[Senate Hearing 109-429]
[From the U.S. Government Publishing Office]
S. Hrg. 109-429
LONG-TERM CARE FINANCING: ARE AMERICANS PREPARED?
=======================================================================
HEARING
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
MARCH 9, 2006
__________
Serial No. 109-18
Printed for the use of the Special Committee on Aging
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON: 2006
27-433 PDF
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SPECIAL COMMITTEE ON AGING
GORDON SMITH, Oregon, Chairman
RICHARD SHELBY, Alabama HERB KOHL, Wisconsin
SUSAN COLLINS, Maine JAMES M. JEFFORDS, Vermont
JAMES M. TALENT, Missouri RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina BLANCHE L. LINCOLN, Arkansas
MEL MARTINEZ, Florida EVAN BAYH, Indiana
LARRY E. CRAIG, Idaho THOMAS R. CARPER, Delaware
RICK SANTORUM, Pennsylvania BILL NELSON, Florida
CONRAD BURNS, Montana HILLARY RODHAM CLINTON, New York
LAMAR ALEXANDER, Tennessee KEN SALAZAR, Colorado
JIM DEMINT, South Carolina
Catherine Finley, Staff Director
Julie Cohen, Ranking Member Staff Director
(ii)
C O N T E N T S
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Page
Opening Statement of Senator Gordon Smith........................ 1
Opening Statement of Senator Mel Martinez........................ 3
Panel I
Robert F. Danbeck, associate director and chief human capital
officer, Office of Personnel Management (OPM), Washington, D.C. 4
Panel II
Eileen Tell, senior vice president, Long Term Care Group, Inc.,
Natick, MA..................................................... 17
Malcolm Cheung, vice president, Long Term Care Prudential
Financial, Livingston, NJ...................................... 38
Joanne Vidinsky, insurance purchaser, San Francisco, CA.......... 53
Robert B. Friedland, Ph.D., founding director, Center on an Aging
Society, Washington, DC........................................ 60
APPENDIX
Prepared Statement of Senator Herb Kohl.......................... 89
Questions from Senator Lincoln for Robert Danbeck................ 89
Questions from Senator Lincoln for Joanne Vidinsky............... 90
Questions from Senator Lincoln for Malcolm Cheung................ 92
(iii)
LONG-TERM CARE FINANCING: ARE AMERICANS PREPARED?
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THURSDAY, MARCH 9, 2006
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The Committee met, pursuant to notice, at 10:13 a.m., in
room SD-138, Dirksen Senate Office Building, the Hon. Gordon H.
Smith (chairman of the committee) presiding.
Present: Senators Smith and Martinez.
OPENING STATEMENT OF SENATOR GORDON SMITH, CHAIRMAN
The Chairman. Good morning, ladies and gentlemen. We thank
you for your patience. It has been a hectic morning and we
thank you all for coming.
Today's hearing topic, long-term care, is a subject
Congress must begin to address if we are to ensure that future
generations of retiring Americans are able to meet their health
care needs while not crippling entitlement programs like
Medicare and Medicaid.
I am very glad we have the opportunity to discuss long-term
care financing and take the first steps to answering the
question, ``Are Americans prepared?'' The biggest concern
regarding long-term care is that it is very expensive. The
Centers for Medicare and Medicaid Services estimate that
national spending for long-term care was approximately $160
billion in 2002, representing about 12 percent of all personal
health care expenditures.
To make matters even more difficult, demand for long-term
care is expected to increase significantly in the coming
decades. Today, almost two thirds of people receiving long-term
care are over the age 65, with the number of people receiving
care expected to double by 2030.
To put a human face on this growing problem, we hear
stories every day of disabled Americans who cannot afford care,
turning then to self-impoverishment as a last resort of
beginning to receive Medicaid benefits. For these reasons,
urgent action is needed on two fronts.
First, we must strengthen Medicaid to ensure that it
remains a viable safety net for millions of needy Americans
well into the future. Second, we need to encourage savings and
the purchase of long-term care insurance for those who are in a
position to prepare for long-term care expenses.
Why is this such a great concern? As the baby boomers begin
retiring in increasing numbers over the coming years, our
ability to pay for entitlement programs will simply be
stretched to the breaking point. In addition, the Deficit
Reduction Act that was enacted earlier this year included
several provisions that dramatically changed eligibility
standards for Medicaid, such as lengthening the look-back
period for asset transfers and disqualifying individuals with
substantial home equity.
On a positive note, the bill created the National
Clearinghouse for Long-Term Care Information and expanded the
Long-Term Care Partnership Program. For that, I must commend
the work of Senator Craig, who is the former Chairman of this
Committee and who still serves with distinction. We commend him
for all his hard work to expand the Long-Term Care Partnership
Program. His leadership as Chairman of this Committee was one
of the primary reasons Congress expanded the Long-Term Care
Partnership Program.
With these greater restrictions on Medicaid eligibility, we
must begin to offer positive estate planning solutions to give
Americans better opportunities to prepare for their long-term
care needs. As with health care, the best way to be prepared
for long-term care expenses is to be insured. However,
insurance can be expensive, especially when weighing the pros
and cons of purchasing long-term care insurance versus
remaining uninsured.
Currently, about 55 percent of the people over 85 years old
need some form of long-term care. When deciding to purchase
insurance, the gamble that a person could be one of the 45
percent that will not need long-term care can be perceived as a
better option than paying for insurance.
We must tear down the notion that the purchase of this type
of insurance is a gamble. Long-term care insurance protects
assets and income from the devastating financial consequences
of these costs.
Today's comprehensive long-term care insurance policies
allow consumers to choose from a variety of benefits and offer
a wide range of coverage choices. They allow individuals to
receive care in a variety of settings, including nursing homes,
home care, assisted living facilities, and adult day care.
Last, long-term care insurance allows individuals to take
personal responsibility for their long-term health care needs
and reduces the strain on the Medicaid budget.
While planning for long-term care costs by buying insurance
is a step in the right direction, this may not be the ideal
solution for everyone. For younger individuals, saving for
long-term care needs, whether for the later purchase of that
care or paying outright for it, is sometimes more beneficial
than buying insurance. We should support early savings efforts
for insurance and care, as many people don't think about this
need until it is just simply too late.
Putting away money over time, as we will hear from Joanne
Vidinsky, can be a very powerful means of affording insurance
or care. However, with our national savings rate in steady
decline, I fear the American middle class is woefully
unprepared to meet this coming challenge.
Today, I will introduce the Long-Term Care Trust Account
Act of 2006 with Senator Lincoln of Arkansas, who serves with
me on this Committee and the Finance Committee as well. This
bill will incentivize savings and the purchase of insurance by
creating a savings vehicle for the purpose of preparing for
costs associated with long-term care services and purchasing
long-term care insurance.
Individuals who contribute to this account will receive a
refundable tax credit on their contributions. This will help
individuals save for insurance and the many people in our
country that want to help their parents or a loved one prepare
for their health care needs as well.
The issue of long-term care expenditures and costs need not
be an insurmountable task. However, it will require action and
cooperation by public officials and private providers as we
work to find ways to help Americans prepare. As with any major
issue facing this Nation, Republicans and Democrats must come
together to bring new and innovative solutions to the table. It
is a time for ideas, not ideals, and I look forward to working
with my colleagues as we strive to meet this growing challenge.
Last, I would like to thank all of our witnesses who join
us here this morning. We have assembled two excellent and
diverse panels. I am eager to hear your thoughts as we engage
in this meaningful and productive dialog.
With that, I am very pleased to be joined by a
distinguished member of our Committee, Senator Martinez of
Florida, for your opening statement.
OPENING STATEMENT OF THE SENATOR MEL MARTINEZ
Senator Martinez. Mr. Chairman, thank you very much. I
again congratulate you and welcome your holding of this hearing
and appreciate the opportunity to make an opening statement and
welcome our speakers as well.
I know that the issue of long-term care is an extremely
important topic in the area of health care, and we in Congress
really cannot afford to wait any longer to devise a plan to
help educate individuals on the importance of having a policy
and helping citizens to purchase this type of insurance.
Mr. Chairman, our country is heading toward a demographic
meltdown on long-term care. It is simply unsustainable for
individuals in the Government to maintain the current rate of
spending without further endangering the state of health care
in the United States.
Preparing for future health care cost is something that
every American should be doing. Long-term care insurance is one
of the ways in which Americans plan for periods of extended
disability without burdening their families, going bankrupt, or
relying on Government assistance.
It is important that incentives are put in place today that
will deal with the impending influx of elderly Americans who
will rely on the long-term health care system in the future.
