[Senate Hearing 111-180] [From the U.S. Government Publishing Office] S. Hrg. 111-180 BOON OR BANE? EXAMINING THE VALUE OF LONG-TERM CARE INSURANCE ======================================================================= HEARING before the SPECIAL COMMITTEE ON AGING UNITED STATES SENATE ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION __________ WASHINGTON, DC __________ WEDNESDAY, JUNE 3, 2009 __________ Serial No. 111-7 Printed for the use of the Special Committee on Aging Available via the World Wide Web: http://www.gpoaccess.gov/congress/ index.html ---------- U.S. GOVERNMENT PRINTING OFFICE 53-717 PDF WASHINGTON : 2009 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 SPECIAL COMMITTEE ON AGING HERB KOHL, Wisconsin, Chairman RON WYDEN, Oregon MEL MARTINEZ, Florida BLANCHE L. LINCOLN, Arkansas RICHARD SHELBY, Alabama EVAN BAYH, Indiana SUSAN COLLINS, Maine BILL NELSON, Florida BOB CORKER, Tennessee ROBERT P. CASEY, Jr., Pennsylvania ORRIN HATCH, Utah CLAIRE McCASKILL, Missouri SAM BROWNBACK, Kansas SHELDON WHITEHOUSE, Rhode Island LINDSEY GRAHAM, South Carolina MARK UDALL, Colorado MICHAEL BENNET, Colorado KIRSTEN GILLIBRAND, New York ARLEN SPECTER, Pennsylvania Debra Whitman, Majority Staff Director Michael Bassett, Ranking Member Staff Director (ii) C O N T E N T S ---------- Page Opening Statement of Senator Herb Kohl........................... 1 Opening Statement of Senator Mel Martinez........................ 2 Panel I Statement of Diane Rowland, Sc.D., Executive Vice President, Henry J. Kaiser Family Foundation, Executive Director, Kaiser Commission on Medicaid and the Uninsured, Washington, DC....... 5 Statement of Sean Dilweg, Insurance Commissioner, Wisconsin Insurance Commission, Madison, WI.............................. 21 Statement of Carol Cutter, Chief Deputy Commissioner, Health and Legislative Affairs, Indiana Department of Insurance, Indianapolis, IN............................................... 43 Statement of Thomas Stinson, President, Genworth Long-Term Care, Genworth Financial, Richmond, VA............................... 48 Statement of Bonnie Burns, Training and Policy Specialist, California Health Advocates, Scotts Valley, CA................. 63 APPENDIX Sean Dilweg Responses to Senator Mel Martinez Questions.......... 99 Carol Cutter Responses to Senator Mel Martinez Questions......... 101 Letter from Genworth Financial................................... 103 Letter from HCR Manor Care....................................... 106 (iii) BOON OR BANE EXAMINING THE VALUE OF LONG-TERM CARE INSURANCE ---------- -- WEDNESDAY, JUNE 3, 2009 U.S. Senate, Special Committee on Aging, Washington, DC. The Committee met, pursuant to notice, at 2 p.m. in room SH-216, Hart Senate Office Building, Hon. Herb Kohl (chairman of the committee) presiding. Present: Senators Kohl [presiding], and Martinez. OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN The Chairman. Good afternoon, and we thank you all for being with us today. In March, this committee heard from experts, including Senator Kennedy, who all agree that reforming our long-term care system is a necessary part of reforming the entire healthcare system. With America aging at an unprecedented rate, and with the high and rising costs of caring for a loved one, the financing of long-term care must be addressed if we are going to get healthcare costs under control. Today we're going to examine one way families can finance their long-term care costs, namely through long-term care insurance. We all know that long-term care is expensive, with the cost of an average nursing home now nearly $70,000 a year. However, according to the Congressional Research Service, most Americans do not realize that Medicare offers only limited home health services, and Medicaid will not cover long-term care costs unless household savings are nearly entirely depleted. States share the responsibility of providing Medicaid funding for long-term care with the Federal Government and are also looking for ways to reduce their expenses. As of today, 43 States are in the process of launching Partnership programs which provide incentives to consumers who purchase private long-term care insurance. But in the rush to ease the burden of long-term care costs on State budgets, we fear that some key concerns are being overlooked. We have a duty to make sure that these policies-- which may span decades--are financially viable. Several long- term care insurance providers have applied for TARP funds in recent months, raising questions about their solvency. In addition, many insurance companies have been raising their policyholders' monthly premiums, which can be devastating for older persons who are living on fixed incomes. The committee is aware of instances in which Americans living on modest, or fixed, incomes who have held policies for many years, have seen premium rates double when a company encounters financial difficulties. For such consumers, the choices are stark, and very limited. They can either dig deeper, and pay the increased premiums, or let their policy lapse, leaving them with no coverage if they ever need care. Last year I was joined by several Senate and House colleagues in releasing a GAO report on whether adequate consumer protections are in place for those who purchase long- term care insurance. The report found that rate increases are common throughout the industry, and that consumer protections are not even. While some States have adopted requirements that keep rates relatively stable, some have not; leaving consumers--in many cases--unprotected. This afternoon, we will discuss how we can best protect these policyholders. We need to ensure that premium increases are kept to a minimum, insurance agents receive adequate training, and complaints and appeals are addressed in a timely manner. We should also make it easier for consumers to accurately compare policies from different insurance carriers, particularly with regard to what benefits are covered, and whether the plan offers inflation protection. States should also have to approve materials used to market Partnership policies. Today I will introduce, with Senator Wyden, the Confidence in Long-Term Care Insurance Act of 2009, which calls for many of these improvements. It's estimated that two out of three Americans who reach the age of 65 will need some long-term care services and support at some point to assist with day-to-day activities, and which can enable them to maintain a high- quality and independent life. Long-term care insurance is an appropriate product for many who wish to plan for a secure retirement. But until we can guarantee that consumers have adequate information and protections, and ensure that premiums will not skyrocket down the road, long-term care insurance is not ready to be a major part of the healthcare reform solution. So, we thank all of today's witnesses to being here. We look forward to your testimony, and we now turn to the ranking member for his comments. Senator Martinez. OPENING STATEMENT OF SENATOR MEL MARTINEZ, RANKING MEMBER Senator Martinez. Mr. Chairman, thank you very much, and good afternoon to you, and I want to thank all of the panel members for being here with us today. Of many factors that Americans consider when planning their personal and financial future--their income, health, housing security, leisure time and emergencies--the one factor that's often overlooked is the plan for long-term care. Currently the number of seniors requiring long-term care is on the rise. The Department of Health and Human Services estimates that today about 9 million men and women over the age of 65 are in need of long-term care. By 2020, that number will be close to 12 million, underscoring the need for more personal and public resources dedicated to providing seniors with long- term care options. The common barrier is cost. In Florida, for example, a private room in a nursing home costs more than $70,000 per year, and a home health aide costs more than $40,000 per year. These expenses could cause a person to quickly deplete their finances, and become dependent on Medicaid. Many seniors rely on family for their care. Oftentimes these caregivers are baby boomers, including those with children, who have been hit hard by recession. As a result, it has become increasingly difficult for them to afford the expenses associated with providing care. Many are surprised to learn that Medicare only pays for very limited long-term care services. Medicaid is the largest source of public financing for long-term care. But with family and public funding sources stretched, due to the economic downturn, Congress must look to other options. Personal planning, like purchasing long-term care insurance policies, offers a viable way to save seniors' assets and reduce the burden on States and the Federal Government. Presently, only about 10 percent of seniors have chosen to purchase this kind of financial backstop. To encourage more Americans to purchase long-term care insurance, the Federal Government--in 1996--joined States in the Long-Term Planning Partnership Program. The program offers enhanced long-term care insurance products in conjunction with Medicaid as a form of re-insurance. This approach offers protection for consumers, while also saving the State money. This model is promising, and may become an integral part of building our nation's long-term care system. But the Partnership Program in long-term care insurance, in general, is a relatively recent innovation, and it's still virtually unknown to most Americans. But as this industry continues to evolve, States should determine whether private long-term care insurance is sufficient to help each individual afford long-term care. State insurance commissioners are in an important position to protect policyholders, and make sure premiums are fair, and will translate into future benefits. In my view, this is an issue that should continue to be addressed at the State level. Today we'll be hearing from our panelists on the benefits and challenges facing long-term care insurance policyholders, and providers. So, I look forward to hearing the testimony from all of the witnesses, Mr. Chairman. I thank you for calling this hearing and very timely issue. I also should let you know that I have a second hearing that's started in about--or will start--in a few minutes, so I may have to excuse myself at some point, but it's very good to see all of you, and thank you for being here. The Chairman. Thank you very much, Senator Martinez. I will introduce our witnesses today. First we will be hearing from Dr. Diane Rowland. She's the Executive Vice President of the Kaiser Family Foundation, and the Executive Director of the Kaiser Commission on Medicaid and the Uninsured. Dr. Rowland is also an adjunct professor in the Department of Health Policy and Management at Johns Hopkins University's School of Public Health. She is a noted authority on health policy, Medicare and Medicaid, and