avoid or postpone entry into a nursing home.
I want to emphasize that although Medicaid, and Medicare to a
lesser extent, are an important source of funding for long-term care,
our community also plays a large role in financing the services our
clients and residents receive. We do not discharge residents who become
indigent, and private fundraising in the community pays for
approximately half of the cost of their care. Our Annual Fund assists
many seniors who are in desperate need of help with their health care
expenses. Last year we fund-raised nearly $1 million, of which about
half was used for direct program support, with the rest placed into
long term capital replacement or other special accounts.
In addition to financial support, our communities contribute
greatly to the quality of life for our residents through many hours of
volunteer time. Volunteers help our residents with activities,
religious services, telephone companionship, transportation, meal
deliveries, and errands, as well as assisting our staff with clerical
and office work. In 2004, we logged 19,000 volunteer hours, people
giving of their time and talent to enrich the quality of life for our
residents.
We need to build on the existing private contributions to long-term
care in order to develop a more rational and balanced long-term care
system. Up to now, heavy reliance on the Medicaid program as the
primary source of financing for long-term care has had some unintended
consequences. Because Medicaid is primarily a health care program, long
term care developed an excessively medical and institutional bias that
is difficult to overcome. And the lack of realistic financing
alternatives, at least for the current generation of seniors, has made
Medicaid a de facto long term care insurance program for middle class
individuals, although it is important to keep in mind that families
still provide the preponderance of long-term care on an informal,
unpaid basis.
The increasing trend of asset divestitures to qualify prematurely
for Medicaid coverage of nursing home costs has negative consequences
for the Medicaid program, for long-term care providers, and for
consumers, both those who access Medicaid and those who use their own
resources to pay for their care. People often are surprised by the
price of long-term care, which reflects constantly-rising costs for
staff and other elements of top-notch services. In most states,
Medicaid reimbursement does not keep up, and private-pay rates become
higher than they otherwise would have to be in order for a facility to
break even. The burden of costs inadequately covered by Medicaid now
falls unequally on the narrow segment of nursing home residents who pay
their own way, because they end up paying more than they otherwise
would have to, drawing down their own savings more rapidly. A letter I
recently received from the family member of a privately-paying resident
expressed his outrage over the inherent unfairness built into the
current system. At the same time, consumers who access Medicaid
coverage must devote all of their income except for a small personal
needs allowance to their nursing home care, removing from them any
financial independence.
We must find equitable and effective ways to better share the
essential costs of long-term care between public and private sources.
Any one of us at some point could find ourselves in need of these
services.
The question isn't ``is long term care properly funded?'', but
rather ``what is it we want the program to buy?'' If the intended
outcome is the bare survival of residents, then Medicaid probably is
adequate. However, if the intent is to have nursing home residents and
those in the community thrive, according to the spirit of the nursing
home standards in the Omnibus Budget Reconciliation Act of 1987, we
have a long way to go.
We increasingly are looking to technology to maximize our quality
and cost-efficiency of care. Traditionally, ours has been a ``high
touch'' field, but we now are using new technology to track our home
care staff, hoping to become as sophisticated at scheduling them as
Federal Express is at tracking packages. AAHSA's Center on Aging
Services Technology is working with researchers, Intel and other
technology companies, and providers to find ways in which technological
developments could be applied to the field of aging services in order
to help elders remain independent and to provide services more
effectively.
Another important trend in our field is culture change, shifting
away from hierarchical staffing to a team approach to care and
emphasizing consumer direction of the services we provide. The federal
nursing home standards that were put into place under OBRA '87
generally have improved the quality of care provided in our nation's
nursing homes. We feel that the culture change movement, emphasizing
consumer direction and autonomy, is well within the spirit of OBRA and
other federal and state nursing home quality initiatives. At the
national level, officials at CMS have indicated that OBRA should not be
a barrier to putting the ``home'' into nursing home care, but
implementing culture change still requires step-by-step negotiations
with state survey agencies because of highly prescriptive regulations.
Lutheran Homes has embarked on a complete transformation of our nursing
departments, but we are still short of our ideal goals. We need a new
spirit of cooperation among providers and government agencies so that
we can partner in carrying out innovative approaches to long-term care.
In closing, I just want to mention a project in which Lutheran
Homes is now involved, which we are calling Operation Enduring Thanks.
We plan to bring approximately thirty of our World War II veteran
residents here to Washington to see the new World War II Monument on
the Mall. Congressman Camp is a member of the Honorary Steering
Committee for this project, and we greatly appreciate his generosity in
helping our older veterans achieve this recognition.
Once again, I appreciate the opportunity to discuss these issues
with you today, and I look forward to working with you on the future of
aging services.
Chairman JOHNSON OF CONNECTICUT. Thank you very much, and
before I recognize Dr. Feder, let me excuse myself for the
questioning portion. I am going to stay and listen, but I am
going to let the gavel transfer as testimony concludes. But I
do want to thank you all for your thoughtful comments and for
the continuity that I see flowing between them as to great
importance of integrating care to greater quality and greater
flexibility, and to make the changes in payment system and
thinking and regulatory law and so on that that kind of
holistic approach requires. I have read your testimony, Dr.
Feder, and I am sorry that I won't be here to listen to the
questions, but I do look forward to the full report that you
are working on. I recognize you and turn the gavel over to my
colleague from Louisiana, Mr. McCrery.
STATEMENT OF JUDY FEDER, PH.D., PROFESSOR AND DEAN, GEORGETOWN
PUBLIC POLICY INSTITUTE
Ms. FEDER. Thank you, Madam Chair. I appreciate being part
of such an informative panel, and I appreciate speaking before
you all, Mr. Stark, Members of the Committee on long-term
financing. As Mrs. Johnson said, a lot of the information that
I am relying on today and is in my statement for the record
comes from a Robert Wood Johnson funded project that we call
the Georgetown Long-Term Care Financing Project. I hope the
information can be useful to you, and you can find it at
www.LTC.Georgetown.edu. So, please take advantage of it. I want
to concentrate now on three points: on long-term care financing
as a problem not just for the future, but now, and not just for
the budget, but more importantly for people in need of long-
term care and their families; on the inability of private long-
term care insurance regardless of its potential value and
growth in use to address that problem adequately; and on the
critical role of increased public, especially Federal
financing, to assure affordable access to long-term care, both
now and in the future.
First, long-term financing as a problem now, not just as
well as in the future. Among the roughly eight million people
outside of nursing homes who are estimated to need long-term
care, one in five report receiving insufficient care, with a
great likelihood of falling, soiling themselves, or being
unable to bathe or to eat as a result. The burden of long-term
care is borne overwhelmingly by individuals and the families of
those in need, in both caregiving and dollars, rather than
spread through a public or private insurance. This is true
despite the fact that the need for long-term care poses an
unpredictable catastrophic risk, best handled by insurance.
Almost 40 percent of the population estimate to be in need of
long-term care today is under the age of 65, a population that
clearly faces an unpredictable risk. And among the population
about to retire today, the need for long-term care is also
unpredictable, with tremendous variation in the likelihood o
long-term care use. Close to half of today's retirees are
estimated to die ultimately having needed either no long-term
care or a year or less, while at the other extreme, one in five
are estimated to need more than 5 years of care.
Insurance is increasingly recognized as the way we ought to
handle long-term care financing. But private insurance can only
do some of the job. Indeed, promotion of private insurance as a
fundamental solution or even as a priority ignores its
significant limitations. Private long-term care insurance is
not available to people who already have long-term care needs.
Though available, it is not designed to meet the needs of
younger people who are also at risk of needing long-term care;
is not affordable to the substantial segment of older persons
now and in the future with low and modest incomes; limits
benefits in dollar terms in order to keep premiums affordable,
but therefore leaves policy holders with insufficient
protection when they most need care; and lacks the premium
stability and benefit adequacy that can assure purchasers who
pay premiums year after year that it will protect them against
catastrophe.
We need only look at the experience in health insurance to
recognize that reliance on the individual market plagued by
risk selection, high market and cost benefit exclusions, and
other problems for long-term care will be grossly inadequate to
assure adequate protection to most people. Current public
policy also falls short of assuring insurance protection.
Medicare focuses primarily on skilled care, not long-term care.
Medicaid is the Nation's long-term care safety net. It is
invaluable but it provides care-it does not provide what we
think of as insurance in that it does not protect people
against financial catastrophe. Rather, it protects them only
after catastrophe strikes. Some have labeled the impoverishment
of Medicaid as a fallacy, claiming that many people on Medicaid
could pay for themselves. And some have claimed that having
Medicaid available is a substantial deterrent to the purchase
of long-term care insurance. As CBO Director Holtz-Eakin
indicated a few moments ago, there is little evidence available
to support either claim.
Despite Medicaid's essential role, however, its protection
has significant limitations. It provides too little care in the
home where people would prefer to receive it; its eligibility
and benefits vary substantially from State to State; and its
services are too vulnerable to the fiscal pressures that States
face. And as we have heard from CBO, if the problem is bad
today, it is only likely to get worse in the future. What is
needed for a different future is a public policy action.
Developing better policy requires an assessment options to
assure access to affordable long-term care and to distribute
financing equitably between individuals who need long-term care
and their families on the one hand, and the rest of Federal and
State taxpayers on the other.
Consideration of budget implications is a part of that
assessment, but allowing budgetary constraints to drive that
process distorts the Nation's policy choices. Last April's CBO
report did precisely that, though I was pleased to hear Dr.
Holtz-Eakin present a far more balanced approach today. To
assert that, as CBO does, cutting back already inadequate
Medicaid and Medicare protection would save Federal dollars is
not surprising if you are focusing only on reducing Federal
costs. But as CBO states, such a policy would increase burdens
on family and reduce access to care. Similarly, CBO notes that
promoting long-term care insurance whether through partnerships
or other mechanisms is unlikely to reduce costs or even
substantially expand coverage. What is needed is the expansion
of Federal dollars to support a more adequate approach across
the Nation. We know that such an approach must need not
eliminate personal responsibility, as many European nations are
working to more fairly distribute burdens----
Mr. MCCRERY. [Presiding.] Dr. Feder, if you could wrap up.
Ms. FEDER. And in conclusion, to more fairly distribute
burdens across individuals and taxpayers, we can do the same,
and it ought to be our highest priority.
[The prepared statement of Ms. Feder follow:]
Statement of Judy Feder, Ph.D., Professor and Dean, Georgetown Public
Policy Institute
Chairman Johnson, Mr. Stark, and members of the Committee, I'm
pleased to have the opportunity to testify before you today on long-
term care. My testimony will reflect more than twenty-five years of
research experience in long-term care, at Georgetown University and,
before that, the Urban Institute. Based on that research, my policy
conclusions are the following:
Today, 10 million people of all ages are estimated to
need long-term care, close to 40 percent of whom are under the age of
65. Among the roughly 8 million who are at home or in the community,
one in five report getting insufficient care, frequently resulting in
significant consequences--falling, soiling oneself, or inability to
bathe or eat.
The need for long-term care is unpredictable and, when
extensive service is required, financially catastrophic--best dealt
with through insurance, rather than personal savings. But the nation
lacks a policy that assures people of all ages access to quality long-
term care when they need it, without risk of impoverishment.
Private insurance for long-term care is expanding and
will play a growing role in long-term care financing. However, even
with improved standards and special ``partnerships'' with Medicaid, it
does nothing for those currently in need, is not promoted as a means to
serve the under-65 population and, in the future will be affordable and
valuable for only a portion of the older population--most likely, the
better off.
Medicaid is the nation's only safety net for those who
require extensive long-term care. Rather than serving primarily as a
deterrent to the purchase of private insurance, it serves
overwhelmingly to assure access to care for those least able to afford
that insurance. But its invaluable services become available only when
and if people become impoverished; its protections vary substantially
across states; and, in most states, it fails to assure access to
quality care, especially in people's homes.
A growing elderly population will mean greater demand on
an already significantly stressed Medicaid program, squeezing out
states' ability to meet other needs and, at the same time, likely
reducing equity and adequacy across states.
Policy ``solutions'' that focus only on limiting public
obligations for long-term care financing do our nation a disservice.
Although individuals and families will always bear significant care-
giving and financial responsibility, equitably meeting long-term care
needs of people of all ages and incomes--throughout the nation--
inevitably requires new federal policy and a significant investment of
federal funds.
The following will lay out inadequacies in current long-term care
financing; the implications of growth in the elderly population for
future inadequacies; and the importance of federal policy to sustain
and improve long-term care protection. Unless otherwise noted, I am
drawing on research from the Georgetown Long-Term Care Financing
Project, funded by the Robert Wood Johnson Foundation, and available at
our web site: ltc.georgetown.edu. The opinions I present are, of
course, only my own.
People who need extensive assistance with basic tasks of living
(like bathing, dressing and eating) face the risk of catastrophic costs
and inadequate care. Today, almost 10 million people of all ages need
long-term care. Only 1.6 million are in nursing homes. Most people
needing long-term, especially younger people, live in the community.
Among people not in nursing homes, fully three quarters rely solely on
family and friends to provide the assistance they require. The range of
needs is considerable--with some people requiring only occasional
assistance and others needing a great deal. Intensive family care-
giving comes at considerable cost--in employment, health status and
quality of life--and may fail to meet care needs. Nationally, one in
five people with long-term care needs who are not in nursing homes
report ``unmet'' need, frequently resulting in significant
consequences--falling, soiling oneself, or inability to bathe or eat.
The cost of paid care exceeds most families' ability to pay. In 2002,
the average annual cost of nursing home care exceeded $50,000 and 4
hours per day of home care over a year were estimated to cost $26,000.
Clearly, the need for extensive paid long-term care constitutes a
catastrophic expense.
The likelihood of needing long-term care is also unpredictable.
Although the likelihood increases with age, close to 40 percent of
people with long-term care needs are under the age of 65. And the need
for care among the elderly varies considerably. Over a lifetime,
projections of people currently retiring indicate that about 30 percent
are likely to die without ever needing long-term care; fewer than 17
percent are likely to need one year of care or less, and about 20
percent are likely to need care for more than five years.
Because long-term care needs are unpredictable and may be
financially catastrophic, insurance is the most appropriate financing
strategy. Reliance on savings alone is inefficient and ineffective.
People will either save too much or too little to cover expenses.
However few people have adequate private or public long-term care
insurance. Although sales of private long-term care insurance are
growing (the number of policies ever sold more than tripled over the
1990s), only about 6 million people are estimated to currently hold any
type of private long-term care insurance. Growing numbers of older
people, especially of the segment with significant resources, will
create the potential for substantial expansion of that market. But
private long-term care insurance policies remain a limited means to
spread long-term care risk. Private long-term care insurance
Is not available to people who already have long-term
care needs;
Is not designed to meet the needs of younger people who
are also at risk of needing long-term care;
Is not affordable to the substantial segment of older
persons, now and in the future, with low and modest incomes;
Limits benefits in dollar terms in order to keep premiums
affordable, but therefore leaves policyholders with insufficient
protection when they most need care; and
Lacks the premium stability and benefit adequacy that can
assure purchasers who pay premiums year after year that it will protect
them against catastrophe.