That is why I am pleased the Congress recently acted, through
the deficit reduction act, to expand the Partnership for Long-
Term Care Program, the public-private long-term care insurance
program that formerly was only available in a handful of
States.
The benefits of the partnership program are two-fold. The
program provides incentives for individuals to purchase long-
term care insurance and relieves pressure on State Medicaid
programs, where long-term care expenses are growing
exponentially. The State of Florida is certainly no exception
to that problem.
Additionally, if the purchasers of these policies spend
down their policy and need to rely on Medicaid, they will be
able to protect assets on a dollar-for-dollar basis. This
arrangement helps protect beneficiaries, important assets, and
relieves pressure on publicly financed long-term care.
While this is a positive step forward, more will be needed
as the baby boomer generation begins to retire. Mr. Chairman, I
am in a long list of notable Americans like our President, our
immediate past President, who will be turning 60 this year, and
it is upon us that the baby boomers are coming of age.
All options should be considered, and I am a co-sponsor of
a bill that will allow individuals to use their 401(k) and
403(b) plans to purchase long-term care insurance with pre-tax
dollars at any age and without early withdrawal penalties.
Under this legislation, the consumer has the option to purchase
long-term care insurance at the most appropriate amounts for
their own needs and their spouses.
I also, Mr. Chairman, welcome the bill that you have filed
today, including a tax credit to individuals who purchase long-
term care insurance. I look forward to reviewing that bill and
perhaps joining as an early co-sponsor with you on that
measure.
I hope that both of those proposals will soon get
consideration in the Finance Committee, and I look forward to
hearing the panelists today. I appreciate the indulgence of the
Chair to have my remarks.
The Chairman. Thank you very much, Senator Martinez. We
would welcome you on the bill.
Senator Martinez. Thank you.
The Chairman. If you find it meritorious, we would
certainly love your support.
Testifying today on our first panel will be Robert Danbeck.
Mr. Danbeck is associate director and chief human capital
officer at the Office of Personnel Management. Mr. Danbeck will
be discussing the Federal Long-Term Care Insurance Program,
which Congress started in 2000.
Mr. Danbeck, thanks for coming. The mike is yours.
STATEMENT OF ROBERT F. DANBECK, ASSOCIATE DIRECTOR AND CHIEF
HUMAN CAPITAL OFFICER, OFFICE OF PERSONNEL MANAGEMENT (OPM),
WASHINGTON, DC
Mr. Danbeck. Mr. Chairman, it is a pleasure to be here. I
have a longer statement that I request be made part of the
record.
The Chairman. Without objection.
Mr. Danbeck. Mr. Chairman and members of the Committee, I
appreciate the opportunity to appear before you today to
discuss the Federal Long Term Care Insurance Program.
The Office of Personnel Management (OPM) views this program
as a critical component of the Federal Government's effort to
attract and retain a high-caliber workforce. It is the largest
group long-term care insurance program, with over 211,000
participants. It is a true success story, thanks to the strong
congressional leadership, which made the Federal program
possible.
OPM staff worked extensively with congressional staff and
industry representatives to ensure the authorizing legislation
for the program would be viable from both an administrative and
an industry perspective. Shortly after enactment of the Long-
Term Care Security Act of September 19, 2000, OPM staff began
meeting with national experts in the fields of long-term care
and long-term care insurance to help us design a program that
would be at the forefront of the marketplace.
On June 20, 2001, OPM issued a request for proposal from
qualified carriers to insure and to administer the program.
After a competitive bidding process and an extensive evaluation
of competing proposals by both technical and financial panels,
OPM awarded a contract to Long Term Care Partners, the joint
venture formed by John Hancock and MetLife, on December 18,
2001.
John Hancock and MetLife are the Nation's two largest
carriers of group long-term care insurance and consistently
earn top ratings for financial strength from the major rating
organizations. Both have been in the long-term care insurance
business for well over 15 years and have a history of rate
stability.
Federal and Postal employees and annuitants, active and
retired members of the uniformed service, and certain District
of Columbia employees and their qualified relatives are
eligible to apply for long-term care insurance under this
program. The Federal program is underwritten and thus certain
medical conditions or combinations of conditions prevent some
people from being approved for coverage.
We held an early enrollment period for the program from
March 25 to May 15, 2002, for those who were familiar with the
product and desired coverage as soon as possible. We followed
that with our first open season from July 1 to December 31,
2002. The open season was accompanied by an extensive
educational initiative to acquaint the eligible population with
the product and the need for the product.
During the early enrollment period and the open season,
employees and their spouses could apply for coverage using the
abbreviated underwriting application, containing only a handful
of health-related questions. The remaining eligible population
utilized the full underwriting application, which contains many
health-related questions.
Open season ended in 2002, and abbreviated underwriting is
still available for a 60-day period to new or and newly
eligible employees and their spouses and newly married spouses
of employees. Everyone else must use the full underwriting
application, but the program remains open to the entire
eligible population.
As you can imagine, one of the greatest challenges we faced
early in the program's history and continue to face is how best
to educate and communicate with the eligible population about
what long-term care is and about the need for long-term care
insurance. This is not unique to our program.
Long-term care insurance is typically a difficult sell,
whether in the Government or the private sector. Some people
are hesitant to purchase long-term care insurance because of
its expense, as well as the possibility that they will never
need to use the insurance coverage--the gamble that you
referred to before.
I personally would rather pay for long-term care insurance
and never need it than need it and not have it. I feel the same
way about collision insurance on my automobile or fire
insurance on my house. Peace of mind is worth a lot.
Over the last 5 years, we have learned a lot about how to
encourage people to apply for long-term care insurance. One of
the most important aspects of the purchase decision is multiple
exposure to the message.
It is very hard for people to project themselves into the
future, perhaps 20, 30, or 40 years, and imagine that they may
need help with activities that today they take for granted--
just caring for themselves, feeding themselves, clothing
themselves. So, it is important that they hear the message over
and over and over again.
We have continuing educational opportunities at benefits
fairs. We distribute materials. We run seminars. We have
positive press. We provide education on State tax incentives
for purchasing insurance. We have discussions at retirement
planning seminars. We have discussions with colleagues.
Sessions such as these go a long way to get that message out to
the eligible population.
Another important lesson that we learned is nothing can
match personal experience. Someone who has seen a loved one
spend a lifetime of savings on long-term care services, someone
who has nursed a loved one through chronic illness and
experienced the emotional and physical stress that caregiving
entails will be much more receptive to thinking about long-term
care insurance than someone who has not had this type of
experience.
Endorsement by the Federal Government also is key. Through
focus group surveys, we know that OPM sponsorship and oversight
of the Federal program, being established by an Act of Congress
and ratified by the President, instantly lend credibility to
the program.
The Federal program competes with many other long-term care
insurance policies in the marketplace, and sometimes it is hard
to compare benefits or to know that you are comparing them
accurately. The Federal endorsement itself is sometimes enough
to give applicants the peace of mind to believe that they have
made the right choice.
Payroll deduction also lends credibility to the purchase
decision. Almost 70 percent of the Federal and Postal employees
choose payroll deduction at time of application. About 65
percent of enrolled annuitants have annuity deductions for
their premiums. It is a distinct competitive advantage.
We know we need to do a better job educating people and
reaching out to people about the need for this insurance,
especially in venues where we have difficulty getting to the
eligible population. This would currently include military
bases with limited access to active members of the uniformed
services and the Postal Service, where employees are very
dispersed and have to attend educational opportunities on their
own time.
Some agencies are better than others at distributing
information about the program and making educational
opportunities available, such as pre-retirement seminars.
Contact at the home can be an effective way of getting to
people because they are inundated in the workplace with many
messages.
Yet we cannot take advantage of home settings, as private
insurance agents can, because we do not have access to non-OPM
employee addresses, and we do not have a network of paid
agents. We cannot easily reach qualified relatives since we
really don't have a way to contact them either.
Given all of these challenges, we firmly believe the
Federal program has done a commendable job reaching the
eligible population, as evidenced by the 211,000 current
enrollees.
In closing, we want to assure you that this program will
continue to be a success and a leader in the long-term care
insurance marketplace. We are deeply grateful for the support
of Congress and believe your active advocacy can be very, very
helpful.
Thank you for your time today and for your continued
interest in the Federal Long Term Care Insurance Program and in
long-term care insurance in general. I would be pleased to
answer any questions.
The Chairman. Thank you, Robert. Your testimony is very
helpful and enlightening.
I suppose there is in all of us a sense that we will never
die and why bother with an extra insurance policy because of
that? Your point that, well, if I do die, I won't get to use
it. So, it is a hard sell.