health care for poor and disadvantaged populations. Next we will be hearing from Sean Dilweg, the Insurance Commissioner for the State of Wisconsin. Commissioner Dilweg is also an active member of the National Association of Insurance Commissioners, where he is chair of their Consumer Affairs Committee, and Senior Issues Task Force. Prior to this appointment as Insurance Commissioner, Mr. Dilweg served as the Executive Assistant to the Secretary of the Wisconsin Department of Administration. We welcome you here today, sir. Our third witness will be Carol Cutter, the Chief Deputy Commissioner of the Indiana Insurance Department. In that role, she oversees the Indiana Long Term Care Partnership Program, the Indiana CHP program for Medicare recipients, the Indiana small employer voluntary reinsurance pool program, the mandate benefit task force. Prior to joining the Indiana Insurance Department, Ms. Cutter spent 30 years in the insurance industry. Our fourth witness today will be Thomas Stinson, the President of the Insurance Products Retirement and Protection for Genworth, the nation's largest provider of long-term care insurance policies. He is responsible for product development and the management of Genworth's life, long-term care, and annuity products. Mr. Stinson previously served as President of Genworth's long-term care business, and as President of GE Financial's Personal Financial Services organization. He currently serves on the Board of America's Health Insurance Plans, and the National Commission for Quality Long-Term Care. Finally, we'll be hearing from Bonnie Burns, the training and policy specialist for California Health Advocates. She has more than 25 years of experience in Medicare, Medicaid Supplement Insurance, and long-term care insurance. She has served as a consumer representative with the National Association of Insurance Commissioners. In addition, Ms. Burns has served on Advisory Committees of the California Department of Aging, Department of Insurance, as well as the several advocacy organizations that address long-term care insurance issues. We welcome you here today. We'll delighted to take your testimony, and we'll start with you, Diane Rowland. STATEMENT OF DIANE ROWLAND, SC.D., EXECUTIVE VICE PRESIDENT, HENRY J. KAISER FAMILY FOUNDATION, EXECUTIVE DIRECTOR, KAISER COMMISSION ON MEDICAID AND THE UNINSURED, WASHINGTON, DC Dr. Rowland. Thank you, Chairman Kohl, and Senator Martinez, for this opportunity to be with you today to participate in this hearing on long-term care. My testimony today will focus on how our nation currently finances long-term care services, and the key challenges to building a broader role for private health insurance in that market. I think it's particularly important to note that over 10 million Americans, or almost 5 percent of our adult population, need long-term care services and supports to assist them in their daily activities. Although the majority of the individuals who receive long- term care services are aged 65 and above--and I know that is the focus of this Special Committee on Aging--42 percent of the individuals needing long-term care are people with disabilities and chronic illness under age 65. I think we need to bear that in mind as we look for solutions, since they are so much as part of our long-term care challenge. Many people who need long-term care rely primarily on unpaid help from family and friends in the community, but paying for long-term care services is expensive, and can quickly exhaust lifetime savings, especially if institutional care is required. With nursing home care averaging $70,000 a year, assisted living facilities averaging $36,000 per year, and home health services averaging $29 per hour, very few people can afford these services for very long. The cost of these services often exceeds individuals' ability to pay for their care. While most long-term care services and support, including extended stays in nursing home, are not covered--as you've noted--by Medicare, few people have private health insurance to help pay for their nursing home stays. Medicare does, in fact, help to fill the gaps for many of the elderly and people with disabilities who need long-term care, but as we all know, to qualify for assistance, individuals must have limited income, and meet stringent assets tests. Unlike insurance for healthcare services, private insurance for long-term care is still a very limited option for financing care. Private long-term care insurance is primarily offered through the individual market, and has been offered only as a limited part of employer-sponsored insurance. When it has been offered by employees, the take-up rates have been exceedingly low. Insurance carriers say they have sold about 10 million long-term care insurance policies since 1987. Of the 6 to 7 million of these that remain current, the industry sold about 4 million through individual agents, and slightly more than 2 million through employers or group coverage--quite a different picture than that within our healthcare system. In assessing the potential, therefore, for broader application of private long-term care insurance in the financing mix for long-term care, it is important to highlight questions such as, how adequate is the coverage from these policies? How well does the market work? What protections are in place for consumers, and what transparency is offered? We have reviewed many of these questions and challenges around coverage and financing of long-term care in a report which we released today, and have included with our testimony, called Closing the Long-Term Care Funding Gap, the Challenge of Private Long-Term Care Insurance, and we've submitted that for the record. Our principal findings in this report continue to focus on key challenges as we move forward to try and broaden this market. One, cost is a significant barrier for expanding the role of private long term care insurance. Many who will ultimately need long-term care insurance don't have the resources to pay the premiums, especially over a lifetime. Health risks can deny consumers the coverage that they need. Before purchasing insurance, most consumers must undergo a detailed health screening and evaluation to determine their insurability and risk rating. For people with disabilities, this makes this coverage out of the question. Buyers also face very complex product design issues that are very difficult for them to fathom and to make realistic judgments about where they ought to be getting their care, or how. So, broader transparency and more help in figuring out the differences between policies and the pros and cons for individuals are required. A significant problem is the time lag between the purchase and use of benefits, and the kind of coverage that people are picking when they would be signing up for the coverage. So, we really need to look at how to make good decisions 20 to 30 years before the purchased insurance product is used. Finally, we don't have much of an employer-based market, here, although that offers promise. As we look at employer- based coverage for health insurance being scaled back and as we look at the erosion of retiree benefits, we have some real challenges in trying to build more of such coverage into the employer-based market. So, as the Nation faces a growing elderly population, the potential for substantial increase in people in need of assistance with long-term care, it is important that we move now to address how to structure and pay for the long-term care services that will be required. If long-term care insurance is to become more available and utilized, the limitations of the current private long-term care insurance market should be examined and addressed as part of creating a broader market. Many of the concerns that have led to the current health reform efforts, focusing on the need for regulation and changes in the individual health insurance market, apply equally to the current long-term care insurance market--most notably its high administrative costs, unaffordable premiums, exclusions based on health status, its complexity and lack of comparability across plans. With revisions to these plans, private long-term care insurance could play a broader role in the long-term care financing mix. However, given the substantial role already played by Medicaid, and the limited applicability of long-term care insurance for the non-elderly disability population, the potential for private long-term care insurance, even reformed, to finance our future long-term care needs should not be overstated. Thank you very much for your time and your consideration. [The prepared statement of Dr. Rowland follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] The Chairman. Thank you so much. Now, we'll hear from Sean Dilweg. STATEMENT OF SEAN DILWEG, INSURANCE COMMISSIONER, WISCONSIN INSURANCE COMMISSION, MADISON, WI Mr. Dilweg. Thank you, Chairman Kohl and Ranking Member Martinez. Thank you for the opportunity to testify concerning the regulation of long-term care insurance. I appreciate you holding this hearing today in an effort to highlight the long- term care insurance and the complex issues related to it. Long-term care insurance has proven to be a very challenging product to regulate. Setting this product apart from other lines of insurance is the span between the purchase of long-term care insurance and when that person actually needs coverage for the services. Products currently for sale will provide coverage for services in most cases 10 to 15 years down the road. Regulators are in the unique position of reacting to decisions consumers and industry made 15 years ago, while also facing the challenge of ensuring policies purchased today provide meaningful coverage in the next 15 years. State regulators have three main priorities in regulating these products. First, ensuring the solvency of the companies offering the long-term care policies so that companies can pay the claims for the policies they have sold. Second, ensuring that sufficient consumer protections are in place so that the premiums are relatively stable over the life of the policy, and consumers receive the benefits promised to them in a timely manner. Third, ensuring that all long-term care insurance sales are done in an appropriate and suitable manner. The first, solvency, is one of the most important responsibilities of the State insurance regulator; it's to ensure the solvency of the company that is doing business in the market. Over many years, State insurance regulation has developed a solvency regulatory system grounded in each of the States, and coordinated through the National Association of Insurance Commissioners. This has served insurance consumers well. It is my responsibility, as the insurance regulator of Wisconsin, to ensure insurance consumers are protected from poor business decisions made by those few companies so that obligations under their insurance contracts are fulfilled. This preventative