We need only look at experience in health insurance to recognize
that reliance on the individual market--plagued by risk selection, high
marketing costs, benefit exclusions, and other problems--for long-term
care will be grossly inadequate to assure adequate protection to most
people.
Current public policy also falls far short of assuring insurance
protection. Medicare, which provides health insurance to many who need
long-term care, covers very little long-term care. Its financing for
nursing home care and home care is closely tied to the need for acute
care and is available for personal care only if skilled services--like
nursing and rehabilitation therapy--are also required.
It is Medicaid that provides the nation's long-term care safety
net. Most nursing home users who qualify for Medicaid satisfy
Medicaid's income and asset eligibility requirements on admission. But
16 percent of elderly nursing home users begin their nursing home stays
using their own resources and then become eligible for Medicaid as
their assets are exhausted. Because the costs of long-term care are so
high relative to most people's income and resources, the opportunity to
``spend down'' to eligibility--spending virtually all income and assets
in order to qualify--is essential to assure access to care. Some have
labeled impoverishment a ``fallacy'', arguing that the bulk of Medicaid
resources go to finance nursing home care for people who could afford
to pay for themselves, but who ``transfer'' their resources in order to
qualify for Medicaid benefits. Such exaggeration relies on anecdote,
not evidence. Indeed, the evidence shows that few of the elderly have
the income or wealth that would warrant such transfer; that people in
poor health are more likely to conserve than to exhaust assets; that,
for the elderly population as a whole, transfers that occur are
typically modest (less than $2000); and that transfers that are
associated with establishing eligibility are not significant
contributors to Medicaid costs.
Further, there is little evidence to support the argument that
Medicaid's availability is a substantial deterrent to the purchase of
long-term care insurance (CBO, ``Financing Long-Term Care for the
Elderly,'' April 2004). This argument is based far more on theoretical
assumptions than on empirical analysis of people's actual behavior.
Indeed, analysis of actual purchases of private long-term care
insurance found no impact on purchase decisions among older workers and
found the slight impact on purchasers over age 70 too small to explain
the very low proportion of elderly holding policies (Frank A. Sloan and
Edward C. Norton. 1997. ``Adverse Selection, Bequests, Crowding Out and
Private Demand for Insurance: Evidence from the Long-Term Care
Insurance Market, Journal of risk and Uncertainty 15, no.3: 201-219).
Despite Medicaid's essential role, however, its protections differ
considerably from what we think of as ``insurance''. Medicaid does not
protect people against financial catastrophe; it finances services only
after catastrophe strikes. Further, Medicaid's services fall far short
of meeting the needs and preferences of people who need care.
Medicaid's benefits focus overwhelmingly on nursing home care--an
important service for some, but not the home care services preferred by
people of all ages. In the last decade, Medicaid home care spending has
increased from 14% to 29% of Medicaid's total long-term care spending.
But nursing homes still absorb the lion's share of Medicaid's support
for long-term care.
Medicaid protection also varies considerably from state to state.
As a federal-state matching program, Medicaid gives states the primary
role in defining the scope of eligibility and benefits. A recent Urban
Institute analysis emphasized the resulting variation across states in
service availability as a source of both inequity and inadequacy in our
financing system. In an examination of 1998 spending in 13 states,
long-term care dollars per aged, blind, or disabled enrollee in the
highest spending states (New York and Minnesota) were about 4 times
greater than in the lowest (Alabama, Mississippi)--a differential even
greater than that found for Medicaid's health insurance spending for
low income people.
Both our own research and that conducted by the Government
Accountability Office tells us that differences in state policies have
enormous consequences for people who need long-term care. Studies
comparing access for individuals with very similar needs in different
communities show that people served in one community get little or no
service in another. Georgetown research finds that the same person
found financially eligible or sufficiently impaired to receive Medicaid
services in one state might not be eligible for Medicaid in another--
and, if found eligible, might receive a very different mix or frequency
of service. And a comparison of use of paid services in 6 states finds
almost twice the incidence of unmet need (56%) in the state with the
smallest share of people likely to receive paid services as in the
state with the largest (31%).
This variation--as well as ups and downs in the availability of
benefits over time--undoubtedly reflects variation in states'
willingness and ability to finance costly long-term care services. The
recent recession demonstrated the impact on states of changes in their
economies and the vulnerability of Medicaid recipients to states'
reactions. In 2001, Medicaid accounted for 15 % of state spending, with
long-term care responsible for 35% of the total. Virtually all states
were cutting their Medicaid spending as budget pressures struck,
endangering access either for low income people needing health
insurance, older or disabled people needing long-term care, or both.
In sum, under current policy, neither public nor private insurance
protects people against the risk of long-term care. Despite Medicaid's
important role as a safety net, the overall result for people who need
care is catastrophic expenses, limited access to service, and care
needs going unmet.
Given inequities and inadequacies in our current approach for long-
term care, it is no wonder that we are concerned about the future, when
a far larger proportion of the nation's population will be over age 65
than are today. Experts disagree on whether disability rates among
older people in the future will be the same as or lower than they are
today. But even if the proportion of older people with disabilities
declines, the larger number of older people will likely mean a larger
number of older people will need long-term care in the future than need
it today. The population aged 85 and older, who are most likely to have
long-term care needs, is likely to double by 2030 and quadruple by
2050.
States will vary in the aging of their populations--with resulting
differences in the demand for long-term care and the ability of their
working-aged population to support it. To identify future demands on
Medicaid, a Georgetown study examined census data on the ratio of
elderly people to working-age adults between 2002 and 2025. Nationally,
this ratio changes from about one to five (one person over age 65 for
every 5.2 people of working age) in 2002 to one to three--an increase
of about 66 percent. But the changes differ across states, with some
states well below the national average (e.g. California, Connecticut,
D.C., Massachusetts) and others, far above. In many states, the ratio
increases by more than three quarters and in a few (e.g. Colorado,
Utah, and Oregon), it more than doubles. All states will be challenged
to meet increased long-term care needs.
States are already struggling with Medicaid's fiscal demands, which
challenge their ability to meet equally pressing needs in education and
other areas. And state revenue capacity varies considerably. If current
policies persist, pressure to make difficult tradeoffs will only get
stronger. In the future, states with bigger increases in the elderly-
to-worker ratio will face the greatest pressure. And, since many of the
states with above average changes currently spend relatively little per
worker on Medicaid long-term care, there is a strong likelihood that in
the future, long-term care financing will be even less equitable and
less adequate across the nation than it is today.
What's needed for a different future is public policy action.
Developing better policy requires an assessment of options to assure
access to affordable quality long-term care and to distribute financing
equitably between individuals who need long-term care and their
families, on the one hand, and the rest of federal and state taxpayers,
on the other. Consideration of federal budgetary implications is an
important part of the assessment process. But allowing budgetary
constraints to drive that process distorts the nation's policy choices.
Last April's CBO report on long-term care financing did precisely that.
Explicitly focusing on the achievement of only one policy goal--
alleviation of ``pressure'' on the federal budget--the report treated
as legitimate only policy options with the potential to reduce federal
spending, without regard to the consequences for people in need.
From this perspective, the report's first set of policy options--
cutting back already inadequate Medicaid and Medicare protection--is
not surprising. But its implications are nevertheless horrifying. CBO
straightforwardly states that such action could reduce the number of
people dependent on public programs--a fairly obvious conclusion. But
it presents no evidence that people inappropriately rely on Medicaid
today; and no evidence that savings or private long-term care insurance
would provide adequate protection if Medicaid were made more
restrictive for the future. Indeed CBO explicitly recognizes that this
approach implies greater burdens on family and friends, greater
difficulty in obtaining care, and greater bad debt for long-term care
providers. If the policy goal is--as it should be--to improve care and
distribute costs equitably, such cutbacks seem unconscionable, not
desirable.
The CBO report's second set of options to alleviate fiscal pressure
aim to ``improve the functioning of the market for private long-term
care insurance''--a strategy that is less likely than public cutbacks
to reduce access but still unlikely to significantly improve either
access or equity. Standardizing long-term care insurance policies might
facilitate consumers' ability to make choices in the marketplace and
improve the adequacy of private long-term care insurance. But, as CBO
notes, standards that improve policies would likely increase insurance
premiums. The result might be better protection for those who can
afford private insurance--a worthy goal, but it is highly unlikely to
be an increase in the numbers of people willing or able to buy
insurance.
CBO's consideration of so-called ``partnerships for long-term
care''--which would allow benefits paid by private insurance to offset
(or protect) assets for Medicaid users who purchase approved private
long-term care insurance policies--also reveals this strategy's
limitations. These partnerships have been advocated as a means to save
Medicaid money by preventing ``spend-down'' and asset transfers. The
hope is that allowing the purchase of asset protection, along with
insurance, will encourage modest income people to purchase private
long-term care insurance. Experience with these policies in four states
has produced only limited purchases, primarily among higher income
people, and has affected too few people for too short a period to
assess its impact on Medicaid spending (Alexis Ahlstrom, Emily
Clements, Anne Tumlinson and Jeanne Lambrew, ``The Long-Term Care
Partnership Program: Issues and Options'', Pew Charitable Trusts'
Retirement Security Project, George Washington University and The
Brookings Institution, December 2004). The partnership has contributed
to improved standards for long-term care insurance policies and more
partnership policies are being sold to more modest income people as the
standards that apply to them are also applied to the broader market.
However, as CBO notes, if these policies simply substitute for policies
individuals would otherwise have purchased or increase the likelihood
of using long-term care services, they may eventually increase rather
than decrease Medicaid expenditures. From the budgetary perspective,
advocacy of reliance on Medicaid to essentially subsidize private long-
term care insurance alongside promotion of budget legislation to
curtail federal Medicaid contributions seems both disingenuous and
risky. Further, from the broader equity perspective, targeting private
long-term care insurance to modest income people seems questionable.
The purchase of a limited long-term care insurance policy could easily
absorb close to 10 percent of median income for a couple aged 60--a
substantial expenditure for a cohort acknowledged as woefully
unprepared to meet the basic income needs of retirement.
Even more questionable are proposed tax preferences for private
long-term care insurance. CBO does not analyze these proposals, perhaps
because they would clearly increase rather than decrease public
expenditures. Nevertheless, they are consistently on the policy agenda,
despite the likelihood that they will be poorly targeted to improve
insurance protection. Experience with health insurance tells us that
such credits are likely to primarily benefit those who would have
purchased long-term care insurance even in the absence of credits--
substituting public for private dollars--and, as currently proposed,
are not even designed to reach the substantial portion of older and
younger Americans with low and modest incomes.
Indeed, the whole focus on reducing public spending and promoting
private insurance ignores the public responsibility to address for all
Americans what should be our fundamental policy choice: do we want to
live in a society in which we assure affordable access to long-term
care for people who need it or in a society in which we leave people in
need to manage as best they can on their own?
There is little question that to address both current and future
long-term care needs requires not a decreased but an increased
commitment of public resources--and, to be adequate and effective in
all states--federal resources. Expanded public financing for long-term
care could take a variety of forms and by no means need eliminate
private contributions. One option, modeled on Social Security, would be
to provide everyone access to a ``basic'' or ``limited'' long-term care
benefit, supplemented by private insurance purchases for the better-off
and enhanced public protection for the low income population. Another
option would be establishment of a public ``floor'' of asset
protection--a national program assuring everyone access to affordable
quality long-term care--at home as well as in the nursing home--without
having to give up all their life savings as Medicaid requires today.
The asset floor could be set to allow people who worked hard all their
lives to keep their homes and modest assets, while allowing the better
off to purchase private long-term care insurance to protect greater
assets. Either public/private combination could not only better protect
people in need; it could also provide substantial relief to states to
focus on health insurance, education and other pressing needs--relief
that governors have explicitly requested by calling on the federal
government to bear the costs of Medicare/Medicaid ``dual eligibles''.
Because Medicaid serves the neediest population and, in the current
budgetary environment is at risk, my highest priority for expenditure
of the next federal dollar would be responding to this call (along with
supporting more home care and better quality care) with more federal
dollars to Medicaid.
Some will undoubtedly characterize proposals like these as
``unaffordable'', given the fiscal demands of Medicare and Social
Security and the current federal budget deficit. But that deficit
reflects policy choices. I would far rather see expenditure of the next
federal dollar devoted to enhanced Medicaid long-term care financing
than to tax credits for long-term care or tax cuts in general. Indeed,
the estate tax is especially appropriate for long-term care financing:
taxing everyone's estate at certain levels, to provide reasonable
estate protection for those unlucky enough to need long-term care.
As we look to the future, examination of the choices being made by
other nations of the world is instructive. Analysis by the Organization
for Economic Cooperation and Development (OECD) of long-term care
policy in 19 OECD countries (presented at the June 2004 research
meeting of AcademyHealth) found that the number of countries with
universal public protection for long-term care (Germany, Japan and
others) is growing. Public protection, they report, does not imply the
absence of private obligations (cost sharing and out-of-pocket
spending), nor does it imply unlimited service or exploding costs.
Rather, in general, it reflects a ``fairer'' balance between public and
private financing--relating personal contributions to ability to pay
and targeting benefits to the population in greatest need. Many of
these nations have substantially larger proportions of elderly than the
U.S. does today and therefore can be instructive to us as we adjust to
an aging society.
Clearly, we will face choices in that adjustment. If we are to be
the caring society I believe we wish ourselves to be, we too will move
in the direction of greater risk-sharing and equity by adopting the
national policy and committing the federal resources which that will
require.
Mr. MCCRERY. Thank you. Mr. Stinson, Dr. Feder outlined a
number of reasons that private long-term care insurance is not
working and won't work in her opinion. Would you like to
respond to the reasons that she gave or in the alternative give
me your reasons why long-term care insurance is not being
purchased in large numbers these days?
Mr. STINSON. I would be happy to respond. Correct maybe
just a couple of points or give my perspective on the a couple
of the things that Ms. Feder presented and then give an answer
perhaps to why more people haven't bought long-term care
insurance. She indicated in her findings that the product is
not designed for younger people. And I will take exception to
that. I have dozens and dozens of claimants under age 50. In
fact, my youngest claimant is 36 years old. The product to
those families is extremely important. It is going to pay for
costs of care for those families for many, many years, and the
policies today are designed with extreme flexibility in terms
of where you can receive care. So, I believe the products are
built for a younger population. In fact, in my testimony, I
indicated that the average age is now down in the high fifties,
and it is dropping rapidly. So, it is a financial planning
product for the baby boomers.
The dialog before this panel got up was why aren't more
people owning long-term care insurance. About 8 percent of
adult Americans own long-term care insurance today. Over 65,
that number is about 15 percent of Americans over age 65 own
the product. That is not incredibly unique. Life insurance
ownership is about 30 percent. long-term care insurance has
only been around in its form today for about 10 to 15 years.
So, the fact that 15 percent of adult Americans over age 65 own
the product is actually a pretty good thing. I mention the
statistic six million people. Why isn't the number 30 percent?