For my own education and perhaps for anyone watching on C-
SPAN, what are the relative costs between long-term insurance
versus a health care policy for every day care or your care for
today? Is it expensive?
Mr. Danbeck. It is expensive.
The Chairman. OK.
Mr. Danbeck. The exact figures I don't have with me at the
time. However, I can get those for you. It is more expensive
than normal insurance, if you will, normal health insurance.
There are a number of different plans that you can choose. Of
course, it also is dependent on your age. So it is, from a
comparative point of view, an expensive product.
I do have the figures now, but I can share them with you
later.
The Chairman. If you can share them, that would be fine.
You know, we talk about Federal tax incentives, and
obviously, the bill Senator Lincoln and I have is providing yet
another tax incentive to get people to make this choice. But
frankly, at the current point, Federal tax incentives are
fairly minimal to get people to make this choice.
You reference in your testimony that you educate Federal
workers about State tax incentives for long-term care
insurance. In your position, how often do you feel these State
tax incentives move someone to purchase that insurance?
Mr. Danbeck. Well, I don't think that they are the impetus
for someone to make that decision based only on that fact. I do
think, though, that once the individual has done their homework
and assessed the various plans that are available, that they
really do have a tremendous impact on the individual. They add
to that decision.
They are probably, the crowning point, if you will, for the
person's decision making process. So, I think they are very
valuable.
Again, this is a unique program, as you mentioned. So
people go through quite a bit of thought process before they
make a decision. But once they are there, and then you couple
that with the tax incentives, that is the thing that closes the
deal.
The Chairman. Should the Federal Government do more in
terms of tax incentives, in your view? Would that be the
tipping point to get more and more American seniors----
Mr. Danbeck. I certainly think it would help.
The Chairman. OK. Senator Martinez.
Senator Martinez. I am impressed by the very large
enrollment number among your folks. Tell me how that has been
accomplished. Understanding what you also have said, which is
it is not a cheap product, how have you accomplished that?
Mr. Danbeck. Well, the first thing we have is a very active
Web site. I mean, OPM has an active Web site, as well as the
Long Term Care Partners.
We do an extensive education program. Every opportunity we
get to speak at pre-retirement seminars, we take that
opportunity. Every opportunity we have to be at conferences, we
will see a booth there from the Long Term Care Partners
presenting the product.
We have a call center. We are always reaching out. I mean,
we have even gone so far as to send birthday cards to
annuitants who might not be covered by the product to just say,
``Hey, your birthday is coming up. This is something you might
want to think about.'' So we have an extensive outreach
program, and we have completely revamped the way we did it. We
have made it much more user-friendly.
As I mentioned earlier, people receive a lot of mail. So
what we have done is we have branded, if you will, all of our
correspondence so that when they receive that at home, they do
know that it is something related to their insurance and
something personal to them.
We have done a lot in that area. But I have to tell you,
the website, the website gets over 184 million hits a year.
Senator Martinez. Do you have the address for it? It might
be good to let folks know what that is and they could address
it.
Mr. Danbeck. www.ltcfeds.com.
Senator Martinez. Say it again. I am sorry.
Mr. Danbeck. LTC--long-term care--feds--F-E-D-S--dot-com.
Senator Martinez. In the State of Florida, we have a large
population of military retirees with a very integrated
community network, and I was wondering if there have been any
outreach efforts on behalf of military retiree organizations to
try to expand the Federal enrollment program?
Mr. Danbeck. We will submit the answer for the record.
Senator Martinez. OK. Very good. Thank you.
Mr. Danbeck. I am just not personally aware of them at the
present time.
Senator Martinez. Right, right. OK. That will be good.
Thank you.
That is all I have, sir.
The Chairman. Mr. Danbeck, thank you very much. We
appreciate your role in this important Federal program and
encourage you to keep all of those good efforts going and get
the numbers up, and we thank you for that and your public
service.
Mr. Danbeck. Thank you, Mr. Chairman.
[The prepared statement of Mr. Danbeck follows:]
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The Chairman. With that, we will call up our next panel.
Our first witness on this panel will be Ms. Eileen Tell.
She is the senior vice president for product development with
Long Term Care Group, Inc. Ms. Tell is an expert on the long-
term care insurance market. In her current position, she has
been involved in research, education, and product development
strategies for insurers and Government agencies.
She will be followed by Mr. Malcolm Cheung, who works in
Prudential's Long-Term Care Division as an expert in pricing,
product development, contracts, compliance, financial
reporting, and risk management. Today, Mr. Cheung is here to
discuss current trends in the long-term care insurance market
and how, as Government, we could help these markets become more
robust.
He will be followed by Ms. Joanne Vidinsky. She is here to
share her personal experience with long-term care. She has a
mother-in-law with Alzheimer's disease, and she learned
firsthand of the challenges of financing long-term care.
Finally, Robert Friedland is the founding director at the
Center on an Aging Society. Mr. Friedland has written on issues
pertaining to the financing and delivery of health care, long-
term care, and retirement income security. He is the author of
``Facing The Costs of Long-Term Care.'' So, we welcome each of
you here. Eileen, why don't we start with you?
STATEMENT OF EILEEN TELL, SENIOR VICE PRESIDENT, LONG TERM CARE
GROUP, INC., NATICK, MA
Ms. Tell. Thank you.
Good morning, Mr. Chairman, members of the Committee. I am
very pleased to be here. Thank you for the opportunity.
Really important to talk about the greater consumer
awareness and incentives to encourage people to take personal
responsibility to planning ahead for their long-term care
needs. Over the last 21 years, I have worked in various
capacities to educate consumers about the risks and costs of
long-term care and to help them understand the advantages of
planning ahead.
My work has also focused on creating and enhancing a
variety of private finance options and products to meet those
needs. Through this work, we talk every day with people who
planned ahead for long-term care for themselves and for their
loved ones, and we hear what motivated them to obtain
insurance, to plan ahead, and, more importantly, how having
that insurance has impacted their lives.
Specifically, planning ahead and having insurance can make
a significance difference to the financial well-being, quality
of care, control over care choices, and peace of mind. I have
included in my written testimony some personal statements from
individuals who have gone through the long-term care need and
made some planning choices.
Despite these compelling advantages, however, the number of
people with private insurance is still small. The magnitude of
this problem is captured in a tool developed in 2003 called the
Index of the Long-Term Care Uninsured. Specifically, we see
that 87 percent of the eligible population age 45 and older are
currently uninsured for long-term care.
Last year, for the first time, this index was also used to
take a look at some State-specific trends to identify State-
level activities that can possibly encourage private
responsibility for long-term care. These include State tax
incentives, a public-private partnership initiative, public
education, a long-term care insurance program for public
employees and retirees such as the Federal plan, speed to
market, and others.
We do see that these State activities appear to be making a
difference. You asked about State tax incentives, and one thing
we looked at is for those States that have adopted State tax
incentives, they do have a higher market penetration for long-
term care insurance than those that don't. Specifically, a tax
credit seems to have a stronger impact than a tax deduction.
Specifically, market penetration among those States with a
long-term care tax credit or a deduction is 8.1 percent,
compared with 6.7 percent in States without such tax treatment.
Similarly, in States with a State-sponsored long-term care
insurance program like the Federal program for public
employees, retirees, and their families, we see market
penetration as 8.1 percent, compared with 4.6 percent in States
without such a program.
So that general education that happens in an area really
rises and spreads across to populations beyond those just
eligible for that program and makes a difference.
With respect to the partnership program, we see among the
18 States that have above average market penetration for long-
term care insurance, 3 of the 4 partnership programs are among
those. So it does look like national expansion of a partnership
kind of concept, which is a key component of the deficit
reduction act, is an important element that is going to help
the marketplace.
Finally, we know that raising consumer awareness and
education is critical. If individuals are more aware of their
potential need for long-term care and the options for
addressing it, they are much more likely to take steps to
prepare for the future. This, in fact, is the key premise
behind the Department of Health and Human Services long-term
care consumer awareness initiative.
Called ``Own Your Future,'' the campaign represents a
unique partnership between the Federal Government and States to
offer a consistent message about personal responsibility and
planning ahead for long-term care needs.
Another element of the campaign, which we feel has been
vital to consumer acceptance of this message, is the objective
sponsorship, providing information and education product-
neutral, but from an independent Government source. It is
really the concept of planning and knowledge about how to plan
for long-term care needs that is being sold through this
education.
Phase 1 of the demonstration launched in January 2005 in
five States--Arkansas, Idaho, Nevada, New Jersey, and Virginia.
In each State, the Governor sent a letter to every household
with an individual age 50 to 70, offering them a long-term care
planning kit. The response rate to the campaign was an
impressive 8 percent. For a direct mail campaign, when we hear
about all the mail clutter and information that people get, we
were very pleased with that result.