approach to regulation--early detection of potential financial difficulty--is by far the best way to achieve this goal. So, to that end, State insurance regulators have developed a very sophisticated financial analysis system, along with an insurance company financial database that is second to none. Many of the problems we see today are the result of older long-term care policies sold when there were insufficient regulations in place to address these problems. Today, the regulatory structure of long-term care insurance has evolved, and the market seems to have stabilized. The newer long-term care policies are sold at a more realistic, and thereby more suitable, price. In identifying the stabilization of premium, some insurers in the nineties priced primarily for market share, and offered the least expensive policies available. However, when claims started to come in beyond what they priced for, these insurers had to raise their prices to cover the claims. In some instances, significant price increases were imposed. In fact, some insurers dropped out of the market entirely by selling their business to other long-term care insurers, while others simply stopped issuing new policies. Finally, a few companies became financially hazardous, and more drastic regulatory action was taken to protect the policyholders. Recognizing the problem of underpricing early on, State insurance regulators, working through the NAIC, developed rate stability standards and protections against premium increases. Examples include requiring insurers to actuarially certify that the rates they file will not--under moderate conditions-- increase over the life of an insurance policy. If premiums rise above a given level based on the age of policyholders, for a majority of policyholders, the company is required to file a plan for improving the administration and claims processing. If an insurance commissioner believes that a rising rate spiral exists, he or she may require a company to offer policyholders affected by the premium increase the option to replace their existing policies with comparable ones being sold. As a last resort, the Commissioner can determine that a company has persistently filed inadequate initial premium rates and may ban the company from the long-term care insurance marketplace for up to five years. The question of suitability has always been an issue with these products. In response to suitability concerns, many States in the NAIC developed suitability standards, and processes, to minimize unsuitable sales of long-term care insurance policies. In the State of Wisconsin and with many other States, we always emphasize never to buy long-term care insurance in a vacuum. It should be part of a much larger look at your retirement needs. As we move forward, State regulators will continue to carefully monitor the market. Just last year, the Senior Issues Task Force at NAIC did a data call of 83 percent of the market, which included 23 of the largest individual long-term care insurers. This survey indicated that the long-term care insurance market has shown some growth, especially with regard to comprehensive coverage products that provide insurance for both institutional and non-institutionally based care. The data also showed that claims handling problems-- although increasing in absolute numbers--currently do not appear to be statistically significant. We did convene a subgroup that is working on an independent review model that would provide the consumer with a very good tool--when they face claim problems--that triggers an independent review of the claim before them. As we look at the other issues surrounding long-term care insurance, we feel--I feel--that the Federal Government can play a role. You have control over the tax-qualified long-term care insurance policies, and there is also the Long-Term Care Insurance Partnership Program. As I look at the bill that you've introduced today, I think it's appropriate that the Secretary of Treasury, and the Secretary of the Department of Health and Human Services review all subsequent amendments to the NAIC long-term care insurance models to determine whether they should be required for tax- qualified and partnership policies. I appreciate that your bill sets forth a process for accomplishing a number of these goals. You also recognize the value of State regulatory authority over long-term care insurance as well as the significant impact of NAIC models developed in collaboration with all of the interested parties. I know the NAIC will look forward to reviewing your proposal much more closely as it moves forward. Thank you for the time. [The prepared statement of Mr. Dilweg follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] The Chairman. Thank you very much, Mr. Dilweg. We'd like to hear now from Ms. Cutter. STATEMENT OF CAROL CUTTER, CHIEF DEPUTY COMMISSIONER, HEALTH AND LEGISLATIVE AFFAIRS, INDIANA DEPARTMENT OF INSURANCE, INDIANAPOLIS, IN Ms. Cutter. Thank you, Chairman Kohl and Ranking Member Martinez. I appreciate the opportunity to speak today about regulation of long-term care insurance in terms of what Indiana's experience has been. As you know, Indiana was one of the original four Partnership States that were established back in the early nineties to allow folks to buy long-term care policies and protect their assets from Medicaid recovery if they did exhaust the benefits of their policies. That was implemented under then-Governor Evan Bayh who, I understand, is a member of your committee. Obviously, there was a need for some self-responsibility for those persons who could afford to take care of their own expenses for either long-term care at home, or in an assisted living facility, or in a facility of some sort. I believe that's why we had that program implemented, was to encourage folks to do that, knowing that those who can't afford to protect themselves against those sorts of expenses are the ones who should have access to the Medicaid funding that the Federal Government does provide. In Indiana, our Partnership experience has been very good. During the 16 years that we've sold these policies, we've written over 45,000 of them. We've only had about 72 complaints during that 16 years, either on a rate increase, or on a claim issue of some sort. I'm sure there's all types of anecdotal information out that you've already heard about problems that folks have had with claims with long-term care. But I want to assure you, at least in Indiana, our long-term care claims are not as serious in terms of consumer complaints, as many of the other types of insurance products that we sell in the State, like auto insurance or homeowners' insurance. So, we believe that relative to the marketplace there, we're doing a really good job. Obviously we would like to encourage self-responsibility in Indiana. We're going to conduct a massive marketing campaign this fall for consumer awareness, because we believe that private insurance is a tremendous option to have in terms of allowing people to protect themselves from these--they can be very terrible-- expenses to which you've already alluded. In general, Indiana supports the long-term care model regulation that the NAIC has developed. There are multiple features of that model that we believe would be helpful in terms of disclosure requirements, possible standardization, standards for marketing, that sort of thing. But there is a concern that we have about the rate stabilization piece that comes from our health actuary, who has had multiple years of experience with health insurance products of all types, actually worked here at the Federal level back in the seventies for what was then called the Health care Financing Administration, and is now at CMS. He was the director of the division for actuarial creation of Part A and Part B of Medicare. He served in several other departments of insurance, and he's worked for private consulting firms like Deloitte, so I value his expertise and his counsel on this particular piece of the model as it concerns rate stabilization. Currently, in Indiana--as in most States that follow any sort of standards that have been established by the NAIC--we have what is called a 60 percent loss ratio standard. This means that before an insurer, such as Genworth, can come to us and ask for a rate increase, they have to prove to us that they have spent 60 cents, or more, out of every dollar that they've collected in premium for claims over the lifetime period of that policy, however many years that policy form itself has been sold. Until they do that, they can't even ask for a rate increase. A lot of the actuarial information that we're getting from carriers now is what we call very highly assumptive driven. For instance, they could say, ``We've had this particular policy on the marketplace for the last 12 years. We are now at a 79 percent loss ratio, which means we qualify to ask for a rate increase, because we're over the 60 percent threshold. Based upon that 79 percent loss ratio, we predict that over the next 20 years, or the next 10 years, or the next 15 years, we're going to have similar loss ratios, because of that same percentage increase in terms of claims that we're going to pay out. Therefore, we deserve to have a larger rate increase.'' Our concern is, that under NAIC's rate stabilization model, Indiana's ability to control that would be taken away. There is an exceptional increase provision in here that says if I, as an insurer, can actuarially prove to you, the Department of Insurance, that we have a 70 percent loss ratio, then with those certain attestations, I'm automatically going to be allowed to have that. We very carefully scrutinize our rates that come into our Department--for all of our products--but particularly for long- term care. We hold carriers--if they have been sitting for four or five years and have had incurred claims that put them into a deficit ratio on their dollars, then our question to them is, why didn't you do something about it sooner? We don't allow them, necessarily, to have the 40 or--well, we never approved a 40 percent increase, we just don't do it--because we believe the consumer needs to be protected so that they can continue to have the protection of that product, and we're not going to benefit the company because of any mismanagement or poor decisions on their part in terms of pricing. It's our opinion that, under this model, we would lose the ability to behave that way, and that concerns us. Thank you, Senator. [The prepared statement of Ms. Cutter follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] The Chairman. Thank you so much, Ms. Cutter. Mr. Stinson. STATEMENT OF THOMAS STINSON, PRESIDENT, GENWORTH LONG-TERM CARE, GENWORTH FINANCIAL, RICHMOND, VA Mr. Stinson. Thank you, Chairman Kohl and Senator Martinez, for giving me the opportunity to testify today on behalf of Genworth Financial. Genworth provides retirement income, life, long-term care, and mortgage insurance coverage