[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




             LONG-TERM CARE INSURANCE FOR FEDERAL EMPLOYEES

=======================================================================

                                HEARINGS

                               before the

                   SUBCOMMITTEE ON THE CIVIL SERVICE

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                  MARCH 18, APRIL 8, AND JUNE 14, 1999

                               __________

                           Serial No. 106-20

                               __________

       Printed for the use of the Committee on Government Reform


     Available via the World Wide Web: http://www.house.gov/reform

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
57-738 CC                   WASHINGTON : 1999




                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
JOHN T. DOOLITTLE, California            (Independent)
HELEN CHENOWETH, Idaho


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                      Carla J. Martin, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

                   Subcommittee on the Civil Service

                   JOE SCARBOROUGH, Florida, Chairman
ASA HUTCHINSON, Arkansas             ELIJAH E. CUMMINGS, Maryland
CONSTANCE A. MORELLA, Maryland       ELEANOR HOLMES NORTON, Washington, 
JOHN L. MICA, Florida                    DC
DAN MILLER, Florida                  THOMAS H. ALLEN, Maine

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                   George Nesterczuk, Staff Director
                 Edward Lynch, Senior Research Director
                         John Cardarelli, Clerk
            Tania Shand, Minority Professional Staff Member




                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 18, 1999...............................................     1
    April 8, 1999................................................   135
    June 14, 1999................................................   235
Statement of:
    Carr, William J., Deputy Director, Force Management Policy, 
      Department of Defense; Pat Freeman, associate executive 
      director, John Knox Village Medical Center, American Health 
      Care Association; and Kenneth A. Grubb, president, NYLife 
      Administration Corp., Health Insurance Association of 
      America....................................................   185
    Carver, David M., district manager for benefits planning and 
      analysis, AT&T Kenneth A. Grubb, president, NYLife 
      Administration Group/New York Life Insurance Co., Health 
      Insurance Association of America; and David E. Cavanaugh, 
      manager of business development and special projects, 
      Wright & Co................................................   323
    Croach, Marilyn Cobb, area representative, National Military 
      Family Association; SMSGT Larry Hyland, USAF retired, 
      national director, the Retired Enlisted Association; and 
      COL Klyne Nowlin, USAF retired, State president, the 
      Retired Officers Association...............................   147
    Kramer, Judy, Silver Spring, MD..............................    14
    Lachance, Janice, Director, U.S. Office of Personnel 
      Management, accompanied by William E. Flynn, III, Associate 
      Director, Retirement and Insurance Services, U.S. Office of 
      Personnel Management.......................................    34
    Martin, David S., American Council of Life Insurance; Kenneth 
      A. Grubb, New York Life Insurance Co.; and David H. 
      Brenerman, Health Insurance Association of America.........    70
    Yocum, Charles E., senior group patent counsel, Black & 
      Decker, resident of Howard County, MD; Georges C. Benjamin, 
      secretary, Maryland Department of Health and Mental 
      Hygiene; and Frank G. Atwater, president, National 
      Association of Retired Federal Employees...................   244
Letters, statements, etc., submitted for the record by:
    Atwater, Frank G., president, National Association of Retired 
      Federal Employees:
        Letter dated June 18, 1999...............................   318
        Prepared statement of....................................   253
    Benjamin, Georges C., secretary, Maryland Department of 
      Health and Mental Hygiene:
        Information concerning long-term care expenditures.......   315
        Information concerning requests for proposals............   271
        Prepared statement of....................................   248
    Brenerman, David H., Health Insurance Association of America, 
      prepared statement of......................................    95
    Carr, William J., Deputy Director, Force Management Policy, 
      Department of Defense, prepared statement of...............   186
    Carver, David M., district manager for benefits planning and 
      analysis, AT&T, prepared statement of......................   327
    Cavanaugh, David E., manager of business development and 
      special projects, Wright & Co., prepared statement of......   365
    Croach, Marilyn Cobb, area representative, National Military 
      Family Association, prepared statement of..................   150
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statements of........ 9, 142, 240
    Freeman, Pat, associate executive director, John Knox Village 
      Medical Center, American Health Care Association, prepared 
      statement of...............................................   194
    Grubb, Kenneth A., New York Life Insurance Co., prepared 
      statements of....................................... 87, 202, 340
    Hyland, SMSGT Larry, USAF retired, national director, the 
      Retired Enlisted Association, prepared statement of........   158
    Kramer, Judy, Silver Spring, MD, prepared statement of.......    17
    Lachance, Janice, Director, U.S. Office of Personnel 
      Management, prepared statement of..........................    37
    Martin, David S., American Council of Life Insurance, 
      prepared statement of......................................    73
    Nowlin, COL Klyne, USAF retired, State president, the Retired 
      Officers Association:
        Information concerning long-term care policies...........   177
        Prepared statement of....................................   168
    Scarborough, Hon. Joe, a Representative in Congress from the 
      State of Florida:
        Document from Fortis Insurance Co........................    69
        Prepared statements of............................. 3, 138, 237

 
             LONG-TERM CARE INSURANCE FOR FEDERAL EMPLOYEES

                              ----------                              


                        THURSDAY, MARCH 18, 1999

                  House of Representatives,
                 Subcommittee on the Civil Service,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:20 a.m., in 
room 2203, Rayburn House Office Building, Hon. Joe Scarborough 
(chairman of the subcommittee) presiding.
    Present: Representatives Scarborough, Morella, Mica, 
Cummings, Norton, and Allen.
    Staff present: George Nesterczuk, staff director; Edward 
Lynch, senior research director; Garry Ewing, legal counsel; 
John Cardarelli, clerk; Tania Shand, minority professional 
staff member, and Jean Gosa, minority staff assistant.
    Mr. Scarborough. I would like to call this meeting of the 
House Civil Service Subcommittee to order.
    Ladies and gentlemen, this morning we are going to consider 
legislative proposals to establish a program under which 
Federal employees may purchase long-term care insurance. 
Although our immediate focus is on the Federal work force, the 
long-term care issue has more far-reaching implications.
    As one of the Nation's largest employers, the decisions we 
make here will influence employers across the country. 
Employer-based plans represent the fastest growing market for 
long-term care insurance. By offering this benefit to 
individuals in their working years, we can help encourage the 
purchase of this product at younger ages when premiums are 
obviously lower and more affordable.
    We need some common-sense ideas to help this Nation solve a 
growing problem in financing the cost of long-term care. The 
fact is that most Americans now cannot afford to pay the 
average cost of $41,000 per year for a nursing home stay or the 
$98 average per visit fee of a registered home care nurse.
    While many believe that Medicare will provide for their 
long-term care needs, they quickly learn that Medicare simply 
is not enough to help out. For two out of three Americans 
needing long-term care today, that help comes from the Medicaid 
program, but only after the individual is impoverished. Faced 
with a rapidly aging population, Medicaid will not be able to 
withstand the demand for long-term care services in the near 
future.
    As we address this problem for the segment of the 
population in our jurisdiction--current and retired Federal 
employees, the administration, the Congress--have already 
agreed on some basic principles involving long-term care. Both 
bills before the committee will rely on private insurance--
privately managed and privately invested--to provide the 
financing for long-term care. Both bills also call for 
employees to fund the cost of the premiums.
    These are very important principles, and the fact that we 
agree on them brings us much closer to a compromise because 
these agreements effectively eliminate the budgetary 
considerations on this issue from the budget. What remains for 
us to resolve is to how best to ensure that Federal employees 
are afforded an adequate variety of planned choices at prices 
they can afford.
    Achieving maximum participation will require affordable 
premiums and an ability to satisfy the widely varying needs of 
a diverse population. Ultimately, the success of our collective 
efforts will be measured by the number of participants that 
decide to become engaged in this Federal long-term care 
insurance program.
    I am a firm believer in the strength of competition to meet 
the needs of a diverse market. I don't believe that one-size-
fits-all options work. Looking at the administration's 
proposal, I am concerned about a comparative lack of 
competition, limited choice, and seemingly limited capacity to 
serve our large Federal population.
    As most of you know, we have a very diverse work force--1.5 
million white collar employees and 250,000 blue collar workers. 
Our employees range from highly paid executives and 
professionals to more modestly compensated clerical and 
administrative support personnel. They are scattered throughout 
the country and across the world, in remote rural areas as well 
as large metropolitan centers where a higher cost of living is 
an important consideration. The average age is in the late-
40's, and they are single, married, divorced, widowed, some 
with children, some without. Add to that 2,300,000 annuitants 
and survivors at an average age of 74 and it becomes obvious 
that their needs for financial planning and long-term security 
are going to be vastly different.
    Variety of choice in long-term care plans is the optimum 
way, I believe, to ensure broad-based participation. I also 
believe that providing variety of choice is also the best way 
to guarantee value for the premium that each one pays.
    Long-term care insurance is an important part of planning 
for the future. As American's step into the 21st century, 
living longer than ever before, this type of coverage can 
safeguard hard-earned savings and assets.
    The Federal Government can set an example by encouraging 
its employees to consider this important benefit and to provide 
as wide a range of options as they might seek.
    I look forward to hearing from our witnesses as we discuss 
these approaches in providing long-term health care insurance 
to our work force, and I am sure it is going to be very 
educational for all of us.
    The ranking member is not here presently, but I would like 
to yield to Ms. Norton for any comments she might have.
    [The prepared statement of Hon. Joe Scarborough follows:]
    [GRAPHIC] [TIFF OMITTED] T7738.001
    
    [GRAPHIC] [TIFF OMITTED] T7738.002
    
    Ms. Norton. I thank you, Mr. Chairman.
    I want to both thank and commend Chairman Joe Scarborough 
for his work on long-term care, for bringing this problem 
forward early in this session of Congress, and for continuing 
the work this subcommittee began on this very important and 
difficult issue in the last Congress.
    The large number of bills filed by Republicans and 
Democrats, and by the administration, is an indication of the 
need and concern that should encourage us to pursue a 
bipartisan bill this session. It is entirely appropriate for 
the Federal employer to take the lead for employers everywhere. 
It is a workplace well-suited to help the country develop a 
long-term care model.
    These are unchartered waters, except for the much admired 
Federal Employees Health Benefits Program. Its genius has been, 
its free market base, within a refereed system. That has made 
competition work to hold costs far better than the unrefereed 
costly universe of health care which often spins out of 
control, in which many Americans are forced to fend for 
themselves.
    Federal employees and their relatives are going to have to 
pay for the long-term care premium without a Government 
subsidy. This does not mean that their Federal employee should 
throw them to the wolves. It won't do much good to create a 
long-term care program fraught with the cost problems of health 
care in America today.
    Both Democrats and Republicans believe that Government 
cannot, and should not, control costs. The question for 
Congress is, what will it take to produce the kind of 
competitive environment that will allow the marketplace to 
develop affordable, comprehensive varieties of long-term care 
that employees and families can tailor to their needs.
    This is a very tall order, but I am convinced that there is 
enough goodwill, desire, and intelligence, on both sides of the 
aisle, to do the job. Let's go to Hershey and figure this one 
out. [Laughter.]
    Mr. Scarborough. Well, can we figure it out without going 
to Hershey?
    Thank you for your words, and I would like to now welcome 
Mrs. Connie Morella for any opening statements she may have.
    Mrs. Morella. Thank you, Mr. Chairman.
    Mr. Scarborough. It is good to have you here.
    Mrs. Morella. Boy, what timing; I came just in time to, 
also, have my constituent be--[laughter]--one of the people on 
the panel.
    A lot of talk in Washington these days is about Social 
Security and Medicare, and the financial crises that these 
problems face in the next decade. And as economic forecasters 
look in their crystal balls, they foresee one more system for 
seniors that teeters on the brink of bankruptcy, and that is 
Medicaid. And now, more than ever, we must take a long, hard 
look at that. But, also, with the aging of our population and 
greater life expectancies, we need to, also, plan for the 
financing of long-term care of older Americans, and that is why 
I am glad that you had this hearing.
    In 1995, Federal and State spending for nursing home care, 
largely through the Medicaid program, amounted to $34 billion, 
and an additional $21 billion was spent for home care. With the 
average cost of nursing home care in Maryland averaging $50,000 
a year--and I think that is pretty modest--and as high as 
$91,000 in some areas, long-term care can have a devastating 
financial impact on families, impoverishing them before a 
spouse, a parent, a grandparent becomes eligible for Medicaid. 
Situations in which long-term care costs force even the middle 
class into the Medicaid safety net are typical and not 
isolated. And in my State of Maryland, alone, nearly 85 percent 
of nursing home residents rely on Medicaid for their long-term 
health care needs.
    I don't need to go into, Mr. Chairman, the statistics with 
regard to the number of people that will turn 65 and how long 
they are going to live, but I would like to have my entire 
statement included in the record.
    Mr. Scarborough. Without objection.
    Mrs. Morella. Thank you.
    But, however, beyond nursing homes, there is a wide range 
of services available in the community to help meet long-term 
care needs. Care given by family members can be supplemented by 
visiting nurses, home health aides, friendly visitor programs, 
home-delivered meals, and adult day care centers, respite care 
for caregivers, and the litany goes on.
    I sponsored in the 105th Congress a concurrent resolution, 
House Concurrent Resolution 210, to call our attention to this 
critical need of long-term health care financing and insurance-
based approaches to relieve the financial burden already 
imposed on Medicaid. And now it is time for us to act.
    We are making some strides in educating people and 
advocating the purchase of private long-term care insurance 
policies, but they have to be affordable, and that is why I 
introduced, just a few days ago, H.R. 1111--easy to remember--
the Federal Civilian and Uniformed Services Long-Term Care 
Insurance Act of 1999.
    The legislation creates an innovative program to meet the 
long-term care financing needs of Federal employees, Federal 
annuitants, active and retired military personnel, and their 
families. It was developed, this legislation, in consultation 
with, and has the endorsement of, the National Association of 
Retired Federal Employees, the Reserved Officers Association, 
the Alzheimer's Association, a number of organizations whose 
membership will directly benefit from having greater access to 
affordable long-term care insurance. And, Mr. Chairman, and, 
members of the committee, by so expanding the pool, we now have 
about 20 million people who would be eligible.
    The bill would offer participating long-term care insurers 
a diversified risk pool to market a variety of policies. It 
also empowers OPM, that I see here, to leverage the advantages 
of a group of this size to obtain significant savings in 
premiums. It also is attractive because it gives OPM authority 
to enforce consumer protections and to monitor carrier 
performance, with the authority to terminate if a carrier is 
not performing.
    H.R. 1111 gives guidance to OPM on asking insurers in their 
proposals to design benefit packages, and that would allow for 
care in a variety of settings, optional coverage in case of 
medical necessity, and a number of other possibilities that 
would be crafted.
    No one likes to think of anything but a bright future, but 
I think the reality is that we have got to come to grips with 
offering long-term care. And I think that the Federal sector is 
the way to begin, and expanding the pool makes sense.
    So I, obviously, am delighted that you had this hearing set 
up, Mr. Chairman, and I thank you for the opportunity of making 
an opening statement.
    I look forward to the rest of the hearing.
    Mr. Scarborough. Thank you, Congresswoman Morella.
    Now I am pleased to introduce for an opening statement the 
distinguished ranking member, Elijah Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Long-term care is an important priority for me, as the 
ranking member of the Civil Service Subcommittee. We spent a 
considerable amount of time on this issue during the 105th 
Congress, holding one hearing and formally debating the merits 
of the bill introduced by former Subcommittee Chairman John 
Mica.
    Though we failed to act on any legislation, there was a 
bipartisan consensus that we would continue to work together on 
this issue until we can reach agreement on a bill.
    On January 6, I introduced H.R. 110, Federal Employees 
Group Long-Term Care Insurance Act of 1999. My bill is one of 
four elements of a comprehensive long-term care package 
announced by President Clinton.
    H.R. 110 would authorize the Office of Personnel Management 
to purchase a policy or policies from one or more qualified 
private-sector contractors to make long-term care insurance 
available to Federal employees and retirees and family members 
whom OPM defines as eligible at group rates. Coverage would be 
paid for entirely by those who elect it.
    The program would be available to Federal employees and 
retirees, and their spouses, a former spouse who is entitled to 
an annuity under a Federal retirement system, parents, and 
parents-in-law. All participants, other than active employees, 
would be fully underwritten, as is standard practice with 
products of this kind. Coverage made available to individuals 
would be guaranteed renewable and cannot be canceled except for 
nonpayment of premium.
    Though each participant would be responsible for paying the 
full amount of the premiums, based on age at time of 
enrollment, group rates will save an estimated 15 to 20 percent 
off the cost of individual long-term care policies.
    OPM will be responsible for the administrative costs of the 
program which is estimated to be only $15 million over a 5-year 
period. Initial year costs include developing and implementing 
a program to educate employees about long-term care insurance.
    The proposal would provide a substantial benefit to Federal 
employees and retirees by providing access to quality long-term 
care insurance products at cost-saving group premiums.
    H.R. 110 has been endorsed by the National Treasury 
Employees Union, the National Association of Government 
Employees, and the National Association of Retired Federal 
Employees. These organizations recognize the importance of the 
Federal Government setting the example for private-sector 
employers whose employees face the same long-term care 
insurance needs. They also recognize that by further enhancing 
its benefits package, the Federal Government will be better 
able to attract and retain the best and brightest work force.
    H.R. 110 helps to raise the public's awareness of the need 
for long-term care and underscores the importance of assuming 
personal responsibility and less reliance on public support for 
one's long-term care needs through Medicaid.
    I understand that earlier this week, my colleague from 
Maryland, Connie Morella, introduced another long-term care 
bill. Her proposal would add active-duty military personnel and 
their family members as eligible participants. Further, it 
would index benefits for inflation. It would include annuitants 
in the same risk pool as active-duty Federal employees, 
thereby, potentially increasing premiums for the active 
employees.
    I look forward to the testimony of today's witnesses and 
the insight it will provide into the relative merits of the 
three pending long-term care proposals.
    Again, I thank you, Mr. Chairman, for placing this matter 
near the top of the subcommittee's agenda. I look forward to 
working closely with you and all the members of our 
subcommittee to produce a consensus legislation that can be 
enacted this session.
    [The prepared statement of Hon. Elijah E. Cummings 
follows:]
[GRAPHIC] [TIFF OMITTED] T7738.003

[GRAPHIC] [TIFF OMITTED] T7738.004

[GRAPHIC] [TIFF OMITTED] T7738.005

[GRAPHIC] [TIFF OMITTED] T7738.006

[GRAPHIC] [TIFF OMITTED] T7738.007

    Mr. Scarborough. Thank you, Congressman Cummings, and I 
would just like to add a little to what you said regarding 
military retirees.
    We have obviously talked to TROA and other groups. We 
certainly support the efforts of Mrs. Morella to add them in. 
And, as with everything in 1999, we just have to figure out a 
way to pay for it. And I am sure we can do that.
    Mrs. Morella. We can, Mr. Chairman, because my bill would 
not be paid for by the Federal Government.
    Mr. Scarborough. Right.
    Mrs. Morella. Yes; OK.
    Mr. Scarborough. Thanks.
    I would like to introduce Judy Kramer. Judy is a--well, 
actually, Connie Morella claims her as her own. [Laughter.]
    Mrs. Morella. May I?
    Mr. Scarborough. She is a resident of Silver Spring, MD, 
and is a private individual that has very extensive 
experience--personal experience--with the intricacies of the 
Medicaid system.
    Mrs. Kramer's parents played by the rules. They worked hard 
their entire life. They saved an awful lot of money, but were 
placed in a nursing home at the age of 79. Within 2 years, they 
had spent their entire life's savings of approximately about 
$150,000 in order to qualify for long-term care under Medicaid.
    Mrs. Kramer's husband is a Federal annuitant so, 
consequently, she would be eligible for long-term care 
insurance, under the terms of the bills that we are considering 
here today.
    As a result of her experiences, she is a consumer advocate 
for long-term care reform, and I believe--as does everybody 
else up here--that she has a very compelling story to tell.
    As it is customary to swear in the witnesses, could you 
rise and be sworn in.
    [Witness sworn.]
    Mr. Scarborough. If you could go ahead and testify, and I 
will give you a gentle reminder that we have a 5-minute limit, 
but will not have you dragged out if you go a few minutes over. 
[Laughter.]