The Chairman. With 8 percent?
Ms. Tell. Eight percent was the response rate. Eight
percent of the people that got that letter asked for the
planning kit.
The Chairman. That is a good rate?
Ms. Tell. That is an excellent rate for direct response
mail, even for a social awareness kind of program.
Also individuals from every demographic segment responded.
So there was something relevant about the planning message, and
it was designed this way, across the age spectrum from 50 to
70. The kind of planning people would do at those different
ages is very different.
We have seen anecdotally a favorable impact on awareness,
on inquiries to insurance companies, and, in some cases, sales.
Our own research supports these findings. We have done some
survey work with the people that have received the planning
information and those that have not, and we see a significant
impact.
Individuals who received the planning material were more
than twice as likely to take some kind of planning action as a
result. That might include talking to an agent or a financial
planner about long-term care, looking at their existing
coverage to see if, indeed, they do have a gap that needs to be
addressed, or, more specifically, buying long-term care
insurance.
The campaign is an important model and a great start, but
States and the Federal Government need to expand on these and
other efforts to make consumers more aware and motivate and
enable them to plan ahead. The deficit reduction act includes a
very important consumer awareness campaign, which you
referenced in your opening remarks, the National Clearinghouse
for Long-Term Care.
We are fortunate to have learned from Phase 1 of the Own
Your Future campaign that this model is effective in raising
consumer awareness and also in encouraging planning behavior.
This gives us a tested and effective infrastructure as we
implement the National Clearinghouse for Long-Term Care.
Thank you for the opportunity to share these remarks, and I
will be happy to answer any questions.
[The prepared statement of Ms. Tell follows:]
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The Chairman. Eileen, how expensive are your products for a
45-year-old as opposed to a 65-year-old?
Ms. Tell. Well, my company doesn't have a single product.
We represent about 40 different insurers. We are an outsource
partner for them. I believe in the industry, the average
premium across all ages, across all types of products is about
$1,500, $1,700 a year. That is the average annual premium that
is being spent.
People seem to focus on a price point of what they can
spend, and younger people buy richer coverage, which makes
sense for the needs they might have. More uncertainty about
what they might need. Older people have perhaps a finer focus
on what their needs are going to be and are able to pinpoint
their coverage more cost effectively.
The Chairman. Do you think that most people who have health
care coverage, they just assume that that includes long-term
coverage?
Ms. Tell. To a great extent, that is true. That is why we
found if people said to us, ``I am looking at my health plan to
see if it covers long-term care,'' we thought that was a great
planning action. Trying to get the message to people that small
steps make a big difference.
Talk to your family about what your preferences are. There
is a real disconnect between adult children feel like they are
abandoning their parents if they talk about insurance products
or other options for planning ahead. The parents want a lot of
financial and emotional independence from their children. They
want loving relationships, not hands-on caregiving and
financial support.
The Chairman. I believe you referenced that tax credits are
better than tax deductions. Is that because it is found money
and it is now as opposed to later?
Ms. Tell. I think that is a part of it. There may be other
factors at work that we have not yet analyzed. For example, how
well it is communicated.
The State of Minnesota did an enrollment, and the first
sentence of the letter told people there is a $500 tax credit
in your State. That makes this insurance program an even better
deal for you. Look at it carefully.
So the more strongly it is presented is also going to make
a difference. Not all States have done the work around
communicating that feature that perhaps they can.
The Chairman. You note in your testimony that 87 percent of
people age 45 years and older are uninsured for long-term care.
That 80 percent, only a 7 percent difference, are insured for
long-term after they are 65. Those aren't very impressive
figures, are they?
Ms. Tell. They are not. In fact, comparing this year's
index to the previous one, we have lost a little ground. Now,
to be frank, we have lost some ground because population growth
is outstripping purchase and policies, and there is a switch in
the dynamics of who is buying.
The over 65 population has about I think it is 80 percent
uninsured, compared to 90 percent for the baby boomer
population. So, we have done a better job reaching the older
population. That is where the focus of attention was in the
early years. But now, as work site products have grown and
programs like the Federal program and State employees programs,
we are more effectively reaching the baby boomer population.
So the average age at which people buy is coming down,
which is also a really good thing for affordability. So, those
dynamics have changed the comparison in numbers over time as
well.
The Chairman. You also reference, I think, in your
statement that the Deficit Reduction Act does do more to
incentivize through education and also making it more
affordable, long-term care. Are you optimistic that we are
going to see some improvement?
Ms. Tell. I am. I am also optimistic from the indirect
education that will come as another element of the deficit
reduction act are the Medicaid changes.
I think you already see the media sending a message about
the importance of planning for long-term care and taking a
different focus on this issue than perhaps they have before. I
think they are a really important intermediary to reach
consumers as well.
The Chairman. Thank you very, very much, Ms. Tell.
Mr. Cheung.
STATEMENT OF MALCOLM CHEUNG, VICE PRESIDENT, LONG-TERM CARE
PRUDENTIAL FINANCIAL, LIVINGSTON, NJ
Mr. Cheung. Good morning, Mr. Chairman.
My name is Malcolm Cheung, and I am vice president and
actuary for long-term care at Prudential.
Today, I am representing the American Council of Life
Insurers, a Washington, DC-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.
We are delighted that this Committee is addressing an
important issue facing this Nation--long-term care insurance--
through the hearing process. We applaud Chairman Smith and
Ranking Member Kohl for drawing attention to this matter, and
we are pleased to discuss with the Committee the role that
private long-term care insurance plays in helping to provide
the retirement security of millions of middle-income families.
Currently, about 55 percent of those aged 85 and older
require some form of long-term care, and about 19 percent of
all seniors--these are individuals over the age of 65--suffer
some degree of chronic impairment. By the year 2050, it is
estimated that up to 5.4 million seniors will need the services
of a nursing home, the most costly form of long-term care, and
another 2.4 million will require home health care.
The cost of long-term care is high and increasing,
averaging more than $60,000 annually for a semi-private room in
a nursing home, $18.50 per hour for a visit by a home health
aide, and an annual base rate of more than $30,000 for the
services of an assisted living facility.
Since 1990, the price of nursing home care has increased at
an average annual rate of 5.8 percent, which is almost double
the overall inflation rate. Private long-term care insurance
currently pays for only 8 percent of total nursing home
expenditures, but 36 percent of overall health expenditures.
There is clearly a large gap in the financing of long-term care
services that long-term care insurance can help fill.
Currently, almost 75 percent of all nursing home
expenditures are paid by Medicaid or out of pocket by those
needing the care. If three quarters of individuals between the
ages of 40 and 65 who can afford long-term care insurance--we
define affordability as 2 percent of your income at age 40
grading up to 5 percent of your income starting at age 60--were
to purchase and maintain a policy throughout their senior
years, then by the year 2030, annual savings in Medicaid
nursing home expenditures would total about $19 billion a year,
and annual savings in out-of-pocket expenses would total $41
billion per year.
Both the individual and the group, or the employer-
sponsored, segments of the long-term care insurance market are
evolving and growing. The American Council of Life Insurers,
with the assistance of America's Health Insurance Plans,
recently surveyed long-term care insurance providers and found
that the market has grown to nearly $7 billion in annual
premiums and now covers over 5 million Americans.
Between 2003 and 2004, the individual long-term care
insurance market grew 7.5 percent, and the group market grew 25
percent, in large part due to the enrollment at the Federal
long-term care plan. The amount paid out in claims has also
increased, with carriers paying a little over $2 billion in
benefits in 2004, which was about 20 percent more than what
they had paid in the previous year.
Because private long-term care insurance is priced on the
assumption that an individual will hold the same policy and pay
the same premium until they need long-term care, premiums vary
significantly depending on the age of the policyholder at
policy issue and the specific benefits and coverage chosen.
Additionally, younger candidates for policies are much more
likely to pass underwriting screens than are older candidates.
For these reasons, consumers are encouraged to purchase
insurance while they are in their 40's and 50's, when premiums
are lower and more affordable.
The Chairman. How much lower, and how much more affordable?
Mr. Cheung. Depending on what plan design you buy, you can
pay as low as $500 per year for a fairly comprehensive plan at
age 40, but you would need to pay about $1,500 per year at age
60 or 65.
The Chairman. If you buy it at 40, does that rate stay
relatively static or----
Mr. Cheung. The premiums are intended to be level. So that
is why they are so much lower. You are paying for your coverage
over a longer period of time.
The Chairman. I think that would be a real selling point.
Mr. Cheung. Yes, it is.