I think the single biggest issue that we have in front of us is
the reluctance of the American people to embrace an idea that
they are going to lose their independence. People don't want to
think about it. People don't want to talk about it. That forces
a lack of awareness of three important things: the lack of
awareness or the likelihood of needing care; the lack of
awareness of the cost of long-term care; and a lack of
awareness around what the funding options are. I think our
single biggest issue facing the penetration of this particular
product is the lack of awareness in the public today of long-
term care issues.
Mr. MCCRERY. How do you change that?
Mr. STINSON. I think a couple of things. The tax incentive
that has been proposed I think does two things. It certainly
will help on the cost, on the affordability side of purchasing
long-term care insurance. As I mentioned, long-term care
insurance is not a product for everyone. I think the most
important thing that an above the line tax deduction would
provide or a discussion around the Partnership is the fact that
it would bring this topic to every kitchen table in America
today. Everyone has just completed filing their tax returns. If
that particular item was on every single tax return in America,
people would be asking their financial planners, asking their
advisors, or looking to one another and say what is long-term
care insurance? Should I be taking some action? And I think the
Partnership Programs are another great way in terms of getting
the concept out and with an objective oversight from
government, from the States, and a plan that works in public
and private partnership is a great way and an inexpensive way
to address the issue.
Mr. MCCRERY. Why is it not a product for everyone?
Mr. STINSON. In terms of affordability, if you look at
lower income families, I think, the average premium for this
product is $1,500 to $2,000. For those that are just getting by
and putting food on the table, living paycheck to paycheck, I
do not believe this particular product or many financial
products is the right solution for that individual family.
So, that is an area of the population I don't believe this
product is designed for and we recognize that. And that is the
purpose of our Medicaid system.
Mr. MCCRERY. Ms. Stark.
Mr. STARK. Thank you. Thank you, all of the witnesses for
participating. Mr. Stinson, can you tell us what your
persistency is on your long-term care policies?
Mr. STINSON. Yes. Our--to flip it around and say lapse
rate, voluntary lapse rate. The number of people that just stop
paying premiums.
Mr. STARK. Before they die or before they----
Mr. STINSON. Right.
Mr. STARK. Mature.
Mr. STINSON. Excluding mortality, is about one and a half
percent. Most of our customers hang on to this policy until
they pass.
Mr. STARK. Okay. And can you give us a loss ratio?
Mr. STINSON. That is a more complicated answer.
Mr. STARK. All right.
Mr. STINSON. It is difficult to frame a specific percent
for you, sir.
Mr. STARK. Why?
Mr. STINSON. I would have to understand the context of the
question. I know about half of my customers are going to file a
claim.
Mr. STARK. No. Of the premiums you take in, how much do you
pay out in benefits? That's what I have always thought of as
loss ratio, but----
Mr. STINSON. I can get you--I don't have the number right
off the top of my head, sir.
Mr. STARK. Well, I don't. Well, whatever you can give us.
The last year you can think of what were your in force premiums
for your long-term care?
Mr. STINSON. In force premium is about a billion six. We
pay out about $500 million in claims every year.
Mr. STARK. So, your loss for insured is about a third.
Right? Thirty percent?
Mr. STINSON. In that definition.
Mr. STARK. Very good.
Mr. STINSON. And I know that about 50 percent of the people
that own the policies today will file a claim at some point.
Mr. STARK. Well, I don't have any other questions, Mr.
Chairman.
Mr. MCCRERY. Mr. Lewis?
Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman.
Let me thank each of you for being here today, and thank you
for your testimony. Dr. Feder, it is good to see you again. I
haven't seen you in a long time. Thank you. Mr. Gehm, you
written testimony stated that Medicaid reimbursement does not
keep up with the cost of care in nursing homes. Can you tell me
how the repeal of the Borne Amendment in 1997 has affected your
bottom line? Has the quality of care diminished as a result or
lower payment as anticipated? Would you say that some of the
quality problems in nursing homes that are being reported in
recent years are the result of the repeal?
Mr. GEHM. I can tell you that in our experience through the
early '90, even into some of the mid '90s with Borne intact,
Medicaid funding was more consistent with our expense profile
for caring for folks. As a result of the repeal of Borne, what
we have seen at least in Michigan, and I think this is similar
across the country, is that the increases in Medicaid initially
did not keep up with what the inflation of the expenses were
and more lately we have seen, of course, some rollbacks in
Medicaid. As a result, our bottom line has been impacted
significantly. Provider taxes came onto the scene, and so it
would take some analysis to get you some direct numbers at
least in the case of Lutheran Homes and that could be done. I
would be happy to do that.
Mr. LEWIS OF GEORGIA. I would love to seeing maybe other
Members of the Committee would like----
Mr. GEHM. I would be happy to do that. But I think the
overall theme for us right now is certainly the trend with
respect to Medicaid is that the differential between cost of
care and coverage under Medicaid is a widening gap for us. Your
broader question about whether it has impacted quality issues
in nursing homes. On the one hand, I can't help but think that
it hasn't. On the other hand, I know that the provider
community has become very innovative within the regulations and
very proactive in trying to create new futures and new models
of care, and I think quality continues to grow and we have seen
it in the quality indicators that are tracked and monitored.
And so we are happy with the direction that it is going. But
certainly funding will always impact quality, certainly to a
certain extent.
Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Gehm. Dr.
Feder, I would like to ask you and this may be a question that
my friend, Mr. Pomeroy, may be interested in. I understand that
the National Association of Insurance Commissioners is
currently promoting formation of an interstate compact that
will circumvent State laws and allow same insurance products,
including long-term care insurance, to be monitored and
essentially regulated by non-governmental effort. Are you
familiar with this proposal? What are you thoughts on that?
Ms. FEDER. Mr. Lewis, I am relying on the work done by my
colleague, Nila Kaufman, at Georgetown who has in looking at
the policy has indicated a number of concerns as have many who
have looked at it. The concerns being that rather than
strengthening the standards that apply to the policies affected
that it creates an opportunity for some insurance to be sold
that escapes State standards that are more restrictive and more
effective. So, rather than strengthening consumer protections,
the concern is that it would weaken them.
Mr. LEWIS OF GEORGIA. Other members of the panel have any
reaction? Thank you, Dr. Feder. Thank you, Mr. Chairman.
Mr. MCCRERY. Yes, sir, Mr. Lewis. Mr. Pomeroy?
Mr. POMEROY. Thank you, Mr. Chairman. First of all, let me
congratulate--first express my appreciation for being allowed
to ask questions, not being a Member of the Health
Subcommittee. But I want to acknowledge that I think this has
been an excellent panel. And it has been my pleasure to work
with a couple of panels for a long time--Dr. Feder, and even
longer Mark Meiners. We have been trying to figure this one out
for 20 years. And it is really good to see you again. The first
question I direct to Mr. Stinson and it relates to the loss
ratio questions that Mr. Stark--I am a little rusty from my old
insurance regulatory days. But I believe the loss ratio
includes claims reserving in the loss side of the equation. So,
if it was--it is not simply a matter of claims paid out in a
given year versus premium in a given year on the loss side,
those premiums held in reserves to pay future losses are also
counted as loss; isn't it for a loss ratio?
Mr. STINSON. Hence, my reluctance to just jump at an answer
to the question. Just an incurred loss ratio of the claims that
I am actually paying was the 30 percent number there, the $500
million, divided by the billion six, when, in fact, the
insurance companies do have to put up substantial reserves to
pay for claims in the future.
Mr. POMEROY. And as the policy book ages, your claims go
up?
Mr. STINSON. Absolutely. Absolutely.
Mr. POMEROY. Do you know your target loss ratio for getting
policy form and rates approval in a given State?
Mr. STINSON. Not in a particular State.
Mr. POMEROY. My notion is it is 60 percent or better.
Mr. STINSON. Right. Sixty to seventy percent is a range.
Mr. POMEROY. Right.
Mr. STINSON. Yes.
Mr. POMEROY. The real debate of long-term care insurance is
should we try and figure out some private protections for
people or is it all basically a waste of time awaiting some
significant Federal relief with a comprehensive program. I have
run into this from my youngest days as insurance commissioner
trying to work on improving what was offered by way of this
coverage. My approach was kind of agnostic on the question. I
think that until we pass something--that is a big Federal
program to address the concern in this area--people have
legitimate risk exposure and then therefore a legitimate need
to try and get something in place that deals with it. Dr.
Feder, do you acknowledge that can be a legitimate role in the
meantime here.
Ms. FEDER. Absolutely, Mr. Pomeroy. And I know how hard you
have worked to achieve that. And I think that the policies, as
we have heard from Mr. Stinson and also Mark Meiners and the
Partnership, the policies have improved dramatically over the
years as the policies have evolved. But when we look at a focus
of public policy, I have a number of concerns.
Mr. POMEROY. My question is--I am surprised to hear the
debate almost, there was a wonderful little trip down memory
lane, because it sounded a lot like 1985 all over again. I am
just looking at this budget, which is in tatters, and has been
horrifically handled by Congress in my belief. But I don't see
any shred of a possibility of some significant new
comprehensive Federal program to deal with this long-term risk,
especially when you consider the aging of the population.
Ms. FEDER. But, Mr. Pomeroy, what we do know in this budget
is that we are seeing proposed cuts in the Medicaid program
that we rely on for long-term care.
Mr. POMEROY. I think that is very ill advised.
Ms. FEDER. That the partnerships, we heard a CBO estimate
that it might increase costs and that we--therefore, I find it
a matter of concern to rely on a program that is being squeezed
on the one hand to provide some subsidy on the others.
Mr. POMEROY. Has Georgetown, your study been able to look
at the partnerships and try and draw your own conclusions about
whether it is a net cost or saving?
Ms. FEDER. We have not done that. What we will be doing as
part of the larger project is looking at the partnerships
alongside other initiatives that could be taken to see what
their consequences are in terms of costs and----
Mr. POMEROY. Before my time entirely. Thank you very much,
and it is I really good to see you again.
Ms. FEDER. Could I just say one more thing on the trouble?
No. I won't then.
Mr. POMEROY. Well, I want to get Mark in here before my
time runs out.
Ms. FEDER. All right.
Mr. POMEROY. I am at the Chairman's leave. So, do you have
an evaluation in terms of whether this is a net cost or a net
minus or largely a wash but in the meantime people are getting
substantial private coverage and protecting some assets, which
should be considered on the plus side I imagine.
Mr. MEINERS. Well, back--it seems like 20 years ago, when
we were starting the program. We did simulations with them and
the state of the art modeling technique of using the Brookings
ICF model that Judy is now using a version of. And we had
estimated that as the program unfolded by year, it was done in
five-year intervals, 2016 to 2020, the rollback should be a 7
percent in each point drop in Medicaid costs as a proportion of
the expenditures. Now, more recently----
Mr. POMEROY. Well, I am just going to ask if you could take
that model and then juxtapose into it the early, experiences
that we have had in the pilot States.
Mr. MEINERS. Because we get asked this question all the
time, the States have really developed their own model based on
some responses they have gotten from surveys as well as the
experience of purchasers as much as you mentioned. There is a
fairly good tracking that has been done now. And the States--
the three dollar for dollar States--California, Indiana, and
Connecticut--have estimated at this point a savings of $8
million to $10 million in an aggregate basis.
Mr. POMEROY. And----
Mr. MEINERS. They are showing savings from their
perspective of putting these numbers on the table and----
Mr. POMEROY. Actuarially, many--depending on the period of
time of protection purchased, but people--and with the
disability sufficient so that they actually become
institutionalized many will before becoming Medicaid eligible--
before they have exhausted their coverage die, and is that
seems to be--as I look at the data, it looks like this is
fitting an actuarial expectation and that getting them that
extra private coverage is indeed allaying the inevitable
Medicaid hit. Even if it is essentially a wash on Medicaid, it
is getting them additional private pay so they are having asset
protection in a very meaningful way that is of value to
creating the estate.
Mr. MEINERS. What we are seeing is that most of the asset
protection incentive that is earned is not used because the
insurance is the first thing that pays and most people will
die, in using up the insurance to take care of their long-term
care needs. So, relatively little of the Medicaid asset
protection is ever used. And the flip side of the way you get
the benefit of it is the strategy is really designed to bring
people in the market who are resistant. We worry about the size
of the market. There is a lot of denial out there. There is a
lot of worry about costs versus quality, and frankly the people
who need it most are the ones who are asking those questions
the hardest. And the Partnerships are really designed and I
think can be effective in getting to that middle modest income
group that really need this kind of protection because it is
geared toward providing a more limited yet significant useful
type of care, level of care.
Mr. POMEROY. My time is exhausted, but I really appreciate
this information.
Mr. MEINERS. Good to see you.
Mr. POMEROY. If you have stuff to bring to my attention at
the office I would really enjoy learning a lot more from your
perspective. Thank you, Mr. Chairman.
Mr. MCCRERY. Before I ask Doctor, there was a couple more
questions about the Partnership, I want to give Mr. Stark a
follow up.
Mr. STARK. I just wanted to ask unanimous consent to insert
the CBO estimates in the record, which show a $45 million cost
on the Partnerships and I think that should be part of the
hearing's records.
Mr. MCCRERY. Without objection.
Mr. STARK. And I will discuss the question of reserves on
loss ratios with my colleague privately.
Mr. MCCRERY. Dr. Meiners, I want you to talk a little bit
more about the partnership concept, especially as it relates to
Medicaid estate planning. Dr. Feder says in her testimony that
there is not really a lot of evidence out there that that is
going on, that it is all anecdotal. I have several books here
that we got from the library that are all about Medicaid estate
planning. So, somebody thinks it is going on. There is a Web
site from the University of Minnesota that says Medicaid estate
planning involves legal and financial approaches to satisfying
financial eligibility requirements for Medicaid. More
specifically, an individual's assets are sheltered with the
intention of voluntarily becoming impoverished to meet Medicaid
eligibility criteria. So, there is something going on out
there, and my question to you, Dr. Meiners, is if this is going
on, do you think the partnership concept is a way to minimize
that?
Mr. MEINERS. Okay, yes. Let me take a pick on the issue.
First of all, I think we can debate back and forth how much of
it is going on. I think when it happens, unfortunately it
happens because people haven't been able to prepare for this
risk. And the reason they are unprepared for the risk is
because they really haven't had good options, particularly
those people that are most at risk of easily spending down. So,
when the problem hits and they haven't prepared, they are going
to look for ways to shelter their limited assets and that is,
viewed as this divestiture notion. And most people, if you were
facing them as a social worker, someone like that, you would
probably help them do it because, their backs are to the wall
and they don't really have a whole lot. So, what we are trying
to come up with is an alternative that really is appealing to
people so that when--they can avoid that situation. I think
several things can happen then. The issue of going after
people's divestiture behavior is something that is very hard.
We have seen it being politically hard. So, the only way you
can really do it is if you have a reasonable alternative, like
the partnership, that really helps people plan for this risk
and get that out there far enough in advance so that you have
sort of the carrot and the stick. Otherwise, it becomes very
hard to do that.