          STATEMENT OF JUDY KRAMER, SILVER SPRING, MD

    Ms. Kramer. Thank you.
    Mr. Chairman, I appreciate the opportunity to address you 
and members of the subcommittee.
    I have 5 minutes to tell you about 5 years of my life; I 
will try and work within those limits.
    Healthy parents are both a genetic and a generational 
blessing. As their children, we can then hope for long life and 
the pleasure of benefiting from their accumulated wisdom and 
experience. But for so many of us, when our parents' health 
begins to fail, our relationship becomes one of increased 
responsibility--for the quality of their lives, for their daily 
activities, for their health care decisions, and for their 
financial management.
    The ravages of age often cause us to invade both their 
privacy and their personalities, as roles reverse and we offer 
them, or must impose upon them, the kind of care that they once 
gave us.
    My parents, Milton and Evelyn Lieberman, were solid 
citizens of the middle class. My father was in the shoe 
business for most of his adult life, and my mother worked as a 
cashier in a bookstore. Between them, they put two children 
through college, lived frugally, and managed to save a nest egg 
of $150,000. My father retired in good health at the age of 62, 
and my mother followed him by several months when she was 62.
    For 17 years, thereafter, they lived very carefully on 
Social Security and the interest from their savings. At the 
ages of 79 and in failing health, both of them made the 
decision to move into a nursing home so that they could receive 
the care required for their maintenance and their safety. My 
father had end-stage renal disease and needed frequent 
dialysis. My mother suffered from the ravages of 40 years as a 
diabetic.
    Although they could no longer walk safely or care for 
themselves, their minds were clear, and they were able to 
participate in the decisionmaking process until they died 3 
years later.
    At the age of 52, I became their ``paper persona,'' 
managing their affairs and responding to expenses that quickly 
devoured their nest egg. They shared a room in a nursing home 
at a monthly cost of between $3,000 and $3,500 each. 
Medications cost hundreds of dollars monthly for each of them. 
My father's dialysis required that he be transported to a 
hospital twice a week as I was working full-time helping to put 
three children through college and was unable to drive him. 
Private transportation bills grew to hundreds of dollars 
monthly. The cost of medical supplies to manage their 
incontinence grew. These were costs beyond what Medicare and 
their private health insurance policy covered.
    Their health needs dried up any financial security they had 
been able to establish for themselves. Costs of paying for two 
irrevocable funeral trusts, bringing current their advance 
directives and health care durable power of attorney, and 
getting help applying for Medicaid totaled more than $22,000. 
Their savings lasted less than 2 years once they entered a 
nursing home.
    As their money disappeared, I began to drown in the 
minutiae of their care--the bills, the laws, the regulations to 
be understood and met.
    I attempted to understand the requirements of a Medicaid 
spend-down. Much of the required 3 years of financial 
documentation had been lost or discarded when my brother and I 
moved our parents from their tiny, cramped apartment into the 
nursing home.
    After months of attempting to reconstruct their past 
financial lives, I applied for Medicaid on their behalf. I had 
not spent down all of their resources, I was told. Certificates 
of deposit, long held in trust for my brother and me, had been 
set up incorrectly and were, therefore, a part of their assets. 
I spent them willingly and quickly on their care.
    In making a reapplication for Medicaid for both of my 
parents, I was guided by an elder law attorney, and, after 
another denial, the application was finally approved. My 
parents, with total assets of $2,500 each, became poor on May 
1, 1994. After a lifetime of saving, it had taken less than 2 
years for them to become destitute.
    They lived together for another year in the nursing home 
before I was called upon to implement their advance directives 
and remove them from life support. They died within 6 weeks of 
each other.
    Medicaid was not only their safety net, it was mine as 
well. I could never have afforded to provide the care they 
required. We all felt no shame in the spend-down of their 
assets. Rather, we saw it as our obligation to the Government. 
Neither my brother nor I expected or desired an inheritance. My 
parents' money was to be spent on their care. We hid nothing; 
we protected no revenues from scrutiny. We felt that, as 
taxpayers, our parents had contributed to the system, had 
supported the sustenance of others, and now it was their turn, 
their need, their entitlement to be supported by the Government 
and the rules they had lived by.
    It is my growing understanding that Medicaid that sustained 
my parents in the last 2 years of their lives will not be there 
for my husband and me in the same form. My husband, a Federal 
retiree, spent 27 years in Government service. We have helped 3 
children complete a total of 17 years of college and graduate 
studies. The debt incurred will take us years to reduce.
    Based on my parents' experience, we would be interested in 
long-term care insurance but cannot afford it as presently 
available. Group rates might make this possible for us. 
Employer contribution in the future might make this a 
possibility for millions more.
    The journey with my parents into their old age was a trip 
none of us wanted to make. It was expensive; it was lonely; it 
was frightening; it was frustrating, and it was infinitely sad.
    As a writer and newspaper columnist for 5 years, I have 
chosen to share these feelings with thousands of readers 
seeking validation for their own experiences. They are 
responding with hundreds of letters and calls asking for back 
copies of my column. They are asking for my story because it is 
their story.
    Thank you for the opportunity to share all of our 
experiences.
    [The prepared statement of Ms. Kramer follows:]
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    Mr. Scarborough. Thank you, Ms. Kramer, for your testimony.
    You know, you are right; your story is their story for the 
millions and millions of Americans who go through this. It is a 
story that I know I have experienced in my family, and I am 
sure everybody else has experienced something like it in their 
family, too, where people play by the rules their entire life 
and they work hard. I can tell you that the tragedy for me, as 
a father of two young boys, the second you have children, you 
are thinking all the time, ``How do I take care of them? I have 
got to work hard; I have got to not only worry about getting 
them through high school but, hopefully, to college and, 
hopefully, leaving them something,'' if you work hard your 
whole life.
    Let me ask you this; you said you weren't expecting an 
inheritance but, obviously, it sounds like your parents planned 
for that, to give you some of that money to do the type of 
things that I think, instinctively, parents want to do for 
their children. What was it like for them?
    You have told me what it was like for you, but what was it 
like for them? Seeing that everything that they had worked for 
to try to take care of their children, vanished in 2 years?
    Ms. Kramer. When my parents went into a nursing home, they 
asked me to manage their finances. I agreed to do that. As I 
began the spend-down, they did not want to know the details. 
They were busy trying to maintain themselves.
    What I did not tell them was that they had set aside two 
certificates of deposit--one for my brother and one for 
myself--and in order to not impose a financial burden on us 
because we had three kids in college at the same time. My 
parents kept those certificates of deposit under my father's 
Social Security number. Therefore, he paid the taxes on them. 
Therefore, they were his assets. And my parents died not 
knowing that that money had gone toward their care.
    Mr. Scarborough. You mentioned briefly about some of the 
administrative costs. I take it that you had to get an attorney 
that specialized in elder care?
    Ms. Kramer. I did, after the first Medicaid application 
that I filled out on my own was denied.
    Mr. Scarborough. What did--[laughter]--did this attorney do 
it pro bono?
    Ms. Kramer. No.
    Mr. Scarborough. I--[laughter]--that was sort of----
    Ms. Kramer. No.
    Mr. Scarborough [continuing]. A leading question there, 
with a smirk.
    Ms. Kramer. No; it was not pro bono. [Laughter.]
    Mr. Scarborough. As an attorney, I guess I can rib my 
profession. [Laughter.]
    What was the price tag on legal fees?
    Ms. Kramer. You know, last year I threw away all of my 
records, because I had kept them for 3 years, and it was just 
painful to look at them. My recollection of the cost of the 
attorney was around $4,000 for all of her help--with the 
advance directive, with the irrevocable trust, with the durable 
power of attorney for health care.
    When I went to her, I told her that I had no funds to pay 
her, that whatever her costs would be, they would have to come 
out of what my parents had. And that was the arrangement that 
we made.
    Mr. Scarborough. OK.
    And, again, you said you had no funds to pay her, you 
were----
    Ms. Kramer. I had none of my own funds available.
    Mr. Scarborough. Right. At the time--and, again, the only 
reason I say this is because your story is the story of so many 
people. You had three children in college at the time. It 
seems, again in our families, that we see time and time again 
people work their whole life, and try to get their kids to 
schools. Usually, if you are lucky enough to get your kids out 
of school, then, unfortunately, the attention turns to the 
parents.
    Ms. Kramer. That is right.
    Mr. Scarborough. And the stress is absolutely incredible.
    I am going to give you a little more time, because I know 
that you rushed through your story to get within the 5-minute 
timeframe. But, could you share for the panel, for the 
committee and everybody listening, what was one of the more 
painful parts of the spending-down process for you?
    Ms. Kramer. I felt totally responsible for the quality of 
my parents' lives.
    I can remember because it was around this time of year, 
trying to get together the necessary information, going to the 
banks with a laundry hamper full of notebooks and papers that I 
had collected from my parents' file cabinet and saying, ``Can 
you help me with this? I know things are missing.'' Trying to 
fill out the form for Medicaid--night after night, I would get 
into bed and literally lay there shaking because I knew that if 
I didn't do this right, my parents were going to suffer. I felt 
totally responsible for their lives. And it was very difficult 
to get the information I needed.
    There is no single point of entry for this kind of 
information. When most of us are first presented with this 
responsibility, it is in an emergency situation.
    Mr. Scarborough. Right.
    Ms. Kramer. My father had an emergency; he had to go to the 
hospital. He had end-stage renal disease. The doctors came out, 
they told me, ``He can't go home. He has to go into a nursing 
home.'' That day, I took over for them. And I didn't know their 
finances; I didn't know the difference between Medicare and 
Medicaid. I had no idea what was involved, and I began to look 
for answers.
    And it is very hard to know where to turn. If you open the 
Yellow Pages and look for information to help you, do you look 
under ``Aging?'' Do you look under ``Seniors?'' Do you look 
under ``Medicare?'' Do you look under ``Medicaid?'' Do you look 
under ``County Government?'' ``Federal Government?'' It is a 
maze to wade through.
    Mr. Scarborough. What strikes me, from what you have just 
said, is that you appear to be very educated, a journalist, and 
obviously know your way around things and subjects. And if this 
caused you to lie on your bed and shake, what in the world does 
a less-educated person, who doesn't necessarily know where to 
go and look, do?
    Ms. Kramer. I agree.
    Mr. Scarborough. OK. And, you know, if this causes you to 
collapse and shake on your bed, then what about those that 
aren't as equipped to handle this situation? It is frightening. 
What happens, not only to them and their families, but what 
happens to their parents? It is very frightening.
    Ms. Kramer. When you go through this process, you can't 
help but spend those nights also thinking, ``If this is for 
them, what is for me?''
    Mr. Scarborough. Right.
    Obviously, with an aging population and the demographics 
the way they are, your story I think magnifies what is going to 
be happening in the next 10-15 years when baby-boomers start to 
retire.
    Ms. Kramer. There is one other thing I would like to--one 
other point I would like to make.
    When my parents went into a nursing home, the first year 
they were there, they were there as private pay patients. Once 
they applied for Medicaid and were accepted, I have to tell you 
that their care never changed. The services never changed. The 
level of attention they received never changed. I don't know 
whether that is a quality of the nursing home they were in or 
it is a quality, in general, but I felt that they had paid 
their dues, and that they were receiving the services that they 
needed, and that it was done fairly to them.
    Mr. Scarborough. Well that is great news, in that instance.
    Mr. Cummings.
    Mr. Cummings. Thank you very much.
    First of all, I want to thank you, Ms. Kramer, for being 
with us today and sharing your story. I think you make it 
abundantly clear that we need to do something, and I am sure 
all the members of our committee are committed to doing that. 
And what we constantly try to do up here and on the Hill, is to 
make sure that we are effective.
    In other words, it is wonderful for you to come and share 
your testimony with us, but if we don't do something, then you 
have taken a day off of your valuable time and shared your 
thoughts and shared your feelings and your experiences with 
us--but as I have said, say, in meetings in my office--is that 
if we are still here 2 years talking about the same thing and 
haven't done anything, then I think that it is very, very, very 
sad. Because in the meantime, people will have gone through the 
same things that you have gone through. And to that end of 
effectiveness, I want to just ask you a few questions.
    When you think about the things that--I take it that you 
had an opportunity to kind of familiarize yourself with the 
proposals that we put forth. Have you had an opportunity----
    Ms. Kramer. I have read two of them, once.
    Mr. Cummings. OK; all right. Are there particular things 
that--I mean based upon your experiences, are there certain 
things that you would look for in a long-term care policy--I 
mean, that you would like to see in one?
    Ms. Kramer. Let me tell you, I have discussed this with my 
husband at length. Yes, there are two things that I would like 
to see--two things that would make it possible for us to 
consider purchasing long-term care insurance, not necessarily 
being able to buy it. One is a group rate reduction of premiums 
and the other is employer contribution.
    I am not even sure at this point, given our financial 
obligations in terms of paying our debts for our childrens 
college educations, that we could afford long-term care 
insurance without an employer contribution.
    It is something that my husband and I have wrestled with, 
trying to determine what our priority is. You know, what you 
said was very moving. As soon as you have children, your 
children are your priority. You don't want to have to become 
their priority. And that is the point at which we are stuck 
right now. We don't want to become their priority when we get 
old, in the way that my parents and managing their finances 
became my priority. But right now, we can't afford long-term 
care insurance, as we understand it and as we have explored it.
    Mr. Cummings. One of the----
    Ms. Kramer. So that is what I would be looking for, and 
that is what I was looking for when I read the bills that I was 
sent.
    Mr. Cummings. When you were--so I take it that there was 
a--did there come a time when you, when all of these series of 
things began to happen with your parents, that you looked into 
long-term care insurance? I mean you just said----
    Ms. Kramer. It wasn't on my radar screen. I didn't know--
I'll be honest with you--I didn't know it existed. I had not 
heard of it, and I didn't know it existed. I didn't know the 
possibility existed.
    Mr. Cummings. One of the things that my proposal does is 
that it gives OPM oversight, and it allows them to limit the 
companies so that we could get possibly the best group rate--
because I think you make a very good point. I think what we--it 
is one thing to have it, to have the insurance available. It is 
another thing to be able to afford it. And if you can't afford 
it, you might as well not have it. I mean does that make sense?
    Ms. Kramer. It does. One of the things my husband and I 
discussed is that we have taken advantage of the Federal 
Employees Health Benefits policy over the years, and we have 
particularly appreciated the choices that we had, because, at 
different times in our life, we had different needs.
    There was a time--we have a child with a disability--there 
was a time when we selected our insurance policy from those 
that were available, based on the coverage for her need. When 
that need lessened, we changed policies to one that would 
benefit more of us and our family in other ways.
    So my feeling, based on that experience, is that, as you 
said, different families have different needs, and the more 
opportunity to tailor a long-term care policy to your desire, 
to your need, the better, as far as I am concerned.
    Mr. Cummings. You are a writer?
    Ms. Kramer. Yes, I am.
    Mr. Cummings. And is this your--what kind of things do you 
write about?
    Ms. Kramer. I began writing for the Gazette newspapers 5 
years ago because I wrote, for myself, an article about my 
father. And I looked at that and said, ``I cannot be the only 
one who is going through this.'' So, I invested in eight 
stamps, and I sent the article that I had written to eight 
local newspapers.
    The Gazette picked up on it, published it, and received 
feedback that caused them to invite me to continue writing. I 
had no idea when I began writing in 1993 that I was going to 
document this experience with my parents.
    What I wrote about in that first article was when my father 
moved into the nursing home--how I felt, how he felt. I began 
to just write articles about what was happening to them and 
what was happening to me. And the response was overwhelming, 
both to the Gazette and to me.
    I ended up being asked to give a series of dialogs at a 
local hospital where I would just meet with people who were 
going through this experience, and we would trade success 
stories and share experiences and talk about strategies.
    So, you know--I know that when people go through this, when 
families go through this, they go through it in isolation. They 
don't talk about their finances, generally. They don't share 
the difficulties of dealing with parents with whom you do, or 
do not, get along for whom you are responsible. And so I found, 
through the articles, that there is a tremendous market for 
sharing this experience, because it is lonely. It is very 
lonely, and it is also very painful.
    Mr. Cummings. I just have a few more questions.
    You know, one of the things that we run into now with 
health insurance is that you get to a point where there is a 
dispute as to what is covered--and I am sure you know this; you 
may have even written about it. And folks are--the insurance 
company says one thing; the patient needs another thing.
    And as I listened to you, I couldn't help but think about 
something like, in this instance, I imagine we might come up 
with quite a few disputes, because of costs. I mean the cost of 
taking care of--I mean when you told me that $150,000 had been 
exhausted in 2 years, I think you said?
    Ms. Kramer. Less than 2 years.
    Mr. Cummings. Less than 2 years.
    Ms. Kramer. Yes.
    Mr. Cummings. And then the $3,000 plus, for the nursing 
home room. That is a lot of money.
    Ms. Kramer. That was per month, per person, so it was 
really $7,000 per month.
    Mr. Cummings. $7,000 per month?
    Ms. Kramer. Yes.
    Mr. Cummings. And so I can just imagine insurance companies 
having some kind of--I mean saying, ``Well, maybe we don't want 
to cover that.'' I mean do you--have you addressed that issue 
in your articles at all?
    Ms. Kramer. The articles that I--I have no expertise in 
this.
    Mr. Cummings. OK.
    Ms. Kramer. Yes.
    Mr. Cummings. I am just----
    Ms. Kramer. No, No. I am just saying I have no expertise in 
this. The articles I write don't deal with ``how to.'' They 
deal with what it feels like to go through that process.
    So if you are asking me if I had experiences like that with 
my parents about costs that were not met, I didn't.
    Mr. Cummings. OK. No, I am just going to the point where, 
if the insurance was available, if you had insurance, and I was 
just concerned because the bills. That is one of the key 
elements that we have to deal with in the legislation, because 
we can't see everything, but we certainly--I think it is kind 
of reasonable for us to foresee that. The fact that we, even if 
you--let's assume you are able to afford, you have it, and then 
there comes a point in time where you have to use it, and the 
disputes arise.
    Ms. Kramer. Let me give you an example of just how 
confusing it can be. When I made application for Medicaid for 
my parents, I wanted to know whether I could ask to be allowed 
to take out money for their--to continue their Blue Cross/Blue 
Shield coverage, their private insurance coverage, which they 
had carried all their lives.
    I asked the nursing home; they weren't sure. I asked the 
attorney; she wasn't sure. I asked the county; they weren't 
sure. I could not get anyone to clarify for me whether or not 
it was reasonable to be allowed to continue to pay the $97, or 
whatever it was, for their health insurance.
    Finally, I called the financial director of the nursing 
home back and I said, ``I can't get an answer for this. Please, 
help me.'' And her answer--which I will not forget, was, 
``Well, it can't hurt, and it might help.'' So when I made the 
application for Medicaid, I asked to be allowed to use, from my 
parents' Social Security, money for their private health 
insurance, and that was granted.
    The point of what I am saying is that there was nobody to 
tell me. There was nobody to advise me. There was nobody that 
knew, that I could find. And that is just a tiny, tiny part of 
the frustration of trying to understand what is available, what 
I am supposed to do, and what they were supposed to get.
    Mr. Cummings. Thank you very much.
    Ms. Kramer. You are welcome.
    Mr. Scarborough. Mrs. Morella.
    Mrs. Morella. Thank you.
    Thank you, Mrs. Kramer, for being here and testifying.
    In response to Mr. Cummings comment, the article appears in 
probably like 26 newspapers, because the Gazette goes into 
every community in Montgomery County and----
    Ms. Kramer. I think they have a circulation of something 
like 450,000.
    Mrs. Morella. It is incredible.
    And your articles are great. They are very sympathetic, 
empathetic, evocative, and everybody can kind of identify with 
them. I remember Browning's poem that you all know. ``Grow old 
along with me. The best is yet to be. The last of life for 
which the first was made.'' But for many people, that isn't the 
case.
    And I can empathize with what you say because my mother 
died at age 96. But when she was 95, she had to go into the 
nursing home. We had cared for her at home for well over 2 
years. It finally reached the point where nobody could even 
handle her. And we paid $200 a day, a day. The other nursing 
homes that we looked at were only about a $50 difference a day, 
and so we vied for what we thought would be giving the most 
attentive service. Well, obviously, that means that if you 
don't have Medicaid, you are going to be straining the 
resources, not only of the person, but of the children. And 
this is what we were able to assume for that period of time. 
But I know she wasn't cognizant of what was really going on. 
And if she were, she would have been so heartbroken, because 
she was one of those hard-working people who wanted to save for 
her children. Her children were her life.
    And that is the kind of thing brought out in our 
questioning--and our chairman mentioned it, too--is that people 
in that situation lose their dignity as well as their 
independence by virtue of not being able to give anything to 
their children if, in fact, their resources are going to be 
used for that. The children, in turn, have their own children 
in college, have other fact qualities of life that are 
imperative that they save for, so it really is a situation 
where nobody wins. And in the society where the greatest 
numbers, in terms of the percentage increase of age, is 85 and 
over, then we just must take note of this.
    With the bills that we have, then, in terms of long-term 
care, I think it is availability--people don't know they exist 
because we really haven't brought them out on the radar 
screen--and affordability and the kinds of services that they 
would offer. So truth in insurance is important but, in 
addition to that, it has to be affordable.
    If, from what you know, you could have a premium that was 
about 20-25 percent less than what you saw, under a group rate, 
would you be interested in it?
    Ms. Kramer. That is hard for me to say because there is so 
much about long-term care insurance I don't yet understand, and 
I will give you one of my greatest fears.
    What happens when one spouse dies and the other--or one 
spouse requires nursing home care and the other remains in the 
community? You know, what kind of assets--I understand, and I 
have not read it, that Senator Mikulski had legislation that 
allowed the community spouse to retain $65,000. I don't know 
what that means. When I think of everything, in terms of 
myself, that would mean selling my house. Where would I live, 
if I had to do that?
    I have talked with my husband, endlessly, about this. We 
have really tried to understand it. I don't know at what 
percentage you would----
    Mrs. Morella. Now, you are talking about Medicaid and 
spousal impoverishment.
    Ms. Kramer. Yes, I am.
    Mrs. Morella. And I support Mikulski on----
    Ms. Kramer. Right, and you are asking me, if I understand 
you correctly----
    Mrs. Morella. Insurance.
    Ms. Kramer [continuing]. About insurance, and how much 
would I be willing to spend? If it were offered at a 20 percent 
group reduction, would we be willing to consider it? Yes, we 
would be willing to consider it. Absolutely.
    Whether we could afford it or not, I couldn't tell you 
because I have no idea what the premiums would be.
    Mrs. Morella. I am looking at a plan here that we fashioned 
mine sort of after, CALPERS. California has done it, and I look 
at--[laughter]--you are much younger than this, but let's say 
somebody were 59, and they wanted to take out lifetime long-
term care insurance, lifetime. At that rate, with the inflation 
that would, you know----
    Ms. Kramer. Yes.
    Mrs. Morella [continuing]. Be entered into it, it would be 
$64 a month. So, I am not saying that this would ultimately be 
what would happen with my legislation or any other, but the 
point is, I think it can be affordable--and it depending upon 
what age you take it out, obviously. If you took it out at age 
50, it would be like $35 a month.
    Ms. Kramer. Right.
    Mrs. Morella. So I guess I am saying that if you felt it 
were affordable, you would be willing to----
    Ms. Kramer. Exactly.
    Mrs. Morella [continuing]. Particularly, with your 
experiences?
    Ms. Kramer. If I felt it would be affordable, it is 
something I would do, not only for myself, but for my children.
    Mrs. Morella. I don't know of any employers that subsidize 
long-term care, maybe in the future they will. I just don't 
know; I will have to learn more about that, but at this point, 
the bill that I have introduced expands the pool to allow the 
best rates and requires certain things like consumer protection 
with a variety of choices, in order to get the Federal 
Government moving toward something which, ultimately, could end 
up being in national--even go beyond the pool that we have 
suggested.
    I just want to thank you very much for sharing with us such 
a poignant experience, in the hopes that we all learn.
    Thank you, Mr. Chairman.
    Mr. Scarborough. Thank you.
    Ms. Norton.
    Ms. Norton. Just briefly, Mr. Chairman.
    It is interesting that Mrs. Morella has spoken about $64 a 
month, and would that be affordable?
    One wonders why there isn't long-term care, since many 
employers are paying a great deal more than that per month for 
health care, for example. And we are all paying much more than 
that because everybody now knows, and has known, that the 
taxpayers are going to spend $40,000 and $50,000 a year unless 
there is an incentive for people to buy their own long-term 
health insurance.
    I found your testimony absolutely compelling. And I found 
it compelling because I had, in my mind's eye, your parents 
who, in the real sense, I think would be like my own. These are 
the generations that they are now beginning to write about as 
the ``best generation''--I think they probably are--in the 
entire 20th century. These are people who saved. The people 
today aren't saving for their old age; many of their children 
will not have money and are not putting aside any money for 
their old age.
    They, indeed, put aside money for their old age, and they 
put aside money for their children. Or, if there had been long-
term care insurance, I bet they probably would have spent the 
money for long-term care insurance.
    Ms. Kramer. You are right; they would have.
    Ms. Norton. The importance of what you are initiating here, 
Mr. Chairman, cannot be overemphasized. Because the real 
question is, how are you going to pay for it? Because you are 
going to pay for it.
    There is a safety net there for each and every one of us, 
and that safety net is Medicaid, which has become a giant 
benefit, essentially for the middle class in this country, and 
well should it be. Until we find a way to encourage people to 
buy their own long-term care insurance, there is no other 
solution. But that is the most outrageously costly solution. It 
is one of the great problems of this Congress. That is why it 
behooves us to quickly set the example by coming forward in, I 
think, this session of Congress so that employers can see that 
this will not break them, that in many ways it can save them, 
ultimately.
    Ms. Kramer. Do you know what they would benefit--what my 
employer would benefit from, if they provided that for me?
    Ms. Norton. Could you tell us? [Laughter.]
    Ms. Kramer. Well, I would feel very cared for, very loyal. 
There is a lot of give and take between an employer and an 
employee when you are caring for ill parents. And I am very 
happy to see that our society is becoming more cognizant of 
that, and more flexible about that.
    But for an employer to contribute to a long-term care 
insurance policy that would potentially include me and my 
parents; I could feel very loyal to that employer.
    Ms. Norton. At the very least, you would think that 
employers would want to have, among their benefits, long-term 
care benefits, and more employers would want to do that--if we 
break the ice, Mr. Chairman, I think that may well happen.
    Thank you very much.
    Mr. Scarborough. Thank you, Ms. Norton. I agree with you 
that I think one of the most positive aspects not only of this 
hearing, but also this exercise that we are going through is 
hopefully to get one bill passed. I mean I think just about 
everybody has a bill now on the floor, except for you, Ms. 
Norton--[laughter]--up here, so--[laughter]--you need to go 
back and get to work on it.
    Ms. Norton. Mr. Cummings has my bill. [Laughter.]
    Mr. Scarborough. Oh, he has your bill? [Laughter.]
    OK, great.
    So, anyway, I think that it is important as we do this, as 
we debate which is the best way to go, that we engage in an 
educational process. There are a lot of people like you who, 
before, had not even heard of long-term care. I know I 
certainly wasn't aware of it too far back.
    So, I think you are right. I think we can certainly educate 
a lot of people across this country and, hopefully, put in a 
plan that works for the Federal Government and that sends a 
message to employers across the country about the importance of 
long-term care.
    In closing, I just wanted to emphasize something that you 
said earlier in your testimony, when asked by Mr. Cummings, 
about what you would prefer in a package. You talked about 
choices and plans that were flexible--and, also, regarding what 
Mrs. Morella said, in talking about what you could afford and 
what you couldn't afford.
    I certainly think, hopefully, we could get a package out 
that would provide as many choices as possible, so we could 
tailor it as much as possible to individual needs, and 
certainly allow beneficiaries to determine whether they want to 
be in an inexpensive plan, a mid-range plan, or what they call 
a ``cadillac plan.''
    Ms. Kramer. May I ask you a question?
    Mr. Scarborough. I probably can't answer it, but go ahead. 
[Laughter.]
    Ms. Kramer. I had----
    Mr. Scarborough. As I explained in a previous meeting, I 
went to the University of Alabama, undergrad.
    Ms. Kramer. My understanding of long-term care insurance is 
that you buy it in increments of time. If I were to purchase 2 
years of long-term care insurance--2 years, or any amount of 
time--and outlive that, what happens? Who pays? Where does the 
money come from?
    Mr. Scarborough. I would guess it would go back to 
Medicaid, but Mr. Cummings is an expert in this area. 
[Laughter.]
    He will answer it for you now. [Laughter.]
    Actually, I believe it would go back to Medicaid.
    Ms. Kramer. At that point, if you had set aside money for 
your children, purchased long-term care insurance, utilized 
your long-term care insurance, outlived your long-term 
insurance, your money is already in your children's hands, but 
it would be--fall within that 3-year period for which a 
Medicaid application requires that you not give away your money 
to your children.
    Mr. Scarborough. Right.
    Ms. Kramer. What happens?
    Mr. Scarborough. I think the average stay is 4 to 5 years 
in nursing homes.
    Ms. Kramer. My parents stayed 2; my father-in-law lived 5 
years.
    Mr. Scarborough. Right.
    Ms. Kramer. So, you know, that is another thing that my 
husband and I have talked about. If you buy it, you have 
limited coverage, you know. I guess they are betting you are 
going to die--[laughter]--or you are betting you are going to 
die within 2 years.
    Mr. Scarborough. If I am not mistaken, you can buy lifetime 
coverage which, obviously----
    Mrs. Morella. Would the chairman yield, please?
    Mr. Scarborough. I certainly will.
    Mrs. Morella. Or you pay a certain amount per month as long 
as your lifetime and, therefore, you get a lower amount that 
you pay. So when you die, you pay no more. I mean you will get 
the coverage that you negotiate for at the very beginning, so 
if you start young----
    Mr. Scarborough. Right.
    Mrs. Morella [continuing]. You are paying a very small 
amount for the rest of your life for that same kind of coverage 
that you would get later, but you would have some choices, and 
you could change the choices.
    Ms. Kramer. Yes.
    Mrs. Morella. That is the simplest way.
    Mr. Scarborough. I will tell you what, we are going to have 
some testimony from insurance people that will really expand 
upon this and I think probably will answer a lot of those 
questions.
    Ms. Kramer. There is only one other question I have, in 
closing, and that is, if you do this, if there is any way 
possible to make a single point of entry, for people like me, a 
number that they could call, as a beginning place to get 
information? That would be very helpful.
    Mr. Scarborough. That is a great idea, and that is 
certainly something that I am sure most members on this 
committee, I think, would agree is a great idea, and so we 
appreciate it.
    We certainly appreciate your testimony. It was moving, and 
I think it was something that all of us certainly can relate to 
and is going to help us frame the debate, I think, not only in 
today's hearings but also throughout this process.
    Mrs. Morella. And, Mr. Chairman, the next panel with OPM 
would be the point of contact. It would be a very good one.
    Mr. Scarborough. Exactly; that is right. Except, start 
asking them some questions, OK? [Laughter.]
    Actually, I guess I should say two things before we go to 
our next panel.
    The first thing is, if there is anybody from the University 
of Alabama, it was self-deprecating humor--[laughter]--which 
always seems to work--[laughter]--especially when you are 
talking about Alabama.
    The second thing is we have a lot of people standing in the 
back, so why don't we take a 5-minute break? We will move some 
more chairs in before we have our next panel come up.
    Thanks, again.
    Ms. Kramer. Thank you.
    [Recess.]
    Mr. Scarborough. All right. If we could start back up.
    In our next panel, we have two distinguished guests from 
OPM. We have the Honorable Janice Lachance, who is Director of 
the U.S. Office of Personnel Management, and we have Ed Flynn, 
III, Associate Director of Retirement and Insurance Services 
for the Office of Personnel Management.
    If you could, please, stand and take the oath.
    [Witnesses sworn.]
    Mr. Scarborough. Thank you.
    Ms. Lachance.

    STATEMENTS OF JANICE LACHANCE, DIRECTOR, U.S. OFFICE OF 
  PERSONNEL MANAGEMENT, ACCOMPANIED BY WILLIAM E. FLYNN, III, 
  ASSOCIATE DIRECTOR, RETIREMENT AND INSURANCE SERVICES, U.S. 
                 OFFICE OF PERSONNEL MANAGEMENT