Long-term care insurance products continue to evolve to
give policyholders more choices and flexibility at the time of
claim. When long-term care insurance was first offered, most
plans were nursing home only. Recently, more flexible care
options and consumer protections have become available. Today,
most policies provide coverage for care received at home, in an
adult day care facility, in an assisted living facility, or in
a nursing home.
Additionally, plans are now guaranteed renewable. They have
a 30-day ``free look'' period. They offer inflation protection.
They cover Alzheimer's disease. They have a waiver of premium
provision, and some plans actually offer unlimited lifetime
benefit periods. Benefits are paid when a person needs help
with two or more activities of daily living or is cognitively
impaired.
There are many ways that public policy can better encourage
individuals to prepare for their future needs by purchasing
long-term care insurance. The recent passage of provisions in
the Deficit Reduction Act to allow for the expansion of the
Long-Term Care Partnership is a great example.
Consumers that purchase long-term care insurance policies
in the Partnership program would fully utilize their benefits
prior to qualifying for Medicaid. They will be allowed to
protect personal assets on a dollar-for-dollar basis as defined
in their policy.
The momentum continues with other important proposals to
encourage more Americans to prepare for their future long-term
care needs. Another way to encourage the purchase of long-term
care insurance is by passing H.R. 3912. This bill would make
product combinations possible, satisfying the evolving needs of
some individuals by facilitating the addition of a long-term
care rider to either a life insurance or an annuity contract.
It would also update the tax code to include long-term care
insurance contracts and riders among the insurance products
that can be exchanged on a tax-deferred basis. Such provisions
are also found in Senator Santorum's Aging With Respect and
Dignity Act, and we commend him for that.
Although product combinations may prove to be an effective
and attractive alternative to stand alone long-term care
insurance for many individuals, even more broadly appealing
solutions to the financing of long-term care would be the
passage of an above-the-line deduction for long-term care
insurance premiums and measures to permit long-term care
insurance policies to be offered under employer-sponsored
cafeteria plans and flexible spending accounts.
Long-term care insurers are also closely evaluating other
recent legislation that recognizes the importance of the tax
incentive component to encourage the purchase of long-term care
insurance, such as Chairman Smith's long-term care trust
accounts proposal. We applaud Chairman Smith and his staff for
their leadership on long-term care insurance issues and look
forward to a continued strong working relationship.
Congress should not pass on this opportunity to
definitively help Americans plan for their long-term care costs
by allowing individuals to pay for long-term care insurance
through cafeteria plans and flexible spending accounts, as well
as through combination products for those paying for long-term
care insurance outside of employer-sponsored plans.
These would enable more Americans to pay privately and to
have the choice of a variety of services and care settings and
would have a significant impact on the public policy challenges
related to the combination of rising long-term care costs,
rising long-term care needs, and rising strains on the Medicaid
budgets.
In conclusion, ACLI looks forward to working with this
Committee to help Americans protect themselves against the
risks and high cost of long-term care.
Thank you.
[The prepared statement of Mr. Cheung follows:]
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The Chairman. Malcolm, I want to highlight something from
your testimony that you indicated that the annual savings in
Medicaid nursing home expenses would total $19 billion. That is
assuming all seniors got into this, right?
Mr. Cheung. That is based on the assumption that 75 percent
of people between the ages of 40 and 65 who could afford it had
long-term care insurance. Roughly half of Americans would be
able to afford it, based on the definition that I mentioned
previously.
The Chairman. So if 70 percent of those between 40 and 65--
--
Mr. Cheung. Who could afford it.
The Chairman. Who could afford it, got, bought long-term
care, Medicaid would save $19 billion. But a lot more
importantly to those individuals, they would save $41 billion?
Mr. Cheung. Over 40 billion, right. Yes.
The Chairman. That is a staggering amount of savings that
would flow from obviously doing everything we can to get that
70 percent to participate.
Mr. Cheung. Yes, it is.
The Chairman. Now you also mentioned that you are no longer
in your policies requiring seniors just to go into a nursing
home?
Mr. Cheung. Correct.
The Chairman. You are giving them choices of other, you
know, home care and----
Mr. Cheung. Yes. Most people want to receive their care for
as long as possible in a home-like setting. So home health care
is very important.
The Chairman. Assisted living?
Mr. Cheung. Those are becoming much more popular. They are
expanding very significantly, and most policies, especially the
newer policies that are being sold today, would provide
coverage in an assisted living facility as well.
The Chairman. What does that mean in terms of expense to
your company? Giving those seniors the choice, don't those
choices result in lower cost to you?
Mr. Cheung. Depending on what choice they make, they could
result in either lower or higher costs. I mean, if somebody
went into an assisted living facility as an alternative to a
nursing home, that would be lower in cost. If someone went into
an assisted living facility as an alternative to home care,
that might actually increase costs.
So when insurance companies design their products and price
their products, they have to take into account where they think
people who are buying these policies will be getting their
care, in which site, and for how long in each site.
The Chairman. Would it be correct to assume that home care
is less expensive than assisted living?
Mr. Cheung. Home care is usually less expensive than
assisted living unless you get home care for 12 to 24 hours a
day, in which case it tends to be more expensive.
The Chairman. Assisted living is less expensive than
nursing home?
Mr. Cheung. Generally, yes. It is about roughly half the
cost of a nursing home, yes.
The Chairman. Well, that is what I have been trying to
preach around here is at least to eliminate the Federal bias. I
have nothing against nursing homes, but we have a bias toward
driving Medicare and Medicaid folks into nursing homes. Whereas
giving them the choice, they may choose to be at home, and the
savings are there for the Government.
Mr. Cheung. Yes, I think there are some States that are
experimenting and reimbursing or paying for care in sites other
than a nursing home. But there is still a strong institutional
bias in the Medicaid program.
The Chairman. Thank you very much, Malcolm.
Mr. Cheung. You are welcome.
The Chairman. Joanne Vidinsky, thank you very much for
being here, and we are anxious to hear your testimony.
STATEMENT OF JOANNE VIDINSKY, INSURANCE PURCHASER, SAN
FRANCISCO, CA
Ms. Vidinsky. Thank you.
Good morning, and it is an honor be here representing the
Alzheimer's Association and to discuss my in-laws' heroic
efforts to cope with the ravages of Alzheimer's disease and the
effect of their experience on my mother.
In 1993, my mother-in-law, Velma, then age 78, showed the
initial signs of confusion and memory loss that began her
battle with Alzheimer's disease. Over the next 6 years, my
father-in-law, Joe, cared for her at home in Ohio. It was
hard----
The Chairman. How many years?
Ms. Vidinsky. Pardon?
The Chairman. How many years did he care for her?
Ms. Vidinsky. Oh, at home?
The Chairman. Yes.
Ms. Vidinsky. He cared for her at home for 6 years.
The Chairman. Wow. OK.
Ms. Vidinsky. Yes. It was hard for me and my husband to
help Joe because we live in California, and he also disguised
the difficulty of the situation to spare us the pain.
At 83, Velma began behaving irrationally and could not take
care of her most basic daily needs. It was a matter of honor
for Joe to care for Velma himself.
However, like many Alzheimer's families, after years of
caring for her, he could no longer do it alone, and he had to
place Velma in the best nursing home he could find. He paid for
it at a cost of approximately $60,000 a year. Velma died after
two years in the facility. She was 86 years old.
Joe had been a coal miner and a chemical plant supervisor.
He was not wealthy. But he was able to pay for all of Velma's
care, and he started working in the mines when he was in eighth
grade. He left school. He and Velma lived simply and saved
money from every paycheck throughout their marriage of 63
years.
In addition to their savings, Joe had excellent pension and
retiree benefits from the United Mine Workers Union. Joe, at
age 91, now lives with Alzheimer's disease, and he pays for his
care himself in an assisted living facility.
My in-laws' story has had a profound effect on my mother.
Although she and my father worked hard in sales positions all
their lives, their incomes were never high enough for them to
save much for their retirement. As is common in the service
industry, my parents did not retire with pensions or health
benefits.
My mother lives modestly on Social Security and a small
amount of savings from a life insurance policy that my father
had. My mother does not have a spouse to help her remain at
home, and her financial resources would be drained paying for
care. She would face impoverishment if it were not for the help
she receives from my brother and me.
At age 78, my mother heard about long-term care insurance
from friends. We respected my mother's desire to avoid becoming
a burden and remain at home as long as possible and helped her
buy a long-term care insurance policy. We knew that she could
not afford the annual premiums herself, nor could she have
waded through the complicated information available about long-
term care insurance.