to over 15 million customers in 25 countries. As one of the pioneers of long-term care insurance, we have become a leader in the industry, providing services to over 1.3 million policy holders. Today, I'd like to speak to you on the following four topics of interest to the committee. Our insurance offerings, including the State Long Term Care Partnership Program; our framework for financial stability; Genworth's views on the intersection of healthcare reform and long-term care financing; and last, some brief comments on our support the legislation proposed by the Chairman. Long-term care insurance is important for several reasons. It generally provides peace of mind to policyholders and their families. For many Americans, it also represents a critical part of a sound retirement plan, providing quality care and care coordination services, and preserving funding sources for future family needs. The public/private State partnerships for long-term care are a joint solution, positioning private insurance as the primary payer of long-term care expenses. This program is helping consumers receive needed care, and at the same time allowing States to achieve cost savings to alleviate the already strained Medicaid system. In fact, the fundamental premise of the Partnership Program works--2009 data indicate that only 1 in 1,000 Partnership- qualified policyholders exhausted the full benefits of their insurance policy, and accessed Medicaid. That means private insurance can be used to preserve and protect the viability of Medicaid. As these Partnership Programs have now expanded to 30 additional States, we know that most purchasers are from middle-income families. This portion of the population is unlikely to have the considerable assets necessary to self- finance their long-term care needs, but wants to maintain a modest level of assets while receiving quality services. In addition to the State Partnership Programs, we are proud to participate in the ``Own Your Future'' public awareness campaign. The campaign helps to educate millions of Americans about the importance of advance planning for their own long- term care needs. We strongly encourage this committee to continue the support of this very important public education and awareness campaign. Next I would like to discuss the risk management framework that Genworth uses to maintain our financial viability. As the largest and oldest long-term care insurer in America, we take seriously our responsibility to remain strong financially, and to fulfill our commitment to our policyholders. We do so by managing our company within a responsible risk management framework. In fact, it has allowed us to pay out over $6.5 billion in long-term care claims for care in nursing homes, assisted living facilities, and in the home. Genworth pays over 95 percent of all of the long-term care insurance claims submitted. Turning to the intersection of healthcare reform and long- term care financing we believe it is essential that we differentiate acute care from long-term care. Studies show that every American will need acute care during their lifetime, while only half of Americans will need some form of long-term care. So, in exploring policy solutions, a universal solution may be appropriate for acute care, while we believe a more targeted approach would be more prudent for long-term care. For example, wealthy and many middle-class Americans can either self-finance or purchase private long-term care insurance. Meanwhile, the most vulnerable will be protected by Medicaid. This leaves a fourth, or tip-over portion of the population; they are the segment of the population that has limited income, and thus generally can not include long-term care planning in their overall retirement strategy. But they can be reached by a targeted program similar to the State Partnership Program, helping them avoid spending down their assets and tipping into Medicaid. Finally, Mr. Chairman, we commend you on proposing the ``Confidence in Long Term Care Act of 2009,'' legislation that supports consistency of oversight, transparency of information, and ensures the protection of our senior population will provide greater confidence and encourage families to proactively plan for their long-term care needs. We stand ready to work with you as it moves forward in Committee. Thank you very much. [The prepared statement of Mr. Stinson follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] The Chairman. Thank you very much, Mr. Stinson. Finally, Bonnie Burns. STATEMENT OF BONNIE BURNS, TRAINING AND POLICY SPECIALIST, CALIFORNIA HEALTH ADVOCATES, SCOTTS VALLEY, CA Ms. Burns. Thank you, Chairman Kohl, and thank you, Ranking Member Martinez, for giving me the opportunity to testify at this hearing today. We appreciate the committee's interest in protecting consumers, and increasing the quality of long-term care insurance products. As you noted, Senator Kohl, long-term care is unpredictable, expensive, uncoordinated, and not integrated with the healthcare system. As part of health care reform we would like to recommend that seniors, elders and people with disabilities, should have a seamless transition to long-term care services, coordination with medical care, and a support system to help them find and access the services that are best suited to their needs. Long-term care insurance pays for a very expensive kind of care that over half of all people 65 and older may need at some point during their lifetime. So, it's not unreasonable to expect that insurance coverage for this kind of care would be expensive as well. However, competition for this product often depends more on the size of a premium than on the actual benefits, because these products are so difficult to compare with each other. Many policymakers believe that if long-term care insurance were more widely spread, it would result in substantial Medicaid savings, but we won't know if that's true for many years. In the meantime, Medicaid savings will be part of every marketing effort to sell this type of product. Long-term care insurance is a niche product; poor people can't afford it, and don't need it, while higher income people can afford to transfer their risk to an insurance company if they are in good health. But the middle class is most at risk for spending down to Medicaid, and those individuals may pay more in total premiums than they have in non-housing assets, or than the benefits that they will receive. They may buy insufficient benefits and build into a policy a larger co- payment amount than they expect as the cost of care increases. Failing to buy inflation protection will compound this problem, leaving a consumer with only a small amount of their future care covered by an insurance payment. Buying an insufficient benefit, and failing to buy inflation protection, are decisions that are made when the policy is purchased, and often trades off the cost of those benefits for an affordable premium. Whether a policy will perform as expected decades later, depends on the quality of the product purchased, whether the policy benefits can keep up with inflation, or lose value each year, whether the premiums consumers initially agreed to pay remain stable over several decades, and whether the individual still has those benefits decades later when care is needed. If the goal is to have more people buy a commercial product to pay for long-term care and relieve pressure on State Medicaid programs, then the benefits must cover a substantial amount of the cost of care when it's needed. A long-term care insurance policy is not without its own risks. Recently a flurry of rate increases have been imposed, including a pending rate increase for the long-term care insurance program for the Federal family, and even by companies that had never imposed one before. Here are two examples: Mr. B.'s premium jumped from $1,874 annually, to $4,050. He has paid just short of $31,000 in premiums during the last 11 years and he's now 80 years old. Mrs. C. is also 80. She saw her annual premium jump to $7,453.56. She has paid the company $47,309 in premiums during the last 11 years. It remains to be seen whether the NAIC's rate stability requirements will result in less premium volatility in the future for consumers buying these products today. In the meantime, long-term care insurance policies will continue to be marketed as level-premium products, with agents telling consumers that their premiums can't be increased based on their own age or health. While this is true, this misleads consumers about the potential for future rate increases when a company's claims experience is worse than expected, or their investment goals are not met. A Partnership program, in theory, allows consumers to shelter certain amounts of their personal assets from the State Medicaid program by buying a long-term care insurance policy that protects one dollar of assets for each dollar of insurance benefits paid out. A 2007 report found that Partnership policies were mostly purchased by upper-middle income and higher-income people who were less likely to qualify for Medicaid. The majority of those purchasers had assets greater than $350,000 and annual incomes of $60,000 or more. Insurance companies and their sales agents clearly have a compelling and valuable marketing advantage with the Partnership program. An insurance policy endorsed by the State makes it instantly both more attractive and credible. Sales opportunities for these products begin immediately while the effect, if any, on State Medicaid programs will not be known for many years. Substantial numbers of older consumers can not qualify for coverage because of their health, or they can't afford long- term care insurance. Convinced that the high premium cost is the greatest barrier to buying long-term care insurance, companies often offer less expensive base policies to working- age consumers in the group market with the cost of inflation protection pushed out into future years through a guaranteed future purchase option. Seventy-two percent of group purchasers select a future purchase option, an option that provides guaranteed insurability to exercise this option later at higher attained- age rates. This is also a limited option that can only be rejected a few times before the offer expires completely. Alarmingly, only 37 percent of the future purchase options that were extended in 2008 to people with group coverage were accepted, yet this option leaves consumers at risk of steadily building an unaffordable co-payment liability that will come due when they need care. The Federal Government established a regulatory floor of standards and consumer protections, first with HIPPA, and then in the Deficit Reduction Act (DRA) for the Partnership policies. Federal law could go further by requiring NAIC to periodically review and incorporate the strongest standards and consumer protections that are found in any State. Federal law could establish a working group composed of