    Ms. Lachance. Thank you, Mr. Chairman, and members of the 
subcommittee.
    It is extraordinary for us to have the opportunity to work 
with people who are committed to getting a bill through, the 
way all of you apparently are, and I am very, very grateful for 
that.
    I think we can all agree that this is an idea whose time 
has come. There are too many Mrs. Kramer's out there who are 
struggling with this problem, and I hope that we can move 
quickly to bring some relief to them and their families.
    Before turning to my statement, I would like to note that 
your invitation did contain a number of questions, some of them 
rather complex, and we are working hard to put together those 
answers which aren't addressed in my statement, but we will get 
those to you as soon as we can, for the record.
    Mr. Scarborough. Thank you.
    Ms. Lachance. With your permission, I would like to 
summarize my remarks and ask that my full statement be 
submitted for the record.
    Mr. Scarborough. Without objection, so ordered.
    Ms. Lachance. On January 4, of this year, President Clinton 
announced an initiative to improve access to long-term care for 
all Americans. H.R. 110, entitled, the Federal Employees Group 
Long-Term Care Insurance Act of 1999, is one component of the 
President's proposal.
    The bill would authorize the Office of Personnel Management 
to contract for long-term care insurance on behalf of the 
Federal Government, the Nation's largest employer.
    The proposed statutory framework would enable the 
Government to offer more affordable coverage on an enrollee-
pay-all basis to Federal employees and annuitants and their 
families. By negotiating group rates, we estimate that we can 
provide an attractive long-term care product at a cost that is 
some 15 to 20 percent lower than a comparable policy purchased 
in the individual market.
    We expect that, initially, some 300,000 eligible 
participants would enroll in such a program.
    We have seen a dramatic evolution of long-term care 
insurance products since the 1980's. H.R. 110 gives us a 
framework to work with stakeholders, including the insurance 
industry, employee and retiree groups, and Federal agencies, to 
design a flexible long-term care benefit. This would be 
coverage with the ability to evolve over time as the market 
changes, thereby, allowing the Federal Government to keep the 
policy consistent with industry standards.
    The fact of the matter is that group insurance products are 
less costly than individual insurance. Economies of scale 
mitigate both administrative costs and underwriting risks, so 
if we offer long-term care on the same basis as employers in 
the private sector, the discounts available to Federal 
enrollees will be at least comparable.
    Under the authority given OPM in H.R. 110, we would seek 
competitive bids for long-term care insurance that meets 
specified quality and price criteria in order to select the 
best contractor or contractors possible.
    Now, under H.R. 602, the Civil Service Long-Term Care 
Insurance Benefit Act, OPM would be required to accept 
virtually any long-term care insurance product that meets only 
basic requirements. Our role would be reduced to ensuring that 
adequate payroll deductions are made and making information 
available on all offerings. There is no real advantage to this 
approach, since it gives our Federal population the same 
choices already available on an individual basis in the private 
market, with little or no additional financial incentive to 
enroll. This is decidedly contrary to existing employer 
practices. We would not be able to take advantage of the 
economies of scale that work in our favor, and we would not be 
able to pass any savings on to our enrollees.
    It is our belief that H.R. 602 makes an incorrect 
assumption, that product and vendor competition will reduce 
costs, but I ask you to look at the numbers, since only about 6 
percent of the eligible population typically purchases long-
term care insurance. Segmenting the risk pool even further is 
more likely to increase, rather than reduce, premium rates.
    Under H.R. 110, OPM would be able to offer a long-term care 
benefits package that not only reflects the requirements of the 
Health Insurance Affordability and Accountability Act, but also 
meets the standards endorsed by the National Association of 
State Insurance Commissioners in its long-term care model 
regulation.
    The coverage would be more attractive because it would 
provide for a variety of services and offer flexible options to 
participants.
    Eligible participants would pay the full cost of the 
benefit, based on age at time of enrollment. This is consistent 
with the practice among private employers who offer this 
benefit now. Our early estimates indicate that annual premium 
costs could range from $200 to $3,000, depending on the 
insured's age.
    Consistent with other Federal benefit programs, H.R. 110 
would require financial and program accountability from 
contractors and would give OPM the authority to determine the 
reasonableness of premium rates established.
    We estimate OPM's cost to administer the program at 
approximately $15 million over a 5-year period. Initial costs 
cover the solicitation process, including actuarial analysis, 
to determine the reasonableness of rate proposals, as well as 
implementation of an extensive education program.
    We feel very strongly that communication will be a major 
factor in determining the success of the program. We must make 
a commitment to inform employees about the costs of long-term 
care, the need for long-term planning, and the benefits of 
purchasing coverage sooner rather than later in life.
    We firmly believe that the employer-sponsor model of H.R. 
110 offers the best vehicle for delivering a quality product. 
We urge you to give it early and careful consideration. A new 
long-term care product, such as the administration is 
proposing, will certainly mean greater financial stability and 
peace of mind for Federal an-
nuitants, employees, and members of their families.
    This concludes my statement, and I will be happy to answer 
any of your questions.
    [The prepared statement and followup answers of Ms. 
Lachance follow:]
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    Mr. Scarborough. Thank you, Madam Director.
    You talked about cost, and you said that right now you 
estimated that there was approximately $15 million in 
administrative startup costs. This really goes back to 
something that Mrs. Morella and I were talking about briefly at 
the beginning, I think, and before you stepped in, about the 
plans to possibly bring in active and retired military.
    Do you have any estimates? Obviously, we have got to 
concern ourselves with the jurisdiction of HASC, the House 
Armed Services Committee, and, also, DOD.
    Let me ask you, do you have any rough estimates on the 
administrative costs that would add to it, so we know what we 
have to offset?
    Ms. Lachance. I am afraid we don't. That proposal is 
relatively new. We had been looking at this as part of the 
overall compensation package for Federal employees, as another 
benefit to enable us to attract and retain the best people. We 
have no objection, on the surface, to broadening the pool. 
There are benefits to being a Federal employee, whether you are 
in uniform or not----
    Mr. Scarborough. Right.
    Ms. Lachance [continuing]. And, obviously, retirees.
    So we would have no objection and think it may actually 
help the risk pool to have it larger and include more people. 
So we would be glad to work with the Department of Defense on 
that and maybe get back to you with some specific numbers.
    Mr. Scarborough. Great.
    Do you foresee any underwriting problems, by adding this 
group?
    Ms. Lachance. Not that we can see on the surface. When we 
look at underwriting, what we are hoping is that active 
employees will be able to have access to this insurance with 
either no or minimal underwriting, and then, certainly, all of 
the family members, as is customary practice in the industry, 
would undergo underwriting. And so, if we had a comparable rule 
for the additional population--or a comparable practice--it 
probably would be a ``wash'' and----
    Mr. Scarborough. OK.
    Ms. Lachance [continuing]. And probably would work out, but 
we would be glad to look at that.
    Mr. Scarborough. Great. And if you could get us any of that 
information----
    Ms. Lachance. Certainly.
    Mr. Scarborough [continuing]. As soon as possible, that 
would be great.
    I am already getting ``letters to the editor'' at home, why 
we didn't start with that process. [Laughter.]
    So, the sooner the better.
    You know, we have talked before about--in my opening 
statements--about how diverse the Federal work force is. 
Obviously, you have got full-time employees, part-time 
employees. You have got blue collar; you have got professional. 
Let me ask you, should all of these employees be permitted to 
purchase a long-term care program through the Federal 
Government?
    Ms. Lachance. Absolutely.
    Mr. Scarborough. Any areas at all----
    Ms. Lachance. Absolutely.
    Mr. Scarborough [continuing]. That should be excluded at 
all?
    Ms. Lachance. I can't think of any offhand.
    What Mrs. Kramer faced is what anybody faces and it, 
frankly, doesn't matter how much you make when you are faced 
with these tremendous bills. It is just a matter of how quickly 
your own personal savings run out.
    This is something that makes sense for everyone, at every 
income level.
    Mr. Scarborough. What about intermittent part-time 
employees--intermittent employees?
    Ms. Lachance. Well, I think that they should be given an 
opportunity to have access to this as well. Since the 
administration proposal has no--or none of the proposals have 
an employer contribution----
    Mr. Scarborough. Right.
    Ms. Lachance [continuing]. We certainly could open it up to 
a much broader range of employees.
    Mr. Scarborough. Which actually expands that pool----
    Ms. Lachance. Yes.
    Mr. Scarborough [continuing]. And, obviously, drives down 
the cost for everybody--which brings me back to something. 
Again, this is something I certainly hope that we can work out 
and negotiate. Obviously, one of the areas that we need to 
compromise on is the administration's view that is sort of a 
more ``one-size-fits-all'' approach, and our view where we 
offer the consumer as many choices as possible.
    You had said earlier that--I think you had said 6 percent? 
What was it? I think----
    Ms. Lachance. Yes, 6 percent.
    Mr. Scarborough. Only 6 percent purchases now.
    Ms. Lachance. Typical.
    Mr. Scarborough. So fragmentation of those groups would 
drive costs up. Certainly I want to offer you an opportunity to 
rebut it. My only point would be, if we bring in this huge 
Federal work force and allow the military and everybody else in 
and, obviously, we expand our pool.
    Don't you think the more we expand our pool, the more 
possibilities we have to offer choices without driving up 
prices.
    Ms. Lachance. I think that fundamentally we agree, but we 
just have a different way of going at it. We do agree with you 
that one size does not fit all, but we think that we can get at 
that by the way the benefits are designed and providing the 
maximum amount of flexibility in the plans that we offer. We 
think it can be done without having to expand the number of 
insurers and then, consequently, keeping the price up. We think 
we can do both. And we would love to work with you on that, and 
maybe show you some of the studies, and introduce you to some 
of the experts who we have worked with who have given us 
information on this.
    We think we can accomplish your goal.
    Mr. Scarborough. Great. Well, I would look forward to doing 
that--and I see the red light is on, and I will pass it on to 
our ranking member, Mr. Cummings.
    Mr. Cummings. Tell me something, when you talk about--first 
of all, thank you for being here.
    Ms. Lachance. Thank you.
    Mr. Cummings. We appreciate what you do everyday.
    Ms. Lachance. Thank you, sir.
    Mr. Cummings. When you talk about limiting the pool, talk 
about--explain to us why you see that as being beneficial. In 
other words, the number of insurers.
    Ms. Lachance. I think it is important for a number of 
reasons. And, as you know, Mr. Cummings, your bill and Mrs. 
Morella's bill both limit the number of insurers that are 
involved.
    We are trying to accomplish a number of things with this 
legislation. First of all, we have to not only make it 
available, but we have to make sure that employees understand 
the need for it, and that they understand what is being offered 
to them.
    Our experience, and the experts that we have worked with in 
developing our proposal have informed us, is that when people 
are faced with a complex array of choices, they have a tendency 
to just walk away. If things get too hard, if they are 
bombarded with too many choices, it is going to be very, very 
difficult for people to decide, or they will decide to just 
postpone the decision. And, obviously, what we need to do is 
get people enrolled early and soon.
    So we think we can achieve a flexible package of benefits 
that will meet the needs of individuals with very diverse 
health backgrounds and still keep the premium down and keep the 
take-up rate as high as possible.
    We think it can be done, but we are very concerned that 
having too many insurers involved would just defeat the 
purpose. And, in fact, Federal employees have access to all of 
those products now. And part of the problem this country is 
facing is that Federal employees aren't buying them.
    So we have to do something better, something different, 
something to try to get employees to take a second look at this 
option.
    Mr. Cummings. You think one of the factors--and if you 
listened to Ms. Kramer, she talked about the cost. Do you think 
one of the major factors of this 6 percent that you talked 
about a little bit earlier, then, taking advantage of long-term 
care insurance--do you think a lot of it is the cost?
    Ms. Lachance. I think that is a lot of it. I think that is 
what Mrs. Kramer talked about. That is what my parents talk 
about, and they end up postponing the decision, they end up 
just putting it off for another day.
    We think that we can achieve a great advantage. It is a 
win-win for everybody. Our employees and their families can get 
a better deal if we limit the number of insurers that are 
involved in this.
    Mr. Cummings. How would you see the contracting process 
working? How would that work?
    Ms. Lachance. Well, first of all, we have already started, 
and we are very excited about this, our stakeholder 
conversations. We want to bring everybody in who has a 
viewpoint in this. Yesterday, for example, we met with over 15 
representatives in the insurance industry to start talking 
about the very problems that you are discussing among 
yourselves.
    What we want to do is make sure the employee organizations 
are involved--NARFE, the retirement organizations, the 
management organizations. Of course, we want to work with you 
and try to find a broad consensus, with respect to product 
design and some of the other options, and make sure that there 
is industry capacity to handle this. There, hopefully, will be 
a great wave of people signing up for this insurance.
    Once we have arrived at that consensus, which we believe we 
can achieve, we will issue a request for proposal which will 
look at each company's financial strength and their 
underwriting arrangements. We are going to look at the 
company's demonstrated success for offering insurance of this 
type to other large employers and how well they have done with 
that, their capacity to deliver top-notch services to our 
employees, the features of the product that they can bring to 
the table, and, finally, the price.
    Mr. Cummings. Ms. Norton spoke a little bit earlier about 
the cost that society pays when we don't have this. And I 
mean--I think we all see the urgency and we want to make sure 
this happens. What do you see, I mean the longer we put this 
off? Let's say it is put off for 2 or 3 years. I mean do you 
have any idea what that is costing society?
    Ms. Lachance. I don't.
    Mr. Cummings. The taxpayers?
    Ms. Lachance. Unfortunately I don't have a dollar amount, 
but I think--like Mrs. Kramer--I can talk about the emotional 
toll of that kind of strain, that kind of pressure, that is 
happening every day to families all across this country. And if 
we, collectively, can do a little something to alleviate it, I 
know I will sleep better at night.
    Mr. Cummings. I see my time has run out. Thank you.
    Ms. Lachance. Thank you.
    Mr. Scarborough. Thank you, Mr. Cummings.
    Mrs. Morella.
    Mrs. Morella. Thank you, as usual, for not only your 
testimony but the cooperation that we get from OPM. I value 
that very much.
    And I know that my bill was reintroduced earlier this week 
and, therefore, you didn't have a chance to have it included 
within your testimony, but you were there at the press 
conference, and you've already alluded to some parts of it. It 
goes beyond the other bills that have been introduced that have 
merit. And I do want to see us come out with one bill. But let 
me point out--so I want you to feel free to comment on that 
bill. I mean do you think that that gives OPM the appropriate 
role?
    Let me point out a few things that that bill has in terms 
of--and then ask you how you would respond to it.
    Long-term care insurance policies are guaranteed renewable 
as long as the premiums are paid on time. What will be the 
procedure for dealing with the rights and responsibilities of 
the carriers, OPM, and the policyholders in the event that OPM 
terminates a contract? Have you had a chance to think about 
that?
    Ms. Lachance. We are confident that--and I apologize, Mrs. 
Morella, for not knowing the specifics of your bill--but, in 
our scheme that we are proposing, the contract would expire 
every 5 years. But we are confident that if there is a change 
in carrier or carriers, our beneficiaries and our employees 
will not suffer any adverse consequences for that--that the 
pool of money, their benefits, all of the premiums that have 
been collected can be appropriately transferred from one 
insurance company to another.
    Mrs. Morella. And I would direct you to consider about what 
OPM would do, with respect to the valuation and the disposition 
of the reserves.
    Ms. Lachance. Yes. Do you want to----
    Mr. Flynn. I might try that, just real quickly, Mrs. 
Morella.
    Whether a contract terminates during the period or every 5 
years on renewal, we look at this as something where 
individuals are building up the value of this insurance over a 
long period of time, and we would want to make sure that there 
was separate accountability and that the value that people 
built up, if a contractor changed, didn't diminish. It would 
just simply transfer to a new insurer, and we would move on 
from there.
    Mrs. Morella. How do you see OPM satisfying its obligation 
to administer the program on behalf of those particular 
individuals who enroll with the carrier, once OPM terminates 
the carrier or allows the carrier to leave the program after 
that 5-year period?
    Mr. Flynn. The insurer? It would certainly be our intent to 
maintain an insurer or insurers in the program so as to make 
long-term care insurance available to all eligible individuals 
on a continuing basis.
    There are always circumstances when a particular insurer 
pulls out, and we have seen that, of course. We have examples 
of that in the health insurance program. And we have always 
been successfully able to make arrangements to ensure continued 
coverage for the individuals that are participating. And I 
don't believe that there is anything in the proposal that would 
inhibit our ability to do that.
    Mrs. Morella. You would have to do something like that----
    Mr. Flynn. Exactly.
    Mrs. Morella [continuing]. In terms of preserving, you 
know, the consumer protections that would be absolutely 
necessary.
    Ms. Lachance, you want to comment on that?
    Ms. Lachance. No, I agree that I think there is a way to do 
this so that our employees would see a continuation of their 
coverage without interruption. And we are confident that we 
could resolve any administrative issues that may arise from 
that.
    Mrs. Morella. And dispute resolution----
    Ms. Lachance. We think that is an important----
    Mrs. Morella [continuing]. Adjustments you could----
    Ms. Lachance [continuing]. Feature of both----
    Mrs. Morella. I think it is, too.
    Ms. Lachance [continuing]. Your bill and our bill, that 
consumers have a place to go when there is a problem. There is 
not always agreement. We deal with insurance companies every 
day, and they are honorable people, doing their best to provide 
a very important service, but there are disputes, and we would 
like to make sure that people have one place to go to try to 
get a resolution for that.
    Mrs. Morella. Do you think OPM could handle all of those 
points that I have mentioned--which I think are critical points 
in that what my bill would allocate to you--[laughter]--to 
handle.
    Ms. Lachance. Yes.
    Mrs. Morella. And handle well.
    Are you familiar with the process of negotiating employer-
based group long-term care insurance programs? I guess I am 
asking, what role does the employer play, acting on behalf of 
the group, to make these programs more affordable than an 
individual acting alone?
    Ms. Lachance. We have looked at a lot of private-sector 
experience in this, Mrs. Morella, and what we find is that, 
generally, the employer will act as an advocate to try to get 
the most flexible benefit, at the best price. I think there is 
a recognition, particularly in the long-term care arena that 
individuals just aren't entering the market and aren't buying 
these policies as much as they should be. And this is a way to 
get those costs down and still provide flexibility that 
individuals need to enhance the enrollment rates. We feel we 
could replicate that if the Federal Government----
    Mrs. Morella. So what I am getting at in my question is, 
here are elements that I think are important----
    Ms. Lachance. Yes, ma'am.
    Mrs. Morella [continuing]. That I have allocated to OPM. 
Can you handle them? And, you know, we go from there.
    My final question; how will NARFE be involved in your 
process of working this out?
    Ms. Lachance. NARFE is one of our most important 
stakeholders in this arena. Obviously, they have a lot of 
personal experience with these issues. They also have a 
wonderful amount of institutional knowledge and talented staff 
that they can bring to the table and they have shown their 
willingness to do that. So we are looking forward to continuing 
to work with them on this.
    Mrs. Morella. I agree with you, and I thank you for that 
statement.
    Ms. Lachance. Thank you.
    Mrs. Morella. Thank you, Mr. Chairman.
    Mr. Scarborough. Thank you.
    Ms. Norton.
    Ms. Norton. Ms. Lachance, I am trying to see the difference 
between what you are proposing in the bills that would have you 
operate differently from the role you play in the FEHB program. 
What role would you have if you had--if any company could 
simply come forward and claim Federal employees? What role 
would OPM have, then?
    Ms. Lachance. We would have a limited educational role 
because if there were competing companies, we could not, in 
fact, then, be the cheerleaders that we would like to be for 
this.
    Part of the reason we want to do this is to get more people 
to buy at an earlier age. We are very concerned that, much like 
the FEHB program which has a variety of insurers involved, that 
we would have to stand back and be neutral. We think that is 
the wrong approach for this product, and we would like to be 
able to go in and be cheerleaders and encourage people to get 
that, so we would have a limited----
    Ms. Norton. You could not comment--are you saying you 
couldn't comment on the practices of the particular insurers?
    Ms. Lachance. I think it would be very difficult to do that 
if we had people who were competing against each other.
    Ms. Norton. Even if you knew some things that people ought 
to know? Even if you knew some things that the employees ought 
to know?
    Ms. Lachance. I think so.
    In addition to that, we obviously would be the people who 
would withhold the premium payments from employees' paychecks 
or retirees' annuity checks and forward those on to the various 
insurance companies.
    Ms. Norton. So you, in a sense, would be doing the 
administrative work for the insurance company?
    Ms. Lachance. Yes, ma'am.
    Ms. Norton. Because they would be working through you, 
rather than on an individual basis? So that would relieve them 
of, I take it, substantial amounts of money and administrative 
costs?
    Ms. Lachance. That is possible.
    Ms. Norton. But those administrative costs would be paid by 
whom?
    Ms. Lachance. OPM.
    Mr. Flynn. And the individual departments and agencies with 
their payroll systems.
    Ms. Norton. Would the employee pay any part of those 
administrative costs?
    Ms. Lachance. I don't think so.
    Mrs. Morella. If the gentlelady would yield?
    Ms. Norton. I will yield.
    Mrs. Morella. In my bill, they would. I mean that is one of 
the differences, is that mine does not depend on governmental 
exigencies and vicissitudes. It has the stability in that it is 
passed on and is leaned away as possible because it would be--
--
    Ms. Norton. Oh, but listen to this.
    Mrs. Morella [continuing]. To the employees.
    Ms. Norton. Well, listen to this.
    Under Mrs. Morella's bill, the employee gets stuck with the 
administrative costs. [Laughter.]
    And without her bill, the taxpayers get stuck with the 
administrative costs. But who does not get stuck with the 
administrative costs are the insurance companies.
    Ms. Lachance. That is correct.
    Ms. Norton. I say this so my friends in the next panel will 
already know--[laughter]--I say this, although----
    Ms. Lachance. They can leave now. [Laughter.]
    Ms. Norton [continuing]. Before I came to Congress, I was 
on the board of the Metropolitan Life Insurance Co., and I 
don't think life insurance companies--at least the ones at that 
level--are hurting terribly much. I do know some Federal 
employees that are hurting much. And I do know that--look, the 
health care dollar--the thing that kills me about the health 
care dollar is the way in which administrative costs eat it up. 
Not, of course, in Medicare, where the Government plays a role, 
but the administrative cost of health care and this problem, I 
would not like to see repeated for long-term care, where we 
don't do what is necessary to contain those costs and end up 
paying those costs which could, otherwise, go to the underlying 
care.
    Let me ask you about the premiums. If you enroll early and 
pay a low premium, would your premium go up, or would it remain 
stable because you enrolled early?
    Ms. Lachance. We are trying to envision a system where it 
would remain stable, although we would like to give the 
opportunity, at various points in time, for the enrollee to 
purchase inflation protection. But the premium would remain 
stable, and that is the advantage of coming in early.
    Ms. Norton. This is a huge incentive.
    Ms. Lachance. Yes.
    Ms. Norton. Especially when people know what it could cost 
if they don't come in early, and especially since you are 
apparently talking about low premiums.
    And you think low premiums would work because of the nature 
of our risk pool? That is to say that, because it is so 
diverse, that you could contain these premiums, because of the 
age diversity of the risk pool?
    Ms. Lachance. That is exactly right, Congresswoman. We 
anticipate savings of 15 to 20 percent. And that has to be a 
better deal than what is available now.
    Ms. Norton. But how would this work if, in fact, these 
people were spread across hundreds of companies? I mean how 
could the low rates be maintained?
    Ms. Lachance. Then we would lose the advantage of a group 
rate.
    Ms. Norton. So what we want is to encourage as many people 
to choose the best companies as possible--as many people as 
possible to choose the best companies because, together, they 
keep the cost down.
    Ms. Lachance. And that would be very, very hard if we had a 
lot of companies, which is why we are very interested in 
limiting the number of insurers who are involved in this 
benefit plan.
    Ms. Norton. Well, how many companies are in this business 
anyway? I mean, a lot? [Laughter.]
    Ms. Lachance. There were 15 yesterday. [Laughter.]
    Mr. Flynn. Good answer. [Laughter.]
    I think that the number that offer group insurance policies 
run about a dozen, but there is a much larger number of 
companies that offer individual policies in the market.
    Ms. Norton. In your investigations, have you found the 
group insurance business growing at any particular rate? I mean 
is this something that is a growth industry in this country?
    Ms. Lachance. Well, it is growing because I think employers 
see the need to offer this benefit to their employees, so that 
seems to be growing. I would have to defer to the insurance 
companies to find out how they are doing on their individual 
business.
    Ms. Norton. Are you modeling your group notions after 
anything that is now in the marketplace?
    Ms. Lachance. We are using as a standard and as a model, 
the plan that has been developed by the Association of State 
Insurance Commissioners who have been working on this situation 
very hard and who incorporate a number of the features that are 
in both Mr. Cummings' bill and Mrs. Morella's bill.
    Ms. Norton. Thank you.
    And thank you, Mr. Chairman.
    Mr. Scarborough. Thank you, Ms. Norton. I am glad to know 
that you were on the board of MetLife, and I am sure they are 
still pleased with their wise decision. [Laughter.]
    Especially after your questions today. [Laughter.]
    Any MetLife representatives here?
    Now, returning to us again is former chairman, Mr. Mica. 
Glad to have you back.
    Mr. Mica. Thank you, Chairman Scarborough.
    Ms. Norton. Would the gentleman yield for a moment?
    I would just like to note for the record that the 
youngsters coming into the room are from Barcroft Elementary 
School, and these are children from the District of Columbia 
who are part of a program that I have in the Congress called 
``D.C. Students in the Capitol''--so you won't grow up in 
Washington, DC, and never been to the Capitol, or seen a 
hearing, or met your own Congressman, or met Chairman 
Scarborough. [Laughter.]
    Mr. Scarborough. All right. [Laughter.]
    Which let me tell you, children, is a very important thing. 
[Laughter.]
    [Applause.]
    A very important thing for your education. Unfortunately, 
we are going to hurt your education now by letting you----
    Ms. Norton. Oh, no. [Laughter.]
    Mr. Scarborough [continuing]. Speak to Chairman Mica. 
[Laughter.]
    I am just joking. Go ahead. [Laughter.]
    Actually, I would like to turn it over to Chairman Mica who 
has been extremely helpful in getting us to this point and also 
helping me out.
    Mr. Mica. Thank you, Mr. Chairman. And I was going to say 
some nice things--[laughter]--but I will get right to my 
regular standard operating procedure which is to pick on OPM.
    Where are we on our life insurance project? [Laughter.]
    Are we still studying it?
    Mr. Flynn. We have a deadline of May 1, I believe, to 
submit a report. I believe that is the correct date and should 
have it in plenty of time for you, sir.
    Mr. Mica. What disturbs me about your proposal for long-
term care is it almost models what we are trying to do away 
with, with the life insurance fiasco that has been in place for 
40 years without real competition and to me served a great 
disadvantage. I happen to be a Federal employee, believe it or 
not, and I don't like the terms of my life insurance, and I am 
not looking very kindly on what is being proposed to either a 
single system or very limited competition for long-term care. 
That wasn't my idea in the beginning.
    I don't know how anyone can look at a group of 1.8 million 
Federal employees, 2.2 million Federal retirees, a pool of that 
number, and not be able to provide some access to very 
competitive rates in life insurance and long-term care 
insurance. And the people who are part of employee groups ought 
to be just astounded that you can go back and face your Federal 
employees and tell them that it is March 1999 and they don't 
have lower life insurance costs, better benefits. The 
provisions in law are absolutely pitiful for spouses in the 
life insurance area.
    Then we got by with this study which further delays the 
process. And now to not have long-term health care and access 
for a group like that--if this was a private organization and 
any of you all worked for me, I would fire every one of you.
    So, those are my sort of--[laughter]--opening statements. 
And to come with a proposal like this today, to take us back to 
the dark ages of no competition, little access, and probably 
higher premiums, I think is a step in the wrong direction.
    I don't know if that is a question, Mr. Chairman, or not, 
but----
    Mr. Scarborough. That doesn't sound like one to me, Mr. 
Chairman, but----
    Mr. Mica. But I am really stunned.
    OK, Ms. Lachance, how can you tell me that having one 
carrier--and, again, how can we have the Government administer 
anything more efficiently than the private sector? You are 
going to do the administrative work you are saying? OPM is 
going to do it?
    Ms. Lachance. Yes, sir.
    Mr. Mica. Is there any calculation how many people will be 
involved?
    Ms. Lachance. Approximately 15 full-time.
    Mr. Mica. Oh, yes; we hear that. I want that--that should 
be encoded. We ought to get a chisel and stone and say, 
``approximately 50.'' If they could administer any program with 
50 people, I would love to live to see the day, to service 
those kind of folks.
    The intent here was to get the private sector to offer a 
group rate, get as many people competing, because we have 
hundreds of thousands of potential participants in this, not 
just in Washington, DC, but across the land, possibly overseas, 
and getting organizations out there to give us some benefit 
because we have a large viable group.
    So you all are taking a simple idea and making it into a 
potential bureaucratic nightmare and delaying the process. So I 
just don't see, for the life of me, how a proposal that, again, 
relies on Government to administer, it limits the choices, and 
it does not create competition that can be effective.
    Would you want to comment?
    Ms. Lachance. Well, we certainly appreciate your 
perspective, Mr. Mica. And we enjoyed working with you for the 
last several years on some of the----
    Mr. Mica. Unfortunately, I am still around.
    Ms. Lachance. Well--[laughter]--and I am happy for that, 
because you do provide a unique perspective--[laughter]--on 
some of these issues that I think is important for us all to 
deal with.
    But we believe, sir, that we can find a way to design these 
benefits that provide enough flexibility to meet the individual 
needs of all of the different kinds of people who are going to 
need access to this insurance.
    We also believe that Federal employees have access to much 
of what you are describing today, and they are not buying it. 
Nobody is buying it, because it is so expensive.
    Mr. Mica. Well that was the purpose for having a group come 
together.
    Ms. Lachance. Well----
    Mr. Mica. And also maybe offering some options, some 
benefits for assistance in payment from their Federal partner, 
their employer, so that this is available: One, on a more cost-
effective basis; and, two, that we are a participant in making 
this available.
    I don't know what kind of impact this will have on some of 
the other Federal health care systems, but I am sure some of 
our Federal employees are now relying on other Government 
programs for that assistance--so, some creative ways in which 
to access that care.
    Ms. Lachance. Well, unfortunately, it has alluded us about 
how we would arrive at a group discount using your system. So 
perhaps we can sit down with you to try to talk to you more 
about what it is you are trying to achieve. But the way we look 
at it----
    Mr. Mica. Well, I could achieve it in 30 to 60 days sitting 
down with some carriers and say, ``This is basically what we 
want to offer. We have this many folks, and we would like to 
make this available. What kind of a group rate, if people 
enroll, can you give us? What kind of a special deal can you 
give us for people to participate?'' Not turning this into some 
complex bureaucracy. It is just like life insurance.
    It is appalling that we do not offer more options to our 
Federal employees. They are paying higher premiums and getting 
less. They are getting screwed.
    Ms. Lachance. I believe----
    Mr. Mica. The kids have gone. [Laughter.]
    Ms. Lachance. Thank you. [Laughter.]
    You made me nervous. [Laughter.]
    Mr. Mica. And what are we doing? We are studying it more. 
All I want is to provide--and I have a selfish interest; I am a 
Federal employee. I need life insurance. I am getting older. 
You all are causing me great stress and pain. [Laughter.]
    I could go at any minute, or I could end up in a long-term 
facility--[laughter.]
    So I am very parochial about my interest in this. Just make 
it available; OK? And usually the private sector can do it, 
administer it, very well. And I think part of our role, or 
OPM's role, would be to monitor the quality, see who--set the 
standards for this, see that they are performing well. And we 
keep those pools available of life insurers, of long-term 
health care--and it is just like we do with FEHBP, to a degree. 
We have a small--it is a great program. It services 4 million 
people, retirees and employees----
    Ms. Lachance. With 160 employees.
    Mr. Mica [continuing]. And 5 million dependents, almost 10 
million, Mr. Chairman. You oversee the largest health care 
system for employees in the country, with 100 employees?
    Ms. Lachance. 160.
    Mr. Mica. 160. Well, that is getting a little bit big but, 
in any event, that is what I had envisioned.
    Mr. Flynn. Mr. Mica, if I could offer just one observation. 
You cite the FEHB. I would simply say that if you looked at the 
Federal Employees Health Benefits Program and the number of 
insurers that offer products there, the type of market and the 
evolution of that market for long-term care is in striking 
contrast.
    And one of the things that we want to do, given the fact 
that take-up rates for long-term care insurance are about 6 
percent, is to focus a really good comprehensive, flexible 
benefit program on one or a handful of carriers so that we can 
do everything in our power to be a cheerleader, to get people 
to enroll, so that we can get to a level of maturity where 
perhaps some day, any number of carriers could participate 
because the products were, more or less, standards, the 
benefits were well-understood, and we could come in, like we do 
with the FEHB----
    Mr. Mica. Well----
    Mr. Flynn [continuing]. Where you could see that work that 
way.
    Mr. Mica [continuing]. I would rather that we opened it to 
all who qualifies, set those qualifications and do it now 
rather than later.
    And, also, you find a changing market, just like in health 
care. In health care, 15 years ago, my sister called me from 
California and she told me that she was joining an HMO, and we 
thought she--the Kaiser plan or something. We thought she had 
joined a ``hippie'' farm--[laughter]--in California. I had 
never heard of an HMO, and I hadn't heard of Kaiser.
    And today, you know, HMO's control a large portion of the 
market, so I don't see any reason why we can't make this 
available, sooner rather than later, have more competition 
rather than less, and, again, provide it across the broad 
spectrum. And some people don't fit into our neat Washington, 
DC environment. We have got Federal employers, as I said, all 
around the world, and if they want to access this, now, on 
these terms, we should do that and then make it flexible as we 
go along.
    So, I have taken too long in my--I tried, Mr. Chairman, 
but----
    Mr. Scarborough. Oh, I didn't even notice that the red 
light was on.
    Mr. Mica. A former chairman gets some minor leeway. I thank 
you and yield back--[laughter]--the balance of my time. 
Extended time. [Laughter.]
    Mr. Scarborough. Thank you, Mr. Mica, for making your 
presence known to the committee once again--and OPM. We 
actually have changed things. We actually have one of these 
little green lights now that when it gets to 5 minutes--this 
year.
    But I do thank you for your insight, and I think you bring 
up a good point about FEHBP. In fact we have 300 insurance 
carriers right now to cover a pool of 4 million which, I think, 
that is a better approach, myself.
    Mr. Allen.
    Mr. Allen. Thank you, Mr. Chairman. My apologies for being 
late. This is a difficult morning. As other Members know, you 
sometimes have everything going on at once.
    But I want to thank both of you for being here and the 
others who have already testified.
    I would like to continue a little bit along the lines that 
were being discussed when I came in. Mr. Mica said that he 
favored more competition rather than less, and I want to think 
about this question of price and how we get the best deal for 
employees. Because it seems to me, from my private-sector 
experience, that the existence of long-term care insurance does 
not mean that people go out and buy it. It is still a product 
that is not widely purchased. And it seems to me that we would 
be mistaken to equate more competition with more companies. 
Because I would believe that if you add, say, a handful--one or 
two or three or a handful--of carriers, who are able to offer 
long-term care insurance to this vast pool of people, that that 
is how you get the most competition, that is how you get the 
best price.
    I would really be interested in your reaction to that. And 
please respond to the suggestion that you have 300 insurance 
carriers, I take it, under the FEH----
    Ms. Lachance. BP--[laughter.]
    Mr. Allen [continuing]. BP. What you think the differences 
are between the health care insurance and the long-term care 
insurance that you envision providing.
    Ms. Lachance. I am sure that Ed could help me with more 
detail, but we agree with you Mr. Allen, that in fact trying to 
work with a small number of companies to come up with a 
flexible benefit designed at a group rate would be much more 
financially advantageous to our potential enrollees than just 
having a variety of choices, all of which are available now and 
which I think everyone will acknowledge, we are having a 
difficult time convincing people to buy.
    It also would help us in our ``cheerleader'' role, as we 
have called it here. If we are involved with a number of 
companies, as we are with FEHBP, we maintain a neutral posture. 
What we have to do with this is go out there and convince 
people to spend extra money on this very important coverage, 
and do it at a young age when they are far more likely to think 
they will never need anything like this.
    So there is a formidable challenge ahead of us, and we have 
really looked at this and thought this was the best way to 
achieve it.
    One of the differences with the Federal Employees Health 
Benefits Plan is that 85 percent of those who are eligible to 
buy health insurance through the Federal Government do so. We 
don't have a penetration problem there. People understand the 
system; they have been doing it for years. Everyone wants 
health insurance. We make the information available. It is a 
very different kind of effort. This time, we have to convince 
people to even do this. That is not a hurdle that we have with 
the health insurance benefit.
    Mr. Allen. Mr. Flynn.
    Mr. Flynn. Couldn't do any better than that, sir. 
[Laughter.]
    Mr. Allen. OK.
    I don't know whether this has been covered before, but I 
assume that inevitably, at some point down the road, there will 
be some sort of claims disputes that would typically happen, I 
assume, after someone has left Federal employment. Is there any 
role for OPM dealing with claims disputes?
    Ms. Lachance. It could happen at any time, because what we 
are hoping is to try to get benefits that are so flexible that 
if something does happen to you during your work life and you 
need some additional assistance with it, you can use the 
benefit to pay for that. So, it could happen while you are 
still working.
    But what we would like to do is similar to what we do with 
the health benefits plan, try to sort things out between the 
enrollee and the plan. We have a great, successful record in 
that, in trying to resolve issues, trying to explain the 
situation to all the parties, and we have been very, very 
successful. And we think we could do it with this benefit as 
well.
    Mr. Allen. In the case that would come up when someone is 
still in Federal employment, is that a case of a severe 
disability, or am I missing something about the long-term care 
insurance?
    Mr. Flynn. Mr. Allen, it could be any of a variety of 
needs. The benefits of this type of insurance typically engage 
when you are unable to perform two or more of what are commonly 
known as activities of daily living, and that can occur for a 
variety of reasons, not just older age.
    Mr. Allen. Right.
    Mr. Flynn. And so it is conceivable that you could have 
employees participating and getting benefits from this program, 
though, clearly, it is expected that the large majority of 
people would need it in their later years.
    Mr. Allen. Thank you, Mr. Chairman.
    Mr. Scarborough. Thank you so much, Mr. Allen.
    We need to let you all go on, and I would say that anybody 
else that has questions, feel free to submit them.
    Ms. Lachance. We will be glad to answer.
    Mr. Scarborough. I do want to ask you just one final line 
of questions, very quickly, because it is not exactly clear 
what the administration's position is, and I don't think Mr. 
Cummings bill really addresses this directly.
    Do you believe that the Government should require carriers 
to offer policies on a guaranteed issue basis? If so, wouldn't 
that have a pretty substantial impact on the actual price of 
these policies?
    Mr. Flynn. Let me try that, if I could, Mr. Scarborough.
    That is an essential component of the benefit design, and 
so all of those questions have not been fully flushed out right 
now. I think that what we are trying to do--and I think 
everybody is trying to do the same thing--is craft a benefit 
design and eligibility to participate in the program that, 
particularly for employees, offers the most access for the most 
people possible.
    If we get into a situation where policies are issued with 
guarantee issue, no underwriting whatsoever, that will have an 
effect on premium, and we need to find the best balance of 
that. So we are looking at anything that ranges from guarantee 
issue to some form of minimal underwriting and trying to 
understand the implications of that, in terms of benefit design 
and premium.
    As the Director has noted, we will be meeting, have 
started, and will continue to meet, on these issues and develop 
a consensus around that to meet that objective. So that is not 
something that has been completely nailed down at this point.
    Mr. Scarborough. Well, great.
    Mr. Flynn. And I think that it is part of why we think it 
is very important to have a flexible benefit design because: 
One, we want to make sure that it reflects consensus, and, two, 
that as time goes on, we want to make sure that it remains 
contemporary.
    Mr. Scarborough. OK. Well, thank you. We certainly can ask 
our next panel what, in fact, they believe that is. I have 
heard that having that in would possibly increase premiums 
anywhere from 25 to 35 percent for everybody. If this Federal 
Government plan is going to serve as a model for the private 
sector and employers, that causes me grave concern, because it 
prices almost everybody out of the market.
    So thanks a lot. We certainly appreciate it and look 
forward to seeing you again soon.
    Ms. Lachance. Thank you.
    Mr. Scarborough. Thanks.
    Now we will call up our next panel.
    Before we start with our next panel, I would like to ask 
unanimous consent that the document from Fortis Insurance Co. 
that is contained in everybody's packet be entered into the 
record.
    Without objection, we will order that.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] T7738.032
    
    Mr. Scarborough. Our third and final panel includes David 
Martin, of the American Council of Life Insurance; Kenneth 
Grubb, New York Life Insurance Co.; and David Brenerman, also 
from Mr. Allen's home State, on behalf of the Health Insurance 
Association of America.
    We certainly welcome all of you and like to ask that you, 
please, rise to take the oath.
    [Witnesses sworn.]
    Mr. Scarborough. Thank you.
    Mr. Martin, why don't we start with you.