I think, bottom line, in terms of what you do about asset
transfers, we have debated this on and off and on and off, and
it is kind of like if there are a lot of asset transfers going
on, then it is something that we ought to do something more
about. And if there is
not a lot of assets transferring going on, then what does it
matter if we do something about it? So, either way, doing
something about it is to sort of send the message, that this
really isn't what ought to happen, is important. But I,
frankly, feel like you really need something like the
partnership or other ways to help people prepare for this risk
so that the information can be out that there is something
positive that can be done about it. One of the reasons that we
struggle with this is because we don't really have good
answers, so we don't raise the problem, and sort of--CMS, for
example, has done their educational campaign, but it has been
very slow in unfolding and fairly limited. And I think in part
it is because there is a hesitancy to acknowledge that we have
any answers. I think the partnership is an answer that we can
work on that actually can help to strengthen the Medicaid
program and give people incentives to provide for themselves at
the same time. And then the asset transfer issue can be dealt
with more effectively.
Mr. MCCRERY. Thank you. Before I give any of the other
panel members a chance to make a last comment before we
adjourn, I just want to point out that while we haven't made a
bubble on deductibility public policy for long-term care
insurance, we have allowed the use of health savings accounts
balances for paying premiums which, of course, are pre-tax
dollars. So, there is that vehicle out there now that is
available for paying premiums for long-term care insurance.
Does any other panel member want to make a comment before we
adjourn.
Ms. FEDER. I would.
Mr. MCCRERY. Dr. Feder?
Ms. FEDER. Just I wanted to say, going back to Mr.
Pomeroy's questions about frustration in trying to do
something, one area of concern to me is that we will be cutting
Medicaid while talking about these other areas that would rely
on it. But even of greater concern if we take new initiatives
is if we are going to actually commit to spending new public
dollars, it seems to me that they must go first to those who
are in greatest need, which means targeted down the income
scale. And that is why I am most concerned about policies that
would continue to, that have done or would continue to offer
tax incentives for the purchase of private long-term care
insurance, or targeted to the higher-income population. It
seems to me that many of us can afford to buy these products
already if we so choose. And spending these--you are quite
right--hard-do-come-by tax dollars on the population most able
to take care of themselves seems to me a very unwise policy
choice.
Mr. POMEROY. Mr. Chairman, if I might ask a follow-up
question.
Mr. MCCRERY. Sure.
Mr. POMEROY. Well, what if it is like this. We have enough
dollars to either help a broader number, if we leverage some
private dollars into the mix, even though that means gearing it
at middle income as opposed to the most needy income, versus
helping a smaller number that have no assets at all and so have
to be 100 percent public funded. These are the terrible policy
choices a bad budget environment leaves us with, but I think
that it shouldn't be dismissed out of hand, helping the
broadest number that you can.
Ms. FEDER. Well, actually, I think that it is not that we
are helping people even today, with people who have no assets,
people who are going on Medicaid, the evidence is overwhelming,
or people with modest income and assets who contribute all
those assets and income to the costs of their care. So, we are
relying on private and public resources now. It is just a
public-private partnership, if you will, that is tremendously
unfair to the individuals unlucky enough to fall into that
trap. I have heard some people refer to it as the last estate
tax left, is on individuals who are so unlucky as to need long-
term care and exhaust their resources. So, we can enhance
Medicaid's ability to protect people who have long-term care
needs and still rely, still be relying on profit resources but
do a far better job of mixing public and private resources,
even if we don't go all the way to a social insurance program,
as Mr. Stark----
Mr. POMEROY. My notion is, just in response--the discussion
will be continued, I suppose, in philosophical ways for a long
time. If, for example, you took the Federal dollars and tried
to bring up spend-down levels so we have a higher level for
eligibility for Medicaid; or, on the other hand, you tried to
preserve, the payment for Medicaid services that are under
great stress now. Either way. You basically do not expand
substantially the portion of the population that you are
helping. And if you, on the other hand, with a partnership
approach, can incent additional people buying this third-party
coverage, which is getting additional private payment into the
mix, conceivably you are leverage dollars that allow you to
help a larger number of people.
Ms. FEDER. It is just not clear to me that the partnership
is actually serving as the incentive that you would like it to
be. People can buy limited-dollar policies now. They do run the
risk of having to ultimately spend down to Medicaid, so I do
get that they are getting the additional asset protection. But
as we hear, most of them are dying before they exhaust the one-
and two-year benefit period. So, they buy that now.
What is troubling to me as a public policy is targeting our
attention on modest-income people. I looked at the data. It
says for a 60-year-old, you are asking somebody for a limited-
dollar policy to spend--I have to double-check my notes, but I
think it was 10 percent of income, roughly, median income for
60-year-olds, on a policy. That doesn't feel to me like we are
helping them so much. They haven't even got sufficient
resources for retirement. So, I would rather we worked harder
on making the safety net decent.
Mr. POMEROY. I certainly understand your point.
Ms. FEDER. Thank you.
Mr. MCCRERY. Let's go--this is your last chance. Mr. Gehm?
Mr. GEHM. Thank you. I would like to offer maybe an
alternative kind of perspective with respect to long-term care
insurance and its kind of market penetration, such as it is,
and these kinds of things. I am not sure that, from where I sit
on kind of the long-term care continuum, from the provider
side, both within, certainly, my organization, colleagues I
speak with in Michigan and across the country, I have really
come to the conclusion that the lack of buy-in to long-term
care insurance isn't necessarily a rejection of that product,
but mostly a rejection of what you are insuring against, and
that is the notion that it is buying you traditional nursing
home care rather than what it really can do for us with respect
to buying services that link to housing. So, I think we might
have some success if we begin to think a little differently
about what it is we are trying to get long-term care insurance
to really do. And when it allows folks to link services with
housing, which the programs do allow, I think we will have some
success. The problem is people think they are insuring against
nursing home risk. They don't want to deal with it. And I agree
with my colleague down the panel here, who suggested that there
is this kind of I-don't-want-to-deal-with-my-own-aging bias
with respect to that. And if we can offer the market choices in
terms of care venues and housing with services and other things
as part of what we talk about when we talk about long-term
care, I believe that we will have more success in creating the
right incentives in the market for folks to go ahead and insure
against that risk.
Mr. MCCRERY. Thank you.
Dr. Meiners?
Mr. MEINERS. I appreciate the opportunity to mention one
more thing, and that is as we try to think creatively, I really
was trying to orient us to thinking about these systems of
care, the integration of Medicare and Medicaid, because when
you pull those dollars, you really have the chance to actually
take Medicare dollars the only way you really can and turn it
into more of an ability to pay for things like the In-Home
Supportive Services program that was mentioned earlier, a
personal care program, long-term care programs. So, I think
those are a model of where you can pool dollars and the States
are creating systems of care that are unique in doing more than
is normally out there in the process, coming up with better
ways of caring for people. I think, with that structure in
place, you could use something like the partnership incentive
to perhaps encourage people who are pre-duals, who haven't yet
ended up on Medicaid, and get them in some of those systems of
care with care management, care coordination, and perhaps have
them get the kind of coordination that helps them avoid ever
needing to spend down or at least delaying that spend-down
process, where they would ever need to end up on Medicaid. Now,
that is something, if you let States work with those pre-duals
and some incentive systems, States really get a lot out of that
because this person never really becomes a full dual-eligible,
never really becomes Medicaid-eligible, because they are
getting better care up front. I think there are a lot of
creative things we can do there in this situation we are in,
which is not unlike the situation we were in when I first
started looking at long-term care insurance more than 20 years
ago. We need that kind of creativity. And I think there are
ideas that we can pursue in that regard, and the partnership
and those integrated care systems can both be part of it.
Mr. MCCRERY. Mr. Stinson?
Mr. STINSON. Thank you, yes. Just in response to the
question around does the partnership program help sell
insurance. We believe it does. Statistically, we sell more
partnership programs in those States that have the partnership
program than non-partnership policies. A significant proportion
of the policies we sell in California, Connecticut, Indiana,
New York are partnership policies because we believe consumers
see the value of the private and public partnership and the
value of that program. So, we believe it does help insurance
and would offer broader coverage for consumers. Again, the
long-term care insurance industry does not believe that the
long-term care insurance product is the only solution. We
believe that it should be part of the solution. We believe that
the way to get greater penetration is a program of greater
education and awareness. I think broader consideration of the
partnership program is a very just cause, and considering
above-the-line tax deductions, other forms of tax incentives
will help people consider this product and own more of it.
Mr. MCCRERY. Dr. Gerety, you get the last word.
Dr. GERETY. I would just urge the Subcommittee to think,
along with all these issues about financing and the structure
of care, to not forget that you need a workforce to deliver
that care. And right now we are already in a situation where we
have a real shortage of qualified professionals who can deliver
geriatric care--doctors, nurses, social workers, therapists,
personal care providers. And so as we are trying to prepare for
all this need, I think the Nation has to face the fact that
without public policy action, you simply will not have trained
people to be able to provide high-quality care. And I think any
program that you undertake to reform long-term care has to
address these work-force issues, or we will be stuck with
still-poor-quality care even in a system that might have
financing available.
Mr. MCCRERY. At the risk of engendering more discussion,
which I will cut off immediately, any ideas you have on how we
could improve that climate, we would welcome. Because we have
been struggling with it for some time. Thank you all very much
for a very interesting discussion of the topic. And we thank
you very much for coming to our humble chamber and sharing your
ideas with us..
[Whereupon, at 6:18 p.m., the hearing was adjourned.]
[Submissions for the record follow.]
Statement of Alane Dent, American Council of Life Insurers (ACLI)
The American Council of Life Insurers (ACLI) is a Washington D.C.-
based national trade association representing more than 350 member
companies that offer life insurance, annuities, pensions, long-term
care insurance, disability income insurance and other retirement and
financial protection products. ACLI member companies have 81 percent of
the long-term care insurance in force in the United States.
We are delighted that this Subcommittee is addressing an important
issue facing this nation--long-term care--through the hearing process
and possibly through legislation. Subcommittee Chairwoman Nancy Johnson
has been and continues to be a thoughtful leader on this issue by
introducing legislation that would encourage individuals to plan ahead
and adequately provide for their future long-term care costs by
purchasing long-term care insurance. A number of Members of this
Committee have sponsored this legislation, and we are pleased to
discuss with the Subcommittee the role that private long-term care
insurance plays in ensuring the retirement security of millions of
middle-income families.
To elevate the issue of long-term care today and over the next
decade ACLI cosponsored the 2005 White House Conference on Aging's
Mini-Conference on Long-Term Care. At this conference participants
representing long-term care stakeholders within both the public and
private sectors came together to actively address the serious issues
associated with long-term care and worked to formulate public policy
recommendations to the upcoming White House Conference on Aging that
will be held later this year. The Mini-Conference on Long-Term Care
participants urged Congress to enact laws which would encourage private
arrangements by individuals and their families for LTC services, such
as tax incentives for the purchase of long-term care insurance or other
private options for financing long-term care.
One of the greatest risks to asset loss in retirement is
unanticipated long-term care expenses. ACLI has found that nearly half
of all Americans will need long-term care at some point in their lives.
A 65-year-old woman has a 50-percent chance of needing nursing-home
care in her lifetime; a 65-year-old man has a 30 percent likelihood of
needing such care. One in five over age 50 is at risk of needing it in
the next twelve months. The annual cost of a nursing home stay averages
$55,000 and is projected to reach $241,000 by 2030. Two visits a day by
a home health aide to help with bathing, dressing, and household chores
can cost $2,500 a month. If skilled help, such as physical therapy, is
needed the expense is greater. These costs can quickly erode a hard-
earned retirement nest egg.
Today, your Subcommittee is focusing on the current financing for
long-term care services; private long term care insurance options
include the Long Term Care Partnership programs; and the challenges
ahead in financing needed services for an aging population. We want to
stress that both current and future long-term care financing needs can
best be met through the broader use of long-term care insurance.
Current Financing for Long-Term Care Services
Long-Term Care Insurance
The long-term care insurance market is vibrant and innovative. ACLI
recently surveyed the long-term care insurance market, with the
assistance of America's Health Insurance Plans (AHIP) and found that
the individual market in terms of premiums is approximately 12.5 times
larger than the group market in terms of premiums--$6,502 million
compared to $510 million, and 3.5 times larger in terms of policies
versus certificates--4 million policies compared to 1.1 million
certificates.
The individual market grew at 7.5% from 2003 to 2004 (in terms of
premiums). The group market grew at 25%. The strong growth in both
markets represents the value of the product and the continued effects
of the Federal Long-Term Care Insurance Program that made long-term
care insurance available to federal government employees, annuitants
and their qualified dependents and relatives. This program stands as an
example to all employers to offer similar programs to encourage their
employees to prepare for their future retirement needs. The average age
of purchasers of long-term care insurance continues to decrease as
individuals increasingly understand it as a tool to retirement income
security, In 2004, long-term care insurance carriers paid more than
$2.1 billion, or a 20 percent increase from 2003, in long-term care
insurance benefits.
long-term care insurance continues to evolve to give policyholders
more choices and greater quality of care. For instance, the market has
evolved from nursing home-only to one that offers flexible care options
and numerous consumer protections. Most policies allow customers to
choose between in-home care, assisted living facilities and nursing
homes, encouraging the individual and their families to customize his
or her care needs. In addition, policies offer the services of a local
care coordinator that meets with a policyholder at the time of claim to
help craft a plan of care and identify local care providers. Other
common benefits include:
case management services;
homemaker or chore services;
restoration of benefits;
reimbursement of bed reservations in long-term care
facilities;
coverage of some medical equipments survivorship
benefits;
caregiver training; spousal discounts; and
limited pay policies.
All plans are guaranteed renewable, have a 30-day ``free look''
period, offer an inflation protection, cover Alzheimer's disease, have
a waiver of premium provision, and offer unlimited or lifetime nursing
home maximum periods.
Incentives to Encourage Individuals to Buy Long-Term Care
Insurance
An integral solution to meeting long-term care expenses will be the
reintroduction and passage of H.R. 2096, the ``Long-Term Care and
Retirement Security Act of 2003'' that the Chairwoman introduced in the
108th Congress. The measure provided individuals with an above-the-line
federal income tax deduction for the premiums they pay to purchase
long-term care insurance. The long-term care policies subject to the
deduction are covered by broad consumer protections. In addition, the
measure would permit long-term care insurance policies to be offered
under employer-sponsored cafeteria plans and flexible spending
accounts. Finally the bill includes a tax credit to individuals with
long-term care needs or their caregivers of up to $3000.
This important tax incentive will go a long way toward encouraging
the purchase of long-term care insurance by middle-income Americans.
Moreover, providing this important tax incentive means that Americans
who take advantage of long-term care protection will not be a burden on
the Medicaid system and will not have to spend-down their retirement
assets to pay for long-term care before becoming eligible for Medicaid.
Instead, they will have the choice of a variety of services if they are
unable to perform a specific number of activities of daily living or
are cognitively impaired. Today's long-term care insurance policies
cover a wide range of services to help people live at home, participate
in community life, as well as receive skilled care in a nursing home.
Policies may also include respite care, medical equipment coverage,
care coordination services, payment for family caregivers, or coverage
for home modification. These options can enable people who are
chronically ill to live in the community and to retain their
independence.