regulators, industry and consumer groups to incorporate those standards into the NAIC models, and require a periodic Federal review to decide when recent the NAIC standards should be incorporated into Federal law. Such a process would capture the best of State laws and enhance Federal law. I understand you've done some of that in the bill that you're introducing today. It's important to remember that long-term care insurance is an investment not just in the product, but in the company selling it. Making sure that adequate consumer protections are in place will help ensure that insurance companies and their products live up to their promises in the future. Thank you for the opportunity to testify today on this important topic. [The prepared statement of Ms. Burns follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] The Chairman. Thank you very much, Ms. Burns. Dr. Rowland, what guarantee do consumers have that a long- term care insurance policy purchased today will indeed deliver the benefits for them 20 or 30 years from now? Dr. Rowland. Well, I think you hit on, perhaps, the most serious question in someone's decision to buy a long-term care policy--and the ability to deliver on those benefits. The guarantees of what our healthcare system--what our long-term care system are going to look like in 20 or 30 years--are not there. We don't know what kind of technologies will be available, and what kind of other options individuals may want to use, for their long-term care benefits. So, I think one of the challenges, here, is really this time lag between when you decide to purchase a long-term care policy, and when you might use it. I think the guarantees are extremely limited, and that's where consumer protection is going to be very important. The Chairman. So, I hear you saying that there really are no concrete guarantees that-- Dr. Rowland. Well, no guarantees that the policies purchased today will meet your needs when you need them, 20 to 30 years down the road. Especially, there are problems if individuals can't continue to pay their premiums. They may pay premiums for 10 or 12 years, and then have income limits and other problems that prevent them from continuing, so that by the time they need long-term care services, that policy may no longer be guaranteeing them anything. The Chairman. Do--anybody on the panel disagree with that? I mean, it's a pretty basic question and we hear Dr. Rowland with a very skeptical kind of an answer. What about you, Mr. Dilweg? Mr. Dilweg. I think it raises the major point, as Dr. Rowland said. The issue, though, is, are there abilities to look at new benefits throughout the life of the policy? The problem that we're having with some of the older policies is that they primarily were just locked into nursing home care, and as we know, that has changed significantly. So, are those options there? How do the various cost factors factor in? But, I do think it shows, really, the shortcoming of the product; we continually emphasize that you should not make this decision in a vacuum. You might be better off, not necessarily in the past four months, with a mutual fund, with money in savings, or some other investment vehicles that may treat you better in the future. So, do not make this decision in a vacuum, and we continually emphasize that. The Chairman. Mr. Stinson? Mr. Stinson. Yeah, just a couple of other points I'd like to add to the commentary. One is, obviously, I have a contractual obligation to the policyholder to fulfill all of the benefits that are in that contract. As Mr. Dilweg pointed out, the policies that we sell today provide significantly more flexibility in terms of how the benefits can be paid and where they can be paid. Policies I sold from the mid-seventies to the mid-eighties were nursing home-only policies. As the care environment has evolved, that's where you've got some of the friction from the older policy owners. But the policies I sell today have tremendous flexibility in terms of how those benefits can be applied to the consumer. One of the other things that I'd like to point out is the fact that our persistency on this product is incredibly high, meaning the number of policyholders that retain the policy and don't voluntarily lapse it, compared to life insurance or annuity contracts is about 1 percent, so the persistency is 99 percent of the people on the annual basis retain this coverage and pay it until, either they die, or they need benefits. The Chairman. So you--to be pretty stark about it, or to be pretty optimistic about it--you don't entirely agree with Dr. Rowland? Mr. Stinson. I do not, with regard to the policies that we're selling today. Again, I have a contractual obligation to the policyholders. I think the training that's provided today to our agents that are selling the contracts, is well explained. We have NAIC obligations to provide disclosures on what the policies do and don't cover, and in terms of my responsibilities, again, tremendous flexibility within the contracts to allow the consumer--as the care environment develops over the next 20, 30 years, to be able to use that policy within that context. The Chairman. So you regard the long-term care insurance policies that you're selling today as a reasonable, pretty good buy for the people who are buying them? Mr. Stinson. I do. The Chairman. Well, what about it, folks? The man looks like a man of integrity. Ms. Burns. Senator Kohl, if I might? Mr. Stinson. My mother owns a policy. The Chairman. All right, Ms. Burns, do you want to make a comment? Ms. Burns. I did. Part of the problem with this product is the difficulty with definitions, and in looking forward and trying to figure out how a policy would adapt to future changes, is one of those issues. For instance, some companies sell something called an Alternate Plan of Care, which is totally undefined in a policy and yet leaves the impression with consumers that they'll be able to bargain with the company for various benefits, later that are not covered in the policy. We've had a number, of cases in our state involving that particular benefit, and the inability to use it. It's completely within the discretion of the company to decide what that benefit is, and whether or not they're going to allow it to be used. I think standardized definitions of many of the features of a policy might go a long way to helping consumers get the benefits that they need. But it is a difficult prospect to think about how to make one of these policies adapt to future needs and future technology. The Chairman. Is that a fair statement, Mr. Stinson? Mr. Stinson. Yeah, I would add that--the flexibility that was provided in this alternative plan of care--if the policyholder presents their claim in any one of the defined terms within the contract, I'm obligated to pay that claim. We added these alternative plans of care, because the evolving care environment. There was no such thing as a, you know, residential care facility 20, 30 years ago. That's some of the problems that we ran into. So, I have specific definitions of where I must apply the benefits of the policy. Nursing home definition, assisted living facilities, and the care that I can provide in the home. As I look forward 20 to 30 years from now, those things that I can think of in defining the contract, I can't necessarily predict everything, so the insurance companies have provided this flexibility of an ``alternative plan of care'' that says, if something is on the horizon that I can't define today, we want the insured to have the ability to get access to the benefits of the policy. Ms. Burns. I wouldn't disagree with that, but I do think that this is company specific. There are some companies who are better at doing what they do than other companies. I think part of this is a problem between the various ways that companies look at this product and these benefits. In addition state regulators have some effect on this issue. The industry is not homogeneous. They don't, all of them, do the same thing in the same way. Some companies are better than others, some companies are worse than others. The Chairman. OK. Mr. Dilweg. Mr. Dilweg. I think it raises another point where this really, has become more of an individual product. It's a very complicated product, and the key is making sure the agents are educated. I think standardizing language also helps the individual navigate between the various companies and would be a good step. So, just the delivery of the product as it runs through the agents where you have the individual trying to make the decision on their own and may want to look outside of the agent. It's important to recognize how it is delivered. The Chairman. Ms. Cutter. Ms. Cutter. Thank you, Senator. A couple of comments. There are things in these contracts, and to Mr. Stinson's point, an insurance policy is a legal contract. That company is bound by law to provide the benefits that are stipulated within that contract. What happens if--to Commissioner Dilweg's point earlier, when he talked about financial solvency--it's each State's responsibility to monitor, very closely, and scrutinize financial solvency of each of the domestic companies that are within their borders. We have had a couple of situations--not in Indiana, although the holding company was in Indiana, but the actual base company was in Pennsylvania--that sold a lot of long-term care coverage and didn't price it well. One of the things that Bonnie referred to earlier that I, as an agent, absolutely object to is a particular company that's been so problematic and sold what are called ``five-year rate guarantee'' policies. They went in and told consumers, ``Your rates aren't going to change for five years,'' and they didn't. They held to that promise. The problem is, I've spoken to thousands of people over the years and I can tell you, if you say ``guarantee'' to an individual, that's all that stays in their head. They aren't going to remember that five years from now that's going to change. So, when the change occurs, they believe they've been wronged or harmed, because they believed that it was guaranteed forever. There is no insurance product in the marketplace--no car insurance, no homeowners' insurance, no term life insurance, no health insurance--that can say to you it's not ever going to go up. They can't say that. So, consequently, long-term care is no different in that regard, and that's why I think the ability for States to really scrutinize these rate increases, or the initial rates, that are submitted by companies is just a critical, critical step in terms of trying to force them to be more responsible in their initial submission of rates, in terms of them being adequate. One of the things that our actuary says to me all the time is, ``A long-term care policy is what is known as an indemnity policy, which means as an insurance company, I'm going to pay you this when this happens.'' So, if you go into a facility, or you need care--and my husband