    STATEMENTS OF DAVID S. MARTIN, AMERICAN COUNCIL OF LIFE 
 INSURANCE; KENNETH A. GRUBB, NEW YORK LIFE INSURANCE CO.; AND 
  DAVID H. BRENERMAN, HEALTH INSURANCE ASSOCIATION OF AMERICA

    Mr. Martin. Good morning, Mr. Chairman.
    Mr. Scarborough. If you could move the mic further over.
    Mr. Martin. Good morning, Mr. Chairman, and members of the 
committee.
    I am David Martin, general director of long-term care at 
John Hancock Mutual Life Insurance Co. I also serve as chair of 
the long-term care committee for the American House of Life 
Insurance.
    The ACLI represents 493 member companies; 88 percent of the 
long-term care insurance marketplace is represented by ACLI-
member companies.
    On behalf of the ACLI, I want to thank you for the 
opportunity to talk about the legislation introduced by you, 
Mr. Chairman.
    ACLI supports the efforts of the subcommittee and the 
administration with regard to offering long-term care insurance 
to Government workers as an employee benefit. This benefit is 
an integral part of employees' retirement security. Without 
this protection, retirement savings can be wiped out with just 
one long-term care episode. We look forward to working closely 
with you and your subcommittee members on this issue, as well 
as with the Office of Personnel Management.
    Within 30 years, 32 States will have the demographics that 
Florida has today. ACLI's 1998 study on ``baby boomers'' 
indicates that Medicaid and the individual out-of-pocket long-
term care expenditures could rise by over 360 percent by the 
year 2030. That study was presented to the subcommittee last 
year. The aging of the population has focused national 
attention on long-term care, including bills to extend further 
favorable tax treatment such as an above-the-line deduction or 
tax credit.
    Turning to the legislation introduced to offer long-term 
care insurance to Federal employees, we note that Senators 
Grassley and Graham have introduced S. 36, the same measure 
introduced in the last Congress by Mr. Mica, the former chair 
of the subcommittee. In addition, Senator Mikulski has 
introduced S. 59, the administration's bill, as Mr. Cummings, 
the ranking member of this subcommittee, has introduced H.R. 
110, the administration's bill on the House side. Within the 
past couple of days, Mrs. Morella has introduced a long-term 
care bill as well. Your bill, Mr. Chairman, H.R. 602, has been 
introduced this year, along with Mr. Mica and others.
    ACLI's long-term care committee believes that a competitive 
bidding process, where group and individual insurance carriers 
have the opportunity to compete on a level playing field, will 
result in the most successful Federal program.
    Clearly, individuals have different long-term care needs. 
Based on our experience dealing with large employers, it is 
appropriate to offer employees a variety of options. We believe 
the criteria for offering long-term care insurance to Federal 
employees should also include the following.
    Only HIPAA-qualified plans should be offered to Federal 
employees. In addition to their tax-favored status, qualified 
plans include strong consumer protections. The Federal long-
term care insurance program should also reflect the June 1998 
NEIC models which contain additional consumer protections. 
There must be a reasonable and affordable plan design and risk 
selection process that recognizes current practices in the 
private sector. The process used to evaluate and select 
carriers should be consistent so that there is a level playing 
field. Any program and participation requirements should be 
consistent for all carriers.
    We believe OPM may choose a group of carriers, including a 
consortium of carriers, to ensure the program. We believe that 
the best way to provide for a successful program is for the 
risk to be spread over several carriers, since a group this 
large is many times greater than any group underwritten by a 
single carrier today.
    A competitive bidding process will ensure that the Federal 
employees, annuitants, and other eligible family members will 
have a high-quality, long-term care insurance program with 
appropriate features and plan design options at reasonable 
rates.
    Carriers participating in the Federal long-term care 
program must describe their care and claims management 
practices to OPM and to plan participants. A key service is 
assistance by RN's and finding services, that coupled with 800-
numbers, oftentimes, with 24-hour service.
    There must be a reasonable claim appeal process that will 
deal fairly with disputed claims. Carriers will be the final 
determinant of eligibility for benefits. This is in keeping 
with standard practice for ensured long-term care products 
today. Carriers must individually, or in a consortium, be 
licensed to provide long-term care insurance nationwide. 
Carriers must describe the resources they would commit to 
marketing the program, and overall administration of the 
program should recognize legitimate expenses and reasonable 
risk margin of the insurers.
    Successful marketing efforts for the long-term care 
insurance program require a strong partnership between the 
employer and the carriers. We both share the common goal of 
maximizing participation in the plan, and both play an active 
role in developing and implementing a successful enrollment.
    Carriers must describe their performance standards for 
their administrative services. OPM would have the authority to 
monitor the performance of the selected carriers and authority 
to terminate for cause. Once carriers are selected there should 
be a fixed period of time during which those carriers are 
designated carriers for the program, except for termination due 
to cause.
    An educational component is critical to the success of the 
program. Offering private long-term care insurance, as a core 
Federal Government benefit for its employees, needs to be 
coupled with an educational program to increase awareness among 
Federal employees and their families about the importance of 
planning ahead for long-term care.
    The Federal Government can take a leading role in ensuring 
that people plan for their future by offering this benefit to 
its employees and their families.
    Thank you, Mr. Chairman, and members of the committee. And, 
again, we look forward to working with you.
    [The prepared statement of Mr. Martin follows:]
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    Mr. Scarborough. Thank you very much, Mr. Martin.
    Next we have Kenneth Grubb, and Mr. Grubb, from New York 
Life Insurance, will present the views of carriers who sell 
individual, as opposed to group, insurance products.
    Mr. Grubb.
    Mr. Grubb. Thank you, Mr. Chairman, and members of the 
subcommittee.
    Those of us who believe in the importance of long-term care 
insurance appreciate your leadership in calling today's hearing 
to examine ways to bring this important benefit to Federal 
employees.
    We, at New York Life, are very interested in working with 
you and the Office of Personnel Management to make long-term 
care insurance available to the largest possible number of 
people throughout the country.
    Wide acceptance of long-term care insurance, on a private 
basis, is a win-win for taxpayers and the Government, 
especially in view of the fact that most Americans continue to 
mistakenly believe that Medicare and Social Security will cover 
their long-term care needs. Through the committee's efforts, 
more people will come to understand that Medicare and Social 
Security do not cover the cost of long-term care, except in 
very limited circumstances.
    Under a Federal employee program, thousands of people will 
take it upon themselves to arrange for their own coverage, 
saving the Medicaid program billions of dollars and easing the 
financial burden on family and friends.
    I am confident that the committee members are well aware of 
the high cost of long-term care; 2 million Americans are in 
nursing homes today, and nearly $56 billion of Medicaid's $161 
billion budget is spent on long-term care. Combine the rapid 
growth of the over-age-65 population with the fact that 70 
percent of single individuals and 50 percent of couples with 
one partner in a nursing home are impoverished within 1 year, 
then you quickly see the burden facing us all if insurance 
against this risk is not used on a broad basis.
    Prompt availability of long-term care insurance to millions 
of Federal employees and annuitants will go a long way toward 
spreading the positive message about the availability of this 
product and the peace of mind it can provide.
    Sadly, many relatively young people who are aware of 
private long-term care insurance believe this product is just 
for older folks. But think about this; of those currently in 
nursing homes, 40 percent are under the age of 65. Who would 
have imagined that actors Christopher Reeves, Superman, and 
Michael J. Fox, the picture of perpetual youth, would be facing 
years of long-term care need?
    I am just like Mrs. Kramer; when she was telling her story, 
I was really moved because I have lived that same story myself. 
My parents--first my dad with Parkinson's and then my mother 
with emphysema--were faced with very painful choices. Blue-
collar workers all their lives, with only Social Security and 
personal savings for support, they had very few options. They 
could spend-down their limited assets and take Medicaid 
coverage or--and this was the really good one that I could 
never bring to my parents' attention--get divorced, after 62 
years of marriage and pass all my dad's assets to my mother so 
that he could qualify for Medicaid. Hardly attractive choices 
for proud, hard-working taxpayers who never wanted a Government 
handout.
    I was lucky enough to be able to pay for the care my 
parents received, but for millions of Americans, financial 
hardship in one's later years is all too real. That is why this 
effort to bring long-term care insurance to so many is a cost-
effective way to help people maintain their dignity and give 
them the choices that they have earned after years of hard 
work.
    Mr. Chairman, we are pleased to note that some of your 
colleagues are promoting bills to offer tax incentives and to 
encourage public education toward the purchase of long-term 
care insurance. The strengths of your legislation are many. 
Wide eligibility--including spouses, parents, in-laws, 
children, and step-children of Federal employees and 
annuitants--means a broader, younger risk pool and lower 
overall costs.
    The use of a competitive, multi-carrier model that lets the 
marketplace dictate costs and benefits is key to both wide 
acceptance of the product and long-term commitments from 
strong, reliable carriers.
    We are concerned about limiting the program to group 
policies. Many companies currently offer discounts on 
individual contracts or have specific, individual policy forms 
priced for offering on a sponsored group basis. These 
individual contracts are competitive with group coverage and 
ought not to be excluded from consideration of the program.
    But most importantly, please ensure that the coverage is 
totally portable. H.R. 602 preempts State mandates, giving us 
the opportunity to offer a uniform package of benefits at the 
lowest possible price on a nationwide basis.
    Like the American Council of Life Insurance and the Health 
Insurance Association of America, we strongly endorse the use 
of qualified long-term care insurance contracts, as defined in 
the Health Insurance Affordability and Accountability Act of 
1996.
    We urge that the committee move expeditiously to approve a 
long-term care insurance program for Federal employees. The 
longer it takes, the older we get, and the more it will cost.
    Thank you for the opportunity to participate. And with my 
colleagues, I will be happy to answer questions.
    [The prepared statement of Mr. Grubb follows:]
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    Mr. Scarborough. Thank you, Mr. Grubb.
    Mr. Brenerman.
    Mr. Brenerman. Yes. Good morning, Mr. Chairman, and members 
of the subcommittee.
    I am David Brenerman, second vice president of Government 
Relations for UNUM Life Insurance Co. of America, based in 
Portland, ME. I am also the immediate past chairman of the 
long-term care committee of the Health Insurance Association of 
America.
    HIAA is the Nation's leading health insurance trade 
association representing members that provide health, long-term 
care, disability, and supplemental coverages to more than 115 
million Americans. My company, UNUM, is the Nation's leading 
provider of disability income insurance and is a leader in both 
the employer and the individual long-term care insurance 
markets.
    I am here to comment on the bills H.R. 602 and 110, which 
propose to offer long-term care insurance to Federal workers 
and annuitants. And, also, I want to comment on the critical 
role this insurance can play in financing our Nation's long-
term care needs.
    I would first like to commend the subcommittee and the 
Clinton administration for realizing the potential of the long-
term care insurance market. Today, more than 100 companies 
provide long-term care insurance to over 6 million people. In 
addition, over 1,800 employers have now sponsored a long-term 
care insurance plan for their employees. Long-term care-related 
expenses cost employers $29 billion a year in lost time, 
employees, and productivity.
    Many believe that long-term care insurance can have its 
greatest impact in the employer-sponsored market. With the 
Federal Government, the Nation's largest employer, offering 
this benefit to its employees, this impact would be magnified 
tremendously.
    HIAA would like to raise the following points, with respect 
to these bills.
    First, the key to a successful Federal long-term care 
insurance program is an effective education and marketing 
campaign. Successful employer plans invest in multifaceted 
education and marketing programs. The Federal Government's 
endorsement and active role in educating employees is critical 
to the success of this program.
    Second, it is essential that market competition determine 
carriers that will offer plans under the Federal program. All 
interested companies should be allowed to freely compete in a 
fair selection process that will determine eligible 
participating carriers.
    Third, using artificially low premiums as a major 
determinant of, ``good'' long-term care products is a dangerous 
route to take. A policy with rich benefits at low premiums, 
offered with minimal underwriting, is a sure sign of disaster. 
Integrating such concepts for Federal employees signals a 
program with unstable premiums in a market that cannot be 
sustained. Such a scenario would likely discourage responsible 
companies from participating, thus, attracting only companies 
that participate to gain quick market penetration, but with the 
intention of raising premiums in the near future.
    Fourth, the Office of Personnel Management should not be 
responsible for adjudication of disputed claims for benefits. 
HIAA opposes any type of third-party claims adjudication. There 
is little evidence of abuse in this area, but more importantly, 
there is no precedent for this in any public or private long-
term care employer plan. Given the exposure insurers face in 
paying potentially enormous amounts of long-term care benefits, 
it is an unwise and unfair public policy for the employer to 
make claims decisions. Instead, HIAA supports a fair appeals 
process within the insurance company for contested claims.
    Fifth, program funds should not be maintained separately 
from a carrier's other contracts or lines of business. This 
requirement is unnecessary. The financial stability of a 
company's long-term care business is enhanced because of the 
diversity provided by the entire company's portfolio. This is 
especially important for the Federal program during its initial 
stage when its viability is still not proven. A more 
appropriate requirement would be that reporting of this 
program's claims experience be available and that this report 
be separate and apart from the carrier's other business.
    Long-term care is the largest, unfunded liability facing 
Americans today. HIAA applauds long-term care programs that 
encourage personal responsibility, help people currently in 
need, and increase educational efforts.
    The administration and congressional proposals have an 
important common factor. The recognition that private long-term 
care insurance plays is a vital role in helping people pay for 
their future long-term care costs.
    I would like to commend Congress for passage of long-term 
care insurance tax clarification in the HIPAA law passed a 
couple of years ago. These have improved the climate for 
private long-term care insurance. Nevertheless, we believe that 
other tax-related changes could make long-term care insurance 
more affordable for a greater number of people--like Judy 
Kramer, who spoke earlier.
    In summary, over time, HIAA fully believes that private 
long-term care insurance will give millions of people an 
opportunity to be financially independent throughout their 
retirement years. Recognition of the private long-term care 
insurance market in this hearing is a solid step in that 
direction.
    Thank you, Mr. Chairman, and members of the subcommittee. 
And we look forward to working with you on this legislation.
    [The prepared statement of Mr. Brenerman follows:]
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    Mr. Scarborough. Thank you, Mr. Brenerman. We certainly 
appreciate your testimony and the testimony of the panel.
    I want to start my questioning with the question that I 
ended with our friends from OPM, and that has to do with the 
guaranteed issue basis. There is some question right now 
whether the administration is going to want to move in that 
direction or not. That means, as you all know, if they do, that 
everybody is eligible. It doesn't matter how young or how old, 
how healthy, how unhealthy. Our approach is more modified for 
active employees, and we allow underwriting for everybody else 
that applies.
    Could you delve into this issue? I think this is a critical 
issue for us to clean up. What type of impact would it have on 
premiums for employees, not only in the Government, but 
employees in the private sector if their companies had a 
guaranteed issue requirement?
    Mr. Martin. Yes, actually, you know I think you have to 
look at guaranteed issue as a plan design feature that does 
carry with it some price consequences. You know, what you want 
to do, I think, is certainly have as many insureds as you can 
reach in the Federal program, but you want stability of 
premiums for those insureds. And the looser the underwriting 
is, then the more likely it is going to be that you will have 
some immediate claim exposure.
    So there are examples in the private sector of both 
guaranteed issue for employees. Some plans will not allow 
guaranteed issue employees to come immediately into claim. 
There are alternatives, perhaps, what is called, ``modified 
guaranteed issue,'' where there are three short-form questions 
that are answered--basically, a statement that you are not 
currently receiving long-term care services. And there are 
different ways to do it and still keep the plan simple and not 
put the plan at the risk of having higher premiums. But they 
are all options that you would have in designing the plan.
    Mr. Scarborough. If we did have a guaranteed issue, that 
would drive the prices up fairly radically, in your opinion?
    Mr. Martin. It would drive them up, certainly. I think I 
would have to rely on actuaries to look at the demographics of 
the Federal population, but I would certainly think that you 
are talking, at a starting point, at least a 10 percent premium 
increase because of some immediate exposure.
    Mr. Scarborough. Right.
    Mr. Martin. But looking at, you know, what the demographics 
of your population would be, I think would give you a better 
feel for that.
    Mr. Scarborough. Mr. Grubb, or, Mr. Brenerman, I have heard 
that it would cost as much as 25 to 35 percent increases. Have 
you heard any numbers like this? Does that make sense to you?
    Mr. Brenerman. Go ahead.
    Mr. Grubb. I am sorry.
    I would think 25 to 30 percent would be on the high side, 
but I think that you are faced with some other dilemmas. All 
three of us here represent companies that have been in the 
guarantee-issue business. And, in fact, we have current 
accounts that we have written on a guarantee-issue basis.
    One of the dilemmas that you face is that you are 
considering offering this to multiple carriers. And one of the 
things in a guarantee issue program that is very important is 
the participation level. Obviously, the higher the 
participation level, the more minimal the risk. If you spread 
the risk amongst a number of carriers, and you have a guarantee 
issue program, how would the three of us distribute the risks 
fairly and equitably. If we were the three carriers--maybe 
David gets all the bad risks; I get all the good risks. His 
premiums are going to need to be increased dramatically. So you 
layer a level of complexity in the guarantee issue program.
    I think we all support the multiple carrier model, and 
guarantee issue would make that a little bit more complex.
    Mr. Scarborough. Should each company in that model have the 
freedom to underwrite, based on their own policies?
    Mr. Grubb. I think I would agree with David, in that you 
can come up with simplified underwriting for actively at-work 
employees. I think that is a more reasonable solution to what 
you are facing and really gets most of what it is that you 
would like to accomplish.
    Mr. Scarborough. Who should--I am sorry, Mr. Brenerman.
    Mr. Brenerman. I would agree with the comments that we just 
had. Typically, in the employer group market, there is only one 
insurer selected--and we are talking about cases that are much 
smaller than this one--and guaranteed issue for basic amounts 
of coverage, not for the entire amount that someone might buy, 
may work well in that setting. But when you have more than one 
carrier, which we recommend here because the case is so big, 
guaranteed issue, would be difficult for the reasons that were 
stated, such as anti-selection. This means that people may find 
the company that they think works best for them and they are 
soon to be in benefit status.
    So I think some kind of modified guarantee issue where we 
ask three or more questions to find out whether there are some 
people who are close to being disabled, or are already 
disabled, will work.
    Mr. Scarborough. Great. I think this might be why the 
administration just wants one carrier, to have a monopoly. If 
that is the case, they may actually be able to force whatever 
policies, including guaranteed issue, on that company.
    My concern there is, what sort of an example does that 
leave to the private sector and private-sector employers that 
we want to get into this business?
    Mr. Brenerman. I think we all believe that this case is too 
large for one carrier, and so we think that a number of 
carriers could handle it together.
    Mr. Scarborough. From my understanding, only about 15 
carriers right now could even afford to get into this, because 
of the expensive costs up front.
    Mr. Cummings.
    Mr. Cummings. Just trying to figure out, first of all, when 
you say a ``multi-carrier,'' I just want to make sure I 
understand because I didn't understand you, Mr. Martin, as 
being--I think we have two different--I have got a different 
definition of ``multi-carrier.''
    The one situation would be where you have OPM limiting it 
to a number of carriers--whatever you call that. Let's call it 
``limitation,'' a limited pool of carriers. And, then, on the 
other hand, you have the world, all carriers. Which would you 
prefer to see?
    Mr. Martin. I think in my remarks and comments, we were 
talking about more than one carrier.
    Mr. Cummings. Right.
    Mr. Martin. So it could be a small number of carriers, as 
we have heard from OPM. I think all of the issues that we have 
heard about, you have a huge variance in the expected 
penetration for the long-term care plan than for the Federal 
health plan. So, to the extent that you have, you know, a 
smaller number of carriers so that you can effectively 
administer the plan, you would want to have a level playing 
field. Whatever the rules are for--you know, if one carrier has 
guaranteed issue, then, certainly, you would want similar rules 
for everyone.
    If there are three underwriting questions for the whole 
population--or maybe for spouses or however you did those plan 
design features--you would want those consistent, so you don't 
advantage one carrier over the other or shift, you know, the 
risks, so that your premiums for the groups become unstable.
    Mr. Cummings. Now, you heard the testimony earlier from OPM 
where they were talking about trying to keep rates down. When 
we have the universe as the insurers, do you all disagree or 
agree with OPM that it is harder to keep the rates down?
    Mr. Martin. I think if you have----
    Mr. Cummings. In other words, when you, say, do what you 
just said when you talked about having all insurers, as opposed 
to a limited pool of insurers?
    Mr. Grubb. I am sorry if I left the impression that it 
should be all insurers. My view of multi-carrier would be some 
limited number of highly qualified carriers.
    I think it is critical, and one thing that I would 
absolutely recommend to you, is that whatever selection process 
you or OPM goes through, that the financial strength of the 
company be an overwhelming factor. Before you look at anything 
else, you should look at the overwhelming financial strength of 
the company. That, in itself, is going to limit the number of 
carriers. There are 120, 130-some-odd companies that currently 
are selling long-term care insurance today. Pick the ones that 
are financially strong, because you are buying a coverage 
today--I bought it for my three kids who are in their early-
20's--I want that company to be there to pay benefits 50 years 
from now when they are going to need it. So be very careful in 
that. I think that, in itself, will limit the number of 
carriers. It would be parochial to say that, you know, ``pick 
the carriers that were in the meeting with OPM yesterday.'' 
That would be the easy way to do it. [Laughter.]
    Or the three of us; that would be good, too. [Laughter.]
    But, pick carriers that are very well-qualified. And that 
is going to get it to a reasonable and limited number of 
carriers. I don't know if the number is 6 or if it is 10; I 
don't think it would be a whole lot more than that. Maybe--I 
don't know, but it wouldn't be the universe of carriers. If I 
left that impression, I apologize.
    Mr. Cummings. So, automatically, we get just a few 
insurance companies doing this and based upon what you have 
just said. So as far as what is in the policy, the benefits, 
right now, is there a lot of leeway, with regard to--I mean is 
there a broad scope?
    Mr. Grubb. Very wide, very wide.
    You can select benefit amounts in increments of $10. You 
can get nursing home only; you can get 2-year, 5-year, 
unlimited; you can get nonforfeiture; you can add inflation 
protection. You can customize a plan to fit whatever your 
particular needs are. All of our plans provide those kinds of 
options and benefits.
    And we would strongly recommend that you do that, to 
simplify it, as we have done in our normal marketing. We could 
work with OPM on developing what they view as the most commonly 
available plan, or something that most people would like to 
use, and make it easier for people to make that choice. But 
there is an unlimited number of choices, and that is one of the 
things that we could certainly recommend that you endorse.
    Mr. Cummings. Mr. Chairman, just one more question.
    Can you just give us, in a kind of snapshot, brief way, if 
you can--I mean what is that average plan? What is the kind of 
things that would be in that most common plan?
    Mr. Grubb. What does it look like now?
    Mr. Cummings. Yes.
    Mr. Grubb. I will speak for us and let these gentlemen 
speak for themselves, but our average plan is a 90-day 
elimination period--which is like a 90-day deductible--a 5-year 
benefit, $100 a day, without inflation. That is the typical 
plan that people buy. Now you go to California, you go to 
Alaska, you go to New York, people are going to buy a lot more 
than $100. And the younger you are, the more you ought to buy 
inflation protection. My children have inflation protection on 
their plan.
    Mr. Brenerman. And we do similar things. We offer a basic 
plan which would include nursing home coverage, let's say $100 
a day or $3,000 a month. And then the applicants would have a 
choice of higher amounts, depending on where they live. In the 
case of the Federal plan, if they live in New York, they can 
buy up to $300 a day. If they live in North Dakota, they may 
want to buy the $100 a day, as an example. UNUM also offers 
professional home care as one plan, and another plan is total 
home care, which pays for informal care provided by relatives 
at home. So there are various kinds of care settings, including 
assisted living. Those are all benefits that you can get, and 
there are many more than that. Inflation protection is an 
offer.
    Mr. Martin. I would just agree the typical plan is $100 and 
the care can be in a nursing home, institutional care, 
community-based care. That is the real focus of today, a choice 
of where the care is delivered, where the insured picks where 
that care is delivered. That is a key piece of where policies 
are today.
    Mr. Cummings. Thank you all very much.
    Ms. Norton. Could I yield for 1 second--on that question 
about if you go into a nursing home, what percentage of nursing 
home care today does this $100-a-day standard policy pay?
    Mr. Grubb. It depends on where you are.
    Ms. Norton. I mean the average--we have average figures for 
nursing home care for----
    Mr. Grubb. About $100 to $120 a day for nursing home care--
California is a lot higher; New York is a lot higher; Alaska is 
a lot higher.
    Mr. Scarborough. Thank you.
    Mrs. Morella.
    Mrs. Morella. Thank you.
    Thank you, gentlemen.
    Mention was made in the testimony that approximately 10 
million people currently have long-term care insurance; pretty 
accurate?
    Mr. Grubb. Six.
    Mrs. Morella. Six million?
    Mr. Grubb. Six million.
    Mrs. Morella. OK. [Laughter.]
    Take a look at H.R. 1111. [Laughter.]
    I think you have already, but this was not part of what you 
were advised, with regard to this hearing, because it was just 
introduced earlier this week. But actually in it, it would 
increase the pool to 20 million. Obviously given that, you 
would expect that you would be able to offer a group rate--I 
mean you speak in general--a group rate that would be, not only 
competitive with what is currently offered, but it could beat 
it by a mile? A half a mile? Significantly--[laughter]--
dramatically? [Laughter.]
    Just say, ``Yes.''
    Mr. Grubb. Yes. [Laughter.]
    You are just so easy to say ``yes'' to. [Laughter.]
    Mr. Scarborough. Do you have anything else? [Laughter.]
    Mrs. Morella. Well, OK. Among the array of plans that you 
might propose, is there any reason why you could not offer a 
non-HIPAA-qualified plan, such as a plan that would pay 
benefits for medical necessity, only if there was a demand for 
that kind of coverage and individuals that would be willing to 
pay for it?
    Mr. Brenerman. I think ``medical necessity'' benefit 
triggers are not ones that many carriers would prefer to offer 
because the current typical plan uses activities of daily 
living or cognitive impairment as the triggers for benefits. 
Those are the most objective measures of disability that we 
know of; ``medical necessity'' is not, and so it is more--the 
potential in a ``medical necessity'' trigger for abuse is far 
greater. And as I said, it is a less objective measure. The 
doctor says you need care and, that would be the extent of the 
``medical necessity'' trigger. I think most companies would 
prefer to use the activities of daily living and cognitive 
triggers as the only triggers.
    Mrs. Morella. But you wouldn't want to see a prohibition to 
being able to offer it if you thought you could?
    Mr. Brenerman. I wouldn't want to see it mandated that we 
have to offer it.
    Mrs. Morella. Oh, no, no, right. But you would not want to 
see it prohibited by law either, that you offer it?
    Mr. Martin. One thing, just in response. Looking at the 
current employer market now, and within my company at John 
Hancock, we do not have any clients that have asked for a non-
qualified plan, and that is in their role as the employer. I 
think there is a concern certainly that they don't pass muster 
relative to HIPAA. You get into a dilemma as to what you tell 
the certificate holders and individual policyholders as to the 
tax status. And I think some of the employers have some 
fiduciary concerns about that, too.
    Mrs. Morella. I think that is absolutely true. It is just 
simply that one of the pieces of legislation that you have 
looked at says that it has to be a HIPAA-qualified plan, and I 
am just saying that it seems to me that if you wanted to offer 
one of the others, recognizing the difficulties that, you know, 
under certain circumstances you might be able to do it.
    What I envision is that a limited number of insurers 
offering a multitude of plans, each one of them. Is this the 
kind of thing that you think is quite workable? Maybe one 
insurance company could offer seven different kinds of plans, 
you know?
    Mr. Grubb. We do today.
    Mrs. Morella. Right; right.
    Mr. Grubb. That is exactly right.
    Mr. Brenerman. Well, you could consider a----
    Mrs. Morella. So, instead of a broad number of insurers, 
you see offering different things.
    Mr. Brenerman. You could consider it one plan with a broad 
range of choices.
    Mrs. Morella. That exactly--absolutely. OK; great.
    Let's see, are you familiar with the process of negotiating 
employer-based group long-term care insurance programs? And I 
wonder, what role do you see the employer playing? In this 
case, probably OPM.
    Mr. Martin. Yes, I am familiar with it and, you know, I 
think what you would expect to have happen is certainly a 
discussion of what is best for the employee population that you 
are talking about. And we are talking about the most diverse 
population of any employer that is out there. So you do want 
flexibility of options. I think at the same time, as you have a 
back-and-forth on what is a good plan design, you want it to be 
affordable. If there is a common goal, it should be that there 
should be a successful penetration of this group, if you want 
to provide valuable coverage at affordable rates, and stable 
rates, rates that aren't going to bump out because they are 
racheted down too far. So there are concerns, I think, in 
clearly negotiating issues that have to be contended with.
    Mrs. Morella. Could I just, very briefly, ask you, are 
there companies that pay for long-term care for their 
employers?
    Mr. Grubb. Yes.
    Mrs. Morella. I mean, such as--give us some examples that 
we could--any that we could look at?
    Mr. Brenerman. Well, I guess I am not here to promote my 
company, but while I am here--[laughter.]
    Of the 1,800 cases that I mentioned that have been sold, 
UNUM has 1,400 of them. And most of them are small employers. 
In half of our small employer cases, the employer pays 
something toward the premiums, usually for a base level of 
coverage, maybe some nursing home coverage, and then the 
employee can buy additional coverages from there. So there are 
a number of employers in the less than 500 employee companies 
that do pay premiums.
    Mrs. Morella. They probably have choices that the employees 
make, in terms of do you want some help here or here or----
    Mr. Brenerman. If you want, I can----
    Mrs. Morella. Smorgasbord.
    Mr. Brenerman [continuing]. Get the committee the names of 
some of those companies if you----
    Mrs. Morella. I am curious about any experiences with that, 
basically.
    Mr. Grubb. We have had similar experiences in that, just to 
give you a couple of examples. We are finding a number of 
school districts that are interested in providing a minimal 
level of care, and they fund that, and then the employee, with 
underwriting, can buy up. We have also had significant success 
in selling to archdiocese who are interested in no longer self-
insuring priests.
    Mrs. Morella. I can understand that.
    Mr. Grubb. They are--the archdiocese is----
    Mrs. Morella. I wish they would include nuns in that 
category, too. [Laughter.]
    Mr. Grubb. Well, they haven't so far, but they offer it to 
them on a voluntary basis. [Laughter.]
    I don't understand that.
    But it is the same thing as David was speaking about.
    Mrs. Morella. I would like you to, at some point in the 
very near future to get me your response to the bill that I 
mentioned to you--1111. I would appreciate it.
    Thank you, Mr. Chairman.
    Mr. Scarborough. Thank you, Mrs. Morella.
    And, again, we certainly want to get that information in 
front of all of our----
    Mrs. Morella. Yes.
    Mr. Scarborough [continuing]. Committee members today, 
obviously. She dropped it a few days ago, and our material had 
gone out before that.
    Let me just say, briefly, one concern that I have and one 
problem that we are going to have in this committee is, if we 
go outside the HIPAA requirements, obviously, we are talking 
about the possible tax liability on $3,000 worth of benefits, 
and that is obviously something that Mr. Archer is going to 
want to have to say something about it in Ways and Means.
    So, let me now turn it over to Ms. Norton.
    Ms. Norton. Thank you very much, Mr. Chairman. I think I 
ought to say that I very much endorse the notion of OPM paying 
for administrative expenses, as it does under FEHBP, 
notwithstanding the chairman's joke at my expense. [Laughter.]
    But I would think that when the Government picks up those 
expenses, that the employee has to get something for it, as it 
does in FEHBP, and as I think it would in the way your 
testimony has discussed the plan.
    I was interested--I guess it was you, Mr. Brenerman, that 
talked about small employers----
    Mr. Brenerman. Yes.
    Ms. Norton [continuing]. Actually giving this as a benefit, 
and that is not what we are doing. We are simply saying, ``We 
will form a group,'' and--[laughter]--we will say, ``Go for 
yourself.''
    Mrs. Morella implied that this may be because they choose 
this rather than something else, but I wonder. I think most 
people would have to have health insurance. So I would like to 
know something more about that, especially since you mentioned 
smaller employers here. We are the grand daddy of them all, not 
coming anywhere near that. And I would like to ask what the 
premium--what is the average? Here we go to averages again--
premium cost of a long-term care policy?
    Mr. Brenerman. Well, premiums are based upon the benefits 
that are selected, as well as the age of the person selecting 
the policy. So for a typical policy of $100 a day with half of 
that for home care coverage, a 4-year benefit, for example, an 
elimination period or deductible period of--in this case, the 
numbers I have are based on a 20-day--most companies have more 
than that. A 40-year-old would pay, with inflation coverage, 
would pay about $500 a year. A 50-year-old would pay about 
$650--this is all with inflation coverage; it is much less if 
you don't have it. A 65-year-old would pay between $1,500 and 
$2,000, and then it goes up from there, if you are over 65.
    Ms. Norton. This is very interesting, because I think most 
probably pay far more than that in health insurance, even 
though the Government picks up about 70 percent of our payment. 
I just think that one of the things we need to do is to find 
out how much of this cost is myth and how much of it is real. 
You heard Ms. Kramer's testimony. She just assumed that this 
was way out of anything that she or her parents could have 
afforded. It may not be the case.
    I also want to clear up this notion about monopoly. OPM has 
testified one or more companies and has not said it should be 
only one company. I certainly would hope there would be more 
than one because I want to see as much competition and to have 
something to choose from, and because I am used to FEHBP, which 
gives me something to choose from.
    I would like to hear what you might have to say about the 
scenario if there were not competitive bidding, if it was, you 
know, open to everybody. What kind of scenario do you see 
developing?
    Mr. Martin. Well, I think you can get to a point where you 
have high-quality competitive plans if you have a good 
competitive bidding process. And that is what the companies are 
used to.
    Ms. Norton. When you say ``competitive bidding,'' you mean 
based on what factors, for example?
    Mr. Martin. Well, I think you would have to look--as, you 
know, as Ken mentioned--you know, how the companies that are 
able to meet the criteria of some of the things we have talked 
about like being able to offer singly or in consortium, 
nationwide coverage, meeting whatever the specifications of the 
plan design would be, and carrying----
    Ms. Norton. Would OPM set broad parameters, or would people 
simply come forward with notions?
    Mr. Martin. Well, I think you would want to have some 
measuring stick so that you could assess all the players 
equally. So that you would want some standards in there. 
Typically, what happens in the private sector is, you know, 8 
or 10 companies may respond to a bid proposal. And you have to 
maybe hit 90 percent of the things they are asking for in there 
in order to be considered for a finalist presentation. So there 
is a selection process; there is competition, and what you want 
to do is have good competitive rates, high-quality coverage, 
but you want to be able to explain the plan design options. And 
you can have quite a number of them in either scenario, 
certainly, but you want it to be understood by people when the 
plan rolls out.
    Mr. Brenerman. When we say ``competitive bid,'' we don't 
mean that you only have to say how much coverage is going to 
cost. You get a whole booklet that employers ask you to fill 
out. It includes financial information about the company. What 
is your marketing plan? What is your experience in the employer 
market or whatever market you are competing in? What is your 
claims paying experience? And how do you deal with reserves? 
Just a whole group of questions upon which the employer makes a 
decision about which company to select for the program.
    So, in this case, we are saying individual and group 
carriers ought to be able to compete for the final selection 
that OPM would make of the carriers to participate in the 
program.
    Ms. Norton. Mr. Chairman, thank you.
    Mr. Scarborough. Mr. Allen.
    Mr. Allen. Thank you, Mr. Chairman.
    I want to welcome all members of the panel and say 
particularly, David Brenerman, who lives in Portland, ME, and 
works for one of the leading companies in my district that we 
are very glad to have you here.
    I would be interested in what the current industry 
practices are with regard to dispute resolution. How does that 
aspect of the business work now, in the private sector?
    Mr. Brenerman. I guess I was the one that raised it so--so 
the few times that there are disputes about benefit payments, 
there is an internal appeals process that the insured is 
educated about. It is in their policy. When a claim is denied, 
they are alerted to the fact that they can appeal the claim. 
And sometimes there are even second appeals, within the 
company. And then after that, the choice for the insured, in 
all cases, is judicial.
    There are no employers that I know of that settle disputes.
    Mr. Allen. That settled, that arbitrate them, or do you 
mean----
    Mr. Brenerman. Right. Employers----
    Mr. Allen. No employers, or no employers that settle 
disputes----
    Mr. Brenerman. On behalf of their employees, they don't 
have the employee come to them and say that they can't get 
benefits and they want the employer to settle the claim with 
the insurance company. They don't have the expertise to do 
that. And, also, I guess we reserve the right to make decisions 
on claimants.
    Mr. Allen. Sure, and I take it from that, there wouldn't be 
a practice of having some form of external appeal or 
arbitration or mediation? It is, basically, you have got an 
internal appeal and then you have an ordinary judicial remedy.
    Mr. Brenerman. Yes. The judicial remedy often leads to 
arbitration or mediation.
    Mr. Allen. Of course.
    Mr. Brenerman. They don't always have to end up in court.
    Mr. Allen. Right. OK.
    Mr. Martin. Just one thing, Mr. Allen, on that. Most 
employer groups--the Government wouldn't fall into this 
category--are subject to ERISA; so there is a formal claim 
appeal process that is in place there. And, you know, certainly 
something like that I think is what companies are used to 
doing. A big difference, too--as Dave has pointed out--we are 
talking about a fully insured block of business, as opposed to 
a self-funded arrangement, which is more typical with health 
benefits.
    Mr. Allen. Are there any numbers out there about how often 
claims are disputed? Does the industry collect them, or does 
the Government collect them?
    Mr. Martin. Well, it is interesting----
    Mr. Allen. I would think it would be far less than your 
ordinary health insurance?
    Mr. Martin. Yes, and Dave might have some comments on this, 
too, but a part of what happened with the passage of HIPAA was 
a requirement that insurance companies have to report 
information every year to State insurance departments. 
Certainly, the feeling we get from the regulators, as well as 
talking among ourselves, is this isn't a problem. But the 
National Association of Insurance Commissioners is working on a 
form that would be used to be a model filing for any of these 
claim issues that would go in yearly. So I think the 
information can be obtained. And there is a mechanism within 
HIPAA for that.
    Mr. Brenerman. First of all, long-term care insurance is a 
relatively new business. So, while we do have a number of 
claims, you don't nearly see the number of claims as you would 
have in the health insurance policy where most people some time 
take advantage of their policy. But people would hope never to 
take advantage of their policies if they had long-term care 
insurance.
    Mr. Allen. Like fire insurance, sir.
    Mr. Brenerman. Exactly, yes.
    So claims disputes are not as frequent, because the benefit 
triggers are more objective. While we do have disputes over 
whether an insured is disabled or not, they are not nearly as 
great as they are in disability insurance or in health 
insurance.
    Mr. Allen. Thank you.
    Thank you, Mr. Chairman.
    Mr. Scarborough. Thank you, Mr. Allen. The chairman 
appreciates your questions and appreciates the panel's 
testimony. I just want to conclude.
    I am sure we might have some questions that we will be 
sending to you to address.
    In particular, Mr. Brenerman, you had cited a 5 percent 
decline in the cost of premiums for long-term health care 
because of some innovation and competition. Obviously, that is 
something that we are very interested in. OPM has said in their 
testimony that, I believe, vendor competition and product 
competition would actually make prices more competitive is 
something that they disagree with, and would certainly 
appreciate you filling us in, in that area.
    Mr. Brenerman. I think what we meant was that, since long-
term care has been sold, price of the policies has gone down, 
because of innovation and competition.
    Mr. Scarborough. Right.
    Mr. Brenerman. Sure, we will provide you some more 
information.
    Mr. Scarborough. Great. All right, thanks a lot. We 
appreciate it.
    This meeting is adjourned.
    [Whereupon, at 12:10 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]
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        LONG-TERM CARE INSURANCE FOR FEDERAL EMPLOYEES, PART II