Luckily, my mother was in good health at age 79. If she
were experiencing symptoms of Alzheimer's disease or another
chronic illness, we would not have been able to purchase a
policy for her. The policy we purchased costs $10,000 a year
and covers the care at home that my mother wants. We also made
sure that the policy would pay benefits if my mother had
cognitive impairment.
For us, placing $10,000 a year in other investments might
have been more financially sound. But the tradeoff is that our
mother will not view herself as a burden to us with the long-
term care insurance policy that she has.
My in-laws represent the end of the long-term care
financing spectrum that can self-insure for long-term care. My
mother represents the other end of the spectrum. If she did not
have children with the financial resources to care for her, she
would have to rely on Medicaid if she acquired a disability.
Unfortunately, most older people in this country cannot
afford the average annual cost of $76,000 for nursing home care
out of their own savings. Nor do they have children who can
afford to buy long-term care insurance for them. The majority
of older people must rely on Medicaid to help with long-term
care when informal caregiving is no longer enough.
As a nation, we are only beginning to wake up to the long-
term care crisis that is brewing. The Alzheimer's Association
is pleased that the Government is addressing the issue through
public education and expansion of the Long-Term Care
Partnership Programs.
While education and incentives to purchase insurance are
important steps, the current long-term care system does not
work for millions of people who cannot access or afford
insurance or are forced into poverty in order to get help. We
should initiate a national dialog immediately to reach
consensus on a viable solution to the long-term care financing
problem.
In the meantime, Congress could take some incremental steps
toward meeting families' long-term care needs. Simple caregiver
interventions, such as respite and counseling, can have a major
impact on health care costs by delaying nursing home placement.
Providing care management for Medicare beneficiaries with
multiple chronic conditions would save health care costs and
delay the need for institutionalization. In addition, requiring
health and long-term care plans and providers to identify
people with dementia would improve care and treatment for this
population.
Chairman Smith, thank you for holding this hearing on
private long-term care insurance. While it may seem slightly
off point, I am compelled to plead with you to support funding
for Alzheimer's research through the National Institutes of
Health.
I am a grandmother of an adorable toddler, David. He is
cute.
The Chairman. Yes, he is adorable.
Ms. Vidinsky. Thank you.
The Chairman. For the record, he is adorable. [Laughter.]
Ms. Vidinsky. Thank you so much. I am not proud, right?
But shown here on the cover of the Alzheimer's Association
annual report. To think that this beautiful child may become a
victim of Alzheimer's disease and travel the same journey that
his great-grandmother Velma did overwhelms me with sadness.
If we could prevent Alzheimer's disease or even just slow
its progression and delay its onset for a few years, we could
take a huge step toward relieving a staggering burden on our
families and our long-term care system. That, perhaps more than
anything else, could help us address the looming long-term care
crisis.
On behalf of the Alzheimer's Association, all of the
individuals and families we represent, I thank you again for
your commitment to these issues and for giving me the
opportunity to be here today.
Thank you.
[The prepared statement of Ms. Vidinsky follows:]
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The Chairman. Thank you very much, Joanne. That was a very
heart-warming story of your family.
As you relate the experience of your mother-in-law and
father-in-law, that is a very noble story. We salute your
father-in-law for caring for his wife in those circumstances of
many years, and then you and your brother for making the
provident choice of providing a policy for your mother.
No doubt, she is relieved of a lot of anxiety that comes
because, obviously, the cost to her would have been prohibitive
if she had not that care or going into Medicaid, and that may
not have been as good care as she deserves.
Yours is a good story, and I think your admonition about
Alzheimer's research is one that we need to heed. So thank you
very much.
Robert Friedland.
STATEMENT OF ROBERT B. FRIEDLAND, Ph.D., FOUNDING DIRECTOR,
CENTER ON AN AGING SOCIETY, WASHINGTON, DC
Mr. Friedland. Good morning, Senator, Chairman Smith. Thank
you for the opportunity to appear here and submit testimony for
the record.
I am Robert Friedland, a researcher and a professor at
Georgetown University.
Most people are not prepared for long-term care, but it
seems that perhaps not enough people know it or are doing
something about it. In one survey, 63 percent identified either
with the statement, ``I really haven't given any thought to how
I would pay for long-term care,'' or ``I don't have a plan to
pay for long-term care because I don't expect I will need it.''
It is worth noting the similarity with retirement planning.
For example, in a different survey, 58 percent of workers age
45 or older said that they had not tried to calculate how much
money they would need to have saved by the time they retired.
Yet 67 percent of workers expressed confidence that they would
have enough to live comfortably in retirement.
Everyone knows they should eat right, exercise regularly,
and save for retirement. Yet nearly half the population is
overweight, does not exercise regularly, and does not regularly
save for retirement. Only 65 percent of workers with an
employer-sponsored plan participate. Virtually all workers can
contribute to an individual retirement account, and yet less
than 10 percent do.
While, fortunately, participation rates increase with age
and income, far too many workers withdraw funds when they
change jobs, and most IRA participants were already saving,
simply transferring their taxable savings to tax advantaged
accounts.
So despite the encouragement and the incentives, much
stands in our way, even for goals to which we aspire. Nobody
aspires to physical dependency. Nobody is looking forward to
needing long-term care. So why should we expect people to be
better prepared for the things in life that we seek to avoid
than for the things to which we aspire? Thank goodness for
Social Security.
It troubles me deeply that far too many people end up with
so little in savings. Social Security ensures that they will
not be poor, but their inability to effectively build on this
base has kept them from living well.
It is a mixture of private insurance, employer efforts, the
discipline to save, and social insurance that helps pool the
financial risks of many of life's contingencies, that is,
contingencies other than long-term care. For these
contingencies, it is the social insurance that sets the terms
for the private market.
Since most long-term care is provided by family, financed
out of pocket, or supplemented by Medicaid, the payer of last
resort, the long-term care system is fragmented, inefficient,
inequitable, and, in most places, inadequate.
In 15 years, there could be dramatic increases in the size
of the long-term care population. There will be dramatic
declines in family size and in the rate of growth in the labor
force. Whether you are rich or poor, have private insurance or
Medicaid, access to needed long-term care will be dearer than
it is today.
This is likely to be true even if everyone has purchased
long-term care insurance. In fact, as the proportion of the
population with insurance increases, the price of care is
likely to increase faster than the supply of services,
resulting in the possibility of making access worse for
everyone.
We witness this market force in health care, but long-term
care insurance has a fundamentally different role in the market
than does health insurance. Health insurance covers medically
necessary care. Long-term care insurance is merely a fixed-
dollar benefit, chosen by the consumer decades earlier.
Health insurers have financial incentives to work toward a
more effective and efficient health care system. No such
similar market forces are at work with long-term care
insurance. There is nobody in charge within the system the way
physicians are in our health care system.
Because we use public resources to encourage long-term care
insurance, it is incumbent on us to work toward developing a
more effective delivery system and a more effective structure
in which long-term care insurance can insure the risks we face.
While I wish we could encourage people to save more for
retirement--and I commend you for putting your efforts in that
direction--and I wish more people would insure more of the
insurable risks, simply encouraging more people to purchase
long-term care insurance is not sufficient to improve the
delivery of long-term care.
Premiums paid today will do nothing for the system. We need
to address the organization, delivery, and financing of care
now if we are to ensure that insurance will be even more
effective in the future when insurance claims are paid.
Thank you for holding this hearing, and thank you for
allowing me to comment.
[The prepared statement of Mr. Friedland follows:]
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The Chairman. Thank you, Robert. You have some wonderful
insights.
I agree with your testimony that saving for long-term care
is not efficient and may not be sufficient. But I guess I am
wondering how can we incentivize young people to get into
programs or policies that are inexpensive to them now?
Mr. Friedland. Let me speak to the savings part. I think we
have realized or I should say there is a collective opinion in
public policy efforts moving forward to automatically enroll
people in 401(k) plans. So, I am hopeful that those kinds of
legislation will pass, and that will make a huge difference.
This is, as OPM spoke, this is a hard sell. OPM does all
the right things, and of course, the numbers are quite
impressive. But it is such a small percentage of that
population, the 20 million that are eligible.
I think the Government has a role in education, in making
that point. I think when you use tax incentives, you do send a
very clear signal that it is important.
The Chairman. Well, I share your comments about Social
Security, too, as being sort of the bedrock of people in
retirement and eliminating elder poverty, frankly, in our
country.
But I think it is important for us as part of the education
in Government to note the very real arithmetic that awaits us
because of the demographics of our country. These great social
safety net programs of Medicare, Social Security, Medicaid, in
a quarter century, they are going to be the only programs left
in the Federal Government on the current course.