While the financial benefits to individual policyholders are
obvious, the benefits to government--and future taxpayers--of wider
purchase of private long-term care insurance are substantial. By the
year 2030, Medicaid's nursing home expenditures could reach $134
billion a year--up 360 percent over 2000 levels. ACLI's research
indicates that by paying policyholders' nursing home costs--and by
keeping policyholders out of nursing homes by paying for home--and
community-based services, private long-term care insurance could reduce
Medicaid's institutional care expenditures by $40 billion a year, or
about 30 percent.
In addition, the ACLI study found that wider purchase of long-term
care insurance could increase general tax revenues by $8 billion per
year, because of the number of family caregivers who would remain at
work. Today, 31 percent of caregivers quit work to care for an older
person; nearly two-thirds have to cut back their work schedules; more
than a quarter take leaves of absence, and 10 percent turn down
promotions because of their care giving responsibilities. It costs the
typical working caregiver about $109 per day in lost wages and health
benefits to provide full-time care at home--which is almost as much as
the cost of nursing home care.
Long-Term Care Partnerships
Increasingly, states are tackling the costs of long-term care and
are exploring ways to partner with the private insurance industry to
alleviate the growing burden. One such way is through the Partnerships
for Long-Term Care, a pilot program developed by the Robert Wood
Johnson Foundation in conjunction with state governments and the
support of the private insurance industry.
The Partnerships allow consumers to purchase a long-term care
policy whose benefits must be fully utilized prior to qualifying for
Medicaid. When that coverage is exhausted, individuals may apply for
Medicaid, as they would have without the private insurance. Because
they utilized their insurance coverage under the Partnership, they can
protect the level of assets as defined in their policy.
Partnerships have taken the form of two models. The dollar-for-
dollar model allows people to buy a policy that protects a specified
amount of assets. The total asset model provides protection for 100
percent of assets once they exhaust their private insurance coverage.
The Partnership program is currently operational in four states:
California, Connecticut, Indianaand New York. More than 180,000 long-
term care insurance policies have been purchased in those states, and
it is estimated that through these Partnerships, approximately $30
million of assets have been protected. The Partnership benefits
consumers, Medicaid and private insurers.
Few Partnership policyholders have accessed Medicaid to date. Of
the more than 180,000 policies that have been purchased since 1992,
fewer than 100 individuals have exhausted those benefits and applied to
and or accessed Medicaid.
In 1993, shortly after the Partnership pilots began, Congress
suspended expansion of the Partnership to any additional states. The
pilots were stopped due to concerns that a publicly funded program such
as Medicaid would endorse private insurance programs. Others were
concerned that the Partnership might increase Medicaid spending.
However, as Medicaid costs increase, Congressional representatives from
non-Partnership states have become interested in implementing
Partnership programs. During the 108th Congress, legislation was
introduced in both the House and the Senate that would repeal that
prohibition. In addition, 16 states have passed legislation that would
implement a Partnership once the 1993 restrictions are withdrawn or
waived. The long-term care insurance industry is interested in
expanding the Partnership beyond the four pilot states and is actively
engaged in a public policy dialogue that is intended to utilize the
lesson learned those four Programs.
ACLI believes that some type of simplified uniform approach to the
LTC Partnership Program that includes eligibility for benefits for any
approved tax-qualified LTC policy; state reciprocity; dollar for dollar
asset protection; uniform, simplified annual reporting to a single
respository; and consumer protection can play an important role in
encouraging the purchase of LTC insurance and help provide important
savings to Medicaid.
Future Financing for Long-Term Care
Private long-term care insurance will be the key to future
financing for long-term care. The insurance industry continues to
educate Americans that a financially secure retirement includes a plan
to cover future long-term care expenses. To help educate consumers on
how to select and purchase a long-term care insurance policy, ACLI
maintains educational brochures and information on its website, and
upon request, which encourages consumers, when considering a major
purchase of long-term care insurance, to:
(1) look for insurance companies that are reputable, consumer
oriented, financially sound and licensed in their particular state,
(2) obtain the name, address and telephone number of the agent and
insurance company,
(3) take time when making a purchase, ask for and read the outline
of coverage of several policies,
(4) understand what the policy covers and ask questions to be
clear about what the policy is not intended to cover,
(5) understand when the policy becomes effective, what triggers
benefits and if it is tax deductible at the state and/or federal level,
(6) answer questions on medical history and health truthfully on
the application, and,
(7) contact the State Insurance Department or the State Health
Insurance Assistance Program with questions on long-term care insurance
and the insurance company with specific questions about the policy.
The federal government and the states have also recognized the need
to educate individuals in the workplace to plan to cover their future
long-term care needs. The federal government, by Act of Congress, has
taken the lead and set the example for other employers by offering
federal employees and their families the protection of long-term care
insurance. Through this program, federal employees are able to protect
their retirement savings from a long-term care event and will have the
choice of providing care for themselves or a family member in the home,
through assisted living or in a nursing home.
Last year, the Department of Health and Human Services began a
federal project to increase awareness among retirees and near-retirees
about the need to plan ahead for potential long-term care needs.
Governors of five pilot states are conducting long-term care awareness
campaigns over a two- to three-month period, starting in January 2005.
The campaign includes press conferences, mailings to 50- to 70-year-
olds in each state, advertising and follow-up mailings. Results will be
evaluated and improved before expansion to other states. The five
states include Virginia, Idaho, New Jersey, Nevada and Arkansas.
About half the states have programs through state personnel offices
that afford state employees/retirees the opportunity to purchase
individual long-term care insurance policies. Twenty-one states provide
tax incentives for purchasing long-term care insurance. Most state tax
deductions share some features with federal rules--allowing all or part
of premiums and expenditures to be deducted. Two states provide a tax
deduction or credit for employers offering group LTC insurance
policies. As more than 77 million baby boomers approach retirement, the
rapidly aging workforce together with more employees caring for elderly
parents heighten the importance of long-term care planning as a
workplace issue.
In conclusion, we believe that protection and coverage for long-
term care is critical to the economic security and peace of mind of all
American families. Private long-term care insurance is an important
part of the solution for tomorrow's uncertain future. As Americans
enter the 21st century, living longer than ever before, their lives can
be made more secure knowing that long-term care insurance can provide
choices, help assure quality care, and protect their hard-earned
savings and assets when they need assistance in the future. We also
believe that the costs to Medicaid--and therefore to tomorrow's
taxpayers--will be extraordinary as the baby boom generation ages into
retirement, unless middle-income workers are encouraged to purchase
private insurance now to provide for their own eventual long-term care
needs. ACLI believes it is essential that Americans be given an above-
the line deduction for this product that is so vital for their
retirement security.
Again, the ACLI looks forward to working with this Subcommittee to
help Americans protect themselves against the risk of long-term care
needs.
Statement of Laura Howard, Americans for Long Term Security (ALTCS)
Chairman Johnson;
Americans for Long Term Care Security, a bi-partisan, 35-member
organization commends you on scheduling today's hearing examining long
term care. It is consistent with your strong leadership on this issue
for most of the past decade.
ALTCS strongly believes that as Congress prepares to examine broad
issues and possible legislation related to retirement security, long
term care must be included. We believe your Long Term Care and
Retirement Security Act from the past several Congresses and when
introduced in the 109th Congress will be the most comprehensive long
term care bill before Congress.
We must not just recognize but respond to the growing challenge
that long term care poses to individuals, families and the nation. Long
term care costs now exceed costs for medical devices and prescription
drugs combined. Medicaid, which will get much attention at this
hearing, now exceeds education as the largest expenditure in state
budgets. Nursing home expenses under Medicaid have risen by more than
100 percent between 1990 and 2000.
Meanwhile, we confront the aging of the baby boomers in our nation.
Long term care remains the greatest unfounded liability for this
generation.
We need greater incentives through the tax code to encourage more
Americans who are able to purchase long term care insurance. Your
legislation has proposed a phased-in, above-the-line deduction for
qualified long term care insurance premiums. This is good policy that
can encourage more Americans to purchase this product which is evolving
in a positive way to address more of what people might face with
respect to long term care.
Any discussion of long term care must also address another growing
challenge--family caregiving. Estimates point to more than 20 million
American families who are confronted with caregiving responsibilities
of one kind or another. They need relief from the costs associated with
caregiving. These are direct and daily costs and other costs such as
reduced earnings. Your bill recognizes this need by calling for up to a
$3,000 tax credit for family caregivers.
We also applaud your legislation's call for coverage of long term
care in employer cafeteria plans and FSAs. This too will be important
to achieve balanced long term care reform.
As the hearing will raise today, by approaching long term care
reform as both a public and private sector responsibility it might be
achieved.
ALTCS also strongly believes that we must intensify our public
education efforts around long term care. It remains a fact that too
many Americans still believe that Medicare covers long term care. There
remains a huge disconnect between what people need to know and what
they do know about long term care to help them make responsible
decisions. ALTCS salutes the work being done by the 2005 White House
Conference on Aging on this aspect of work on long term care. Their
mini-conference on long term care is being held today as well and it
should produce one or more resolution for later consideration and
adoption by the delegates.
ALTCS believes that beyond robust public education, improving long
term care will also require a strong and trained workforce and the
sharing of financial risks involved in providing care.
ALTCS looks forward to our continued work with you, Chairman
Johnson, this Subcommittee, and later the full Congress on behalf of
achieving passage of meaningful long term care legislation. We must
make the necessary investments today in terms of tax incentives and
reforms to Medicaid. Important savings can and eventually will be
achieved to Medicaid and Medicare through this investment. Medicare and
Medicaid both are celebrating their 40th anniversaries. It also means
we are 40 years older as a society in terms of addressing the needs of
our aging population. Today's challenges are tomorrow's crises if we
fail to act.
Statement of Hal Daub, American Health Care Association
As President and CEO of the American Health Care Association
(AHCA), the nation's largest association of long term care providers,
and as a former member of the Ways and Means Committee myself, I would
like to thank Rep. Nancy Johnson for holding this hearing--and for her
long time advocacy of not just improving long term care, but also for
exploring and proposing new ways to finance our seniors' growing care
costs
I would also like to thank every Member of the Health Subcommittee
for their consistent, diligent attention to the healthcare needs of
America's most vulnerable population of seniors and persons with
disabilities.
A thoughtful discussion regarding long term care's chronic solvency
crisis--and the extent to which the expansion of long term care
insurance and partnerships can improve the financial stability and
quality of Medicare and Medicaid services--is timely and necessary.
As we are all aware, the Administration's proposed FY 2006 budget
reduces Medicare long term care funding by $25 billion and Medicaid by
an unprecedented $60 billion over a ten-year period. These double
whammy budgetary reductions will undoubtedly create short-term
instability, thereby putting in jeopardy the financial foundation
required to maintain and sustain the care quality improvements we have
all worked so hard together to achieve.
I'd like to remind members of this Subcommittee that former HHS
Secretary Tommy Thompson and CMS Administrator Mark McClellan stood
with our profession last December to announce not just that nursing
home care quality in America is improving in a quantifiable manner
through the Nursing Home Quality Initiative (NHQI)--but that there is
indeed a direct correlation between stable funding sources and levels
of care quality.
At the time the Secretary expressed ``hope'' that continued
stability of long term care funding will lead to further quality
improvements.
In light of the improvements in nursing home care we have achieved
with the Administration through the NHQI, the cumulative long term care
funding cuts are ill considered, and not only place seniors' care
quality at risk, but sends the long term care sector backwards.
Even the Medicare Payment Advisory Commission (MedPAC), which is
historically critical of the skilled nursing facility (SNF) sector,
declined to support the short-sighted budgetary savings of reduced
Medicare reimbursements. Rather, the commission suggested
preservation--but reallocation--of the add-ons.
The bottom line is that these proposed budgetary reductions will
cut into quality care and reduce our ability to properly prepare for
the demographic challenges facing America.
Since passage of the 1997 Balanced Budget Act (BBA)--which resulted
in approximately 15 percent of long term care providers seeking
bankruptcy protection--skilled nursing providers have been on a
dangerous and unnecessary economic roller coaster ride of Medicare cuts
followed by temporarily-restored funding.
The President's proposed budget places a critical sector of our
nation's health care delivery system back on the roller coaster in a
manner that will negatively impact not only our current and future
ability to maintain and sustain quality gains for the residents we
serve, but also capital investment into our sector.
This hearing today coincides with the White House Conference on
Aging Long Term Care Mini-Conference--which today is hosting leading
stakeholder organizations, including AHCA, as we work towards
developing a comprehensive policy roadmap to ensure our nation's future
long term care needs can be achieved.
The policy recommendations developed at the mini-conference will
serve as the basis for the long term care policy discussions at the
full 2005 White House Conference on Aging, to be held later this year.
Among those speaking during the two day forum are Harvard Law
School Professor Arthur Miller who moderated the discussion, CMS
Administrator Mark McClellan, and Dorcas Hardy, the former
Administrator of the Social Security Administration, and Chairman of
the White House Conference on Aging Policy Committee.
For the record, Madame Chairman, I would like to submit AHCA's
statement delivered today at the Conference, as it coincides with the
very themes and issues being discussed today:
``The demographics are startling. With 77 million baby boomers
rapidly approaching an age when many will require long term care
services, it is imperative that we establish policies now to equip us
to provide the highest quality care in the most appropriate setting for
the patients and residents of tomorrow.
``This demographic wave will present new and unexpected challenges
for providing and funding healthcare services in homes, communities,
nursing facilities or other residential care settings. This forum of
our nation's premier long term care experts and thought leaders will
most certainly help provide policy makers a framework for taking the
right steps now to meet the changing needs of an aging population.''
We know for certain the impending wave of aging baby boomers and
advances in health care and medicine will allow many, many more
Americans to live longer--and these simultaneous developments require
fresh, realistic approaches towards long term care financing.
As America will soon confront its greatest unfunded liability--the
public cost of future retirees' long term care needs--Congress needs to
investigate a variety of new approaches that utilize the tax code to
more effectively meet these costs.
In that regard, AHCA and NCAL have always been strong proponents of
your proposal, Madame Chairman--the ``above-the-line'' tax deduction
also supported by President Bush, Rep. Earl Pomeroy (D-ND) and by
Senators Charles Grassley (R-IA), among others.
A deduction of this nature could dramatically increase the number
of people who purchase long term care insurance by reducing its costs.
Increasing the size of the pool will also drive down premium costs,
making the insurance model progressively more appealing.
We also strongly support the Long Term Care Insurance Partnership
Program Act--legislation introduced by Senators Craig and Bayh in the
last Session of Congress, which expands the ability of citizens to
purchase state-approved long term care insurance policies--so they can
take control of how and where their own long term care needs are met.
Should the need for care exhaust the benefit of the policy, the
Partnership program provides asset protection, allowing individuals to
qualify for Medicaid, without ``spending down'' their entire savings.
The many benefits to this legislation are significant:
It would conserve scarce Medicaid resources due to the
fact long term care expenses will be increasingly met by the private
sector;
It would promote greater self-reliance and individual
responsibility as Americans meet their own care needs as opposed to
relying exclusively upon government funding;
It would allow seniors to bequeath at least a portion of
their assets to loved ones; and
It would encourage the expansion of the long term care
insurance market which will have a positive impact of helping to make
policies more affordable.