                              ----------                              


                        THURSDAY, APRIL 8, 1999

                  House of Representatives,
                 Subcommittee on the Civil Service,
                            Committee on Government Reform,
                                                  Jacksonville, FL.
    The subcommittee met, pursuant to notice, at 10:04 a.m., in 
the Officers Club, Jacksonville Naval Air Station, 
Jacksonville, FL, Hon. Joe Scarborough (chairman of the 
subcommittee) presiding.
    Present: Representatives Scarborough and Cummings.
    Staff present: George Nesterczuk, staff director; and John 
Cardarelli, clerk.
    Mr. Scarborough. I would like to call this meeting of the 
House Civil Service Subcommittee to order.
    Ladies and gentlemen, this morning we are going to continue 
our deliberations over legislative proposals to establish a 
program under which both civilian and military personnel may 
purchase long-term care insurance. This is the third hearing 
that this subcommittee has held on long-term health care. The 
first hearing was held in March of last year and gave rise to a 
bill that was introduced by then-Chairman John Mica, also from 
Florida, to establish a long-term health care insurance program 
for Federal employees and their annuitants. Later in the fall 
of 1998, Senators Chuck Grassley and Bob Graham introduced a 
bipartisan companion bill in the Senate. Unfortunately, the 
105th Congress adjourned without acting on either bill.
    I am pleased that the President has now joined Congress in 
proposing to make private long-term care insurance available to 
Federal employees and annuitants. In addition to my own long-
term health care bill, H.R. 602, our ranking member, the 
Honorable Mr. Cummings, and Representative Morella have also 
introduced long-term care bills. I certainly hope that by 
working together, we will also make this an important benefit 
and make it affordable and available to all Federal employees.
    I want to emphasize too that I recognize that active duty 
service men and women and military retirees have performed 
valuable service to our Nation as employees of the Federal 
Government. In fact, they and their families have endured great 
sacrifices to perform the most valuable service that any 
government employee can provide--keeping our Nation strong and 
free. Neither I, nor I am sure my colleagues in the House and 
the Senate, will lose sight of the fact that even as we conduct 
today's hearing, American service men and women are putting 
their lives on the line to serve our country in the Balkans and 
in other dangerous regions throughout this world.
    Prior to the introduction of H.R. 602, my staff and I 
clearly stated my intent to include both active and retired 
members of the uniformed services in the long-term health care 
insurance program at the appropriate time. Being from the 
district in northwest Florida that I believe has more military 
retirees than any other district in the Nation, I do not think 
I would be very well served to exclude them. I have heard their 
needs and concerns and certainly I know that long-term health 
care is very, very important.
    I continue to welcome the opportunity to work with 
organizations representing military retirees and military 
families to ensure their inclusion in a long-term care 
insurance program. In particular, I am interested in how this 
program might contribute to the recruitment, retention, and 
morale of military personnel. Inclusion of the uniformed 
services will require the coordination of the Department of 
Defense and the House Armed Services Committee, on which I 
serve. It is my hope that we can begin this process with the 
testimony received today from the Department of Defense.
    With 1.4 million active duty and 1.6 million retired 
uniformed services personnel plus their families, the 
eligibility pool would grow significantly. When you combine the 
1.8 million Federal civilian employees and the 2.3 million 
civilian annuitants and survivors, the expanded pool may also 
serve to lower premiums for all participants. I believe that is 
what would ultimately happen.
    As one of the Nation's largest employers, we can encourage 
our Federal workers to assume personal responsibility for their 
future long-term care expenses through the purchase of this 
insurance product. Competition among carriers and the volume of 
sales should generate group discounts that would keep premiums 
affordable for all participants. And in making long-term care 
insurance available to individuals in their working years, the 
Federal Government can help encourage the purchase of this 
product at younger ages when premiums are lower and more 
affordable.
    Appealing to people during their prime working years is a 
common sense approach to solving a growing problem in long-term 
care financing. The fact is that most Americans simply cannot 
afford to pay the $41,000 average annual cost of a nursing home 
stay or the $98 average per visit fee of a registered home care 
nurse. Most people mistakenly believe that Medicare will 
provide for all of their long-term health care needs. They 
quickly learn that it will not. For two out of three Americans 
today, that help will only come from the Medicaid program but 
only after the individual is impoverished. We have heard 
testimony in Washington, DC on this issue, and I know each one 
of us has a family member or relative or friend that we have 
seen their life savings completely diminished before they were 
eligible for any help. It is a heartbreaking procedure and one 
that I think we should do without. If we can create a program 
that will allow us to avoid that tragedy late in one's life, we 
need to do it. With a rapidly aging population, Medicaid will 
not be able to withstand the demand for long-term care services 
in the future, so we must do something about it today.
    In crafting legislation to address this problem, we should 
build on our past successes and not repeat our past failures. 
Our measure of success for the long-term care insurance program 
will be the extent to which Federal employees will purchase 
this needed protection. In order to meet the varying needs of 
the diverse population, we have got to have competitive benefit 
plans at affordable prices.
    I look forward to hearing from our witnesses to make the 
case for expanding the participant pool to include members of 
the uniformed services, and also to clarify some remaining 
issues concerning access to benefits.
    I pledge that I will work in good faith with all Members of 
Congress, any organization of employees and retirees, insurance 
carriers, the administration, and any other interested party to 
make the promise of affordable long-term care insurance a 
reality for the Federal community.
    I thank everybody for showing up today. I am looking 
forward to a very productive hearing. Right now, I would like 
to recognize the ranking member, the Honorable Mr. Cummings 
from Maryland.
    [The prepared statement of Hon. Joe Scarborough follows:]
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    Mr. Cummings. Thank you very much. I want to thank you, Mr. 
Scarborough, for bringing us together today here in 
Jacksonville, and I think it is an appropriate place for us to 
be.
    Long-term care is an important priority for me as ranking 
member of the Civil Service Subcommittee. A few weeks ago, the 
subcommittee held a hearing on three legislative proposals for 
long-term care for Federal employees. At the hearing, we 
discussed the merits of long-term care bills introduced by 
myself, Chairman Scarborough and Congresswoman Connie Morella 
of Maryland. Though the differences between the bills are 
significant, the subcommittee is committed to working in a 
bipartisan manner to reach agreement on a consensus bill.
    On January 6, I introduced H.R. 110, the Federal Employees 
Group Long-Term Care Insurance Act of 1999. My bill is one of 
four elements of the comprehensive long-term care package 
proposed by President Clinton.
    H.R. 110 would authorize the Office of Personnel Management 
to purchase a policy or policies from one or more qualified 
private-sector contractors to make long-term care insurance 
available to Federal employees, retirees and eligible family 
members at group rates. Coverage would be paid for entirely by 
those who elect it.
    The Clinton administration and I support modifying H.R. 110 
to extend long-term care coverage to active duty military 
personnel, military retirees and their families. And I want to 
thank Mr. Scarborough for being so sensitive to the issue of 
military personnel and retirees and their families. I believe 
that extending coverage to military personnel would make the 
risk pool larger and more diverse.
    All participants other than active employees and active 
duty military personnel would be fully underwritten, as is 
standard practice with products of this kind. Coverage made 
available to individuals would be guaranteed renewable and 
could not be canceled except for non-payment of premiums. 
Though each participant would be responsible for paying the 
full amount of premiums based on age at time of enrollment, 
group rates will save an estimated 15 to 20 percent off the 
cost of individual long-term care policies.
    OPM will be responsible for the administrative costs of the 
program which is estimated to be only $15 million over a 5-year 
period. This would include developing and implementing a 
program to educate employees about long-term care insurance. I 
am convinced that a lot of people do not even know it exists. 
Extending OPM's marketing efforts to active duty military 
personnel and retirees would further increase the costs.
    I believe that H.R. 110 will help to raise the general 
public's awareness of the need for long-term care insurance and 
underscore the limitations associated with reliance on Medicaid 
for one's long-term care needs.
    With an aging society, the need for good long-term care 
facilities is rising. Nursing homes, where most elderly 
Americans receive long-term care, are increasingly coming under 
fire for malnourishment of residents, inadequate treatment of 
bed sores, records falsification, and lack of qualified 
supervision.
    Cuts in Federal Medicare payments and difficulty in finding 
satisfactory employees are contributing to an increase in 
nursing home complaints. In addition to cracking down on 
nursing homes by stepping up inspections and imposing tougher 
sanctions, this problem can be addressed by more Americans 
investing in long-term care insurance.
    Federal employees that enroll in the Government's long-term 
care program will be able to choose home and/or community based 
care to meet their long-term care needs. They will have a 
greater say in the type and quality of care that they and their 
family members receive, and they will not be dependent on 
government subsidies or affected by program cuts. No doubt, the 
non-federally employed who obtain long-term care insurance 
would realize the same advantages.
    By 2025, the number of Americans over 65 will be over 60 
million. Many families will find it impossible to afford 
nursing home care which will increase from $40,000 to an 
estimated $97,000 by the year 2030. Under current law, a family 
would deplete all of its financial resources to qualify for 
Medicaid which would only pay for a portion of needed long-term 
care services. By offering long-term care as a benefit option 
for its employees, the Federal Government, as the Nation's 
largest employer, can set the example for other employers.
    Just a few days ago, I had an opportunity to meet with some 
representatives of the insurance industry and the nursing home 
industry in Baltimore, and one of the things that they echoed, 
and it was very clear, and I assured them that we were 
listening on both sides of the aisle in Congress, is they said 
you have got to do it, but make sure you do it right; make sure 
you do it right because you are setting the example for the 
entire country and for the civilian population.
    So I am looking forward to hearing from today's witnesses. 
I want to thank all of our witnesses. Just in case we do not 
say it enough, we are going to say it over and over, and do not 
get upset with us, we really appreciate you taking up your time 
to be with us today. Because it is your testimony that will 
help to do it right. So we thank you.
    And again, I thank you, Mr. Scarborough.
    [The prepared statement of Hon. Elijah E. Cummings 
follows:]
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    Mr. Scarborough. Thank you, Mr. Cummings. I just want to 
echo your sentiments of how important this is. A lot of times, 
we lose sight of it, but the Federal Government obviously is 
one of the largest employers in the country and what we are 
doing here today is not going to affect the Federal work force. 
What we want to do is implement a plan and a program that will 
be a good example to private employers across the country. With 
the aging population, with the baby boomers, the so-called baby 
boomers, moving toward retirement in the year 2010, we are 
going to be facing an aging crisis that this country is not 
going to be able to handle with just the Federal Government. It 
is going to require the Federal Government and private 
employers stepping in and standing in the gap and filling the 
holes.
    That is why it is so absolutely essential that we put a 
program together that works for Federal employees, that will be 
a guide for hopefully private employers and so this long-term 
care crisis can be resolved before things get especially 
difficult in the year 2010.
    Right now, I want to ask our distinguished panel if they 
could please rise; I want to swear you in.
    [Witnesses sworn.]
    Mr. Scarborough. Be seated. We have with us today Marilyn 
Cobb Croach, the area representative for the National Military 
Family Association; we have Senior Master Sergeant Larry 
Hyland, U.S. Air Force retired--I cannot believe they let you 
on the base, an Air Force man--national director of the Retired 
Enlisted Association, he is actually a constituent of mine. We 
also have Colonel Klyne Nowlin, he is also U.S. Air Force 
retired, State president of the Retired Officers Association. 
We are certainly honored by all of your presence.
    Ms. Croach, if you could begin your testimony.

    STATEMENTS OF MARILYN COBB CROACH, AREA REPRESENTATIVE, 
NATIONAL MILITARY FAMILY ASSOCIATION; SMSGT LARRY HYLAND, USAF 
 RETIRED, NATIONAL DIRECTOR, THE RETIRED ENLISTED ASSOCIATION; 
   AND COL KLYNE NOWLIN, USAF RETIRED, STATE PRESIDENT, THE 
                  RETIRED OFFICERS ASSOCIATION