Now lest anyone be alarmed, I don't think we will get to
that point when we destroy the rest of the Federal Government
over these three programs. I only say this that I have that
confidence because I think, ultimately, Republicans and
Democrats, when they are forced by the budgetary demands that
are simply inescapable, that we will come together as Americans
and figure this out.
But that is going to entail some very, very hard and
painful choices, which makes all the more important why we need
to do what we can to help people to plan outside of Government
for their futures. I doubt you would disagree with that.
Mr. Friedland. I don't disagree.
The Chairman. Any comment, any suggestions how we solve all
of these issues?
Mr. Friedland. Well, unfortunately, it will take some
investment, I think, and I know how hard that is to do. It
would be, in my mind, if we could begin to reorganize where the
risks are in much the same way we have done in other sectors,
where the public sector takes on a different part of the risk,
making it easier for the private sector to insure that risk.
I would love to see a day in which private insurance covers
the care that we need when we need long-term care, instead of
having to choose a $200 a day benefit and hoping that the
inflation will be right so that when we get to making a claim,
the $200 a day benefit is now worth $400 and that the cost is
only $400.
What happens when the cost is $600 or $800, and we haven't
put it in our plan, there is not enough in our savings to cover
that gap? We have got a policy that doesn't cover what we need,
and we are not rich enough to cover the gap.
So, to do that, we need to circumvent the risk in a way so
that the insurers could actually insure the risk and not just
the dollar amount.
The Chairman. Well, you know what I have said and what I
think you are agreeing with, Robert, is while the demographic
tsunami is approaching, we don't want to alarm people. This
doesn't affect people on Social Security now, on Medicare now,
on Medicaid now.
What this affects is people of my age and my children and
grandchildren. Your grandchild, Joanne, who faces just a
crushing kind of burden in the cost of Government because of
the size of our generation and the relative smallness in size
of their generation.
So we have got big issues, but I have always taken pride in
the fact that America has risen to its challenges, and I think
we will again when the economics require us in Congress to deal
with it. But the point of this hearing is to deal with it and
to use the megaphone of this Committee to call out to Americans
to plan, to be prepared on their own, in addition to the
programs that the Government provides.
Let me just, in conclusion, thank each of you for taking
your time and sharing your stories and your insights and your
programs. We commend them all, and we thank you for adding
measurably to the public record.
With that, we are adjourned.
[Whereupon, at 11:20 a.m., the Committee was adjourned.]
A P P E N D I X
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Prepared Statement of Senator Herb Kohl
Thank you, Mr. Chairman. Americans are living longer than
ever thanks to tremendous advances in medicine. But this
longevity also means that as people age, many will need long-
term care in the future, whether it's provided at home, in an
assisted living facility, or in a nursing home.
As a nation, we need to develop a comprehensive long-term
care policy to care for the 10 million people who need long-
term care today and the millions more who will need care in the
coming years. It is an important but complicated issue that the
Committee should explore, so I thank the Chairman for holding
this hearing, as well as the witnesses who are here today to
educate us.
It's worth noting that today, the majority of long-term
care is actually provided free through family or friends.
Caregiving can take a tremendous financial and emotional toll
on families. Many older family members who care for a loved one
often are forced to miss work or find they simply cannot
continue working at all--placing their own economic well-being
in jeopardy. They deserve some help, and that is why I have
proposed legislation to provide a tax credit for older workers
to help cover the costs of caring for chronically ill seniors.
Of course, we know that aside from family caregiving,
Medicaid is the largest payor and greatest safety net for long-
term care services. Medicaid provides care for millions of
elderly and individuals with disabilities that need assistance
with basic activities of daily living. It is critical that we
preserve and strengthen this important program.
However, we know that public financing is not the only
answer to the long term care dilemma. We will also need to find
new ways to encourage Americans to anticipate and plan for
their future long-term care needs. As we will hear today, some
families are turning to long term insurance, which I support as
an option that can be helpful under the right circumstances.
Unfortunately, for the millions of low and modest income
families that are already finding it difficult to secure food,
housing, transportation, and health care, along with saving for
their retirement, long-term care insurance is unaffordable
today. But it's clear that with standardized policies and
consumer protections, long-term care insurance can be a good
and clear option for some families, and we should work to make
it available and affordable.
To help alleviate some of the costs of long-term care and
long-term care insurance, I am a cosponsor of S. 602, the
Ronald Reagan Alzheimer's Breakthrough Act. The bill would
provide a tax credit for individuals certified as having long-
term care needs and for whom the taxpayer is acting as a
caregiver, as well as a tax deduction for long-term care
insurance. I hope the Congress will make this a priority and
pass this legislation soon.
I strongly believe we need to develop a coherent long-term
care policy that will enable seniors of all incomes to plan for
and access long-term care, if and when they need it. I applaud
Chairman Smith for having this hearing and look forward to
hearing from our witnesses on how we can develop a better plan
for the future.
------
Questions from Senator Lincoln for Robert Danbeck
Question. What additional tools are available to
individuals for whom long term care insurance is not an option?
What additional tools should be available to them?
Answer. We cannot comment on additional tools available
outside of the programs we manage. The Federal Long Term Care
Insurance Program gives applicants who are not approved for
long term care insurance an opportunity to purchase a service
package. This non-insurance package provides access to care
coordination to help the individual plan for addressing his/her
long term care needs. It also provides access to a discounted
network of long term care providers and services. The Program's
care coordinators are registered nurses experienced in long
term care situations who can help determine the appropriate
long term care setting and provide information on additional
resources that may be available in the community.
Question. How can we better support and assist our nation's
caregivers who provide such critical long-term services and
supports to millions of Americans? What is the government's
role?
Answer. We cannot comment on sources of support for
caregivers outside of the programs we manage.
Upon request, the Federal Long Term Care Insurance Program
provides care coordination services for non-enrolled qualified
relatives of enrollees, which assists our enrollees when they
are also caregivers.
The Federal Employees Health Benefits Program also provides
caregiver support to enrollees. FEHB plans often include
benefits for visiting home health providers who can serve as a
respite for the caregiver. FEHB enrollees have access to mental
health care for anxiety, stress reduction and depression that
can accompany an enrollee's role as caregiver. FEHB plans also
provide hospice care, including palliative and supportive care
to terminally ill patients and their caregivers. Hospice
programs can provide periodic respite for caregivers and
bereavement support to help the grieving family and caregiver
deal with the loss.
Enrollees in some FEHB plans can receive support and
respite from their caregiving duties through plan ``care
support programs'' that include interactions with nurses to
make sure patients are taking their medications, visiting the
physician when appropriate, receiving answers to medical
questions, etc. FEHB case management services coordinate health
care services by facilitating access and utilization of
available community based resources and services. FEHB disease
management programs provide education, monitoring,
intervention, counseling and support for enrollees with chronic
conditions, working with the enrollee and his/her caregiver
directly.
Under the Family and Medical Leave Act of 1993 (FMLA), most
Federal employees are entitled to a total of up to 12 workweeks
of unpaid leave during any 12-month period to take care of
their spouse, child or parent who has a serious health
condition. This can help relieve caregiver stress when that
care must be performed in addition to job responsibilities.
------
Questons from Senator Lincoln for Joanne Vidinsky
Question. Long-Term care insurance is a useful way for some
individuals to plan and pay for future long-term care needs.
However, not everyone can afford long-term care insurance and
some people cannot qualify for it due to pre-existing
conditions. Individuals need more options to plan and pay for
their care. What additional tools are available to individuals
for whom long-term care is not an option? What other additional
tools should be available to them.
Answer. Unfortunately, most older people in this country
cannot afford the average annual cost of $76,219 for nursing
home care (Genworth Cost of Care Study, 2006) out of their own
savings. The majority of older people must rely on the
governmental Medicaid benefits to help them meet their long
term care needs, when informal caregiving is no longer enough.
Medicaid requires impoverishment of its beneficiaries. There
are very few options for those who cannot pay their way, other
than to rely on Medicaid.
Creative solutions like the Long Term Care Partnership
Program and public education to help people plan for their long
term care needs are an essential part of any solution to the
challenge of long term care financing. It is important that
states and the federal government move as quickly as possible
to implement these programs, recently passed as part of the
Deficit Reduction Act, nationwide.
While education and incentives to purchase insurance are
important steps, we need to think beyond the current long term
care system because it does not work for millions of people who
cannot access or afford insurance or are forced into poverty in
order to get any help from the government. The Alzheimer's
Association believes that the crisis in long term care, fueled
by a large and rapidly aging population, requires action now.
Congress should initiate a national dialogue immediately to
reach consensus on a viable solution to the long term care
financing problem. The exact form of the solution is not clear,
though it is clear that current budgetary constraints make it
difficult to discuss additional governmental expenditures at
this time.