and I are covered under a long- term care policy that I bought 10 years ago, it's $200 a month, it's not expensive, and it covers us for three years, and it's got an inflation-protection rider on it, and we started out at $150 a day. Well, right now, in Indiana, the average nursing home cost is $110 dollars a day. So, I'm already ahead of the game, thank goodness, because of the way these products are designed. But the point being that, as I go forward into the future, with the inflation protection in that product, I know that I'm going to be able to keep up with--and I hate to admit it, but it's not a Partnership product, so I don't have asset protection--but I know that I have the ability, at least, for two or three years--because it is a three-year payout--to protect us and be independent in our decisions about what kind of care we're going to receive, and where we're going to receive it. I think that's critical as a part of the insurance world, in terms of how consumers can help make these decisions for themselves, and not always look to you folks to be handing out dollars for them, because they haven't maybe been quite as responsible for themselves as they should have been. The Chairman. Well, that brings up the next question to the panel, do you believe that long-term care is fundamentally an insurable kind of a product, an activity, or do you believe it is more appropriate to cover these services through a societal program, like Social Security or Medicare? Mr. Stinson. Mr. Stinson. I believe it is an insurable event that insurance companies can predict. Our actuaries are basically looking at two variables, here, instead of just mortality on life insurance contracts--they are tracking mortality and morbidity. We believe that the morbidity patterns are insurable. We can pool the risk, and have an efficient insurance model that ultimately, everyone is paying premiums in. Again, about half the people that buy our products ultimately will use the products, but we believe it is an insurable event and there are actuarial models that can predict the morbidity trends, as well as the mortality trends. The Chairman. Yes, Dr. Rowland? Dr. Rowland. Well, I certainly believe that there is a role for private insurance, and for trying to provide that for individuals. But, I think--and maybe I studied the health insurance side of our health care system too long--that there are always going to be individuals for whom this kind of an option is not affordable, and not available. So, I think that the partnership that now exists between Medicaid and private insurance is probably more appropriately a partnership that could exist between Medicare and private insurance where, at least, some basic benefits were provided. Individuals would have that protection through the social insurance mode, and then could supplement that, or add to it with private insurance. That may be a more appropriate model for how to go. The Chairman. Mr. Dilweg. Mr. Dilweg. I would agree that there's definitely an insurable interest, an insurable event that you can define, triggers that can be defined. In the end, I think, by having some sort of partnership, you have a more efficient use of money, and a spreading of the risk, by treating part of long- term care as insurable. The Chairman. Ms. Burns. Ms. Burns. I agree that there's a role for long-term care insurance. I'm not sure we know how big that role is yet. There are a number of issues involved around this topic. One is, the benefits people buy when they first buy coverage, and whether or not they're trading off the cost for benefits that are not going to be sufficient later. This is particularly crucial in the group market, for working-aged people who buy a future purchase that allows them to buy option inflation later, at an increased cost. As time goes on, that cost becomes greater and greater, and they may then not take exercise that option, and then eventually lose it. So, it's an issue of, not just about what people purchase, initially but whether it's suitable for them, or not, and whether it will do what they expect it to do, years or decades later. It's everything that happens between purchase and use. As I said before, companies are not homogeneous, they do different things, and they do them in different ways. So, someone may buy a product that was a perfectly affordable for them when they were 60 years old, and when they are 75, it may not be. They may, then, be forced to drop it. So, there are a number of things that happen along the way, making it a complex topic. I think that there are a lot of these pieces we don't quite know, yet, and that there's still a lot of work to be done. But helping people compare these products--apples to apples, and not apples to peaches--would certainly help by standardizing some of the language within the policy, so that people have a better grasp of what they're buying, and they're not buying just based on price. We buy based on price for almost everything else we purchase. So, it's not unreasonable to think that people would do that with long-term care insurance. Buying the lowest priced policy--at least in the recent past--has been buying a rate increase later that some people couldn't afford to pay. The Chairman. All right, which leads us, maybe, to the next question. Mr. Dilweg, how did policies sold during the eighties and nineties differ from policies sold today? Why did they price their policies so low at that time? Do you see any danger in underpricing today in the group market? Mr. Dilweg. I think Mr. Stinson addressed this, as well, I think we both spoke to it. There really were problems, in a sense, insurers were trying to buy up the market and under pricing the product. Some were locked into just nursing home care, you did not have a lot of the changes that have been made at the NAIC as far as how products should look--the flexibility, the attempt to try and get stability. I do think it's important that a lot of changes we've made since 2000 be reflected in the Partnership plans through Health and Human services. Really, what your bill is attempting to do, I think, is a very good step to making sure that that flows through both Medicaid and the tax-qualified entities, as well. So, I think there's been a lot of progress, and I think you're going to see just as much progress 10 years from now, in the regulation of these products. The Chairman. Mr. Dilweg, what are some of the high-priced sales tactics that occur in selling long-term care insurance? Mr. Dilweg. I think what we saw--and, it almost reminds me of our conversations on Medicare Advantage, Senator--as you introduce a new product, you have the agents--and this goes back a ways--but you have the agent really wanting the person to sign on the dotted line before they leave the house, not properly identifying what a guarantee is, things like that which may come back to haunt the individual. I think we've tried to spend a lot of time on agent education. These are very complicated products, and we need to continue to do that. But one suggestion here today, really, a standardization of definitions, I think, would be very helpful. Then someone can compare Genworth to Prudential, to whomever else. When you think about long-term care, you think about healthcare, but it's not typically healthcare companies who sell these. It's typically life insurance companies that sell these. So, it's really a--when you think of the companies that sell these, it's a unique product in how it's lodged in the corporate structure, as well. Mr. Stinson. Just a couple of remarks on the-- The Chairman. Mr. Stinson. Mr. Stinson [continuing]. On the--you'd asked the question on the rates of yesteryear and what the insurance companies are doing today. Two perspectives, one is, when the companies were filing the products, say, 15, 20 years ago, there was generally, I think, at the State level, the sensitivity to overcharging seniors for protection products. That has changed. Today when we're working with the State Departments, there's much more focus, State by State, on rate stability. Meaning, make sure you're charging appropriate rates for this type of coverage over the long term. Commissioner Dilweg, I think, addressed the rate stability component of that. The training requirements, and one of the things that's suggested in the bill, which we support, again, expansion of the NAIC model regulations, as well as the Partnership plans. Partnership plans, typically, at the State level, come with additional training requirements for our agents. So, when we introduce a Partnership plan into a State, the agents typically have another 4 to 8 hours of training, and they understand, then that training requires them to understand the intersection of Medicaid, Medicare, and long-term care in the private market. So, again, the expansion of those training programs, we think, is a good thing, as well as the adoption of the model regulation and the Partnership Program. Again, from a rate stability perspective, our focus today, very much, is on future rate stability. The increases, perhaps, that Bonnie mentioned--one of the things that I'd like to point out is from an insurance company's perspective, if I'm forced to raise rates 30, 40, 50 percent, it's very difficult for me to stay in the market. I think you'll find that most of the insurers that are selling products today are not in that category of doubling rates on their insured block. This is a relatively young product, it's only been around for 35 years. There was a sorting out, a number of carriers have left the market. Those who are actively selling a product today are not interested in raising rates on their consumers. The Chairman. Ms. Burns. Ms. Burns. I wanted to speak to the issue of the Partnership for a moment, because we had our experience with that program in California early on, as one of the four original States, and we saw a lot of marketing issues around that product until we imposed some pretty serious training requirements. The NAIC model training requirements are half of what we require in California. We require an 8-hour training on long- term care first, and another 8 hours for Partnership, because we think that the combination of a private commercial product with a State's public benefits program is a pretty serious issue, and needs to be carefully explained to consumers. The documents that agents use need to be drafted by the States' Medicaid program and not documents that agents and companies design themselves. That is one of my concerns about the expansion of the Partnership Program across the States. There's not a lot of consistency between the States about how information about the State Medicaid Program is being handled. I think that promises are being made in the Partnership States that are never going to be kept, because the agents themselves don't understand the integration between a commercial product and the State Medicaid program. They don't understand, how those programs