    Ms. Croach. Thank you. Mr. Chairman and members of the 
subcommittee, my name is Marilyn Cobb Croach and I am here 
before you today in my role as a volunteer area representative 
for the National Military Family Association.
    I appreciate this opportunity to express the views of the 
association and the uniformed service families we represent. 
Although the area I represent is Orlando, FL, the staff at NMFA 
headquarters asked if I would be able to travel to Jacksonville 
to represent military families on this very important issue. 
Ironically, on the day that headquarters called, I was 
chauffeuring my father-in-law to and from a hospital visit with 
my mother-in-law.
    I am in Jacksonville today not only to represent the 
uniformed service families at this hearing, but to accompany my 
mother on a visit to the Mayo Clinic. Needless to say, the 
subject of long-term health care for my mother and the parents 
of my Air Force retiree husband are in the forefront of my 
mind.
    At the same time, the situations with our parents has made 
both my husband and me realize that we too could become 
vulnerable. National statistics indicate that at some time in 
the future, we may be unable to provide the care needed for 
each other and one or both of us could be reliant on some form 
of long-term health care.
    NMFA understands that current proposals for long-term care 
for Federal civilians do not include any subsidy by the Federal 
Government. We believe that including the relatively young, 
active duty military force in the eligible population can only 
serve to increase the buying power for the total community and 
thus reduce premiums. Since few military families have 
significant disposable income after the basics of housing, 
health care and food are purchased, they would be unable to 
afford a policy with high premiums, no matter how wise an 
investment they thought it would be. Mr. Chairman, military 
families need the ability to purchase such care at affordable 
group rates.
    NMFA also firmly believes that service members and their 
families should not, once again, be left out of a program for 
all other Federal employees and retirees. My association has 
long supported an initiative that would allow military families 
to have access to the Federal Employees Health Benefits 
Program. We strongly believe that such an option is of 
particular importance to those unable to fully participate in 
the Tri-Care Program, the over 65 dual Medicare-military 
eligibles, and active duty members and retirees and their 
families who do not live near a military health care facility. 
With long-term health care a possibility for Federal civilian 
workers and retirees, we implore this subcommittee to remember 
that we too are part of the Federal family.
    Mr. Chairman, NMFA is also aware that the proposals for 
Federal civilians would extend coverage to their parents and 
their parents-in-law. This coverage would be of particular 
importance to the active military force. The advent of the all-
volunteer force has undoubtedly given us the brightest and the 
most well-educated armed force this country has ever seen. It 
has also brought us a force that is married. Service members 
are not just concerned about their own families, but the 
parents of both the member and the member's spouse. Department 
of Defense statistics reveal that over 8 percent of the total 
active force and 12.7 percent of senior career enlisted--E-7 
through 9--and 14.3 percent of career officer--O-4 and above--
have responsibility for elderly relatives.
    Since thousands of miles and often an ocean separate 
military families from their parents, significant stress occurs 
when the parents can no longer care for themselves. How does 
the military family stationed in Japan care for an elderly 
parent in Florida? As difficult as caring for elderly parents 
may be for any family, such distances make a difficult 
situation an almost impossible one for a service family. The 
high operations tempo the armed forces are currently facing 
often puts the care for both sets of parents squarely on the 
shoulders of the military spouse--a spouse who is already 
trying to balance a needed job and being a single parent to the 
couple's children. When this spouse is living in Washington 
State, adding the care of an elderly parent or parent-in-law in 
Orlando may be a task the spouse just cannot adequately 
perform.
    Unfortunately service families have few alternatives in 
these situations. They are unable to spend weeks and months 
away from their own children caring for an elderly parent 
located at a great distance from their duty station. They are 
hesitant to uproot such a parent and make them endure the 
nomadic military lifestyle, and they do not, in most cases, 
have the financial reserves to assist their elderly parents 
with the enormous costs of long-term care. The safety net of an 
affordable policy for such care would relieve the frequent 
nagging worry that often accompanies orders to remote areas. 
NMFA also believes these relatively young families who might 
ordinarily consider the expense of a long-term care policy 
would quickly realize its advantages for themselves.
    NMFA represents the interests of all seven uniformed 
services and therefore requests that not only military families 
but the families of those in the uniformed corps of the U.S. 
Public Health Service and the National Oceanic and Atmospheric 
Administration be also included.
    Thank you, Mr. Chairman, for this opportunity to express 
the strong desire of uniformed service families to be included 
in any long-term care proposal.
    Mr. Scarborough. Thank you, Ms. Croach.
    Mr. Hyland.
    [The prepared statement of Ms. Croach follows:]
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    SMSGT Hyland. Good morning, Mr. Chairman and Mr. Cummings. 
My name is Larry Hyland and I sit before you today as both a 
national director of the Retired Enlisted Association and also 
as a constituent of the chairman, who resides in Crestview, FL.
    On behalf of TREA, we thank you for the opportunity to 
address the issue of long-term care as it relates to the 
concerns of our members. TREA has over 100,000 members and an 
auxiliary representing all branches of the armed services, 
retired, active duty, guard and reserve. Their concern over the 
accessing of health care in the future stems from cost 
implications in medical care, not only for themselves but, also 
their families.
    With base closures, military treatment facilities 
downsizing, demographics changing, the need to provide access 
to health care to our ever-growing number of aging retirees 
creates anxiety with those that were promised lifetime health 
care. The support from this subcommittee for the Federal 
Employees Health Benefit Plan for Medicare Eligible Military 
Retirees Test Program is very much appreciated. This expands an 
equitable benefit to the men and women who have patriotically 
served this country. As this committee is aware, this is only 
one part of the matrix for accessing health care for our aging 
war heroes and heroines, long-term care is becoming a 
particular topic of concern for both our members and also this 
Nation.
    As this committee reviews the current legislation for long-
term care insurance, I ask that you include the active duty, 
the guard, the reserve and retired members of the uniformed 
services in your final legislative proposal. The administration 
and Congress have proposed different legislative initiatives to 
providing long-term care insurance products to Federal 
employees, including your bill, Mr. Chairman, H.R. 602, and Mr. 
Cummings' bill, H.R. 110. As men and women who have served and 
continue to serve in the uniformed services, we feel we should 
be included under the same population as Federal employees and 
retirees for accessing long-term care insurance products. As 
you are already aware, Congresswoman Connie Morella's bill, 
H.R. 1111, long-term health care, includes members of the armed 
services, both active duty and retired. It includes as well 
their spouses, parents, parents-in-law and other annuitants.
    Incentives to purchasing long-term care now at lower 
premium rates would ensure some financial security in the 
future for those of the uniformed services. Offering long-term 
care insurance at a group rate, which includes both Federal 
employees and uniformed service members, could further reduce 
the cost of private insurance products and lower premium rates.
    As we know, one can never plan fully for the diagnosis of a 
deteriorating health condition or of an accident resulting in a 
lifetime disability to one's self or a family member. However, 
paying into an affordable long-term insurance product can 
reduce some of the financial burden associated with either of 
these.
    Living here in the State of Florida, one cannot read a 
newspaper or turn on a TV without seeing something about 
planning for your senior years. Being able to have affordable 
access to long-term health care, if needed, is part of that 
planning.
    I am no expert on this subject, but I come before this 
committee to help ensure that as a military retiree and a 
member of TREA that I have the same choices in long-term care 
as my civil service neighbor. I realize that potential risk to 
my wife's and my own health increases with age. This forces me 
to look for ways to reduce the financial destruction to not 
only our own life savings, but those of our children as well, 
due to costly medical bills out of long-term care. Also, I do 
not desire to exhaust all our assets in order to be left on 
Medicaid.
    Planning now for the unexpected is as important as planning 
for our retirement--actually they go hand in hand. In my 
profession as a business owner, I have--and in order to ensure 
success, must plan for the future and assess all risk. This is 
true not just in business but in life as well.
    Today, I speak to you as a military retiree, but let us not 
forget the active duty member stationed overseas. This member 
may be burdened with the additional responsibility of a parent 
or a parent-in-law, who requires skilled nursing care. He or 
she needs reassurance that a benefit exists to ensure the 
family's needs are met.
    My wife and I both served on active duty with the Air 
Force. I am now retired and she continues to serve as a 
reservist. The benefit promised us upon our enlistment and re-
enlistment ceases to exist as it pertains to the promise of 
lifetime health care. As military careerists, we both feel 
betrayed. Let us correct this wrong by not forgetting to offer 
a truly good benefit package to our young new recruits as well 
as our retirees, by providing a long-term care benefit equal to 
Federal employees.
    In closing, we are requesting that the uniformed service 
men and women who are serving now or are retired have the 
choice to purchase long-term care at a group rate alongside 
Federal employees. This again is an equity issue. This 
committee has worked with us diligently to have 66,000 military 
retirees included in FEHBP and we appreciate the hard work 
associated with that. We now ask that we have access to the 
same long-term care benefits as other Federal employees.
    Mr. Chairman, on behalf of the Retired Enlisted Association 
and all military retirees, I would like to offer my sincere 
appreciation to come before you today to request the inclusion 
of the uniformed services participation into the Federal 
employees long-term health care proposal.
    Thank you.
    Mr. Scarborough. Thank you, Senior Master Sergeant Hyland. 
I certainly appreciate your testimony. You talked about the 
sense of betrayal that many military retirees felt because they 
did not receive the health care promised, and I have got to 
tell you that is something that is very important to us on this 
panel and needs to be a message that we do take back with us to 
Washington, DC. I certainly know last year and the year before 
when we held Tri-Care hearings in my district, there was that 
recurring sense that the Federal Government had not kept their 
word to those men and
women that served so ably throughout the years and that is 
certainly something that we will remember as we agree on a 
final bill. I thank you for your testimony.
    Colonel Nowlin.
    [The prepared statement of Mr. Hyland follows:]
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    COL Nowlin. Mr. Chairman, distinguished members of the 
committee, on behalf of the Retired Officers Association, TROA, 
I am pleased to be here today to address the important issue of 
long-term care for our almost 400,000 active duty, retired, 
reserve officers of the seven uniformed services. Included in 
our membership are approximately 71,000 auxiliary members who 
are survivors of former members of our association. This 
subject is not only of great importance to our members, but to 
all uniformed service members everywhere, regardless of their 
status and their rank.
    I want to thank you, Mr. Chairman, for allowing us to 
present our views on long-term care and its importance to 
military members and their families. I am most pleased that you 
decided to hold these hearings in Jacksonville Naval Air 
Station in Florida.
    Mr. Chairman, the hearings today are important to the 
44,600 TROAns living in Florida, of which 6,400 live in your 
district, and of the 173,200 military retirees in Florida, of 
which 30,600 military retirees live in your district. 
Worldwide, there are 1.8 million military retirees plus their 
dependents and family members who, if included, are potential 
participants in a government-sponsored long-term care proposal. 
Like many Floridians, uniformed service members, active, 
reserve, guard and retired are concerned about their health 
care and the potential need for long-term care in case of a 
debilitating illness or injury which can happen at any time.
    Please allow me to digress a little now. I want to take 
this opportunity to state our sincere appreciation to you for 
supporting the congressional efforts to restore health care 
equity to uniformed service retirees who lose Tri-Care at age 
65. Curtailment of military health care services because of 
legislative restrictions, staffing drawdowns, reduced operating 
budgets or base closure actions like that in Orlando and 
Homestead areas, is a breach of the promises made to retirees 
that health care would be there for them if they served a 
career in uniform.
    Historically, Mr. Chairman, you have been a strong 
supporter of the military and for the people issues so 
important to all of us. So thank you for being a friend and a 
strong supporter of the military community.
    Now I want to address the growing concern among our older 
Americans, and those who have to care for them, that long-term 
care insurance is also a health care imperative. Without such 
insurance, most Americans who are responsible for caring for a 
parent, a parent-in-law or a disabled spouse who is suffering 
from debilitating illness or injury will not have the resources 
to do so. Medicaid and Medicare are not the answers. The 
solution for many Americans is to promote enrollment in group 
long-term care insurance plans to make such coverage available 
to more senior citizens. Every incentive that Congress can give 
toward enrollments in group long-term care insurance will 
lessen the demands that may otherwise be placed on Medicaid, 
the government and the taxpayer.
    There are different approaches in how a Government-
sponsored long-term care plan could be structured and what role 
OPM should play. Which is the right one is for your committee 
to resolve? I do not or I am not an expert to address these 
matters. What concerns us is that until recently, each long-
term care bill introduced in Congress has excluded the 
uniformed services community.
    TROA greatly appreciates the lead of Representative Morella 
for developing a more expansive bill which includes members of 
the uniformed services.
    Let me highlight an experience that I had, and it is one 
which is similar to many--to some of my friends who have run 
into the same situation. My particular case was with my mother, 
but some of the people that I know it has been with their 
spouses.
    A few years after my father passed away, my mother, 
Kathleen M. Nowlin, age 77, suffered from acute myocardial 
infarction, diabetes, blindness and incontinence. Her physician 
determined that she required 24-hour skilled nursing care. She 
was placed in Medic-Home Health Center, a nursing home in 
Melbourne, FL on November 9, 1982.
    At the time, the cost of nursing home care was about $2,000 
a month, not including pharmacy, physician costs, personal 
needs such as laundry, clothes, et cetera. My father had been 
an automobile mechanic most of his life and my mother a 
homemaker or a housewife. They did not have much to live on 
after retirement except for Social Security and interest earned 
on their meager savings which, to the best of my knowledge, was 
around $50,000 to $60,000. With mother's medical problems, it 
did not take long for my mother's assets to be drawn down to a 
point where she had to apply for Medicaid to be able to stay in 
the nursing home. At that point, all of her valuable 
possessions were gone and she became property of the State. She 
remained property of the State until she died on January 12, 
1988.
    My mother was very fortunate, as was me and my family, to 
have Medicaid as an alternative when her assets were depleted. 
At the cost of about $30,000 to $35,000 a year at that time, 
which has grown now, we could not have afforded the huge cost 
of nursing home care without going into poverty ourselves. And 
this is true for many whose spouses have gone into nursing 
homes.
    Most military retirees cannot afford current long-term 
insurance on our own. Thus, today we take the gamble that we 
will be one of the lucky ones who will not need long-term care. 
And if we do need it, I am afraid we will go down the same path 
that my mother experienced.
    Mr. Chairman, your support of the military members has been 
very apparent over the years and I must say that we were 
heartened during hearings that you conducted last month when 
you gave your endorsement for including us in whatever 
legislation the committee reports out to the full House. Your 
endorsement is truly appreciated by all of us in Florida.
    According to DOD--I'm not sure our figures match, but they 
are close--according to DOD, there are 3.4 million active and 
retired service members and survivors who could participate in 
a Government long-term care plan, if offered. Last week, I ran 
a survey of just my chapter in the Cape Canaveral area, and in 
that survey there were--of the 100 that I passed out, I 
received 78 responses, 88.5 percent said they want the option 
to have long-term care. Now that is a large number. Now if that 
is true across the State, or if only half, say 42 percent would 
want it, it tells you that our people are concerned about long-
term care and they are concerned about their health coverage 
and they are willing to sign up for it.
    According to OPM, there are about 4 million active and 
retired Federal civilian employees and survivors who would be 
eligible to participate in a government long-term care plan.
    Based on these figures and using the national participation 
rate of 6 percent conservatively, we expect that the 
participation rate for military members could be around a 
little over 200,000, probably higher given favorable premiums 
available through a group plan. The participation for Federal 
civilian employees could be about 243,000 using the national 
rates. However, OPM projects the participation to be closer to 
300,000 given the favorable premiums under the Government group 
plan.
    If active and retired uniformed service members are 
included in the Government's long-term plan, it is likely that 
a more favorable group rate could be achieved and thus make 
long-term care coverage affordable for service members.
    In closing, I want to reaffirm for you, Mr. Chairman, that 
uniformed service members want to be treated equally and fairly 
in programs developed for Federal employees. We want to have an 
opportunity to participate in the Government's long-term care 
program on the very same basis as other Federal civilian 
employees.
    Uniform service members are proud people who, like Federal 
civilians, do not want to burden their sons, their daughters or 
their spouses with having to care for them when their health 
declines and they become too infirmed to care for themselves. 
For the defenders of this country--and I think you spelled that 
out--past and present, please reassure us again today that you 
will include us in the long-term care legislation this 
committee reports out to the full House this year.
    Mr. Chairman, on behalf of TROA's members and all the 
military retirees here in Florida, I want to thank you for 
allowing me the opportunity to present the views of the Retired 
Officers Association on this very critical and important issue.
    I thank you.
    [The prepared statement of COL Nowlin follows:]
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    Mr. Scarborough. Thank you, Colonel. We certainly 
appreciate your input and want you to know that we do 
wholeheartedly support military members and military retirees 
into this plan. Not only does it make good economic sense, it 
is what the Federal Government has to do to keep its word.
    The numbers that you were kind enough to give regarding the 
number of military retirees that are in my district right now 
would suggest that I would be stupid not to include them and 
would have trouble actually driving back to my district if I 
did not include them.
    But actually, when we were holding the Tri-Care hearings, I 
heard so many heartbreaking stories across northwest Florida 
about this breach of faith that I think the Federal Government 
really engaged in with those men and women that have done so 
much for this country in protecting our shores and the 
Constitution. You can see the heartache.
    I want to assure you and everybody on this panel, it is 
very personal to me. My grandfather was on the Maryland on 
December 7, 1941 in Pearl Harbor, and survived the attack. He 
was an enlisted Naval officer throughout that war and also 
throughout the Korean War and served in the Navy until the 
early 1970's when he retired in China Lake. But as he was 
dying, he was very bitter toward this country and toward the 
government that he had fought for his whole life and given his 
whole life for. I remember asking my uncle out in California, I 
said, ``What is it with grandad, he devotes his entire life to 
the Navy and to this country and now as he is dying, he is 
bitter toward it.'' And he said well, you know, Joey--and only 
my family can call me that--he said, Joey, you know, your 
grandad is a pretty simple guy, he is from Oklahoma and he 
believes that if a man gives him your hand and you shake on it 
and gives you his word, if he does not keep his word, he is no 
good. And that is what your grandfather thinks of the Federal 
Government right now. That is something that we carried 
throughout Tri-Care, that the Federal Government had broken its 
word on military health care.
    We are here and I know all of us believe that this is the 
right thing to do and it makes sense for everybody involved. We 
are not going to let it happen again on this bill.
    So we certainly appreciate your testimony.
    Now let me ask you, and I open this up for the entire 
panel, does the military or does the VA right now, as far as 
any of you know, provide any type of long-term care coverage 
for any class of participant in the military or any military 
retirees?
    COL Nowlin. Well, the only thing I can answer is, I guess, 
if there is a person--a veteran who I think has 100 percent 
disability and there is room in a nursing home, I think they 
will be accepted, but that does not cover everybody. And as I 
understand in Florida, our facilities are overcrowded in many 
cases and there is not, particularly in nursing homes in the 
area, there is just not room for these people.
    So I cannot speak any further than that.
    Mr. Scarborough. Are you all aware of any?
    SMSGT Hyland. No, I am not.
    Mr. Scarborough. Let me ask you, have your organizations 
ever offered a long-term care coverage policy, or group policy, 
to members of your organization, or have you ever considered 
it?
    COL Nowlin. Yes, TROA National has a long-term care policy. 
If you need some specifics, I would have to look into it. The 
only thing I have heard is it is kind of limited in coverage 
and it is very expensive.
    Mr. Scarborough. OK. I am sure it is very expensive because 
the pool is not as expansive. If we bring in Federal employees, 
if we bring in--you were retirees and the National Guard, and 
also reservists then I think we all believe that expanding the 
pool, especially with some of the younger, more healthy, active 
duty members right now, that are obviously not going to need 
long-term care for 30 or 40 years, will drive down the price. 
So that inclusion makes a lot of sense.
    COL Nowlin. You know, it sounds like a win-win situation 
for the Federal employees and for the military, because they 
are both pooling together the resources to bring those prices 
down. It appears to me it would be a win-win situation.
    Mr. Scarborough. Are you aware of anything in your long-
term care policy--and I know again that there are other 
specialists and this is not your specialty--but have you heard 
of anything that could be helpful to us as we are trying to 
craft a plan for long-term health care about what has worked 
with your plan or what has not worked with your plan?
    COL Nowlin. I really cannot answer that specifically. I can 
get that information.
    Mr. Scarborough. OK, if you could provide that for us and 
we will put it in the record.
    COL Nowlin. OK.
    Mr. Scarborough. That way, when we have a record of the 
hearing, it will be included.
    [The information referred to follows:]
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    Mr. Scarborough. Let me ask you all a question about 
choice, and I think this is one of the differences right now 
between the competing bills and something that I am very 
confident that we are going to be able to work out. Right now, 
the question is whether we are going to provide more choice to 
our Federal employees and retirees in purchasing long-term 
care. Our approach is a bit more expansive and we want to open 
it up and allow more insurers to come in and I know that Mr. 
Cummings' bill, like the administration's, believes in 
narrowing that focus. Obviously--and he will certainly be able 
to talk on this more--obviously OPM and Mr. Cummings think it 
has more to do with quality control. Our belief is the more you 
open it up, the more expansive the choice, the more 
opportunities for members whether they are wealthy or whether 
they have a little more trouble paying.
    Let me ask you, do you all have any feeling on whether your 
members would prefer to be able to choose from a variety of 
options offered by competing carriers or have the more limited 
choice that is among the benefit packages right now that is 
being dictated by OPM?
    COL Nowlin. Well, I think it would depend on cost, would be 
the big driver, whether by offering more opportunities, whether 
that is going to drive the cost up, I do not know. But I know 
in our organization, the people I have talked to, some would 
like nursing home care coverage, some want just to have home 
care coverage, things like that. So, you know, it has different 
options there.
    But again, I think the main driver in this whole thing is 
what is the cost going to be. And if you have a lot of options 
which is going to make the cost drive up because you have got 
people that are--well, whatever the reason, just like most 
insurance, that would be the determining point. But I think 
there is a lot of interest in knowing what are the options. And 
that is something I find I think most of the people are not too 
familiar and they don't know too much about long-term care and 
what the program is going to be.
    Mr. Scarborough. Right.
    COL Nowlin. What are those options going to be? We sort of 
went through this I guess with Medicare, who recently has 
opened a lot of options and a lot of people did not know what 
the options were and it took awhile for it to get out from 
Medicare itself, to get it published to the people.
    Mr. Scarborough. Right.
    COL Nowlin. And I think this is the same situation. I think 
there needs to be an education program to educate the people as 
to what is going to be offered or what is being planned.
    Mr. Scarborough. I think you are right, I think the 
education process is important. In fact, one of the concerns 
from OPM would be if you opened it up to a lot of different 
organizations, that it might be confusing to participants. Let 
me ask you all, for the organizations that you all are members 
of, is this the sort of thing that you would help provide 
education for, sort of like Tri-Care. When Tri-Care was 
implemented, I know everybody was scrambling to try to educate 
as quickly as possible. But if we were able to give your 
members a variety of choices and open it up and make it very 
expansive, is this the sort of thing that you all would provide 
education for, to help guide your members through this process?
    COL Nowlin. Definitely. We did this with Tri-Care, we have 
done this with Medicare and we have done it with the FEHBP 
program. You bet our organization is going to publicize that 
highly.
    Mr. Scarborough. Larry.
    SMSGT Hyland. I would like to piggyback on that, Mr. 
Chairman. Our organization would also, we would definitely get 
it out in our magazine and provide that information to our 
members because we know the benefit and the return on it.
    Mr. Scarborough. Ms. Croach.
    Ms. Croach. Absolutely, NMFA would fully support, 
absolutely.
    Mr. Scarborough. All right, at this point, Mr. Cummings, do 
you have any questions for the panel?
    Mr. Cummings. Oh, definitely.
    First of all, let me again thank you all. Your testimony 
has been very meaningful. I agree with Mr. Scarborough, as I 
said a little bit earlier, I think that the military enlisted 
people, uniformed and retirees should be included in this 
proposal.
    But I want to just piggyback on a few of the questions that 
Mr. Scarborough asked, particularly with regard to education. 
One of the things that has become real clear from your 
testimony and just from my experience in studying this 
legislation is that that education piece is so important, it 
really is, because as I think all of you have pointed out, if 
you are expanding the group of people who can benefit, then 
that is important, but it is also important that they take 
advantage of it. And so I am glad to hear you all say that and 
you are absolutely right, Mr. Hyland, when you said that it 
would inure to your benefit by doing this extensive education 
piece.
    One of the things that--we had some testimony before at an 
earlier hearing where the insurance industry came forward and 
basically said that because of the nature of this insurance, 
that it would probably be only between five and six companies 
at most that would even be willing to offer it, be in a 
position to do it, in the country, which, you know, kind of 
surprised me, but after I began to look at it, I could kind of 
understand that. But I wanted to go to you, Ms. Croach, and 
just ask you, you were talking about your mother-in-law, I 
think it was.
    Ms. Croach. Both my mother-in-law and my mother, over the 
last 3 weeks I have taken leave to take care of.
    Mr. Cummings. When you see what is going on in your life, I 
mean what kind of things would you like to see in a long-term 
care policy? In other words, what are the things that are 
foremost in your mind, the things that you would like to see. I 
mean Mr. Nowlin--I do not have my glasses on--Mr. Nowlin spoke 
about there are a lot of questions as to what the terms are. 
You are absolutely right, when you talk to people even in the 
industry, sometimes they have some questions, to be frank with 
you. We want to make sure that whatever we do, we do it right 
and try to make sure that the things that you are concerned 
about, that we see how we take those and then make sure that we 
have some type of benefit package that fits that, but at the 
same time taking into consideration what you have all talked 
about and that is cost. Because if it is too costly, we still 
have a problem.
    So I was wondering, you know, in light of what you see 
yourself--I do not know whether you are just beginning this 
process of problems or whether it has been ongoing for a good 
while, but what are the kind of things that stand out most in 
your mind that you would like to see?
    Ms. Croach. From a personal standpoint, my mother is a NASA 
retiree, after 30 years, so she would be the Federal employee 
that you are talking about, retiree, civil service. I am a 
product of an Army father, an Air Force husband and an Air 
Force father-in-law. As I spoke with my mother last night 
about--she wanted to be here today but she has very important 
tests at Mayo this morning--I told her, I said you know, it 
just seems that if we were to go from this hearing on a tour, 
and I think we will, that if we go into the Naval facilities 
around here, we will see civil servants sitting shoulder-to-
shoulder with a person in uniform. We have spent our lives 
working together as part of the Defense family in support of 
the national security of the United States, and therefore, 
anything that would be afforded to one should be afforded to 
all.
    I think if we need due diligence on policy providers, to 
make sure that whoever comes to the table offering, that it be 
clear that as Members of Congress, what are the kinds of things 
that you would look for in your own policy? What you would take 
home to your kitchen table and sit with your spouse and your 
families? What would you select as important things for a plan 
that you would subscribe to? These are the kinds of things that 
we also would like to have. What works in this zip code does 
not work in another zip code. Many of us are--as military 
retirees, we migrate to the three most popular States of former 
military personnel, which would be California, Texas and 
Florida. So clearly, a provider, in my personal opinion, would 
be asked to come to the table and say that in collaboration 
with the Department of Defense, with the Veterans' 
Administration, with the Office of Personnel Management, how do 
we develop a program so that collaboratively, particularly with 
the military coalition because we represent 23 associations I 
believe, that we basically are in touch with those who have 
served. If we collaboratively work to help educate, to bring 
that information to every person who has served, through 
retiree pay stubs, through direct deposit announcements that 
come with our retired pay--whatever it is to be able to touch 
the life of every person who has raised their right hand and 
sworn to protect our country, or their family members, or 
family members that are left behind, I think that if we show 
the cost/benefit in real terms, speaking to them in language 
that they can understand so that you give examples of what it 
would be like. When you tell me that the cost by the year 2030 
will be almost at the $100,000 level, I will be 44 years old in 
June, and in the year 2030, you can put the numbers together. I 
would, depending on how well I take care of myself and what God 
has bestowed upon me inside my genes and what I have 
propensities to grow to be ill perhaps, much of which I have 
learned in the last few days at Mayo because of my mother, I 
can tell you that I would perhaps be a candidate for this 
program and I just believe that clearly if we are embarking 
on--I remember I worked at the Pentagon when we put together 
the family policy office. Mr. Weinberger wanted very 
desperately to make sure that as we looked at recruitment and 
retention--and you mentioned that earlier about quality of life 
issues, recruitment and retention--it was clear that we could 
recruit a member, but we had to retain a family.
    We talk a lot about quality issues for families but at that 
point, and this was posed to ABF in 1976 when we went from 
conscription to an all volunteer force, we looked very 
carefully at what kinds of things, in terms of childcare and 
other things that make it very difficult for military families 
to serve when they are deployed and many of them are single 
parents and there are children involved. I can tell you that in 
putting together the family policy office, it was very clear to 
those of us working on staff at the time that we had to be able 
to help a military family understand that it was really worth 
their while to be deployed to places where they could not go 
home for holidays, where it was a long distance phone call to 
talk to any family member back home, where these kinds of 
things where--it was more important for us to serve than it was 
to have our personal lives put first.
    But now, in order to equalize that difference for that 
service, I think that a policy--the opportunity to participate 
in a policy that takes into account the differences in 
geographic location, the differences in services that can be 
provided in every zip code, I think that we can all come 
together. We all have bright minds and I think that we can put 
together a program that makes really good sense, make providers 
sit at the table and work together to provide something for 
this unique population, that it be something that a retiree's 
family can benefit from. They are no different than other 
Americans, we are just like everyone else. I always said, we--
and not to endorse any products, but we put air in the tires of 
our cars just like anyone else does, we use Pepto-Bismol, we do 
the whole thing just like everyone else, we are just like 
everyone else. We just happen to be persons who decided to give 
a lot to our country as a member of the services and as spouses 
of those who also fell in harm's way.
    Mr. Cummings. Well stated.
    One of the things, as you were talking, I was just--and 
this is opened up to all of you all--it is true that if we--I 
guess like health insurance, the more you expand your pool, the 
more--you know, the younger people that you have in, the more 
you are likely to--and healthy people--the more you are likely 
to reduce premiums in the end. And I think it may have been 
you, Ms. Croach, or one of you all mentioned the fact that when 
you are talking about military people, they have a limited 
amount of income and when you think about say a young family, a 
young military person thinking about maybe two or three 
children, trying to support them and do all the things that go 
along with raising a young family, how do you all see educating 
someone to say well, look, it may not really be upon them, 
maybe their parent has not gotten but so old and they are 
saying well, wait a minute, I have got a choice, do I put money 
in a long-term care policy or, you know--in other words, how do 
you get that message through when you have got all these other 
competing forces? I mean you touched on it a little bit just a 
moment ago, but I guess that is one of the things that I wonder 
about, how do you get that message through that, look, this is 
something you really need to do and you should not wait until 
it is right at your doorstep, because if you wait until it is 
right at your doorstep, we do not even know exactly how all of 
this--the premiums will work out, but it is probably going to 
be pretty high. The other thing is that you--certainly if 
people are waiting until it is at their doorstep, then the 
premium, the thing that all of you are concerned about, that is 
that the cost be reasonable, sort of goes out the window.
    So I was just wondering, when all of you said that you 
would be willing to do what you have done in the past, 
educating your constituencies with regard to this product, I 
was just wondering how do you see getting that kind of message 
through, because like you said, MSGT Hyland, that inures to 
your benefit, you know.
    Ms. Croach. Could I make a statement?
    Mr. Cummings. Sure.
    Ms. Croach. I read at one point in time that often when we 
are active duty, if we are transferred from one duty station to 
another, young enlisted families ask a very different question 
than a family that is more established, perhaps an officer's 
family, in the military. A young enlisted family will say I 
wonder if the car will make it. I understand your point about 
the fact that there is always not enough money to go around for 
housing and basic expenses.
    But how will we educate? One of the things that has always 
fascinated me is in the Department of Defense, about the time 
that the Gulf war began, there were stop loss gates engaged so 
that there would not be a massive drawdown of strength. During 
that time, the services, excluding the Army, developed 
transition assistance programs to help transitioning military 
families, the member and family, to transition from civilian 
life to active service. These programs--the Army contracts its 
out to the private sector, but the other services provided 
theirs in-house. And what that program consisted of is an 
opportunity to help a person package themselves to be 
competitive in the marketplace. It might also consist of 
looking at educational credentialing or other training and 
those kinds of things that a person might need to re-engage in 
the private sector.
    These programs are very successful and it appears that 
oftentimes we might require that as part of a training program, 
that a member and their family be afforded an opportunity to 
come to a training session, which is part of a family's 
opportunity to learn what this could mean for them, real 
scenarios where we show over time the purchasing power of your 
dollar and what that means for you.
    It cannot be a lot different than our discussions that we 
have with young enlisted members to say to them, you know, if 
you participate in the new Montgomery GI Bill, the good news is 
you will have an opportunity to go to college after your years 
of service; the bad news is we are probably going to have to 
take about 25 percent of your pay once a month, about $100 a 
month, for 1 year. And when you tell a young person that has 
just been sworn in that 25 percent of their pay will go to the 
GI Bill for their portion, that sometimes can be difficult. But 
I can tell you as a person who is Director of Federal Relations 
for a university here in Florida, that we have no problem--you 
know, we have lots of people who are interested in going to 
college and they are going on their GI Bill, our Veterans' 
Affairs office is teeming with people who are using that which 
they co-invested with the Government to be able to provide 
educational opportunities for them post-service.
    This can be done. It is not something that we cannot do for 
ourselves and collaboratively with the Federal Government and 
with the private sector, the associations, particularly the 
Military Coalition which represents all of us. Clearly you have 
to somehow have an interest in what is going on, you have to 
read the Service Times or you have to read the local newspapers 
or you have to read association information, and most of them 
are membership-based. But for those of us who do volunteer 
work, we see people throughout the community that are 
interested in getting the word out.
    I think there is no question that we will not try to do 
that, but trying to reach everyone, I think it is an 
opportunity for the services to engage and to talk about the 
kinds of things that give comfort to a person while they serve. 
If these things are taken care of, even though we understand 
compartmentalization in thought, clearly if we know that we 
have an opportunity to participate in a program that others 
have and that is something, one less worry, I can assure you 
that those kinds of things will pay off in our day-to-day work 
and those who are particularly in harm's way that it is also in 
the back of their minds wondering whether or not their aging 
parent--if Meals on Wheels made it before it was time for them 
to take their medicine or whatever. It needs to be brought down 
to the level of two fingers right here, bump, bump, bump over 
your heart--the real world. It needs to be provided by people 
who are credible--the educational process I am speaking of--
needs to be provided by people that we can count on and depend 
on to be telling us the truth.
    Mr. Cummings. Thank you.
    Mr. Scarborough. Thank you.
    We want to finish up this panel and get to the next because 
I know there is one member of the next panel that needs to 
catch an airplane and we certainly do not want to be 
responsible for making him miss that plane. Before we do that, 
I want to ask a couple of very quick questions, just for the 
record, to help us as we prepare this bill and prepare the 
inclusion of military retirees.
    First of all, regarding demographics, one of the complaints 
that we might hear is that the inclusion of military retirees 
would actually might not help the cost of the programs. Do you 
all believe that there is anything about the health or age of 
your groups that would complicate the long-term care program if 
they are added?
    COL Nowlin. I can answer that from a military standpoint I 
guess, retirees. We are normally considered pretty healthy for 
the organization, when we look--I should say, across the age 
groups. We are going to need that care though, but I do not 
understand why that would have any effect on it. I think adding 
us, our organizations, into it I think are going to help in the 
cost area and I do not think it is going to be detrimental in 
the health area.
    Mr. Scarborough. OK.
    SMSGT Hyland. I would also like to say the same, Mr. 
Chairman. I believe if we open it up to the military retirees, 
I do not think we are any different than the ``Federal 
employees'' that it is going to be offered to. And again, 
across the full spectrum, I think probably our health care is 
probably a little bit better.
    Mr. Scarborough. Great.
    Ms. Croach. I think that if you have a job where you have 
to be able to be mobilized and show up to have an annual 
physical every year, that is probably--you are getting persons 
who are drug free, their entire career they have had physical 
training, physical fitness. I am not saying that we are 100 
percent healthy and all of that, some of us are more than 
others, but we still reflect that cross section of the world 
that I mentioned earlier.
    Mr. Scarborough. OK, great.
    And one final thing regarding recruitment and retention. 
And again this has been touched on before, but just for the 
record, do you all feel that adding long-term care as a benefit 
will help us with recruitment and retention of those in the 
military?
    SMSGT Hyland. Mr. Chairman, I would like to address that, 
speaking as a former enlisted, I definitely believe that would 
help. Because currently, as we all well know, one of the 
problems or one of the creations of the exodus that we are 
seeing in the armed services, especially in the junior ranks, 
is that there is a feeling, a compelling feeling, that there is 
no support out there, mainly in military retirement benefits. 
By instituting something like this and bringing it forward and 
having it on the table, I think that would convey back to the 
people who are considering to go to the career status or those 
who are debating whether to even join the military, I think it 
would definitely help us in that area.
    Mr. Scarborough. Thank you, I appreciate----
    Mr. Cummings. Just one thing.
    Mr. Scarborough. Oh, sure.
    Mr. Cummings. I just wanted to take a quick 30 seconds to 
thank you all again as volunteers for your organizations. You 
know, I often say that there are a lot of people who stand on 
the sidelines of life and they are high on opinion and low on 
information, and they never do anything to make a difference. 
But the fact that you all took your time to come here today to 
help us make some very crucial decisions, and all of you spoke 
so well for your organizations and your organizations are truly 
blessed to have you. And I just wanted to take a moment to 
thank you, and compliment you also.
    COL Nowlin. Thank you also.
    Mr. Scarborough. Thank you very much, we appreciate it.
    Why don't we call up our second panel now. We will let the 
audience try to guess who has the plane they have to catch by 
how quickly the members read their testimony. And we will not 
reveal that until the end.
    Mr. Grubb. I plead guilty.
    Mr. Scarborough. You plead guilty already?
    Mr. Grubb. But this is more important than an airplane.
    Mr. Scarborough. Oh, thank you, correct answer.
    We have--while they are being seated--we have Mr. Bill 
Carr, who is Deputy Director, Force Management Policy for the 
Department of Defense. We are certainly honored by your 
presence. We have Pat Freeman, associate executive director of 
the John Knox Village Medical Center, American Health Care 
Association, we certainly appreciate you being here, thank you 
so much. And we have Kenneth A. Grubb, president, NYLife 
Administration Corp., Health Insurance Association of America, 
who has already testified and been very helpful in Washington, 
DC.
    We thank all of you for being here today, and because 
Government Reform is an investigative committee, we do require 
that you stand and take an oath.
    [Witnesses sworn.]
    Mr. Scarborough. Director Carr.

     STATEMENTS OF WILLIAM J. CARR, DEPUTY DIRECTOR, FORCE 
    MANAGEMENT POLICY, DEPARTMENT OF DEFENSE; PAT FREEMAN, 
ASSOCIATE EXECUTIVE DIRECTOR, JOHN KNOX VILLAGE MEDICAL CENTER, 
    AMERICAN HEALTH CARE ASSOCIATION; AND KENNETH A. GRUBB, 
   PRESIDENT, NYLIFE ADMINISTRATION CORP., HEALTH INSURANCE 
                     ASSOCIATION OF AMERICA