In particular, Madame Chairman, expansion of the long term care
insurance market is especially important: for patients, expanding the
market will bring about increased long term care funding stability and
the concomitant benefit of higher quality care; for states and for
taxpayers, the inherent benefit is reduced financial and budgetary
pressure on Medicaid-financed long term care.
As we thank you here today for bravely addressing the so-called
``elephant in the room''--the need to create longer term solutions for
long term care financing--we also encourage the exploration of other
private activities, such as reverse mortgages, tightening asset
transfer requirements, and enacting new tax laws to incentivize the
purchase by individuals of long term care insurance. But these alone
will not create a comprehensive solution for long term care financing,
and so, we look forward to working with you, Madame Chairman, your
committee, Congress and the Administration to seek out and create new
and innovative resolutions to this impending crisis.
With the impending cuts proposed for both Medicaid and Medicare in
the FY 2006 budget, these are much-needed initiatives meriting fast-
track consideration and enactment.
With the funding instability produced by initial budget cuts,
funding restorations, eligibility and benefit changes, more cuts and
the general cycle of uncertainty that best characterizes federal long
term care funding over the past decade--regardless of who controls
Congress and the White House--our profession is acutely aware of the
linkage between Medicaid and Medicare funding instability and our
ability to maximize patients' care quality.
It is alarming that that 85 percent of Americans believe their long
term care needs will be met by Medicare, Medicaid or their existing
health insurance. This fact underscores the need for government to help
educate and inform its citizens to understand how to prepare for their
retirement and its financing.
When individuals understand the risks they face, the costs of care,
and the options before them, we as a nation should be confident the
vast majority of Americans will choose to act responsibly and plan for
their future needs and the needs of their families.
This fundamental premise reflects American values: Americans want
to control their destiny, and every individual must--and should--take
some level of responsibility for their future, and that of their
family. If armed with the facts and the means, people will do what is
right to protect their health, their family, and their economic
interests.
With the proper planning and level of commitment this matter
deserves, Congress can begin laying the groundwork for a long term care
financing system that has the capacity to meet the care needs of
millions of future retirees.
Madame Chairman, there is no stronger supporter of Medicaid reform
than AHCA, and we have very publicly and consistently called on
Congress and the states to maintain its financial viability with
appropriate levels of investment.
Demographic realities require a change in policy and a
transformation in thinking.
We must fundamentally shift the role of government--from government
simply paying for services--to government helping individuals save for
their own long term care needs.
Thank you for the opportunity to submit our testimony today, and we
look forward to working productively and cooperatively with this
Committee, with this Congress and with this Administration to do what
America has always done when presented with a challenge of this scope:
engage in honest debate, create a workable plan, earn the support and
trust of the nation's citizens, and pursue a course that is in the best
interest of every American.
Statement of Suellen Galbraith, American Network of Community Options
(ANCOR), Alexandria, Virginia
The American Network of Community Options (ANCOR) is the national
organization of more than 850 private providers of supports and
services to more than 380,000 individuals with mental retardation and
other disabilities throughout the nation. For nearly 40 years, ANCOR
has represented at the national level private providers who offer
community living and employment supports and services to people with
significant disabilities. Throughout its history, ANCOR has been a
staunch advocate for quality long-term supports to people with
disabilities in their communities. ANCOR appreciates this opportunity
to provide written testimony to the Ways and Means Subcommittee on
Health.
First, ANCOR extends appreciation to Chairwoman Nancy Johnson for
convening this hearing and for the subcommittee's attention on this
important national issue. ANCOR will provide brief comments in the
following five areas:
1. Diversity of Individuals in Need of Long-Term Care
2. Intersection of Multiple Federal Financial and Medical Services
3. Workforce Crisis Affecting Delivery of Long-Term Care
4. Need for Multiple Public and Private Options
5. Sustained National Dialogue
ANCOR believes that how our nation frames public policy is in large
measure due to the questions asked and/or problems identified which in
turn determine how we arrive at answers and solutions contained in the
public policy. To aid the Subcommittee in its work, ANCOR suggests that
their work include addressing the following questions:
1. Who needs long-term care? (i.e, breadth and scope of
populations, individual characteristics; differences and similarities)
2. Who pays for long-term care? (i.e, intersection of public and
private health and financial mechanisms, private income and savings,
Social Security cash benefits, state and federal programs)
3. Who delivers long-term care? (i.e., state and local
governments, family and friends as caregivers, institutional and
community-based agencies, paid staff)
4. What public programs assist in providing long-term care? (i.e.,
housing, transportation, social services)
5. What private means are currently available to help finance and
deliver long-term care?
6. What public and private options need to be created to ensure
availability of long-term care for those who need it?
7. What constitute quality supports and how can we ensure quality
through our payment systems?
8. How will future demographic changes and system redesign
strategies affect each of these areas?
Diversity: Long-Term Care: Not Just For Retirees, But a Lifetime Need
Today, nearly 10 million Americans need long-term services and
supports to assist in their daily living. And yet, any one of us at
anytime can find him/herself in need of long-term supports and
services. For some individuals, for example--a person born with mental
retardation, cerebral palsy, or autism--these are lifetime needs. For
others, the onset of a severe disability may come as a teenager when an
automobile accident results in a brain injury; in mid-life as a result
of a job injury and altering employment options; or as an elder with
Alzheimer's disease.
For some, the need for long-term services and supports is due to a
physical disability that affects their ability to perform activities of
daily living (ADLs) such as eating, dressing, toileting, and walking.
For others, a cognitive disability affects their ability to perform
typical instrumental activities of daily living (IADLs) such as meal
preparation, medication management, and financial and home management.
In some cases, the disability may an individual's affect cognitive,
mental and physical abilities.
The number of elderly persons is projected to increase
dramatically, both as a percentage of the population and in absolute
numbers, due in part to the aging of the 77 million baby boomers and to
increased life expectancy. The entry of baby boomers into the long-term
supports and services system will place additional burden on an already
strained system. In addition, long-term services are vital to
individuals with disabilities under the age of 65--especially in light
of the fact that they may require supports over a lifetime. With the
aging of parents who currently provide long-term supports to their
adult children with mental retardation, nearly 700,000 parents who are
caretakers now will soon be in need of their own long-term supports.
long-term services and supports are not only an issue for older
Americans, but also for children and working-age adults with
disabilities as well, and any examination of long-term supports must
account for all populations.
While this Subcommittee is very aware of the fact that the need for
``long-term care'' is not solely an issue for the elderly or aging,
frequently policymakers address the financing and delivery of supports
and services as if it were unique to the elderly. This singular focus
limits the options in the range and type of supports and services
offered to individuals. There is a wide range in the ages of those in
need of long-term supports and services and that there is a wide range
in the nature of those supports and services.
Acknowledgment of these diversities are important in looking at
both the financing and structure of long-term supports and services.
What a 79 year old female with Alzheimer's with no family needs is
entirely different than what a 42 year old man with mental retardation
who can work part-time needs. The desires and needs of a person in
their 60s and 70s is very different for someone in their 20s or 40s.
For example, personal assistance to get to work is not a desire of
someone in their 70s.
ANCOR urges the Subcommittee to keep the following factors in mind:
1. Individuals who need long-term supports are a diverse group.
2. long-term supports may be time limited or needed over the
lifetime of an individual.
3. Supports should be provided on an individual basis and are
likely to change over the life-time of an individual.
Intersection of Multiple Financing and Delivery Systems
For the 10 million people who need long-term supports and services
now and for the millions of family members who are their caregivers and
the millions of paid direct support professionals who deliver these
supports and services, one thing is very clear: There is no national
long-term care policy and there is no cohesive or uniform long-term
care system. In fact, most individuals and families who arrive at the
need for long-term supports and services face a fragmented delivery
system. Hundreds of thousands of individuals each year must face the
roller coaster of determining whether they meet eligibility to qualify
for supports and if there will be money available in any given year for
their essential supports.
The system we now depend upon is best described as a patchwork of
programs that vary from state to state and community to community. Each
program has its own standards for eligibility and provides different
services. This assortment of services is inefficient, inequitable and
often ineffective. The lack of a cohesive national policy to assure
access to long-supports has left most people with disabilities with an
unrecognizable and splintered system of support for their long-term
care needs.
long-term care is an essential component of family financial
security. The longer we continue to disregard the financial impact of
long-term disabilities on individuals and on society, the wider the gap
in our nation's economic security becomes. The current system for
enhancing economic security is principally derived from earnings,
Social Security, Medicare, employer provided pensions and savings, none
of which addresses our long-term care needs. No one is immune from the
risk of having a family member in need of long-term care, not to
mention the possibility that they will need assistance themselves.
About 45 percent of the long-term care population is under the age of
65. Yet, although the need for health insurance to cover a patient's
medical expenses in case of catastrophic illness is widely accepted,
few people are insured against the costs of providing long-term support
services. This lack of insurance coverage jeopardizes the financial
security of families and diminishes the economic security of the
country. It also places a greater burden on the nation's primary long-
term care financing program--Medicaid.
And, yet, the public and many policymakers mistakenly assume that
long-term supports are needed only by the elderly and that Medicare
provides payment for such services to the elderly. Aside from the new
prescription drug coverage added to Medicare and limited after-hospital
care, this federal program provides little in the way of long-term
supports to the nation's elderly and disabled populations.
Medicaid successfully provides long term care to individuals with
disabilities and seniors, accounting for 43% of total long-term care
spending. It also finances premiums, co-payments, and long-term
supports for those who are also Medicare eligible. However, most of
Medicaid's long-term services are considered optional services under
current Medicaid law. Yet, for those who need these essential services
to get out of bed and to eat, go to school, go to work, and contribute
to their community, they are by no means optional. More than half of
all Medicaid long-term care spending goes toward institutional
services.
Currently, there are few if any long-term insurance products that
will cover the comprehensive services needed by non-elderly individuals
with severe disabilities. Once born with a disability, long-term
insurance is not an option.
By default, the Medicaid program has become the nation's only
publicly financed source of long-term supports and services. However,
Medicaid was never intended to be the nation's primary financing source
of long-term supports and services. The state and federal governments'
reliance on Medicaid as the sole source of long-term supports and
services not only forces individuals to spend-down their assets and
resources to become eligible for the essential services, but places the
burden for our nation's long-term supports on one single program--
Medicaid--thereby jeopardizing its financing and its structure and
rendering a need for radical changes with claims of unsustainable
growth.
Because long-term care financing was never integrated into our
national retirement and disability security system, an unstable and
convoluted patchwork system of financing has emerged. Federal programs
do not co-ordinate with or even complement private long-term care
insurance. States provide long-term care as a public assistance program
that helps seniors only after they have reached the poverty level while
it condemns people with disabilities to a life of permanent
impoverishment. Unless they have purchased long-term care insurance or
have significant savings, the average family must try to piece together
limited Medicare coverage, public services, and personal resources,
until they spend down to Medicaid eligibility. Clearly, the complexity
of the health care financing system requires a multi-faceted solution.
Public and private resources must be mobilized and coordinated into a
flexible array of programs that can be adapted to provide appropriate
levels of care at a reasonable cost.
What is lost in examinations of long-term supports and services is
the intersection of Social Security retirement and disability programs,
Medicare, Medicaid, private insurance, housing, transportation, and
other federal and state assistance programs.
Public and Private Options
long-term care is an essential component of family financial
security. The longer we continue to disregard the financial impact of
long-term disabilities on individuals and on society, the wider the gap
in our nation's economic security becomes. The current system for
enhancing economic security is principally derived from earnings,
Social Security, Medicare, employer provided pensions and savings, none
of which addresses our long-term care needs. No one is immune from the
risk of having a family member in need of long-term care, not to
mention the possibility that they will need assistance themselves.
About 45 percent of the long-term care population is under the age of
65. Yet, although the need for health insurance to cover a patient's
medical expenses in case of catastrophic illness is widely accepted,
few people are insured against the costs of providing long-term support
services. This lack of insurance coverage jeopardizes the financial
security of families and diminishes the economic security of the
country. It also places a greater burden on the nation's primary long-
term care financing program--Medicaid.
Medicaid has become the single largest public payer of long-term
care services. Moreover, although most people prefer to live at home,
Medicaid's bias towards institutional care has left Americans with few
alternatives and tremendous confusion over how best to arrange the
options available to them.
While many people equate term long-term care with someone who lives
in a nursing home or other institutional facility, almost 80% of the
elderly and 41% of individuals with severe disabilities live at home or
elsewhere in the community. Many people with disabilities and older
persons with functional limitations or cognitive impairments choose to
remain in their homes or live in supportive housing if they can receive
assistance with activities of daily living such as eating, bathing and
dressing.
The heavy bias in Medicaid funding toward institutional care does
not reflect this growing preference for home and community supports and
services. Ironically, while people with disabilities and a growing
elderly population prefer to receive services in the community, the
federal government imposes a strong bias toward institutional care
through existing Medicaid and Medicare laws.
Clearly, Medicaid has been forced to fulfill a role it was never
intended to play. Though many Americans believe Medicaid only provides
assistance to individuals with very low incomes, the reality is far
different. Many middle class individuals are forced to spend down--or
deplete--their income and assets to qualify for Medicaid services and
receive assistance with the high costs of long-term care.
Insurance programs--whether public or private--that provide income
and health security only for people in retirement will fail to meet the
needs of non-elderly individuals with a range of severe disabilities
and a different set of life expectations. Because no one set of long-
term supports solutions can be appropriate for every American with a
disability, we must design income, health, and long-term security
programs that build upon each other and are flexible to support
individuals of all ages and their families and communities.
Workforce Crisis
In considering long-term supports and services to the elderly and
to non-elderly individuals with disabilities, it is crucial to keep in
mind that these supports are multi-dimensional in nature. Although
financing is the cornerstone of the long-term care issue, our public
policy must also consider other issues equally critical in building an
adequate, seamless, and effective long-term care system. These issues
include: supporting family caregivers, addressing workforce shortages,
improving the quality of long-term care supports and services and
improving access to transportation and housing.
long-term care services and support encompasses a broad range of
assistance to people who need ongoing help to function on a daily
basis. These services may range from assistance with daily activities
such as bathing, dressing and eating to more complex services such as
meal preparation, shopping, money management, medication management,
and transportation. long-term care cannot be relegated to specific
hours, days of the week, or to services where one size fits all.
ANCOR believes that the lack of a stable, quality direct support
professional workforce is a crisis that is one that will plague the
entire long-term care field in the 21st century unless national
attention is brought to this issue. This crisis is a result of several
factors, including the increased demand for long-term supports and
services; a traditional labor supply not able to keep pace with demand;
and jobs that cannot compete within today's labor market.
The workers who provide the intimate and daily supports to people
with disabilities are known by many job titles--but one thing in common
is shared by all of them. They are the hands, voice and face of long-
term supports. They are the backbone of our nation's formal long-term
support system. These paid workers assist with personal care, general
health care, people with severe disabilities with medications,
preparing and eating meals, dressing, mobility, and handling daily
affairs medication administration, life sustaining medical care such as
suctioning and tube feeding, transportation, emotional or behavioral
support, community participation, financial management and/or any other
life areas that an individual with disabilities might require
assistance or support.