The Alzheimer's Association envisions a public/private
partnership for long term care financing that assists people
before they are broken by the costs and consequences of their
long term care needs. The partnership should ensure that those
with few financial resources have access to a means-tested
safety net, that people who can plan ahead for their long term
care costs are encouraged to do so, and that there is a public
sector program that provides a stable base of support and wraps
around private benefits. It is important for private sector and
public sector benefits to complement one another, with proper
incentives and regulations to ensure affordable, meaningful
protection.
Question. One of the largest sources of private long-term
care financing in this country is the informal, unpaid care
provided by family and friends. Family caregivers are the
backbone of long-term care in this country, yet they face
significant physical, emotional, and financial burdens. How can
we better support and assist our nation's caregivers who
provide such critical long-term services and supports to
millions of Americans? What is the government's role?
Answer. Typically, people with dementia live about 8-10
years from the time of diagnosis until death. Caregivers
provide most of the support for their loved ones and in recent
years, caregiver efforts have increased. However, the informal
caregiving system is fragile and becoming more so because of:
1) the ever increasing complexity of the health and long term
care system; 2) the fact that people are living longer with
chronic conditions, including dementia; and 3) the erosion of
Medicaid over time. Congress should strengthen Medicare,
Medicaid, and Administration on Aging programs to support
family caregivers.
The Alzheimer's Association has an extensive caregiver
policy agenda. We urge Congress to take action on the key
elements of this agenda, listed below.
1. Create a Medicare chronic care management benefit to pay
physicians and other practitioners to coordinate patients' care
with other practitioners and with caregivers. This would help
ensure that patients with dementia receive optimal care and
help caregivers and beneficiaries navigate the complex health
and long term care systems. The benefit would be particularly
useful in helping family caregivers manage when their loved
ones have multiple chronic conditions, such as heart disease
and diabetes, in addition to dementia. In addition, such a
benefit could help connect beneficiaries to community services,
a connection that has been proven to help keep beneficiaries
with dementia out of emergency rooms and hospitals.
2. Require Medicare to reimburse physicians who spend time
counseling family caregivers when the patient is not also
present. Currently, Medicare will not do so. This situation
diminishes the quality of communication between the caregiver
and physician and can be detrimental to patient safety and
care, as well as to caregiver confidence and wellbeing.
3. Expand the Medicaid hardship waiver provisions so that
they apply to caregivers and ensure that the criteria for
granting waivers address the burden caregivers face if their
loved ones cannot get needed institutional care. Currently,
hardship waivers of asset penalties are only available if the
individual seeking Medicaid nursing home coverage would lose
access to ``medical care, food clothing, shelter or other
necessities of life.''
4. Amend the Medicaid home equity limit to protect
caregivers by adopting the protections in current law related
to liens and estate recovery. These protections enable siblings
or adult children to remain in the home if they lived in it and
provided care that allowed the Medicaid beneficiary to remain
at home longer. Currently, the new limit on home equity only
applies to individuals. But it could deprive a caregiver of a
place to live. Take the example of two sisters, one of whom is
a home owner with dementia and the other who lives with and
takes care of her. The home equity limit would apply and the
sister could become homeless as a result.
5. Encourage states to provide more support to caregivers
by creating an increased federal Medicaid match for states that
assess caregiver need and provide caregivers with respite
services.
6. Continue to authorize and fund the Alzheimer's Disease
Demonstration Grants to States Program. Since 1992, Congress
has funded this program to encourage states to develop and test
innovative ways to support people with Alzheimer's disease and
other dementias and their family caregivers. States have used
these funds to create adult day services ad respite care
programs, provide dementia-specific caregiver training, and
link families to existing community services that may help
them. Many states have used funds from this program to find
ways to support culturally diverse, and geographically isolated
families that are coping with dementia.
7. Add family caregivers of people under age 60 with
Alzheimer's disease and other dementias to the family
caregivers who can receive services funded through the
Administration on Aging's National Family Caregiver Support
Program (NFCSP). The NFCSP provides funds to serve family
caregivers of people aged 60 and older and grandparents taking
care of grandchildren. Some family caregivers are taking care
of a person with Alzheimer's disease or another dementia who is
under age 60. Results of a national telephone survey conducted
by the National Alliance for Caregiving show that 15% of the
family caregivers of people with Alzheimer's disease and other
dementias were taking of a person age 50-65. The precise number
of people with Alzheimer's disease and other dementias that is
under age 60 is not known, but it is likely that 5%-8% are
under age 60, with some as young as age 38.
8. Add family caregiver assessment as a service that states
must provide with National Family Caregiver Support Program
funds. The NFCSP does not require or encourage family caregiver
assessment as part of any of the five services states must
provide through the program, even though an assessment to
determine the characteristics, needs, capability, and
preferences of the family caregiver would seem to be important
for the success of each of the five required services.
------
Questions from Senator Lincoln for Malcolm Cheung
Question. Long-Term care is a useful way for some
individuals to plan and pay for future long-term care needs.
However, not everyone can afford long-term care insurance and
some people cannot qualify for it due to pre-existing
conditions. Individuals need more options to plan and pay for
their care. What additional tools are available to individuals
for whom long-term care is not an option? What other additional
tools should be available to them.
Answer. One way to reduce the changes of not being able to
afford or qualify for long-term care insurance is to encourage
Americans to consider purchasing this insurance when they are
still relatively young (ages 35 to 50). Premiums are
significantly lower at the younger issue ages, and the chronic
medical conditions that may disqualify an individual from
private long-term care insurance coverage are much less likely
to occur when one is relatively young. Additional tax
incentives that would encourage working age individuals to
consider purchasing long-term care insurance would help
increase awareness of the need to plan for potential long-term
care expenses while still young. Such incentives would include
allowing employees for pay for long-term care insurance on a
pre-tax basis through an employer-sponsored cafeteria plan or
Flexible Spending Account.
For those who currently find themselves in the situation of
not being able to afford long-term care insurance,
consideration should be given to purchasing a policy with less
rich benefits. Significant premium reductions can be achieved
by reducing daily or lifetime maximum benefit limits, electing
a less rich form of inflation protection, or lengthening the
waiting period. When reducing benefits, the consumer needs to
be aware that the benefits provided by the long-term care
insurance policy may ultimately not be adequate to fully fund
their long-term care expenses, and that they may need to
supplement insurance payments with other sources of income,
their own savings, or assistance from family members.
For those who cannot qualify for long-term care insurance
due to a pre-existing health problem, there are several
potential options. If the health problem is one state still
allows the individual to work full time, many employers offer
group long-term care insurance coverage to their actively-at-
work employees on a guaranteed issue basis without requiring
any health history, or on a simplified issue basis with a very
limited number of health questions. There are also some long-
term care insurers who specialize in substandard long-term care
risks. Substandard policies may provide only limited benefits
and would cost more than standard coverage, but they may be a
viable alternative for those who may be impaired health risks,
but not uninsurable.
For those who can't afford or qualify for coverage, one
additional option would be to take advantage of the geriatric
care management and provider information and referral services
that are available today in the marketplace. Although this
option would not directly reimburse someone for the costs of
long-term care services received, it would provide those
needing care with valuable information about, and potential
discounts from, local long-term care providers and how best to
utilize these providers.
Question. One of the largest sources of private long-term
care financing in this country is the informal, unpaid care
provided by family and friends. Family caregivers are the
backbone of long-term care in this country, yet they face
significant physical, emotional, and financial burdens. How can
we better support and assist our nation's caregivers who
provide such critical long-term services and supports to
millions of Americans? What is the government's role?
Answer. One way we can better support our nation's informal
caregivers would be to provide a tax credit to help them absorb
the sometimes substantial costs of providing long-term care for
a family member. Senator Lincoln should be commended for
including such a credit in S. 1244, which she introduced last
year with Senator Grassley.
Increasing public awareness of the need to plan for long-
term care expenses and the value of long-term care insurance,
and providing additional tax incentives for the purchase of
private insurance will help promote the expansion of the long-
term care insurance market. Long-term care insurance provides
those needing care with the financial means to utilize formal
caregivers, so that the burden on informal caregivers can be
moderated.
In addition to the high cost of formal caregivers, another
reason informal caregiving is so common is because the supply
of formal caregivers, especially home health aides, is very
limited in some geographics areas, and the quality of the care
can be inconsistent. Anything government (either Federal or
State) can do to promote caregiving as a profession, and to
establish and enforce quality and training standards for
caregivers, would likely encourage greater use of formal
caregivers, thereby relieving some of the burden borne by
informal caregivers.