    Mr. Carr. Thank you, Mr. Chairman, Mr. Cummings, in 
deference to my colleague to my left who has to make a flight, 
I will be brief.
    In behalf of the Department, I welcome the opportunity to 
be with you today to discuss the proposed extension of long-
term care insurance to people in the uniformed services. The 
Department appreciates the subcommittee's interest in the 
possibility of including active and retired uniformed service 
personnel and their families in the population of individuals 
that would be eligible to purchase long-term care insurance.
    We are prepared to study and work on how to pursue the 
inclusion of the uniformed service people in long-term care 
proposals that might contribute to the recruitment, to the 
retention and to the morale of those who serve the Nation. 
There is no comparable program in place today that could serve 
as a model for the program to really know how it could operate, 
so we need to work with OPM in helping to shape those 
requirements. The DOD requirements are nonetheless unique, as 
the demographics of the active and retired uniformed service 
populations are different from the population at large, as the 
previous panel pointed out.
    We do believe that it is important to consider whether to 
include uniformed service personnel should a program for 
Federal employees, such as H.R. 110, be enacted. And we look 
forward to working with the appropriate committees in the 
development of these issues and in the pursuit of this very 
valuable addition to the benefits package.
    Thank you, Mr. Chairman.
    Mr. Scarborough. Thank you, Mr. Carr.
    Ms. Freeman.
    [The prepared statement of Mr. Carr follows:]
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    Ms. Freeman. My name is Pat Freeman and I am associate 
executive director at John Knox Village in Orange City, FL, 
which offers both nursing and assisted living services for 
approximately 160 residents. I would like to thank you on 
behalf of the those residents for continuing to address the 
very important issue of long-term care insurance. On behalf of 
the American Health Care Association, I applaud you, 
Congressman Scarborough and Congressman Cummings, along with 
your colleague Congresswoman Morella, for giving such time and 
effort in your proposed legislation to fix a very big problem.
    I am testifying today on behalf of the American Health Care 
Association, a federation of 50 affiliate associations 
representing 11,000 non-profit and for-profit nursing 
facilities, assisted living residences and subacute providers 
nationally. My organization, much like your legislation, is 
working to educate Americans and policymakers about the urgent 
need to reform the way long-term care is financed in this 
country.
    The plan that is decided upon by this subcommittee can be 
used as the model for private employers who want to help baby 
boomers protect their retirement savings. Without the 
opportunity to purchase long-term care insurance through an 
employer, three out of five baby boomers who fall ill could see 
their retirement savings strained by the cost of long-term 
care.
    On March 18, this committee began debate on a key aspect of 
President Clinton's long-term care initiative--providing 
Federal employees long-term care insurance as a part of their 
benefits package. This field hearing today in Jacksonville 
continues debate on three important pieces of legislation; H.R. 
602 and H.R. 110 are designed to make long-term care insurance 
available to Federal employees, while H.R. 1111 would provide 
members of our Nation's military access to long-term care 
insurance as well.
    Offering long-term care insurance to Federal employees, 
including extending this benefit to members of our Nation's 
armed forces, will set an important precedent and will 
encourage private businesses to offer this benefit to their 
employees.
    Holding this hearing at the Naval Air Station here in 
Jacksonville is particularly fitting. Many of our Nation's 
veterans, who risked their very lives to keep this country 
free, face impoverishment should they need long-term care as 
they age. Giving military personnel the ability to purchase 
long-term care insurance at group rates is an important step in 
helping them protect their and their families' life savings and 
assets.
    Long-term care insurance is a very important employee 
benefit that we hope will signal the private sector employers 
across the country. Long-term care insurance provides 
tremendous security for individuals and their families. In 
fact, later this afternoon, during your tour of the Heartland 
Healthcare Center, you will meet several individuals who have 
benefited from owning long-term care insurance. Juanita Russell 
and her husband William have personally benefited from owning 
such a policy. After Juanita was admitted to the Heartland 
Center in February 1998 for a fractured hip, Medicare covered 
the first 100 days of her stay. Past that, she, along with her 
husband, would have had to pay out of pocket were it not for 
long-term care insurance. You will have the opportunity to ask 
Mr. and Mrs. Russell yourselves about the excellent care 
Juanita has received and how long-term care insurance has made 
that all possible.
    My own father, who just passed away 6 years ago, was a 
retired Naval officer and was cared for by my mother and myself 
in the latter stages of his fight with lung cancer. I truly 
believe if he knew the option existed, he would have invested 
in long-term care insurance, to both assure a consistent, high 
level of care for himself, and to alleviate some of the burden 
of his care from my mother and myself.
    This field hearing is particularly timely, given a new 
survey released in New York and Washington this week that finds 
baby boomers--particularly boomer women--are headed for 
financial ruin in their old age. The survey found that while 
boomers are concerned about their retirement security, they are 
not saving adequately for potentially devastating long-term 
care costs that nearly three of five of them will encounter as 
they grow old.
    Let me give you a little background on the survey. The 
American Health Care Association commissioned the Republican 
polling firm Fabrizio, McLaughlin & Associates and the 
Democratic polling firm Penn Schoen & Berland to conduct a 
national telephone survey last fall of 800 adult Americans 
between the ages of 34 and 52 years--the baby boomers. Fabrizio 
then conducted a followup national survey of 800 baby boomers 
to gauge their reaction to the administration's long-term care 
initiative outlined in President Clinton's State of the Union 
address.
    The overall conclusion from this survey is an alarming 
reality gap in how baby boomers view their retirements needs. 
Retirement is not all travel and golf--in fact, three of five 
baby boomers will become ill enough to require long-term care, 
but almost none of them are taking steps to address this threat 
to their retirement savings. Only now are baby boomers just 
beginning to realize the sheer size we will have on the 
Medicaid and the Medicare systems. In fact, over 80 percent of 
baby boomers applaud the President's plan for a national public 
education program about long-term care services and financing.
    The survey found that boomers get a flunking grade in 
retirement planning. In addition, four out of five boomers 
interviewed are totally confused about how health care and 
long-term care are paid for in their retirement. While 91 
percent of boomers are covered by health insurance, many 
boomers incorrectly think their health insurance policies will 
pay for long-term care or they believe that Medicare will pay 
for their long-term care costs as they grow older. They are 
wrong, absolutely wrong.
    Just 15 percent know the principal source of long-term care 
funding assistance is Medicaid--the Government program for the 
poor--not Medicare. Only one in four Americans can afford 
private nursing facility care and two out of three nursing home 
residents must rely on Medicaid for their care.
    Failure to provide for the cost of a nursing facility stay 
or other long-term care needs is the primary cause of 
impoverishment among the elderly. In fact, two out of every 
three nursing home residents must rely on Medicaid to pay their 
bills. To qualify for Medicaid, individuals must spend down 
their total assets to the poverty level of $2,000. They then 
need to give up control over where and how they are going to 
live.
    The survey also uncovered a number of startling findings 
that do not bode well for boomer women.
    As women, we live longer than our male counterparts. We 
still typically earn less than men, and therefore save less for 
retirement. We receive lower Social Security payments but we 
are the primary caregivers when a loved one becomes ill. We are 
emotionally and financially torn between the demands of a busy 
career, raising our children, taking care of our households and 
providing care--either directly or indirectly--to our aging 
parents.
    Perhaps the most troubling finding from the survey is that 
41 percent of boomer women who have provided care for a family 
member or friend were forced to quit their jobs or take a leave 
of absence to provide that care. The financial drain of having 
to provide care to aging relatives and spouses is only a part 
of the burden boomer women face. Once they have cared for their 
parents and spouses, who will take care of them? Who will pay 
for that care?
    By our sheer numbers, baby boomers have dramatically 
impacted society and increased the demand for services at every 
stage of our lives.
    By 2030, when the last of our generation reaches 
retirement, our generation will virtually double the current 
nursing home population to 5.3 million individuals. And because 
70 percent of nursing home residents rely on Medicaid to pay 
for their long-term care costs, our generation threatens to 
bankrupt the Medicaid system. In fact, by 2030, Medicaid 
expenditures for nursing home costs are expected to increase 
360 percent. This massive cost will require either significant 
cuts in the program or a major overhaul of our system for 
funding.
    The legislation being debated today stems from the long-
term care initiative announced by President Clinton in January. 
The survey found that boomers are very receptive to the 
administration's proposal to address long-term care financing. 
In particular, boomers favor proposals for a tax credit for 
caregivers, a national program to educate Medicare 
beneficiaries about the program's limited long-term care 
coverage, as well as long-term care insurance for Federal 
employees, to help set an example for American businesses. They 
also favor the administration's proposal to create a national 
family caregiver support program that would allow States to 
establish centers for one-stop shopping for information and 
support on long-term care concerns.
    While the administration's initiative and your legislation 
are a good start, more must be done to assure baby boomers will 
be able to afford long-term care when they need it. To 
accomplish this, major changes must be made in how we finance 
long-term care.
    A Federal commission, similar to the Medicare Commission, 
should be convened to develop additional meaningful solutions 
to the current long-term care financing system. The long-term 
care industry welcomes the opportunity to work with the 
administration
and Congress to develop meaningful solutions to the long-term 
care financing crisis.
    Thank you.
    Mr. Scarborough. Thank you, Ms. Freeman.
    Mr. Grubb.
    [The prepared statement of Ms. Freeman follows:]
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    Mr. Grubb. Thank you. First of all, let me apologize for my 
voice. Everything is blooming back home and it is allergy 
season. So if I cough a little, please excuse me.
    Good morning, Mr. Chairman and Mr. Cummings. I am Ken 
Grubb, president of New York Life's long-term care subsidiary. 
Today I am testifying on behalf of the Health Insurance 
Association of America, the Nation's leading health insurance 
trade association representing members providing coverage to 
more than 115 million Americans. Today, more than 100 companies 
provide long-term care insurance to over 6 million people, with 
over 1,800 employers sponsoring this type of insurance program.
    I purchased long-term care insurance for myself, my wife 
and our three children, who are all in their 20's, through our 
company's sponsored plan. It is very easy to understand why my 
wife and I have coverage, but why did we buy it for our 
children? As I said to you in Washington, DC, it is really 
important to note that long-term care insurance is not just for 
the elderly--40 percent of the people in nursing homes are 
under the age of 65.
    I am keenly aware of the problems families face because of 
long-term care. My parents both needed long-term care and had 
no insurance coverage. They had saved about $100,000 during 
their working years and had only Social Security as a source of 
income. I paid for their care to allow them the dignity they 
deserved and to avoid the painful choices they would have had 
to make to apply for Medicaid.
    In addition to being associated with the insurance 
industry--and I kind of hesitate to mention the word Air Force 
at the Jacksonville Naval Air Station--but I am also a retired 
Air Force Reserve Colonel. As such, I am pleased that 
consideration is being given to offering the Federal long-term 
care insurance program to military personnel and their 
families. No pun intended, I salute offering these fine people 
an affordable option for protecting themselves and their 
families from the financial ravages of long-term illnesses.
    Long-term care related expenses cost employers $29 billion 
a year in lost time and productivity. Many believe that long-
term care insurance can have its greatest impact in the 
employer-sponsored market. As the Nation's largest employer, 
the Federal Government would magnify this impact tremendously 
through its program.
    HIAA would like to make the following points with respect 
to the bills under consideration.
    No. 1, the key to a successful Federal long-term care 
insurance program is an effective education and marketing 
campaign. And you have spoken very eloquently to that this 
morning. Successful employer plans invest in multi-faceted 
education and marketing programs. This would be critical to the 
success of the Federal program.
    No. 2, it is essential that market competition determine 
the carriers that will offer plans under the Federal program. 
Interested companies should be allowed to freely compete in a 
fair selection process that will determine eligible 
participating carriers.
    No. 3, this point I think is very important. Using 
artificially low premiums as a major determinant of good long-
term care products is very dangerous. A policy with rich 
benefits, low premiums and minimal underwriting is a sure sign 
of potential disaster. This could lead to a program with 
unstable premiums and would likely discourage responsible 
companies from participating. Only companies looking for quick 
market penetration with the intention of raising premiums over 
time would be attracted.
    No. 4, OPM should not be responsible for adjudicating 
disputed claims. There is no precedent for this in public or 
private long-term care plans. Given the exposure that insurers 
face in paying potentially enormous amounts of long-term care 
benefits, it is unwise and unfair public policy for the 
employer to make claims decisions. Instead, the HIAA supports a 
fair appeals process within the insurance company for contested 
claims.
    No. 5, program funds should not be maintained separately 
from the carrier's other contracts or lines of business. This 
requirement is really unnecessary. The financial stability of a 
company's long-term care business is enhanced because of the 
diversity provided by the entire company's portfolio. It would 
be appropriate to require that the program's claims experience 
be available for reporting, separate and apart from the 
carrier's other businesses.
    Long-term care is the largest unfunded liability facing 
Americans today. HIAA applauds long-term care programs that 
encourage personal responsibility and increase educational 
efforts. The administration's and congressional proposals have 
an important common factor--recognition that private long-term 
care insurance plays a vital role in helping people pay for 
their future long-term care costs.
    I commend Congress for passing long-term care tax 
clarifications under HIPAA. Examples of other tax incentives 
that would make this insurance more affordable are included in 
our written testimony.
    HIAA fully believes private long-term care insurance will 
give millions of people the opportunity to remain financially 
independent through their retirement years. This hearing is a 
solid step in that direction.
    Thank you, Mr. Chairman and Mr. Cummings. We certainly look 
forward to working with you on this very important issue.
    [The prepared statement of Mr. Grubb follows:]
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    Mr. Scarborough. And thank you, Mr. Grubb.
    I want to start with you. No. 3--you do not mind us 
starting with you, right?
    Mr. Grubb. Good.
    Mr. Scarborough. Mr. Cummings actually said he is going to 
save yours to the end and talk very slowly.
    Mr. Grubb. I like that you said, ``I am going to start with 
you.''
    Mr. Scarborough. On your third point, you talked about we 
should not go after the companies that just talk about 
providing artificially low premiums with rich benefits and 
basically no underwriting.
    Mr. Grubb. Yes.
    Mr. Scarborough. Or very little underwriting. That brings 
up the guarantee issue that we talked about at the last 
hearing. And I want to clarify an important issue from our last 
hearing concerning the automatic coverage of any participant in 
the long-term care insurance program.
    OPM's testimony at our last hearing suggested that the 
administration is giving serious thought to providing this 
guaranteed issue by any carrier in our program. Whether OPM is 
contemplating guaranteed issue for annuitants or just active 
employees is still unclear, but OPM did seem to imply that the 
question of guaranteed issue is a relatively minor benefit 
design question and basically one with which Congress should 
not concern itself. I wanted to ask if you agreed with OPM's 
assessment that Congress need not be concerned with the 
guaranteed issue, or if they should. Just how important is this 
issue in determining whether this program basically sinks or 
swims?
    Mr. Grubb. With all due respect, I think I would disagree 
that it is a minor issue. The guaranteed issue is a big issue. 
Basically what you are doing is opening the entire population 
to acceptance under a program that is generally medically 
underwritten, and it does have, it would have a major impact on 
the cost.
    Guaranteed issue means that you accept anyone who applies. 
I am not aware of any program in the long-term care industry 
that guarantee issues policies to people who are retired. We 
have guaranteed issue programs in our company as do some of my 
colleagues, but none of them offer guaranteed issue to 
retirees, because in essence, you would be offering people who 
already need nursing home care or home health care the 
opportunity. It is like winning the lottery. With your 
application, you could submit an application to go into a 
facility.
    Guaranteed issue also, if you have multiple carriers, would 
get very difficult. If you are going to have a guarantee issue 
program, it almost mandates the selection of a single carrier 
because I am sure--I think in our last testimony, my colleagues 
agreed with this--that if you have five or six carriers, how 
would any of us know that we were not being anti-selected 
against. Ultimately the people who are paying the premiums pay 
the price. So, if a company got all the bad experience, they 
would be forced to raise their premiums.
    I think guaranteed issue is not something to be taken 
lightly. Typically the way guaranteed issue works is you will--
if the employer funds the entire premium themselves, which you 
are not contemplating, then you get everybody and you get a 
broader spread of risk. On the other hand, if it is a voluntary 
basis, then there are participation levels that are required. 
And the way we do it in our company depends on ages, lower 
participation levels for lower ages. But typically over 50, the 
participation level will go up. So it makes the administration 
of the program somewhat more complicated.
    I think in a multi-carrier environment, you would have a 
very difficult time convincing insurance carriers that 
guaranteed issue is viable.
    Mr. Scarborough. Do you think there are any particular 
groups in the Federal marketplace that should undergo full 
underwriting? For example, should we provide the same 
underwriting criteria to everybody or should some be fully 
underwritten and some be less?
    Mr. Grubb. Well, again, I will go into my experience in the 
employer marketplace. Typically what we will do is if it is not 
a guaranteed issue program, you can have simplified 
underwriting for people that are actively at work. Simplified 
underwriting basically means you complete your application, you 
answer some basic medical questions, somebody will call--a lot 
of times it is a nurse--and just go over the questions on the 
application. If there are no apparent major health problems, 
then the policy is issued. Only if the application reveals or 
the interview reveals that there are significant medical 
problems do you do complete medical underwriting.
    Then for people who are over age 65 typically or retirees, 
you do medically underwrite those. That is really for the 
protection of the entire plan. Everybody has talked today about 
how important affordable premiums are. Excluding people 
initially who already need care will have a positive impact on 
that. The good news is that as people buy it in their active 
years, it never goes away because it is guaranteed renewable. 
So, over time, you would have everybody in the program.
    Mr. Scarborough. Should each carrier be free, in your 
opinion--and again, we are talking about what is in the best 
interest of the entire population, to use its own underwriting 
standards, or do you believe that all carriers are going to 
need to follow the same standards?
    Mr. Grubb. I would think in a program of this kind that if 
there is oversight provided by OPM or the legislation, that 
there should be similar rules that are followed by all of the 
carriers in terms of how the underwriting is done.
    Mr. Scarborough. Who do you think should provide that 
oversight--Congress, OPM, OPM and the carriers?
    Mr. Grubb. I would think OPM and the carriers.
    Mr. Scarborough. Jointly?
    Mr. Grubb. Yes.
    Mr. Scarborough. Let me ask you, Ms. Freeman, your 
testimony referenced the boomer survey and you highlighted how 
baby boomers are confused--what a surprise. [Laughter.]
    Baby boomers are confused or just beginning to realize the 
impact the sheer size of the demographics will have on the 
Medicaid and Medicare systems and the incorrect belief that 
their health care insurance policies are going to be paying for 
their long-term health care costs.
    You also brought up some important points about how women 
typically earn less than their male counterparts, therefore are 
not able to set aside as much money for savings and retirement. 
I know I have seen my mother in a crunch that all women seem to 
be in where they go from raising their children, getting them 
in college and getting them out of college, then immediately 
having to move on and most likely caring for their parents, 
being the primary caregiver. Somewhere in the middle they get 
torn between children and parents and it is just an awful 
situation.
    Some of us have been concerned about the possible 
limitations on the variety of benefits in the plans that would 
be offered. In your opinion, what effect would a limited choice 
have on the number of lower income Federal employees and 
annuitants that would benefit from this program? And I want you 
to emphasize women in particular--if we limited the choices.
    Ms. Freeman. Well, I think you heard earlier from the 
earlier testimony, you know, premiums are a big concern of 
everyone, as well as the coverage issues. And I think now that 
we know, you know, from the survey and the studies that have 
been done, that women do earn less, obviously they have to set 
priorities in terms of where their money goes and they would 
end up looking possibly for a cheaper premium. It may not 
necessarily be the best quality plan for them in terms of 
having had some choices, but at least they would end up with 
some coverage.
    Mr. Scarborough. Let me ask you, from your experience, you 
have had the opportunity to see this first-hand probably I 
think as well as anybody here--let me ask you, could you just 
provide us, provide the committee and all those in attendance 
today your experiences on comparing the difference. Give us a 
contrast, a real life contrast between somebody or a family 
that has been fortunate enough to plan ahead and invest in 
long-term care, compared to the horror stories that we hear all 
the time about those that have to spend down their life savings 
and basically become broke and poor and have to depend on 
Medicaid. What is the difference in just sheer quality of life, 
especially in those last final years?
    Ms. Freeman. Let me share a little bit about my background 
with you. I am a registered nurse and I have worked in the 
field of long-term care for about 15 years on both for-profit 
and the non-proprietary side.
    Prior to rejoining John Knox Village just 6 weeks ago, 
which is a continuing care retirement community, which 
essentially was the forerunner of long-term care insurance--
those of you who know anything about CCRCs. Approximately 47 
percent of the premium, the monthly service fees and the 
endowments that residents pay go toward future care or long-
term care because we take care of them for the rest of their 
life, regardless of their financial situation.
    So people who can afford to come to that kind of setting 
such as John Knox Village have the financial resources and have 
already thought about what their long-term care needs will be. 
Obviously they come to a setting like that for a very active 
retirement, but the services are there should they ever need 
them--there by the grace of God go I.
    Many of them are living away from their families. Children, 
as you well know our children and our families are separated, 
not just sometimes across town, but States and even around the 
world, and they do not want to be a burden. So many of the same 
issues that we talk about people who have financial resources 
or those who do not, they are many of the same issues, of 
wanting to pay their own way, not be a burden to their children 
and be well taken care of.
    For the past 6 years, I have worked for Genesis Eldercare, 
which is a national nursing home, eldercare company. They have 
nursing homes and assisted living facilities. Most our--30 of 
our facilities are here in Florida, and approximately 70 
percent of the residents in our facilities are--their care is 
paid for by Medicaid.
    As an administrator, as a nurse, as a caregiver, I have had 
to counsel many residents and families through this very 
difficult process of spending their life savings and now having 
to essentially become impoverished, go on what they deem to be 
welfare, to take care of them in their later years. They really 
thought all the years that they worked, they saved their money, 
that they would have enough income to take care of their needs. 
And it is just overly devastating.
    I guess the biggest issue for most of our residents is one 
of maintaining dignity. As we grow older--and being a baby 
boomer and working in the field, I am very sensitive I think to 
many of these issues--trying to maintain one's dignity after 
you have had to give up so much is very, very difficult, 
regardless of your financial circumstance, but especially for 
those who are having to become impoverished.
    Mr. Scarborough. It really is heartbreaking. We had 
testimony from Ms. Judy Kramer at our first hearing on long-
term care in Washington. She told the story of her parents, I 
think they went through about $145,000 in a year or so until 
they became impoverished and were eligible for Medicaid. It is 
just heartbreaking, and I was saying to her you talk about 
losing your dignity--as a parent, I have got an 11 year old boy 
and an 8-year old boy and you are thinking all the time, OK, 
how do I care for them to get them through college, how do I 
care for them through their entire life, and these parents of 
Ms. Kramer had set aside $140,000-$145,000 to pass on to their 
children, only to see in their last 2 years of life this entire 
amount of money going away and then as a witness on the last 
panel said, basically becoming property of the State in the 
final months of their life. It is heartbreaking, it is 
something we have to take care of.
    Ms. Freeman. You lose the right to make choices about where 
you want to live, how you want to live your last days, and to 
know that you are dependent now on the State to take care of 
you and to provide for your care has got to be devastating.
    Mr. Scarborough. It has got to be devastating, and because 
of demographics, this is not just a Florida problem. Florida is 
the future. How Florida looks today, the rest of the country is 
going to look 15-20 years from now. You are right, the State--
obviously everybody is grateful that Medicaid has been there 
for them. Ms. Kramer was grateful, but Medicaid is not going to 
be there for everybody 20 or 30 years from now if we have the 
entire baby boomer population retiring and nobody planning for 
their retirement and their future and for their long-term care. 
So that is why this is so absolutely critical.
    I thank you for your testimony because it highlights that.
    Let me ask you, Mr. Carr, one of the issues that really has 
been highlighted in Washington over the past 4 or 5 years since 
I have been on the Armed Services Committee, has dealt with 
quality of life issues. We have been talking about recruiting 
and retention. Numbers for recruitment have gone down. In fact, 
I believe two services right now are below their recruiting 
levels for the first time in a long time.
    Mr. Carr. That is true.
    Mr. Scarborough. What two are those, do you know offhand?
    Mr. Carr. The Army and the Air Force are off on their 
numbers.
    Mr. Scarborough. Army and Air Force, and----
    Mr. Carr. And it is unusual for the Air Force to be off on 
its numbers, as they are this year.
    Mr. Scarborough. Yeah, very unusual.
    Let me ask you this question, do you see the possibility of 
long-term care as something that would actually help 
recruitment and also help in retaining the top quality 
personnel that we need to get us into the 21st century?
    Mr. Carr. Probably more on the retention side. I was struck 
by a comment Ms. Croach made, and it is accurate, we hear it 
often and it is that you recruit a member and you retain a 
family.
    Mr. Scarborough. Right.
    Mr. Carr. Now I would suspect that most recruits consider 
themselves relatively invincible and so this may not be at the 
forefront of their thinking, but with respect to retention 
discussions taking place at the kitchen table, recall that when 
one's family believes that the organization that their partner 
is a member of has a real interest in their long-term welfare, 
then they identify more easily with that institution and that 
could do nothing but help retention. So I am not confident that 
it would produce a hike in recruitment, but with respect to 
retention, there it would have the more pronounced effect I 
believe.
    Mr. Scarborough. That is a great point that you make, 
talking about the conversations around the dinner table and 
what sort of attitude family members and friends have toward a 
service or toward the armed services in general. As you know, I 
told this story before of my grandfather. I cannot tell you how 
many grandfathers and how many fathers in northwest Florida 
have been complaining bitterly at the kitchen table about Tri-
Care, complaining about health care problems, complaining about 
how the military is not keeping their word.
    Now I can tell you, as a college student hearing my 
grandfather talk about how the military let him down and how 
they broke their word, if we are getting that on one side of it 
and then on the other side, you have, let us say somebody's 
older brother or sister saying well, you know, I am not getting 
paid as well as my friends are getting paid and I am gone 8 or 
9 months straight and then I come home for 2 months and then I 
am gone again--I think you are right, I think that may be why 
we have the problems, but while those 18 or 19 year olds who 
feel invincible and do not think they will ever need long-term 
care, while it may not hit them immediately, I think they will 
pick it up, like you said, from the conversations at the dinner 
table and it will sort of help with loyalty.
    Let me turn it over to Mr. Cummings for any questions he 
has.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. Grubb, you said something that kind of struck me. You 
said in your No. 3 of your things that you said you wanted to 
make sure we were careful about, that there are no artificial 
premiums. Is that what you said?
    Mr. Grubb. Let us see exactly what I said.
    Mr. Cummings. OK.
    Mr. Grubb. A policy with rich benefits, low premiums and 
minimal underwriting is a sure sign of potential disaster.
    Mr. Cummings. Right.
    Mr. Grubb. This could lead to a program with unstable 
premiums.
    Mr. Cummings. OK.
    Mr. Grubb. And would likely discourage responsible 
companies from participating.
    Mr. Cummings. I am concerned about that too and I am sure 
Mr. Scarborough is too. You heard the testimony of the previous 
panel with regard to the military.
    Mr. Grubb. Yes.
    Mr. Cummings. Can you just give us an opinion on that, on 
your feelings about making sure the military is included? I am 
just curious, do you have any opinion on that?
    Mr. Grubb. I would support what the panel said in that 
probably the entire military population on average would be 
more healthy because of the kind of lifestyle they have led. 
They are also a true cross section of the rest of the American 
population. So I think including the military would certainly 
have no negative impact on the program and potentially a 
marginally positive impact.
    Long-term care insurance is age-rated, so whatever age you 
buy the policy at is what determines the premium that you are 
going to pay, hopefully for the rest of your life, or for as 
long as you pay the premiums. The healthier you are when you 
get the policy, the lower your premiums are likely to be.
    I see no detriment whatsoever to including the military, 
from either an insurance perspective or from a public policy 
perspective.
    Mr. Cummings. Help me make sure I understand this, 
connected with what you just said.
    Mr. Grubb. Yes.
    Mr. Cummings. Let us say Ms. Croach, I think she said she 
is 44.
    Ms. Croach. I said 43. [Laughter.]
    Mr. Grubb. I had to admit on national television my wife 
just turned 50, so if I can do that, I guess we are safe.
    Mr. Cummings. I must admit I was surprised when she said 
that, I thought she was a lot younger than that, but 44.
    Mr. Scarborough. He is good. [Laughter.]
    Mr. Cummings. Let us say her mother, I do not know the age, 
but let us say her mother is 64. Now if she went to get this 
type of insurance, you have got to look at the fact that her 
mother is 64.
    Mr. Grubb. Absolutely.
    Mr. Cummings. And so--and I guess what I am trying to go to 
is it is not just her age, but it is her mother's age. Am I 
right?
    Mr. Grubb. Each person would be rated individually, so she 
would be rated based on the fact that she is 44.
    Mr. Cummings. That is for her own.
    Mr. Grubb. For her own.
    Mr. Cummings. And her mother would be rated----
    Mr. Grubb. At 64.
    Mr. Cummings. All right. Now you said something very 
interest-
ing about you do not know of any policies that would insure--
these kind of policies that would insure retired people--was 
that correct?
    Mr. Grubb. What I said was I am not aware of any company 
that guarantee issues----
    Mr. Cummings. Guarantee issues, all right.
    Mr. Grubb [continuing]. People who are retired. We issue up 
to age 85.
    Mr. Cummings. OK.
    Mr. Grubb. So we will issue people in reasonable health up 
to age 85.
    Mr. Cummings. So that means that if her mother is 64, she 
is in reasonable health, then she is OK.
    Mr. Grubb. Absolutely.
    Mr. Cummings. But let us say her mother had a chronic 
disease, then that throws her into a whole other category, is 
that correct?
    Mr. Grubb. That is true. In our company, for example, we 
have four tiers of rating. We have preferred, which are people 
who are very healthy; standard, which is most of us; and then 
we have tiers three and four for people who have some illnesses 
but are still insurable. We do everything that we can do to 
bring in as many people to the program as we possibly can. And 
depending on what the chronic disease would be, they may or may 
not be accepted.
    Mr. Cummings. So then I guess that goes back to what you 
said about the military and it was an interesting point that 
the previous panel made, that the military--our military folks, 
because of the lifestyles that they have to lead because of 
what Ms. Croach said about making sure they have physicals and 
things of that nature, then it is quite possible that they 
could bring premiums down.
    Mr. Grubb. Could be. When we look at this, we will look at 
the demographics of the total population and make some 
determinations based on the size of the group and also what we 
know about them demographically.
    Mr. Cummings. Now you know, I think when we look at the 
carriers, I want you to talk just briefly about the factors 
that--you have testified to this before--the things that you--
factors that you think are important in keeping the premiums 
low. In other words, trying--not low, but as low as we can get 
them. What are the things that we have to look at to do it 
right? Because it seems like if you really listen to the 
testimony at this hearing and the last hearing, there becomes a 
question of affordability.
    Mr. Grubb. Yes.
    Mr. Cummings. If you cannot afford it, it seems like it is 
not going to do us too much good anyway, so what are the things 
that you see as those key things that we need to look at when 
we are talking about trying to keep this insurance at some type 
of affordable rate so that when, as everybody talked about, 
sitting at the kitchen table, you can say well, we can do this.
    Mr. Grubb. Let me speak to a couple of different issues. I 
would like to talk about the affordability because I think it 
is a huge issue and could not have been more eloquently 
presented, but I think there is a lot of misconceptions about 
affordability.
    First of all, the thing that you ought to consider, to do 
it right--I said this before and I will reiterate it again--the 
financial stability of the company or companies that you deal 
with is critical to that, because--and that is why I made the 
statement that you are asking about. Financial stability of the 
company, because these are benefits that you are buying that 
hopefully you will maybe not ever use, but will use 20, 30, 40 
years from now. So you want to make sure that the company is 
stable enough and has done its work right, so that those 
premiums remain level throughout that entire period. So I think 
the do it right part is the financial stability and strength of 
the company and its ability to stay the course with you.
    In terms of affordability, let me just give you some 
examples, because I hope this will be, hopefully eye-opening to 
some degree and these are generalizations, but I can speak 
specifically for my family and for policies that we issue. My 
wife and I have a $300 a day unlimited benefit policy, that is 
the best you can buy in the industry.
    Mr. Cummings. How long have you had it so we can put it all 
in context.
    Mr. Grubb. About 3 years.
    Mr. Cummings. OK.
    Mr. Grubb. My wife pays about $450 a year for that, and I 
am sure my colleagues here would agree that this is a pretty 
rich benefit. Since I am significantly older than she, my 
premium is about $1,100.
    Our kids have $100 a day with inflation protection, so by 
the time they are 50, 60, 70 years old, that will be a $700, 
$800, $900, $1,000 a day benefit. They pay $207 a year.
    Now there are very few families who cannot afford $207 a 
year, that is less than they spend at McDonald's. One of the 
marketing pitches that we make to people, when you are talking 
to a grandparent, the 64 year old to 75 year old, who has just 
bought a policy and is paying $2-, or $3-, or $4-, or $5,000, 
when you tell them that they can buy the same coverage for 
their 25 year old grandson or granddaughter for $200. It really 
opens their eyes. It is something that is very affordable at an 
early age. It only becomes unaffordable if you wait.
    In my last testimony, I talked about the cost of waiting. 
So I think one of the benefits of your proposal is to 
encourage, to educate people to buy this at a young age when it 
really is affordable, so that you are not looking at the 
$100,000, $150,000, there are other forecasts out there that go 
up to $300,000 a year--there are not many people who can write 
checks for that.
    So affordability is a very critical issue. But it is 
affordable.
    Mr. Cummings. For the benefit of the wonderful people who 
have come out here today, can you kind of--you told us before 
what pretty much the standard kind of benefits package looks 
like. Now could you kind of share that with us so that they 
might have the benefit of that?
    Mr. Grubb. Let me tell you another little aside, which 
hopefully will help. We actually have somebody who is a client 
of ours who has bought a nursing home only policy and it costs 
him $5.07 a month. Now that is affordable.
    The standard policy right now, what most people buy, is a 
$100 a day benefit, because in most parts of the country, New 
York, Alaska and some other places excluded, the average 
nursing home cost is about $100 a day. So the thing that most 
people buy is a $100 a day, a 5-year plan, 90 day elimination 
period, which is like a deductible, so you pay yourself for the 
first 90 days that you are in the nursing home, with 50 to 80 
percent home health care benefits. What that means is your 
maximum daily limit of $100 a day, if you have home health 
care, it would be 80 percent of that. So your bucket of money 
is $100 a day times 365 times 5. So if you only spend $80 a day 
in the nursing home, your bucket of money really is extended 
beyond 5 years. That just sets the limit of your bucket. Or in 
my case, I bought an unlimited plan and I certainly recommend 
it for younger people. My dad's roommate in John Knox Village 
nursing home was a 41 year old man who had been there for 18 
years because of a car accident. People cannot afford to pay 
that kind of expenses for that period of time. So for a young 
person, unlimited makes all the sense in the world.
    Mr. Cummings. Do prescriptions come in there at all?
    Mr. Grubb. No, no. That is covered by your health plan.
    Mr. Cummings. OK. That is all I have.
    Mr. Scarborough. Thank you, Mr. Cummings.
    I want to end with a question, and Mr. Grubb, if you would 
like to sprint out now, you are certainly welcome to do that.
    Mr. Grubb. This is entirely too much fun.
    Mr. Scarborough. Too much fun. [Laughter.]
    Well then we are going to do a couple more rounds.
    Mr. Grubb. I would be happy to participate.
    Mr. Scarborough. You know, as we are envisioning this 
program for Federal employees, obviously one of the questions 
that we have in Washington has to do with the cost, and we have 
been very conscious trying to make sure that the costs of our 
program, the administrative costs, are low. We believe that our 
program is less expensive than the administration's right now, 
but let me ask you, what sort of impact does the cost of the 
program have on the decision on whether DOD would support 
implementing it or not?
    Mr. Carr. I think the support is probably contingent on the 
popularity with and the availability of the members--is it 
something that they would use and that would advantage them? I 
think for the cost, if we are talking officers versus enlisted, 
the enlisted obviously as a community are going to be more 
challenged by cost. Probably the pattern you would see among 
the enlisted force is initially with discretionary money--well, 
the first thing you would see is investment in education, in 
Montgomery GI Bill, along with a concern for life insurance. 
When those are taken care of, there would be interest in other 
types of security, of which this would be one, but the pay that 
the enlisted--the military generally, but the enlisted 
particularly feel is so tight that we could easily price them 
out of this, and despite the best education program and the 
noblest of intentions, they would look and compare that with 
other uses and near term risks and threats to their family and 
the ability to have a car that runs, and we could easily lose 
that population. And so for that reason, out of our concern for 
the soldiers and sailors would be a concern for the price 
because they could be excluded if we are not careful.
    Mr. Scarborough. Thank you, Mr. Carr and Ms. Freeman and 
Mr. Grubb for your testimony, it certainly has been helpful. I 
am going to have some followup questions that I will submit in 
writing.
    Mr. Cummings. I have some too.
    Mr. Scarborough. OK, Mr. Cummings will also have some, and 
if you all could answer that, we will make that part of the 
record.
    I would certainly like to thank everybody for coming out 
today and thank the fine people at Jacksonville, and certainly 
want to thank NAS Jacksonville for allowing us the opportunity 
to hold this hearing today. In particular I want to thank 
Captain Smith and Captain Dudley for their warm welcome as well 
as Lieutenant Tim Weber for his assistance in preparing for 
this hearing.
    It is always exciting for me, I have participated in a few 
of these outside of Washington, DC, and even though the cherry 
blossoms are in full bloom in Washington, DC, I would rather be 
in Florida any day of the week. So I thank you all. It is so 
critical, because like I have said before, if you look at the 
demographics, Florida is the future, we need to figure out how 
to make it work and figure out how to make it work for Florida 
in 1999 because that is how the rest of the country is going to 
look 10, 15, 20 years from now.
    Thanks again for coming out, we appreciate it, and we are 
adjourned.
    [Whereupon, at 12:12 p.m., the subcommittee was adjourned.]


        LONG-TERM CARE INSURANCE FOR FEDERAL EMPLOYEES, PART III

                              ----------                              


                         MONDAY, JUNE 14, 1999

                  House of Representatives,
                 Subcommittee on the Civil Service,
                            Committee on Government Reform,
                                                     Baltimore, MD.
    The subcommittee met, pursuant to notice, at 1 p.m., at the 
War Memorial Building, 101 North Gay Street, Baltimore, MD, 
Hon. Joe Scarborough (chairman of the subcommittee) presiding.
    Present: Representatives Scarborough and Cummings.
    Staff present: Garry Ewing, counsel; John Cardarelli, 
clerk; and Jennifer Hemingway, policy director.
    Mr. Scarborough. We will call to order this meeting of the 
Civil Service Subcommittee. Ladies and gentleman, it is great 
to be in Baltimore and I certainly am grateful that Congressman 
Cummings suggested this and has worked tirelessly with his 
staff to see to it that this hearing in Baltimore happened. I 
think his commitment to this hearing is an extension of his 
commitment to the people of Baltimore, the people of the 7th 
Congressional District and to the people of Maryland. He has 
been a tireless advocate not only for people in this area but 
especially on this issue for those who are going to be affected 
by this long-term care legislation.
    It's extremely important, whether you're talking about 
residents that are suffering from this humidity in Baltimore 
today or residents that suffer from humidity in northwest 
Florida just about every day, that this legislation pass.
    This is our third hearing now that this subcommittee has 
held on long-term care, and I'm pleased with the level of 
importance that Members, not only of this subcommittee, but 
across the entire span of Congress have put toward making this 
long-term care pass into law.
    In addition to my proposal, of course, H.R. 602, the 
ranking member, Mr. Cummings and Representative Morella have 
also introduced long-term care legislation. While we have some 
issues that are still out there that need clarification, and 
while we need to bring our two bills together, in the spirit of 
compromise, I continue to believe that we can work together and 
make this bill a reality.
    It's an employment benefit that needs to come to pass now. 
Employees' needs for long-term care insurance are as diverse as 
their occupations, their duty stations and their family status. 
The decision to buy long-term care insurance is a very personal 
one. Achieving maximum participation is going to require that 
the premiums are affordable, and that we have a benefit 
structure of sufficient variety to satisfy the diverse needs of 
our Federal population.
    I can't emphasize enough the need to let beneficiaries and 
not just government officials make their own long-term care 
decisions. By offering beneficiaries choices among competitive 
plans I believe we can best offer the range of options 
employees might seek for themselves and their families. The 
long-term care benefit we're discussing can safeguard Federal 
employees from having to deplete their assets through the 
painful Medicare spend-down process.
    To be fully viable, the Federal program must learn from the 
successes of the current marketplace and follow this lead. 
Above all, long-term care insurance must remain flexible. The 
insurance industry continues to innovate as it develops 
products and this marketplace evolves and matures.
    Today we hear about policies that offer the benefits of 
long-term care insurance and life insurance combined in a 
single policy. Long-term care insurance exists in a very 
rapidly changing environment and I think we all want to ensure 
that legislation we put forth will allow that creativity to 
flourish.
    I look forward to hearing from our witnesses as we discuss 
the current proposals to provide long-term care insurance to 
our work force. Again I thank Congressman Cummings for his 
fight in this battle. I thank our witnesses and certainly thank 
everybody that's come to attend this very important hearing.
    And now I would like to turn it over to the ranking member 
of the Subcommittee on the Civil Service, Congressman Elijah 
Cummings.
    [The prepared statement of Hon. Joe Scarborough follows:]
    [GRAPHIC] [TIFF OMITTED] T7738.240
    
    Mr. Cummings. I want to thank you, Mr. Scarborough, for 
making it possible for this to happen today. It did not have to 
happen, our subcommittee, which probably sets an example that I 
wish the entire Congress would follow of bipartisanship. We are 
probably the epitome, we display the epitome of bipartisanship 
in our subcommittee, and I think that says a lot for you, and 
the fact that we are here says a lot for our spirit of 
bipartisanship.
    And the legislation that we are here talking about today is 
one that deserves a bipartisan effort. Helping Federal 
employees and all Americans afford the cost of caring for 
elderly family members without losing their life savings, their 
family homes or their dignity is a bipartisan objective. 
President Clinton, Chairman Scarborough, and I, along with 
other Members of Congress, are determined to achieve that 
objective.
    My bill, H.R. 110, the Federal Employees Group Long-Term 
Care Insurance Act of 1999, is the Federal employee portion of 
the administration's four-prong initiative to help all American 
families afford the cost of long-term care. H.R. 110 would 
authorize the Office of Personnel Management to purchase group 
insurance policies for Federal employees, retirees, and family 
members from qualified private sector insurers at the more 
affordable group insurance rates.
    Senator Barbara Mikulski has introduced the Senate's 
companion bill to H.R. 110. I look forward to working with her, 
Chairman Scarborough and the other members of this subcommittee 
to move long-term care legislation through the Congress this 
session.
    Affordable long-term care insurance and the other 
components of President Clinton's long-term care initiative, 
including President Clinton's proposed $1,000 tax credit to 
help with the cost of caring for ourselves or our family 
members, reflect the financial burden which long-term care 
costs will present to an aging America as we find ourselves or 
our relatives unable to perform daily living activities without 
assistance.
    Addressing the problem of paying for long-term care 
requires accurate factual information; therefore, I asked the 
staff of our House Government Reform Committee to prepare a 
report, estimating the future long-term care needs of the 
Baltimore area residents.
    With the assistance of Mike Nolan and Virginia Thomas of 
the University of Maryland in Baltimore County Center for 
Health Program Development and Management, and Dr. Joshua 
Wiener of the Urban Institute, committee staff was able to 
prepare an eye opening and enlightening analysis entitled, 
``Future Long-Term Care Needs in Maryland's 7th Congressional 
District,'' which I am releasing to the public and the media 
today. On behalf of the citizens of Baltimore, I thank everyone 
whose hard work contributed to the report.
    Based on the demographics of Baltimore City and County and 
using estimates of life-span and projected nursing home use, we 
now know that 420,000 current residents, nearly one-third of 
us, will spend time in a Baltimore area nursing home. While 
many of us will stay in the nursing home for only a short 
period of time, our analysis predicts that over 200,000 
Baltimoreans will spend over 1 year in a nursing home, and 
approximately 70,000 of us will spend over 5 years in long-term 
nursing home care.
    We also believe that the costs of long-term nursing home 
care will continue to increase faster than the inflation rate. 
In 1996, the median cost for 1 year in a Maryland nursing home 
was approximately $37,000. Even when adjusted for inflation, 
moreover, the costs of a 1-year stay in a nursing home could 
increase by approximately 40 percent by the year of 2020, and 
more than double by the year of 2050.
    Based on these projections, by the year 2020, when many of 
today's 50-year-old Baltimore residents will require long-term 
care, a 1-year stay in a nursing home could cost approximately 
$108,000. By the year 2050, when many of today's 20 to 30-year-
olds will require long-term care, the costs of a 1-year stay in 
a nursing home could be as high as $400,000, and so it's clear 
that this legislation is needed.
    I've had an opportunity to review the testimony of our 
witnesses, and I want to thank all of you in advance for the 
tremendous effort that you put in to preparing the documents 
that have become and will become a part of this record.
    By taking the time to prepare your testimony and to be with 
us today, you give us the basis for making sound decisions. 
When we were in Florida, someone came up and gave some 
testimony, I think a lady who had some problems similar to 
those of Ms. Pika, who is here today, where she was not able to 
get long-term care insurance at one point in her life and she 
managed some very difficult problems when her husband became 
ill, but she said one thing that I will never forget, and it 
sticks in my mind and she looked us in the eye and she says, 
when you do it, make sure you do it right, do it right. And 
that's what it's all about, we just want to do it right.
    Because we realize that what we do with this Federal 
legislation will probably impact the private sector also. So we 
want to have this legislation that is an example of what it 
should be, what long-term group insurance efforts should be 
about and policies should be about.
    And so we want to thank you again, Mr. Chairman, and I look 
forward to hearing from our witnesses.
    [The prepared statement of Hon. Elijah E. Cummings 
follows:]
[GRAPHIC] [TIFF OMITTED] T7738.241

[GRAPHIC] [TIFF OMITTED] T7738.242

[GRAPHIC] [TIFF OMITTED] T7738.243

[GRAPHIC] [TIFF OMITTED] T7738.244

    Mr. Scarborough. Thank you, Congressman Cummings.
    I would like to ask our first panel if they could rise to 
be sworn in. But before you do, let me introduce you. We have 
Charles Yocum, a resident of Maryland who, along with his wife, 
has a responsibility of being caretaker for their parents and 
other elderly relatives. Currently he serves as senior group 
patent counsel for Black & Decker.
    We also have Dr. Georges Benjamin. Dr. Benjamin currently 
serves as secretary of the Maryland Department of Health and 
Mental Hygiene. Maryland is planning and implementing a series 
of initiatives to control the growth of public long-term care 
spending.
    And finally we have Frank Atwater. Mr. Atwater serves as 
president and CEO of the National Association of Retired 
Federal Employees. He's a life member of that organization and 
is a member of Chapter 583 in New Port Richey, FL.
    And now, gentlemen, if you would, please rise to take your 
oath. Because we are an oversight committee, we're required by 
the rules to swear you in. If you could raise your right hands.
    [Witnesses sworn.]
    Mr. Scarborough. Please have a seat. Thanks.
    Mr. Yocum, if you could, go ahead and begin your testimony. 
We ask everybody if they can limit their testimony to 5 
minutes, because we're going to have a long, hot hearing. You 
can submit any additional statements to the record, and, 
obviously, any questions that we have or anything you want to 
amplify in the questioning and answer session, you can.
    So, Mr. Yocum, please begin.