work, so they're not able to explain them well to the people that they're selling insurance to. Another issue is people who live in an area that borders another State. Agents may be selling in both States with a Medicaid program that is different in each States. As you know, Medicaid is not consistent across the country, it's different in every single State. Our concern is how that's being explained to consumers and what they will know about how Medicaid works in their own State, and what they will know if they move to another State, where Medicaid may be different. Having asset protection through a Partnership Program does not mean that you will not have to meet the eligibility requirements in the State that you live in when you apply for Medicaid. Many people are misled about how the eligibility for a State Medicaid program interacts with asset protection. The Chairman. Yes, anybody else on that issue? Yes, Ms. Cutter? Ms. Cutter. Yes, Senator. I would just like to reinforce a little bit of what Bonnie had said about training. I think you'll find that in the four original Partnership States, we have been extremely serious in terms of agent training. We have, first of all, you have to go to 40 hours of classroom training in Indiana in order to get an insurance license, at all, to sell accident and health products. In addition to that, we have an 8-hour requirement for long-term care, an additional seven hours for Partnership, specifically. Every two years, that individual has to have five hours for Partnership long-term care, specifically. We don't authorize agents out of State to sell Partnership products to anybody in Indiana. You have to live in Indiana and come to Indiana and be a resident of Indiana to sell Partnership products in Indiana. I would assert that our agent training in that regard, and the communication that those agents take very seriously with their consumers--if the DRA, Deficit Reduction Act--which is expanding the Partnership products in the other States. As long as they maintain similar standards, I think, to the original four states, I think those communication issues--to Bonnie's point--you know, when there some disclosure processes that are standardized, would be helpful. We do not allow any agent to deliver any long-term care advertising material that we haven't approved at our Department of Insurance. The Chairman. Another question for you, Ms. Burns. In your testimony you said that no specific roadmap exists to help patients and caregivers navigate the challenges of long-term care insurance. In your judgment, would a website that provided comprehensive information abut policies and their features be useful to consumers and organizations like yours? Ms. Burns. I think such a website would, help people navigate the long-term care system in a State, as well as help them to sort out some of the differences between long-term care insurance products. The Chairman. OK. Any other comments on this subject? It's been very illuminating hearing, you all have provided a lot of information. Mr. Stinson, go ahead? Mr. Stinson. Yes, Senator, just building on your ``Compare'' website, the idea in the bill, which I think is great. You know, Bonnie mentioned, some companies do it right, some companies may not. We wholeheartedly endorse transparency. I think putting information out there about claims-paying ability, and our claims history, and rate stability and those things, I think, is a good thing for consumers. I think it would give them an air of confidence, I think it would instill more of a practiced approach to thinking about senior planning, as opposed to just wading in, and having a lot of the anecdotal information that you find in the press, and then scaring people away from even thinking about it. So, I think the suggestions in the bill, and the proposals, are very solid, in terms of having that transparency available for consumers. The Chairman. Yes, Dr. Rowland? Dr. Rowland. Senator, I would also say that I know Senator Wyden was very involved in helping to get the standards set for Medigap policies, and for the marketing of Medigap policies. I think one of the instructive ways one could look at this is to look at, the standardization of some of the choices one has around Medigap now, and the way in which that has worked to help consumers to make more informed choice based on things other than just price. Medigap regulation's would be a good example to continue to look at, especially, in developing a website. The Chairman. Thank you, yes. I agree with that. Well, thank you all for being here today, you'd shed a lot of light on a very important topic, and thank you for your time in imparting your knowledge to us. Thank you so much. [Whereupon, at 3:12 p.m., the hearing was adjourned.] A P P E N D I X ---------- Sean Dilweg Responses to Senator Mel Martinez Questions Question 1. What percentage of seniors in your state would need to have long-term care insurance to make a substantial impact on state long-term care financing? Do you support increasing the number of seniors with long-term care insurance? If so, how do you propose increasing the number of seniors with long-term care insurance to reach that threshold? Answer. We could not find an analysis of the number of long-term care insurance policies that would be needed in Wisconsin in order to have a substantial impact on state long- term care financing. I am not opposed in an increasing number of long-term care insurance policyholders in Wisconsin so long as the policies are sold in a proper manner and are suitable, affordable and meet the needs of the individuals who purchased them. As I stated in my testimony, long-term care insurance should only be purchased as part of an overall financial plan where the person's financial situation is thoroughly assessed and all options in funding a person's long-term care needs are considered. Question 2. What does Wisconsin see as the primary barriers to seniors for purchasing long-term care insurance? Answer. The cost for long-term care insurance can be substantial, especially if it is purchased at older ages. Question 3. The Kaiser Family Foundation report on long- term care insurance found that premium cost is the biggest obstacle to purchasing long-term care insurance, how do you propose lowering the cost of premiums so that more people buy long-term care insurance? Answer. I do not see an insurance regulator's role as lowering premium, if the premium accurately reflects the expected cost and especially if the lowered premium result in unsuitable sale and adverse solvency issues for the market. The premiums charged with any insurance product should reflect the risk that is being assumed by the insurer. The greater and higher cost of the risk, the greater the premium to the policyholders to spread that risk and cost. People who cannot afford to pay the cost of long-term care insurance premiums should not purchase the coverage in the first place. A properly rated long-term care insurance product has what I believe to be a built-in suitability standard; the cost of the premium. The problem comes when an under priced product is sold that needs a substantial rate increase after it is sold. There will likely be many people who bought the product at its initial price who can no longer afford the policy at its new price. The current NAIC model attempts to address this problem by requiring the insurance company's actuary to certify that the rates have been developed so that they will not increase over the life of policy under moderately adverse conditions. Question 4. Has the state of Wisconsin adopted the National Association of Insurance Commissioners (NAIC) most recent model law and all updates? Are there any NAIC recommendations, provisions, updates, rules, models, or other language that the state of Wisconsin has declined or failed to adopt? If so, why? Answer. Yes. We have incorporated all of the NAIC's long- term care insurance model provisions in our regulations. We have made a few changes to the NAIC provisions in our law that we believe have resulted in stronger consumer protections. Question 5. Is there empirical evidence to show that the NAIC long-term care insurance Model, which has been adopted by several states, has actually held long-term care insurance rates down or leveled them off? Answer. I am not aware of any such data or study. It is important to note that most of the premium rate increases we are experiencing today are from policies that were issued prior to any rate stability provisions in the NAIC model. Question 6. Does this Model allow states to continue with their own actuarial reviews using the current 60% loss ratio standard? Answer. Since the rate stability provisions contained in the current model are only advisory, states are free to use any standard in performing their rate reviews. The NAIC model contemplates no loss ratio at the initial filing. However, if rates are increased and the increase is not an exceptional increase, then the premiums collected prior to the rate increase must meet a 58% loss ratio test and any premium collected under the increased rates must meet an 85% loss ratio test. Question 7. Does the NAIC know that each and every state currently conducts an actuarial review of all long-term care insurance rates before approval? Answer. I am not aware that the NAIC has information that indicates all states conduct actuarial reviews of all long-term insurance rates before approval. Question 8. Does this long-term care insurance Model regulation allow states to examine long-term care insurance rates for future assumptive driven actuarial data? Answer. I am not familiar with the term ``future assumptive driven actuarial data.'' In any event, the Model does not prohibit a state from reviewing any data in connection with a long-term care insurance rate filing. Question 9. If so, does the regulation allow states to disregard those assumptions? Answer. Not applicable. Question 10. How does the ``exceptional'' increase standard protect consumers from future rate increases? Answer. The theory behind the current premium rate stabilization standards contained in the NAIC model is putting the company on record through an actuarial certification that the premium rates were developed so that there would not be a need for a rate increase over the life of the policy under moderately adverse conditions. This certification process was designed so that long-term care insurers would properly price their products at their introduction. Unless the company can demonstrate that a rate increase is needed as result of exceptional circumstances, a state can take punitive action on that company for the rate increase filing as outlined in the model. Question 11. What changes need to be made to this long-term care insurance Model to better provide consumer protections for both policy contract requirements and rates? Answer. I think we need to closely monitor the effect of the current rate stabilization