A majority of these workers are female and often the sole
breadwinner of their household. Although employed, the wages they earn
keep many families impoverished. The cost of this labor comprises
between sixty and seventy percent of the total dollars necessary to
provide long-term supports. As Medicaid is the single largest funder of
these supports, it is by default our nation's leading payer of these
long-term supports. Yet this system inadequately reimburses providers
to cover the cost of wages and benefits to attract, train and retain
quality workers.
As the pool of potential unpaid caregivers shrinks due to
demographic and economic trends, direct support professionals will play
an increasingly greater role in delivering long-term care. However, the
relative size of the paid long-term care workforce is not likely to
increase with the anticipated demand for paid long-term care. A low
wage workforce, unrealistic workloads, inadequate government
reimbursement rates, along with the need for additional training and
support, as well as labor shortages have all contributed to high staff
turnover. Recruitment and retention problems create an unstable
workforce and are a barrier to high-quality care. In addition, our
current financing system does not support today's wages, and therefore
raises serious questions about the ability to recruit future direct
support professionals.
Conclusion: Need for a Sustained, National Dialogue
For the past 60 years, Americans have relied on a combination of
social insurance and private means to pool risk and support financial
security. The basis for our social insurance programs and most of our
private means of pooling risk and enhancing financial security is tied
to employment. Social Security, including the life and disability
insurance portions for Social Security, and Part A of Medicare are
earned rights derived from employment for the worker or the worker's
dependent. Most private insurance is organized through group purchases
made b employers on behalf of their employees and their dependents.
Retirement income is also enhanced through employer-provided pensions
and deferred compensation plans. Thus, the American approach to pooling
insurable risks and protecting financial security has been a
combination of social insurance and tax encouraged private insurance.
However, there are gaps in these arrangements as well as gaps between
these arrangements. Savings are used to bridge the gaps. And, in the
absence of sufficient savings, public assistance is called upon with
benefits targeted to those in specific categories with the least
financial means.
Unfortunately for those who need extended long term supports and
services, public assistance remains the primary financing mechanism. In
order to address the issue of how to best finance long term supports
and services and then develop comprehensive means for delivering a
range of supports and services, a national dialogue is needed today
more than ever.
The current fragmented services and supports available to people
with disabilities does not reflect the growing need nor preference for
long-term supports and is limited by the way in which such services
have been funded in the past. Changing long-term care financing will
change how long term supportsis organized and delivered. A rational
approach to financing that looks at all income and health insurance
options and maximizing their integration, and not merely one single
program, will improve the efficiency and equity of the system. It will
recognize an individual's desire to receive supports where and when
they need it, and it will improve the quality of the supports.
ANCOR believes there are a number of principles that should be
implemented in the development of an ideal long-term services system.
These principles include:
The social commitment to long-term care must be in the
form of a public/private system built on the principles of social
insurance and private insurance.
Eligibility for the social insurance benefit should be
based on functional limitations as an entitlement benefit.
Direct support professionals are critical to quality
supports and must be recognized and valued by the system.
Public assistance must be maintained and improved to
provide a full range of services and supports to those who are not
otherwise covered.
The financing system must support a arrange of choices
and help maximize personal independence, self determination, dignity
and fulfillment.
Systems should coordinate services for people with
multiple needs that change over time, providing a seamless and
continuing delivery system.
Systems for assuring quality of supports should be built
into all long-term supports and services programs. Such systems should
assure quality and value based on identified outcomes and adequate
provider payments.
The financing of long-term supports should be spread
broadly and progressively. This goal may involve tax policy, Social
Security, Medicare, Medicaid, private health insurance as well as
pensions, social services and housing policies. Both public and private
financing mechanisms should be strengthened toward this goal.
ANCOR recommends that the Congress work with the Administration,
governors, state lawmakers, providers, workers, families, and
individuals who depend upon long-term supports to initiate a
comprehensive national dialogue on long term care financing and the
looming workforce crisis facing people with disabilities of all ages
who need health and health-related supports to live in the community.
By initiating and continuing a national long-term care dialogue, we can
move forward with a positive and comprehensive plan to help safeguard
the health and well being of tens of millions of Americans.
ANCOR again congratulates the Subcommittee for its initiative in
calling for this hearing. We hope it is a first step in a national
dialogue. ANCOR appreciates the opportunity to submit our written
comments on this important issue. We would be happy to provide further
information or testify at future hearings.
Statement of Merrill Matthews, Council for Affordable Health Insurance
(CAHI), Alexandria, Virginia
On behalf of the Council for Affordable Health Insurance's (CAHI)
board of directors and members, I applaud Chairman Johnson and members
of the House Ways and Means Health Subcommittee for opening this
dialogue on how to improve the long-term care delivery and financing
mechanisms in the United States. We appreciate your consideration of
our comments on this critical issue.
CAHI is a national non-profit research and advocacy association
whose mission is to develop and promote free market solutions to
America's health care challenges. Our membership includes health
insurance companies (active in the individual, small group, HSA, long-
term care and senior product markets), small businesses, physicians,
actuaries and insurance brokers.
Our members represent a broad range of health care products,
including long-term care and Medicare Supplement insurance, home health
care services and prescription drug discount cards. They provide
insurance policies that protect families from potential financial
catastrophe, as well as critical services to people with disabling
conditions and long-term health care needs.
long-term care is the most significant health care funding expense
Americans now face. Something must be done to stem the public's massive
and growing dependence on government-funded long-term care--and it must
be done now.
Our comments will focus on the following:
Private long-term care financing options available today,
including long-term care insurance;
Obstacles facing the private long-term care market;
Solutions to removing barriers to private market growth
and reducing the burden on Medicaid.
Today's Private LTC Market
Beginning in 2011 the first baby boomers will turn 65. By 2031, all
76 million boomers will have reached retirement age, many of them
woefully unprepared for the cost of long-term health care. Americans
are living much longer than in the past and the phenomenal advances in
medicine will mean that many Americans will be living not only longer
but also healthier and more fulfilling lives.
While these advances were unimaginable just decades ago, they come
at a cost. The public policy question facing us is, ``Who will pay?''
Government cannot--and should not--pay for it all.
The private sector will have to provide workers with ways to
protect their future health, independence and assets. The good news is
that there are innovative and effective private long-term care
financing options available to consumers today, such as long-term care
insurance and home equity conversion.
long-term care is usually provided in three venues--the home, an
assisted living facility or a nursing home--and is financed primarily
by three sources: private pay, Medicaid or Medicare. (The Congressional
Budget Office estimates that if converted into dollars, donated care
would represent 36% of all spending on long-term care for the elderly.
Our focus here, however, is on paid care.)
Private long-term care (LTC) insurance protects assets and incomes
from the devastating financial consequences of long-term health care
costs. In existence since the early 1970s, LTC insurance policies
initially piggybacked on Medicare's skilled nursing benefit, providing
short-term indemnity benefits for stays in a Medicare skilled nursing
facility. Intermediate care and non-Medicare facility services were
covered beginning in the late 1970s. Coverage for home care services
emerged in the early 1980s. With the implementation of the National
Association of Insurance Commissioners' LTC insurance model regulations
in the mid-1980s, coverage expanded to include care in assisted living
facilities, and insurers began offering longer periods of covered care,
including unlimited lifetime benefits and increased daily benefits.
Due to significant competition in the marketplace, LTC insurers are
developing products with very flexible benefits to better meet
consumers' needs. Today's comprehensive LTC insurance policies allow
consumers to choose from a variety of benefits--including reimbursement
for informal caregivers--and offer a wide range of coverage choices.
They provide for care to be received in a variety of settings--nursing
homes, homecare, assisted living facilities and adult day care--and
some of the most recent policies are providing for a cash benefit that
the consumer can spend anyway he/she feels is best. Additionally,
insurers are coming out with hybrid products that are combined with
life insurance and annuities.
Policy options offered by one CAHI member include:
Short term facility care plan for stays of less than one
year;
A stand alone home health care plan;
A benefit plan for substandard health risks; and,
A comprehensive benefit package covering all care
settings--facility, home and community.
Additionally, under a first-of-its-kind arrangement with a major
university, their newest product incorporates an independent health
promotion and disease prevention program, as well as caregiver support
services.
LTC insurance allows individuals to take personal responsibility
for their long-term health care needs and reduces the strain on state
Medicaid budgets. By the year 2030, Medicaid's nursing home
expenditures are expected to reach more than $130 billion a year.
Private LTC insurance is the only real alternative to more state
Medicaid spending on seniors.
Home equity conversion (HEC)--which allows people to convert the
illiquid equity in their homes into a liquid monthly income or a lump
sum payment without having to repay the loan while they live in the
home--is another private financing option for long-term care needs.
Eighty-one percent of seniors own their homes. Seventy-three percent of
elderly homeowners own their homes free and clear. Nearly $2 trillion
worth of home equity is held by seniors that could go to offset the
cost of long-term care--enough money to solve the long-term care
financing crisis now and in the future.\1\
These reverse annuity mortgages are available to anyone 62 years of
age or older and are strictly regulated by the government. Proceeds of
a reverse mortgage can be used for any purpose. For example, when
interest rates plummeted, many seniors turned to reverse annuity
mortgages as a way to replace lost income.
Properly done, reverse mortgages are medically underwritten so that
the mortgages are priced so that they do not come due while borrowers
are still able to live at home. In other words, the lender is taking on
risk that the borrower may live in the home longer than anticipated.
Thus, the product is insurance, not just a loan. Borrowers can never
lose their homes and do not pay back the reverse mortgage until they
leave or sell the home, usually as a result of death or nursing home
institutionalization. At that time and only then, the lender recoups
principal and all accrued interest.
Recently, the Centers for Medicare and Medicaid Services and the
National Council on the Aging (NCOA) have encouraged the use of home
equity to pay for long-term care. In an estimate prepared for the NCOA
by the Lewin Group, reverse mortgages could save Medicaid $3 billion to
$5 billion annually by 2010 if sales reached certain levels.
Obstacles to Private Market Growth
Most seniors are financially ill-prepared to meet potential long-
term care needs. According to the Congressional Budget Office, only 7%
of American seniors have enough saved to cover one year of nursing home
care.
Consumer education about the need for long-term care planning is
critical. The largest disincentive to buying private LTC insurance,
however, is Medicaid. As originally conceived, Medicaid was mainly
intended to be an acute-care safety net for poor women and children. To
this day, approximately 75% of Medicaid recipients are poor adults,
mostly women and children, who account for only about one-third of
Medicaid's costs.
The remaining 25% of Medicaid recipients are aged, blind or
disabled, but they account for two-thirds of the program's costs. The
main cost driver for this group is long-term care, principally nursing
home care.
Medicaid spent $50.9 billion on nursing home care in 2002 and paid
for two-thirds of all nursing home residents.\2\ Medicaid also spends a
large and rapidly increasing amount for home and community-based long-
term care. long-term care accounts for one-third to one-half of total
Medicaid expenditures in most states.
The American public is in denial about the risk of long-term care
because Medicaid and Medicare have paid for most expensive extended
care services since 1965. When a care crisis occurs and large expenses
begin to be incurred, families frequently turn to the public benefit
programs and learn that qualifying for Medicaid is easier than they
thought and that Medicare, although very limited in its benefits, has
no means test to obstruct eligibility. Consequently, few people plan,
save, invest or insure for long-term care and most people end up
dependent on the public programs.
To qualify for Medicaid's long-term care benefits, someone must be
aged, blind or disabled and medically in need of nursing-home level of
care. Beyond that, there are two financial tests that must be passed:
one is based on income and the other on assets.
Income eligibility is determined in two ways. Thirty-four states
and the District of Columbia have ``medically needy'' income
eligibility systems.\3\ In those states, medical expenses--including
private nursing home costs, insurance premiums, medical expenses not
covered by Medicare, etc.--are deducted from Medicaid applicants'
income. If they have too little income to pay for their care, they are
eligible for Medicaid--not just for long-term care but also for the
full array of Medicaid services.
The remaining states have ``income cap'' Medicaid eligibility
systems.\4\ In these states, anyone with income over $1,692 per month
(300% of the SSI monthly benefit of $564) is ineligible for long-term
care benefits. But $1,692 is not enough to pay privately for nursing
home care and one dollar more is too much to qualify for Medicaid, a
Catch 22. So Congress approved ``Miller Income Trusts'' in the Omnibus
Budget Reconciliation Act of 1993 (OBRA '93) that allow people to
divert income into the trust and become eligible for Medicaid. The
trust proceeds must then be used to offset their cost of care, and any
balance in the trust at death reverts to Medicaid. Nevertheless, Miller
Income Trusts allow people with incomes substantially over the limit to
qualify for Medicaid, enjoy the program's low reimbursement rates and
receive its extensive range of additional medical services.
Thus, whether you're in a ``medically needy'' or an ``income cap''
state, you don't have to be poor to qualify. You only need a cash flow
problem. There is no set limit on how much income you can have and
still qualify, as long as your private medical expenses are high enough
and, if you are in an ``income cap'' state, you have a Miller Income
Diversion Trust. Thus, income is rarely an obstacle to Medicaid long-
term care benefits, as long as medical expenses are high enough. Only
the top 10% or 15% of seniors would have too much income to qualify.
Most states allow individual Medicaid applicants to retain at least
$2,000 worth of otherwise nonexempt liquid assets. What you don't hear
so often is that Medicaid also exempts the home and all contiguous
property regardless of value. Simply express a subjective ``intent to
return'' to the home and it remains exempt, whether or not there is any
medical possibility the patient will ever be able to return. According
to the Social Security Administration's Program Operations Manual
System (POMS), Medicaid also exempts:
One business, including the capital and cash flow, of
unlimited value;
A prepaid burial space for ``the individual, his or her
spouse, or any other member of his or her immediate family is an
excluded resource, regardless of value'';
Unlimited term life insurance with no effect on
eligibility;
Home furnishings up to $2,000, but they are rarely
counted;
One car of unlimited value, assuming it's used for the
benefit of the Medicaid recipient. (And because it is exempt, giving it
away is not a transfer of assets to qualify for Medicaid.)
Many upper-middle-class people qualify for Medicaid by consulting
legal specialists, known as elder law attorneys, who use an array of
qualification techniques, including the purchase of annuities,
irrevocable income-only trusts and life care contracts. Thus, even
beyond Medicaid's extremely generous basic eligibility rules as
described above, savvy seniors with cunning legal advisors can stretch
Medicaid long-term care eligibility much further still.
Medicaid planning has negative consequences beyond overloading the
program with recipients who could have paid for their own care. Elder
law attorneys routinely advise their Medicaid planning clients to
retain enough ``key money'' to pay privately for at least a year of
nursing home care. That's because it's common knowledge that patients
cannot count on getting into a quality nursing home unless they can pay
privately for an extended period of time. Once they're in, however,
state and federal laws prohibit nursing homes from removing them just
because they convert from private-pay to Medicaid. So, the well-to-do
divest or shelter most of their wealth, but save out enough to pay
privately for a year, lock into a good nursing home, and later transfer
the financial burden to Medicaid, tax payers and nursing homes. The
tragedy is that poor people, whom Medicaid is supposed to help, do not
have key money and consequently must occupy the less desirable beds in
nursing homes more heavily dependent on Medicaid's low reimbursement
rates.
Although state Medicaid programs have been required since OBRA `93
to recover benefits paid from the estates of deceased recipients--and
arguably from the estates of the spouses they predecease--few states do
so efficiently and effectively.
Two states--Michigan and Texas--have not implemented estate
recoveries to this day. Most states make only a half-hearted effort.
CMS reports that state Medicaid programs recovered only $350 million
from estates in 2002 while spending $46.5 billion on nursing home
care--an almost negligible return of only 0.75%.
Even states like Oregon that pursue estate recoveries aggressively
are hamstrung by restrictions in federal law that protect large amounts
of money from recovery.\5\ Nevertheless, Oregon recovered $13.7 million
from estates in 2002, which is 6.9% of what the state spent on Medicaid
nursing home benefits that year.\6\ If every state were as successful
as Oregon, estate recoveries would total $3.2 billion.\7\
With a growing industry devoted to helping individuals qualify for
Medicaid, and with little or no effort on the part of the states in
pursuing estate recovery or otherwise limiting Medicaid eligibility, it
should come as no surprise that consumers view long-term care as an
entitlement, and see no value in using their own money to purchase
private LTC insurance or long-term care services directly.
Solutions
Encouraging individuals to plan for their own long-term care needs,
and providing incentives to access the private market products to do
so, are the two most important ways we can improve long-term care
financing and delivery, and contain the growth of Medicaid.
Tax Incentives: While pure demographics should spark some increased
interest in LTC insurance, the onslaught of the baby boom generation is
not enough in itself to encourage the purchase of the product.
Today's private long-term care market continues to evolve with
policy improvements, consumer protections and administrative
efficiencies. It is competitive and innovative, changing to meet
consumer demand. So why aren't consumers buying it?
Studies of ``non-buyers'' show that if LTC insurance could be
purchased with tax incentives, they would seriously consider buying a
policy. By giving Americans a tax break to purchase LTC insurance,
Congress can help millions of families enjoy a financially secure
retirement. While an income tax deduction is one way government has
encouraged Americans to purchase LTC insurance, the deduction applies
only to premium amounts that exceed 7.5% of adjusted gross income,
thereby limiting it to very few taxpayers. Pending legislation would
provide an above-the-line income tax deduction for LTC premiums.
One new LTC financing option is a Health Savings Account (HSA),
which allows a worker to tax-shelter LTC insurance premiums. However,
few people have an HSA, and some employers may never offer that option.
Congress can do much more. Many Americans are saving for their
retirement years through IRAs, 401(k) and 403(b) plans, with personal
contributions matched in whole or in part by employers. Allowing
taxpayers age 50 or older to use funds from those plans, without
withdrawal penalties, to buy LTC coverage can: (a) encourage the
purchase of LTC insurance at younger ages when premiums are lower and
people are healthier; (b) motivate consumers to take responsibility for
their long term health care needs; and (c) if restricted to just IRAs,
would be almost tax neutral.
However, when Congress or the state legislatures create new
options, they sometimes feel compelled to impose new regulations on
those options. It is important that Congress and the states not do to
long-term care insurance what they--primarily the states--have done to
health insurance: impose numerous mandates and restrictions that drive
up premiums and reduce access to affordable coverage.
Long-Term Care Partnerships: The private long-term care insurance
market is robust and competitive, with products that offer consumers
comprehensive benefits and financial security. However, the ease with
which people can shelter or transfer their assets reduces the incentive
to purchase private LTC insurance and increases the number of people
who rely on Medicaid for their long-term care.
Four states--Connecticut, California, Indiana and New York--have
addressed the LTC problem by establishing public/private partnerships.
These programs encourage people to purchase private LTC insurance by
allowing insured persons to protect their assets in whole (New York) or
in part if they exhaust their private LTC benefits. Thus, if
partnership participants exhaust their LTC policies, they will not
forfeit their estate once they enroll in Medicaid. In other words, if
people go to reasonable lengths to act responsibly and protect
themselves by buying LTC coverage, their assets are not at risk if they
must eventually turn to Medicaid.
While the current partnership programs are a step in the right
direction, their mandated product design and administrative burdens
encumber insurers. As a result, the products are expensive. Moreover,
the Omnibus Budget Reconciliation Act of 1993 effectively precluded the
establishment of partnership programs in new states by prohibiting the
states from allowing participants who buy LTC coverage to be exempted
from Medicaid's estate recovery provisions.
Yet the fundamental concept behind LTC insurance partnerships is
sound and could attract consumers if the restrictions were removed.
A fresh, full examination of LTC partnerships is needed. An
affordable partnership program would link the public and private
sectors, allowing consumers to purchase private LTC insurance and
making Medicaid the last option for long term care. What to do? First,
Congress should allow states to establish an LTC partnership program by
repealing the OBRA '93 ban on the forgiveness of estate recovery
liability. Then, state legislators should advance public/private
partnership programs that promote the development and availability of
affordable, voluntary, private LTC insurance products.
Home Equity Conversion: Seniors' home equity is the biggest
potential source of private long-term care financing that could relieve
fiscal pressure on Medicaid. Home equity represents over half the
wealth of the median elderly household. Yet home equity is not being
widely used to finance long-term care. Why? Because Medicaid exempts
the home and all contiguous property regardless of value for any
recipient who expresses an ``intent to return'' to the home. Under
federal law, the medical feasibility of returning to the home is
immaterial (except in three or four 209b states \8\). Expressed intent
is all that matters. Thus the Medicaid home exemption and the ease of
transferring the home to avoid estate recovery liability chill the
market for home equity conversion products.
The federal Medicaid program should require home equity conversion
as a condition of qualifying for Medicaid-funded long-term care, and
states should encourage the use of this program. This approach would
prevent Medicaid from being ``inheritance insurance'' for baby boomer
heirs as it is now, and it would wake up the boomers to the risk and
cost of long-term care. With home equity genuinely at risk, most people
would plan early to save, invest or insure for their long-term care
needs. They would be less likely to ignore the problem until it's too
late, as they do now, because if they did, they would have to consume
their biggest asset before receiving public assistance. This approach
would also unleash the long-term care insurance and home equity
conversion markets, thus creating jobs and adding to state and federal
tax revenues.
Medicaid Long-Term Care Eligibility: Medicaid's income and asset
limits are very severe for people who need acute care. The rules are
much more generous for seniors who need long-term care. Income is
rarely an obstacle to eligibility because applicants' medical expenses,
including nursing home expenditures, are deducted from their income in
30 ``medically needy'' states. In the remaining ``income cap'' states,
applicants can divert excess income into ``Miller Income Trusts'' in
order to qualify for Medicaid coverage.
The key is to control eligibility. Many states have tried to reduce
costs and improve service delivery by de-emphasizing nursing home care
and encouraging home and community-based services. But in so doing,
they've made their Medicaid programs more attractive and private
financing less attractive. If they could control eligibility, however,
so that people would access Medicaid only after consuming home equity,
fewer people would become dependent on Medicaid, and the state could
better afford to provide the most attractive home and community-based
services (HCBS) and pay adequately for them.
Congress and CMS should encourage states to study their Medicaid
eligibility systems to determine how much they lose as a result of
generous Medicaid eligibility rules, early wealth transfers and
Medicaid estate planning. Then they should consider:
Tightening income and asset limits;
Enforcing the rules more strongly;
Joining Connecticut, Minnesota and Massachusetts in their
1115 waiver request to extend Medicaid's ``look-back'' period for asset
transfers; and, to eliminate the ``half-a-loaf'' loophole (giving away
half your assets and spending down during the resulting shortened
eligibility penalty) by starting eligibility penalties at the date of
Medicaid qualification instead of the date of the transfer.
Medicaid Estate Recovery: Every state Medicaid program is required
to recover the cost of care from the estates of deceased recipients
(Omnibus Budget Reconciliation Act of 1993). Few states aggressively
enforce the estate recovery requirements, however, and none effectively
inform the public of this liability in advance. Oregon leads in estate
recoveries, annually recouping 4.1% of its Medicaid nursing home
expenditures from recipients' estates. If every state recovered at the
same rate, estate recoveries could generate nearly $2 billion in nontax
revenue to supplement Medicaid's limited resources. If states warned
citizens about the risk and cost of long-term care, the downside of
enrolling in Medicaid--such as loss of independence and choice--and the
use of estate recovery, many more people would plan earlier to save,
invest or insure for long-term care costs, thus reducing the burden on
taxpayers and the Medicaid program.
States should review their Medicaid estate recovery programs. If
recoveries do not meet or exceed 5% of nursing home expenditures,
states should consider: changing laws to encourage stronger recoveries;
implementing ``best practices'' from other states; adding staff until
recoveries are maximized; and publicizing the program to encourage
responsible long-term care planning by consumers who are still young,
healthy and affluent enough to purchase private insurance.
Conclusion
The United States is the richest country in the world. We have more
than enough wealth to ensure access to long-term care for all American
citizens. Yet our long-term care service delivery and financing system
is seriously dysfunctional.
By making Medicaid nursing home benefits routinely available to
virtually anyone since 1965, we created a nursing home-based, welfare-
financed long-term care system that fails everyone, especially the
poor.
While it is understandable that seniors want to protect their
assets in order to pass something on to their families and friends, the
best way to do that is to take financial responsibility and protect
their assets by purchasing long-term care insurance, not becoming
dependent on the Medicaid system.
The private LTC insurance industry continues to serve consumer
expectations well in the design and offering of quality products.
Disincentives to buy the products do not come from a lack of benefit
plans--excellent, affordable coverage is available and new products
continue to be developed. Concern for the stability of premium rates
for these products has been addressed by the National Association of
Insurance Commissioners, while meaningful consumer protections have
been put in place in the states.
By providing individuals with the proper incentives to plan for
their own long-term care financing, Congress can reduce the number of
people dependent on Medicaid and allow the program to do a better job
for its proper clientele: the poor. Medicaid could afford to offer home
and community-based care, not just nursing home care, and perhaps it
could pay long-term care providers something closer to market rates.
Thank you again for the opportunity to share our comments. Please
feel free to contact me if I can provide any further information.
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\1\ Steve Moses, ``The Long-Term Care Dilemma: What States are
Doing Right and Wrong,'' 2004, http://www.cahi.org/cahi_contents/
resources/pdf/LTCStudy2004.pdf.
\2\ See: http://www.cms.hhs.gov/statistics/nhe/historical/t7.asp;
``Table 7: Nursing Home Care Expenditures Aggregate and per Capita
Amounts and Percent Distribution, by Source of Funds: Selected Calendar
Years 1980-2002'' and C. McKeen Cowles, 2002 Nursing Home Statistical
Yearkbook, Cowles Research Group, Montgomery Village, MD, 2003, p. 64.
\3\ See ``SI 011715.020 List of State Medicaid Programs for the
Aged, Blind and Disabled'' at http://policy.ssa.gov/poms.nsf/1nx/
0501715020.
\4\ Ibid.
\5\ See SEC. 1917 [42 U.S.C. 1396p] of the Social Security Act,
``Liens, Adjustments and Recoveries, and Transfers of Assets,'' at
http://www.ssa.gov/OP_Home/ssact/title19/1917.htm.
\6\ Moses.
\7\ Moses. This estimate is based on applying Oregon's probate
recovery rate of 6.9% to the national total Medicaid nursing home
expenditures for FFY-02 of $46.5 billion. Using the 8.1% estate
recovery rate estimated by Oregon staff gives a total national estate
recovery potential of $3.8 billion.
\8\ ``209B states,'' refers to the states which retained the right,
under Section 209(b) of the Supplemental Security Income (SSI) program,
to continue to use their own eligibility criteria in determining
Mediciad eligibility for the elderly and disabled rather than extend
Medicaid coverage to all who qualify for SSI benefits. The Medicaid
Resource Book, Kaiser Commission on Medicaid and the Uninsured.
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Statement of Barbara Haselden, Hometown Insurors, Inc., St. Petersburg,
Florida
Sixteen years ago I formed a corporation and opened a neighborhood
Long Term Care Insurance Agency in St. Petersburg, Florida. My family
had experienced the long term care needs of both of my grandmothers
each lasting for seven years, one at home and one in a nursing home. I
witnessed the financial and emotional impact this exacted on all close
members of my family and when I became aware of the emerging product of
insurance to cover these events I was hooked. Surely this would be a
life's work that, once understood by the public, would provide both a
good living and rewarding service to others. In my naivety, I had no
idea of the road I was about to travel filled with years of struggle,
moments of hope dashed by years of disappointment.
I will not take your valuable time to relive the history of this
industry as I know you have plenty of testimony covering this aspect. I
will say that interest in the product peaked perhaps as long as five
years ago. At that time the promotion of Medicaid planning Seminars by
Elder Law Attorneys and Insurance Agents began to proliferate promising
to assist families in escaping the consequences of uninsured long term
care.
One such seminar entitled ``Just Say No to Long Term Care'' drew
crowds of 60 to 100 people consistently for years all over the southern
half of the state. Another Seminar given by a young local Elder Law
Attorney entitled, ``FINALLY, Answers to Your Medicaid Questions and
Long Term Care'' has been running monthly for the past five years and
in fact is in the St. Petersburg Times just this past Sunday. These
seminars are actually held in public libraries and senior citizen
centers.
There are thousands of Purveyors of Medicaid nationwide each with
their own approach to marketing Medicaid to the public for their own
personal gain. I have attended many of these seminars in Florida and
have been so disappointed by the general willingness of everyday
Americans to engage in schemes to become eligible for Welfare and to
escape paying an insurance premium to finance their own future personal
needs. But, most seminars start out with a long pitch proclaiming
Medicaid as an Entitlement Program guaranteed to every American if you
only know how to play the game and, after listening to the distorted
message, one walks away from these convincing half-truths thinking only
a fool would buy long term care insurance. After all, you paid taxes
all these years . . .
Today we are loosing more policyholders monthly at my agency than
we are able to add. They are going on claim at a rate that exceeds our
growth due to the low interest in our product. If something isn't done
quickly to assist our industry in reaching the public I fear the
industry will collapse. The languishing legislative action on building
a financially strong long term care delivery system thru adequate
financing via insurance, like all other major risks in our society,
threatens to rob us of our future ability to care for our aged in their
own homes, assisted living or nursing facilities.
While it is certain that the Medicaid Planning industry must be
stopped, I fear the number of years that it may take to outwit 5000
attorneys into submission. Therefore, I am asking for an above-the-line
tax deduction now to give us compelling incentives to those that will
listen to purchase long term care insurance. Then quickly shut every
loophole you can to false impoverishment to send a clear message to all
Americans that, if they can afford it, long term care insurance is
their appropriate vehicle to finance their future care if they do not
want to risk their savings.
Thank You.