provisions on rate filings. If we get a high number of rate filings under these provisions, they will need to be modified in order to achieve the stability in long-term care premium costs that we all want to see. We also need to determine whether minimum, best practice standards need to be developed for claims handling. Long-term care insurers are becoming increasingly more active in developing, implementing and monitoring a plan of care for their policyholders on claim. Insurers assist their policyholders in finding long-term care services and making sure that their claims are being properly handled. This results in an inherent conflict between claim levels and profits. We need to monitor the evolution of these practices and be prepared to codify minimum standards in order to protect those claimants from unscrupulous claim handling activity. Question 12. How do you see the increased group market for long-term care insurance affecting consumers? Answer. The group long-term care insurance market segment is the fastest growing segment of the market. This is primarily in the employer group market where the employer offers long- term care insurance coverage to its employees, dependents and, in some cases, family members such as parents. In most of these circumstances, it is my understanding that the employer does not contribute to the premium for long-term care insurance, it merely provides a facility for employees to purchase the coverage. I see this positively. Employers will usually screen coverage they are making available to their employees quite closely to ensure that it is meaningful coverage from a reputable carrier. In addition, there may be a premium break in group policies on premise that administration costs are lower for the insurer, thus reducing the premium to the customer. Question 13. Over the next 20 years, the number of Americans over 65 years old with Alzheimer's will increase by more than 50 percent. Because Alzheimer's is one of the few diseases requiring 24 hour care, how do you see the increased prevalence of this disease affecting long-term care insurance companies? Answer. Long-term care insurance policies are currently prohibited from excluding Alzheimer's disease from coverage. I assume that insurers have access to the same information we all do concerning the expected prevalence of the disease into the future and would include this as a factor in setting their premium rates. For those companies who fail to account for a factor such as this may run into financial trouble if they underestimated the cost in rate setting. Premium costs to policyholders could likely go up. Question 14. How does the state of Wisconsin coordinate the state Medicaid office and state insurance commissioner's office with the long-term care insurance company when a Partnership policyholder exhausts his policy's benefits? Answer. We do not coordinate with the State Medicaid office when a Partnership policyholder exhausts his policy's benefits. We have coordinated and will continue to coordinate with the State Medicaid office with respect to Partnership policy form approval and agent training standards and implementation. When a Partnership policyholder exhausts the benefits under the policy, the long-term care insurer is required to provide the policyholder with a statement indicating the amount of claim payments made under the policy as proof of asset protection when the person applies for Medicaid eligibility. That is a transaction between the person and the State Medicaid office. My office does not have a role in that transaction except if the consumer is having difficulty securing the statement from the insurer verifying the amount of claims paid under the policy. ------ Carol Cutter Responses to Senator Mel Martinez Questions Question 1. Has the state of Indiana adopted the National Association of Insurance Commissioners (NAIC) most recent model law and any updates? Are there any NAIC recommendations, provisions, updates, rules, models, or other language that the state of Indiana has declined or failed to adopt? If so, why? Answer. Indiana has not adopted the most recent model law for LTC that was updated in 2006. Indiana's primary concern with that model is the `rate stabilization requirement contained in that update. It is the considered opinion of our actuaries that the language in this model prohibits the Department from applying the same scrutiny and control over requested rate increases that we currently have. Question 2. Is there empirical evidence to show that the NAIC long-term care insurance Model, which has been adopted by several states, has actually held long-term care insurance rates down or leveled them off? Answer. Not that has been presented to our satisfaction. Actually we have comments from several other states' actuaries questioning the effectiveness of the rate stabilization feature of the model that those states have adopted. Question 3. Does this Model allow states to continue with their own actuarial reviews using the current 60% loss ratio standard? Answer. There is a difference of opinion among the states who have adopted this model, on this issue. Some actuaries have said `no, the state cannot', and other have said `we're not sure, but we intend to continue with the 60% until advised to the contrary'. Indiana's opinion is that we cannot until the loss ratio meets or exceeds the 70% `exceptional' level as described in the model. Question 4 . Does the NAIC know that each and every state currently conducts an actuarial review of all long-term care insurance rates before approval? Answer. We don't believe that the NAIC can answer with any certainty whether each and every state does conduct an actuarial review. Many states don't require filing of rates and forms at all, so our conclusion is that there must be numerous states that don't or can't conduct an actuarial review. Question 5. Does this long-term care insurance Model regulation allow states to examine long-term care insurance rates for future assumptive driven actuarial data? Answer. Not in our opinion. From the language in the model, it appears that all the insurer must do, once reaching the 70% exceptional loss ratio, is to attest that they have met the requirements of the model and are applying rate increases as allowed under that provision. Question 6. If so, does the regulation allow states to disregard those assumptions? Answer. We cannot find any language allowing states to disregard those assumptions. Question 7. How does the `exceptional' increase standard protect consumers from future rate increases? Answer. In our opinion it does not protect consumers from future rate increases. Question 8. What changes need to be made to this long-term care insurance Model to better provide consumer protections for both policy contract requirements and rates? Answer. For contract forms, some type of standardization might be acceptable. Tighter standards for rate increases based on non-assumptive actuarial presentations, with some at least annual percentage cap that the carrier could impose--say 40% as an example, in any one year. Question 9. What sort of federal requirements do you recommend to help state insurance commissioners negotiate the best rates for policyholders? Answer. Since insurers predicate their rate structures on their own in-force blocks of business, the experience of those blocks as well as the market place for LTC in general, it would be difficult to suggest any federal laws or regulations that would not handcuff the insurers and ultimately eliminate the LTC market altogether. Question 10. What percentage of seniors in your state would need to have long-term care insurance to make a substantial impact on state long-term care financing? Do you support increasing the number of seniors with long-term care insurance? If so, how do you propose increasing the number of seniors with long-term care insurance to reach that threshold? Answer. Even 40% would make a difference of millions of dollars in protecting our citizens from self-imposed impoverishment and Medicaid funds that need to be available for the truly poor population of our state. We do support increasing the number of seniors with LTC protection and are preparing a massive awareness campaign that begins this fall, to initiate that awareness. Question 11. What does Wisconsin see as the primary barriers to seniors for purchasing long-term care insurance? Answer. Indiana can't speak for Wisconsin. Question 12. The Kaiser Family Foundation report on long- term care insurance found that premium cost is the biggest obstacle to purchasing long-term care insurance, how do you propose lowering the cost of premiums so that more people buy long-term care insurance? Answer. Cost can be addressed through more flexible benefit designs, shorter benefit durations (one year versus lifetime), and other coverage-based improvements. Group plans will also be more affordable than individual plans. Question 13. How do you see the increased group market for long-term care insurance affecting consumers? Answer. The group market will help tremendously in improving LTC coverage, because it will be offered through the employer market and typically be sold on a `guarantee issue' basis rather than having to meet a variety of medical questions for approval. It also allows employees to cover parents and/or grandparents who are currently insured, all at group rates. Question 14. Over the next 20 years, the number of Americans over 65 years old with Alzheimer's will increase by more than 50 percent. Because Alzheimer's is one of the few diseases requiring 24 hour care, how do you see the increased prevalence of this disease affecting long-term care insurance companies? Answer. This is where the assisted-living and home care benefits can be most helpful. Most Alzheimer's patients that I've been in personal contact with are mobile, able to bathe, toilet, and generally feed themselves with some reminders or assistance. This means total 24 hour facility care, especially with some of the pharmaceutical advances in treating this disease, will be less necessary. Question 15. How does the state of Indiana coordinate the state Medicaid office and state insurance commissioner's office with the long-term care insurance company when a Partnership policyholder exhausts his policy's benefits? Answer. Indiana's Medicaid office has a designated recovery agent that works with our Partnership division even before the policy has completely exhausted, so that there is already a plan in place for the policyholder once exhaustion occurs. Question 16. Why should or shouldn't Congress enact more federal requirements for the long-term care partnership program? Answer. The most likely are that Congress can affect in LTC policies that would be beneficial to potential purchasers, agents, and companies alike would be to `standardize' the benefit plans as has been done with Medicare Supplements. 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