 STATEMENTS OF CHARLES E. YOCUM, SENIOR GROUP PATENT COUNSEL, 
   BLACK & DECKER, RESIDENT OF HOWARD COUNTY, MD; GEORGES C. 
 BENJAMIN, SECRETARY, MARYLAND DEPARTMENT OF HEALTH AND MENTAL 
HYGIENE; AND FRANK G. ATWATER, PRESIDENT, NATIONAL ASSOCIATION 
                  OF RETIRED FEDERAL EMPLOYEES

    Mr. Yocum. Good afternoon, my name is Charles Yocum. 
Congressman Cummings, Chairman Scarborough, thank you for 
giving me the opportunity to testify today on my experiences 
with long-term care, with Medicaid and on the need for 
affordable, portable long-term care insurance.
    Although I'm speaking as a citizen employed in the private 
sector, my hope is that the Congress will enact legislation 
enabling Federal employees to acquire long-term care insurance, 
and that this example will encourage insurance carriers, 
employers, and employees to participate as well.
    My wife and I are members of the sandwich generation; that 
means that although our children are not yet fully on their 
own, we have the added responsibility for seeing to it that our 
parents and other elderly relatives are cared for. We now have 
plenty of practice, in locating and dealing with hospitals, 
hospice care, short- and long-term custodial care and assisted 
living facilities as well as helping our relatives find 
independent living apartments.
    And I also would like to say that the last 3 years, 
especially 1998 and 1999, have been the most demanding and the 
most emotionally wrenching that we can remember. I'm 55, my 
wife Kathy is in her early 50's, we have two sons, 20 and 23. 
I'm an active member of the Maryland Bar and am registered to 
practice before the U.S. Patent and Trademark Office. My wife 
is a media assistant in the Howard County Public School system.
    But this testimony is primarily about my father-in-law Otts 
Denchler. Otts is an 87-year-old gentleman, strong as a bull. 
Physically fit, great appetite, who has worked practically his 
entire life as a refrigerator mechanic and all around fix-it 
genius. Just a few years ago, he was diagnosed with Alzheimer's 
disease. Up until the middle of August 1998, he was living with 
his wife, Liz, in Baltimore City. His dementia caused him 
constantly to want to go home to his childhood house in 
Baltimore on Ridgely Street. That house no longer exists. 
Nevertheless, because he was constantly wandering off, we 
installed deadbolt locks on all the outside doors in his house 
in Baltimore.
    He also would get quite agitated if he was restrained in 
any way. At this point, including their home, their total 
assets amounted to $63,200. In late August 1998, my wife had to 
rush to Baltimore to be with her mother who was bleeding 
internally. Because Otts could not be left alone, my sister-in-
law took him in. We always worried that if he did wander off, 
he would forget what red or green meant and be hit by an 
automobile.
    The hospital diagnosed my mother-in-law with advanced liver 
cancer and her heart would not permit surgery. She was moved to 
a nursing home in Catonsville, MD, which was less than 
satisfactory, but we were fortunate to get her into a more 
satisfactory nursing home, St. Elizabeth's Rehab and Nursing 
Center. She had hospice care there and she died the end of 
September.
    Now, while her mom was dying, my wife was faced with 
another crisis, her sister had to return to work to support her 
own family, what to do with Otts. None of us could stay with 
him around the clock, so the VA placed him in a contract 
nursing home in Catonsville. He escaped from there twice. The 
second time they didn't even know he had left. He had gotten 
easily a mile away before a good samaritan family took him in, 
called the police and he was returned.
    My wife at this point was frantic. We had to find a safe 
place for Otts. By the grace of God, an opening occurred in St. 
Elizabeth's Alzheimer's unit and we were able to move Otts into 
the same nursing home in which his wife, Liz, was staying. A 
few days later, she died.
    Now even though I'm an attorney, it took several consults 
with an elder law specialist to help navigate the medical 
assistance process, starting with cashing in Otts' assets, then 
filling out the applications, then going to my in-take 
interviews on North Avenue in Baltimore City. Here's where life 
got even tougher. Otts isn't going back to his home in 
Baltimore City; that means his house has to be counted as an 
asset that must either be drawn down or liquidated to pay back 
the State for medical assistance in the event medical 
assistance is awarded.
    That has meant that my wife and I and occasionally some 
other relatives have had to empty the house and do a lot of 
fix-up to prepare it for going on the market, and it's still 
not ready. Inasmuch as the medical assistance office has given 
me notice that they may place a lien on Otts' house, I'm faced 
with yet another dilemma, it will be some time before the house 
actually sells. It's very likely that the back balance at the 
nursing home will exceed the net proceeds from the sale. But to 
whom do I send the check?
    Assuming the State grants medical assistance to Otts, if I 
send it to the nursing home, the State can come after me for 
the money, because they have a lien for reimbursement of any 
funds they've expended on his behalf. If I send it to the 
State, the nursing home could argue that the sale of proceeds 
should go to pay Otts' bills incurred prior to the month that 
Medicaid had set in.
    So not knowing which way to go, I called the nursing home. 
They were most understanding. They said if the State grants 
medical assistance and then enforces a lien on the proceeds, so 
be it. As far as the application process goes, the biggest 
hurdle was getting the reams of documentation together. I had 
most of it in time for my interview on March 19th at Broadway 
and North Avenue; however, the intake person correctly pointed 
out that I still needed to get about 6 more months of back bank 
records of the 36 months that the rules require, plus some 
other records.
    I finally got those and I sent them in. I'm now awaiting a 
decision from the Department of Social Services. At this point, 
I would like to mention to Congressman Cummings that all of the 
people with whom I have worked at the North Avenue location 
were most helpful, very friendly, and patient with me.
    So here I am. My wife feels that because we believe 
Alzheimer's has a genetic link, she may contract the disease. 
Her family lives well into their 80's and 90's. It certainly is 
conceivable that she would need long-term care for a long, long 
time. That's why, ladies and gentlemen, I ask the Congress to 
enact legislation to enable Federal employees to obtain 
portable, affordable long-term care insurance.
    Ideally the insurance should not have a cap on the maximum 
benefits paid for the reasons I've just stated; at $50,000 to 
$60,000 a year, a cap is exhausted pretty quickly. Also, it 
should cover the care, whether provided as medical or custodial 
care, and whether it is in a nursing home, in assisted living 
or at home.
    This is not the first time I have had to exhaust a family 
member's entire resources. With your help, perhaps it will be 
the last. Thank you for listening.
    Mr. Scarborough. Thank you, Mr. Yocum. Dr. Benjamin.
    Mr. Benjamin. Chairman Scarborough, Congressman Cummings, 
let me just tell you that certainly this bill and this concept 
is very important. It is appropriate, and it's absolutely 
necessary. The State of Maryland strongly supports all efforts 
to encourage individuals to prepare for their long-term care 
future, and that certainly includes the purchase of long-term 
care insurance.
    This proposal to offer private and long-term care insurance 
for Federal employees would benefit at least 128,000 Federal 
employees here in the State of Maryland and, of course, you may 
want to add their beneficiaries that are appropriate to that 
number.
    Now currently back in 1993, the Maryland General Assembly 
authorized the State to look at a proposal under the Robert 
Wood Johnson Foundation to develop incentives to support long-
term care insurance in Maryland, but that program we were not 
able to participate in, because the Omnibus Budget 
Reconciliation Act of 1993 limited that program demonstration 
to the four original States, which were California, 
Connecticut, Indiana, and New York.
    However, we pressed on, and the State of Maryland is 
currently soliciting bids for companies to provide group long-
term care insurance for our State employees to purchase 
insurance very similar to what is being offered here or 
proposed for Federal employees.
    We certainly agree that if more people assume 
responsibility for their current and future long-term care 
expenditures, public spending on long-term care would certainly 
be able to be reduced, and we believe this will become 
extremely important as many of us, and I'm a baby boomer, about 
to enter seniorhood. So we're very much concerned about that.
    Now during the fiscal year of 1997, Maryland's Medicaid 
program spent close to $557 million on long-term care for 
recipients 21 years of age or older. That represents about 22 
percent of our total Medicaid budget. We spent $503 million on 
nursing facilities for about 24,000 adult recipients. Almost 
$31 million was spent on medical day care for about 3,300 
adults and another $22 million was spent on personal care for 
almost 5,000 adults.
    Now, what we're beginning to look at are new and creative 
ways to deliver long-term care in Maryland. We think that the 
potential of expanding insurance coverage would allow us 
certainly to do that. So that when you look at long-term care 
coverage, you have to make sure that we expand the capacity of 
that coverage to allow for, not only institutional care, but 
community-based care. In many ways, as you know, community-
based care can be cost effective, to be very, very creative we 
can provide wraparound services for seniors in their homes. We 
all believe it's a terrible, terrible tragedy for someone to 
have to exhaust all of their resources to do that.
    As Congressman Cummings knows, I also run the Developmental 
Disabilities Administration in Maryland, and we have committed 
millions of dollars recently through our Governor for 
implementing his initiative to provide services for individuals 
with developmental disabilities in the community. We have found 
this program over the last year to be terribly cost efficient, 
to provide adequate services, wraparound services, and 
significant support services for individuals with developmental 
disabilities. I believe our seniors in Maryland deserve the 
same kind of compassionate, aggressive and assertive care.
    I thank you very much for allowing me to speak today, and 
we absolutely support you in your efforts.
    [The prepared statement of Mr. Benjamin follows:]
    [GRAPHIC] [TIFF OMITTED] T7738.245
    
    [GRAPHIC] [TIFF OMITTED] T7738.246
    
    Mr. Scarborough. Thank you, Dr. Benjamin.
    Mr. Atwater.
    Mr. Atwater. Mr. Chairman and Congressman Cummings, I'm 
Frank G. Atwater, president and chief executive officer of the 
National Association of Retired Federal Employees. I represent 
some 430,000 active members in my association and perhaps 2.4 
million in Federal employees and retirees. I appreciate the 
opportunity to participate in today's hearing, and I commend 
you, Mr. Chairman, and you, Mr. Cummings, for your interest in 
making long-term care insurance available as a Federal 
employment benefit.
    Absent a national response to long-term care needs, many 
private and public sector employers have begun offering group 
long-term care insurance to their employees. In fact, half of 
the current Fortune 500 companies make private long-term care 
insurance available to their workers. Many employers realize 
that they have to provide a competitive benefits package to 
attract the best and the brightest, and many corporate leaders 
have come to understand that more employees are faced with the 
challenge of caring for a disabled family member.
    Employer provider long-term care insurance helps some 
employees shoulder that burden by providing a full range of 
long-term care options, including community and home-based 
care. Although employees usually pay the full amount of long-
term care insurance premiums, the premiums they pay are less 
expensive and the benefits they receive are better than similar 
products available to individuals in the private market, 
because of the economy of scale achieved through purchasing 
long-term care insurance on a group basis.
    The availability of group long-term care insurance is 
consistent with NARFE's goal of ensuring financial stability in 
retirement for government employees. The knowledge that 
retirement benefits and hard earned assets will be protected 
while long-term care services are guaranteed cannot be 
overstated for NARFE members. NARFE commends Representatives 
Mica, Cummings, Morella and you, Mr. Chairman, for introducing 
long-term care bills in the House. Without your leadership, we 
would not be having this conversation today.
    Although everyone agrees that long-term care insurance 
should be offered, NARFE has concerns regarding how the program 
will be managed. NARFE strongly believes that OPM will have no 
leverage to secure group discounts on minimal benefits without 
the authority to negotiate with long-term care insurance 
carriers.
    Most, if not all firms that sponsor long-term care 
insurance appreciate their role as plan purchaser and 
administrator. If benefits specialists at IBM have the 
authority to negotiate group discounts, benefit design and 
medical underwriting of long-term care insurance, then there is 
no reason why the equivalent professional OPM staff should not 
be given the same authority.
    We are pleased that such negotiation authority has been 
included in the bills introduced by Mr. Cummings and Mrs. 
Morella. There has also been significant discussion on the 
number of carriers that would be allowed to participate in this 
program. Representatives from carriers that primarily sell 
long-term care insurance in the individual market argue that 
encouraging several carriers to participate would ensure a full 
range of choices for participants and encourage competition 
just like the Federal Employees Health Benefits Program.
    Although Federal workers and annuitants enjoy the benefits 
of competition in the FEHB Program, using several carriers in a 
long-term care program could fragment the risks of providing 
this insurance. When long-term care insurance is offered to 
employees in the private sector, only about 6 percent of those 
eligible buy policies. Alternatively, 82 percent of the Federal 
employees and annuitants participate in the Federal Employees 
Health Benefits Program.
    The reason for this difference is simple. Nearly everyone 
needs health care, but not everyone is sold on the notion that 
long-term care insurance should be part of their financial 
planning. Given a smaller community of coverage, splitting the 
risk of providing long-term care insurance between many 
carriers could reduce a group's plan economy of scale and not 
produce lower premiums.
    NARFE supports the concept of limiting the number of 
carriers that would participate in the Federal long-term care 
insurance program, since fewer insurers would reduce the 
possibility of adverse selection or risk fragmentation. We are 
confident that limiting carriers will not result in a one size 
fits all or a cookie cutter product. Instead, a full range of 
benefit choices would be available to enrollees and active 
competition between insurance carriers and the program bidding 
process would be encouraged.
    Carriers that participate in this program and OPM should 
also negotiate medical underwriting requirements. OPM says that 
it will attempt to minimize underwriting requirements for 
active employees during the initial offering to encourage them 
to buy long-term care insurance before they retire. Relaxed 
underwriting requirements would help attract employees into the 
long-term care program.
    Their participation in sufficient numbers is essential if 
the group is to secure discounted rates and better benefits. We 
realize that annuitants and family members probably would face 
medical underwriting standards. However, NARFE's goal is to 
ensure that annuitant underwriting standards are less 
burdensome than those offered to mature and older Americans in 
the private market.
    While program ground rules must make insurance carrier 
participation in this program feasible, NARFE will insist that 
the greatest possible number of employees and annuitants would 
be able to buy long-term care insurance at reasonable rates.
    Of all of the House proposals, NARFE's preferred vehicle is 
H.R. 1111. This legislation builds on other proposals by 
providing OPM specific guidance on benefit design without being 
overly proscriptive.
    Beyond the core benefit design, H.R. 1111 permits plan 
participants to make their own decisions about some of the most 
important coverage features of a long-term care policy. For 
example, it would guarantee participants the option of 
receiving long-term care in a variety of settings, including 
nursing homes, assisted living facilities or home and 
community-based care.
    In addition to benefits, H.R. 1111 requires OPM to create 
consumer protections for participants. OPM would be required to 
create an external dispute resolution process to resolve 
differences between policyholders and carriers, and the bill 
prohibits Federal preemption of State consumer protections when 
State standards are more stringent.
    The Morella bill adds military personnel and retirees to 
the lists of persons eligible for the long-term care insurance. 
Those who were present for last year's hearing on this issue 
may remember that my predecessor Charles R. Jackson said that 
he had difficulty believing that he might need long-term care, 
and as a result, he had not bought a long-term care policy. He 
said, ``I suppose I cannot justify paying the premium costs for 
something I find hard to realize I may ever need. Now if I'm a 
hard sell, just think how difficult it will be to persuade a 
30, 40 or even 50-year-old Federal employee to buy long-term 
care insurance.''
    Mr. Jackson's testimony underscored the need and the 
challenge of building a sufficiently large risk pool to achieve 
the group discounts that will make long-term care insurance 
affordable. Inviting military personnel and retirees into this 
program will only help build this community of coverage. 
Neither military personnel nor civilian workers will buy long-
term care policies without a major education effort.
    Beyond the insurance policy itself, information and 
referral service counselors must be capable of telling 
employees and annuitants about the full range of long-term care 
services available to them.
    Finally, it is important to recognize that this insurance 
product is not a comprehensive solution to present and future 
challenges of providing long-term care. Admittedly, this 
insurance will not be helpful to individuals who have an 
immediate need for long-term care or persons who are already in 
a long-term care situation. For that reason, NARFE has endorsed 
the administration's plan to offer a $1,000 per year tax credit 
to long-term care recipients or family care givers.
    This proposal would provide some relief to individuals and 
families that provide or pay for long-term care. Likewise, we 
support the White House's $625 million family caregivers plan 
that would provide respite home care services, counseling, 
support, information and referral services to families 
nationwide. And for all its shortcomings, Medicaid is the only 
safety net program that guarantees long-term care benefits for 
eligible individuals.
    NARFE urges Congress to preserve this guarantee for persons 
presently eligible for Medicaid. The challenge of creating a 
better way to deliver and finance long-term care will not be 
resolved overnight. NARFE is committed to working with Congress 
and other organizations to preserve the quality of life for 
those who may need this long-term care, those who already 
receive it and those who care for disabled loved ones.
    In closing, I want to commend you, Mr. Chairman, and, Mr. 
Cummings, and Representatives Mica and Morella and others for 
recognizing our critical need for private long-term care 
insurance. That concludes my testimony, Mr. Chairman.
    [The prepared statement of Mr. Atwater follows:]
    [GRAPHIC] [TIFF OMITTED] T7738.247
    
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    Mr. Scarborough. Thank you, Mr. Atwater. I certainly 
appreciate it. And, of course, congratulations on your 
election. I will say this, there's one area I'm a little 
concerned about right now and that's your diplomacy of the 
bills, the few bills introduced, Mr. Cummings and I introduced. 
He has 110 and I have 602, and you endorsed the plan by the 
Member that's not here. We will work on that though.
    Mr. Atwater. I'm sorry. I had that going around in my head 
that there must be a couple of bills that I'm missing.
    Mr. Scarborough. Yes, yes.
    Mr. Atwater. I couldn't get them written down. But I did 
mention your name afterwards.
    Mr. Scarborough. You did, and you pronounced it correctly, 
too. So that's a good start.
    Mr. Atwater. You told me earlier I could call you anything 
I wanted to, but I wouldn't go so far as to calling you Mr. 
Golds-borough or something like that.
    Mr. Scarborough. You can still call me whatever you want, 
just support my bill, and I'm happy, or Mr. Cummings'.
    Mr. Atwater. I certainly will. I wouldn't be here if we're 
not supporting your bill.
    Mr. Scarborough. We will all work together.
    I want to first of all ask you, Mr. Yocum, to expand a 
little bit on your testimony, because I think it's very 
compelling. I, myself, practiced law before getting into 
Congress, and the one thing I knew about patent law was that I 
didn't know anything about patent law because it was so 
extraordinarily complex. You engage in a field of practice that 
is about as complex as any field and yet you had to hire your 
own attorney to wade through the complex issues involved in 
taking care of your parents.
    Now, I will say, by the way, you are very good with 
diplomacy, because you identified your age as 55, but you just 
made a general reference to your wife's age. That was very 
good. You picked that up, didn't you?
    Mr. Yocum. Thank you, Mr. Congressman.
    Mr. Scarborough. I noticed that. But let me ask you, first 
of all, how much have you had to spend on legal representation 
just to figure out the basics of how to best protect your 
parents?
    Mr. Yocum. I was very fortunate, Congressman Scarborough, I 
paid zero.
    Mr. Scarborough. Because you have friends who are 
attorneys?
    Mr. Yocum. It was professional courtesy on this gentleman's 
part.
    Mr. Scarborough. Let me ask you this question then for the 
members out there that aren't as fortunate as us to have 
attorneys who are friends that will occasionally do that, how 
much can you estimate would it cost somebody that didn't have 
the same professional courtesy extended to them, a rough 
estimate?
    Mr. Yocum. If we assume a billing rate of around $150 to 
$200 an hour, something like that----
    Mr. Scarborough. That's a good assumption.
    Mr. Yocum [continuing]. I would say easily anywhere from a 
$1,000 to $2,000 depending upon how long you're on the phone. 
Whenever I encounter someone who says, Chuck, can you do this 
or that for my father-in-law, we're looking at preserving 
assets or things like that, this is an area of the law that I 
feel the same way as you feel about intellectual property.
    I'm completely lost, but I will refer every single person 
to legal counsel before entering this particular adventure. 
That would be my recommendation. I think even if I had to pay 
the fee, and I was quite prepared to do so, I wouldn't take 
step one without having consulted counsel.
    Mr. Scarborough. You know, it's a real shame that we've 
gotten to that point regarding this issue because it adds 
insult to injury, financial insult to injury for so many people 
that have to go through this very, very expensive process. I 
would guess this would actually help accelerate the spend-down 
process, which in itself can be very distressing not only for 
the parents, but the children of the parents that are taking 
care of them.
    Let me ask you about your experience in this area, because 
we've had some testimony in past hearings about just how 
difficult it was for parents and children to go through their 
spend-down process where basically they had to spend everything 
that they had made over 40 years just to qualify for Medicaid 
and be able to get long-term care.
    Could you tell me for you and your wife, what was the most 
difficult part of this spending down process?
    Mr. Yocum. There were a couple of difficult parts, and the 
part that I absolutely missed, notwithstanding the hours of 
advice that I received, was having to make sure that the timing 
was right when certain account balances show a certain figure 
in the relative's bank accounts. It took a long time to draw 
down the cash value of my father-in-law's insurance policies. 
That took a long time dealing back and forth with the insurance 
companies and what not, but you deposit the asset proceeds into 
the bank account, and if it shows up in the wrong time of the 
month, then it's well above the figure, even though the very 
next month you turn it around, and you either pay the health 
care provider or apply it to the family member's other needs.
    And so I made several mistakes along the line, because I 
have a feeling that my father-in-law Otts would have qualified 
for medical assistance sooner had I handled things differently 
so that on the right time of the month the balances would show 
the right amount of money.
    Mr. Scarborough. Right. Do you have any children?
    Mr. Yocum. Yes, sir, I do. I have two sons, one who is 23, 
just graduated from the University of Maryland last year. 
Incidentally he's working for a contractor for the State 
Department, which was his first really good job. And a son in 
his third year, majoring in art, also at University of Maryland 
College Park.
    Mr. Scarborough. Well, I ask that question, because this 
really feeds into the one before. You know, I've got two boys, 
one is aged 8 and one is 11, and you know the second you have 
children, you realize that is your commitment and you start 
working to build for their future, to set aside money to get 
them get through college and hopefully to take care of them, 
and maybe even leave them with something.
    I want to ask you on the emotional side of things, what do 
you think it would be like for your father-in-law, who worked 
his entire life, or like you, you're going to be working your 
entire life obviously very hard to see everything that you have 
earned over 30, 40, 50 years evaporate in a matter of a year or 
a year and a half just so you can qualify to be treated 
decently?
    A followup to that is, what advice are you going to give 
your two boys to make sure that this sort of thing doesn't 
happen to them or happen to you, drawing upon all of your 
experiences?
    Mr. Yocum. Well, it was pretty wrenching. I have this 
gentleman who I look upon as my surrogate father, who has been 
dead for a good while now. He was a very proud man, very proud. 
And he was also proud of his having amassed, having put 
together a family, and their life savings when my mother-in-law 
died was around $7,000. That's worth about a month and a half 
in terms of private pay nursing home care.
    And I think if I were to try to step in his shoes and look 
at that, I would be heart broken. We, the family, had made a 
decision that we were going to apply the proceeds of the house 
to get him the best care we could, even though there was an 
opportunity based on advice of counsel of somehow possibly 
sheltering part of the assets for our use after he were to die, 
but that's not how we wanted to do it. So it all goes into the 
black hole.
    As far as advice for my two sons, they and I and my wife 
have seen the elder care side of the coin big time. We have 
worked with three or four of my wife's elderly relatives and my 
own mother, and we all see that in our future. And so my advice 
to both of my boys would be that when and if you can afford it, 
try to get long-term care insurance, and the big word there is 
affordable.
    Mr. Scarborough. Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman. I wanted 
to just recognize our Department of Aging secretary, Secretary 
Sue Ward for the State of Maryland. Would you stand up, Ms. 
Ward? Thank you very much for being with us today.
    Dr. Benjamin, I just want to talk about a few things that 
you mentioned. You were saying that Maryland is aiming more at 
community-based care because it's cheaper I take it than the 
nursing homes; is that right?
    Mr. Benjamin. That's correct.
    Mr. Cummings. OK. So what's the difference? Would you give 
us an idea of what you project the difference is? I know it 
varies. But between say nursing care, nursing home care, and a 
year of at-home care, just the range?
    Mr. Benjamin. Well, it depends. Let me walk you through 
some examples if that might be helpful. You have an individual 
who is at home and you have--let's say you still have a couple 
there, and you're now able to--the wife is not able to handle 
this person, unable to give them a bath, unable to keep them 
clean, and unable to change them and, in essence, she may just 
initially need someone to help her do those kinds of things in 
a much more intensive way than some of our personal care 
services would offer.
    It seems to be that that's a much cheaper way than to take 
that individual and put them in a nursing home to give them 
more care than they probably need. Here's a person who is 
comfortable, they're at home, they've got their bed, they've 
got their slippers, they've got their television set. What they 
really need is some assistance part of a day or for portions of 
the day, with parts of their daily living.
    Let's go to a much more complex case, where you have 
someone who needs fairly intensive nursing care, but, again, 
not 24 hours a day, 7 days a week, you can do that same 
scenario by providing that person in-home care for the 
component of time that they need, again, versus putting that 
individual in a nursing home.
    We're beginning to see probably as the side effect of 
managed care that our hospitals are becoming intensive care 
units, that our nursing homes are becoming medical surgical 
wards, and that our communities are now becoming what we used 
to take care of in nursing homes.
    I believe we need to buildup that capacity in the community 
to provide for that care, particularly as we see those of us 
who are going to become seniors, become seniors because, as you 
pointed out in your so eloquent testimony, the numbers are 
going to be extraordinary. And so I believe that we need to 
have the full spectrum of care.
    I strongly support our long-term care facilities. I don't 
want to leave you with that message. I strongly, strongly 
support that. But also what I support is the flexibility to 
give people what they need when they need it, instead of having 
these very rigid systems that say we're not going to pay for 
that until you spend every dime that you have. We're not going 
to offer you the care you need, the right kind of care you need 
when you need it. To me that's not cost efficient, nor good 
government. So I would like to see some flexibility in that, 
and I believe insurance can cover that, if we craft it, if 
we're smart about the way we craft that.
    Mr. Cummings. On that note you said a little bit earlier 
that the State of Maryland is currently soliciting bids, is 
that right?
    Mr. Benjamin. That's right.
    Mr. Cummings. Tell us what the criteria is, what kind of 
criteria you are using to choose.
    Mr. Benjamin. I don't know. I will be happy to provide that 
to the committee.
    Mr. Cummings. Will more than one carrier be allowed to 
participate?
    Mr. Benjamin. My understanding is that is true. It is 
basically to do a group process similar to what you are 
proposing, but I can tell you those details.
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    Mr. Cummings. Mr. Atwater, your organization provides long-
term care insurance?
    Mr. Atwater. Yes, through Maginnis & Associates.
    Mr. Cummings. How long have you been doing that?
    Mr. Atwater. Certainly before my watch. I was national 
treasurer for 4 years. I have been president for 7 months. 
Several years before I came on board we had the Maginnis Co. as 
an insurance carrier.
    Mr. Cummings. Is there more than one carrier?
    Mr. Atwater. Actually under contract to NARFE, Maginnis is 
our broker. Within Maginnis, there are several insurance 
companies that offer different types of insurance, long-term 
care, dental plans and things like that.
    Mr. Cummings. You know, David Carver of AT&T, who will be 
testifying in a moment, very interestingly one of the things 
that AT&T did, and maybe I have read so much testimony that 
some may be coming together, but offered the long-term care 
insurance with life insurance and another thing that they did 
that was interesting, when they decided to offer the long-term 
care insurance they wanted to ensure that they would get 
maximum participation so they offered it at the time of the 
open enrollment so that more people's attention would be drawn 
to it, to the opportunity.
    One of the things that Mr. Scarborough and all of us have 
been concerned about is that once we figure out exactly how we 
are going to do this and create the mechanism to do it, making 
sure that Federal employees take advantage of it. How do you 
make sure that you maximize the opportunity?
    We know that cost is something that is very important. We 
understand that. But even when you get the cost down to a 
reasonable amount and you have a decent package, do you have 
any recommendations as to how you get the word out and sell it?
    And I also ask the same question of you, Mr. Yocum.
    Mr. Atwater. I don't think much about offering the long-
term care insurance and life insurance together, and I would 
like to know more about it. However, on selling long-term care 
insurance, and I have said this to Ms. Janice Lachance, the 
Director of OPM, we need to sell long-term care insurance to 
our younger Federal employees at the very beginning of their 
employment similar to the way we sold the Federal Employees 
Health Benefits Program and the insurance program. If we could 
get a long-term care program and offer it in a package with 
FEHBP and sell it to them early on, I would have had no problem 
when I first came in civil service many years ago if I had to 
contribute 1 percent or 2 percent of my pay, like I did for my 
retirement, as long as it was sold to me and offered as a 
package.
    I have a daughter who is 34 years old and she is with the 
National Park Service headquarters here in Washington, DC. She 
has worked for the Air Force and the Coast Guard, she 
understands the need for long-term care and she and her husband 
are looking for it right now. As I said, they are both in their 
30's. But I think whatever program we have has got to have that 
selling part of it right from the beginning.
    I have just come back from about 11 or 12 State conventions 
where I talked about long-term care to our Federal retirees and 
I told them maybe if you need long-term care you should look 
for it now.
    The bill that will be passed in the future may not be 
exactly what they need at the time, so I think we need to start 
a program that would sell, encourage new employees to buy long-
term care from the beginning.
    Mr. Cummings. Mr. Yocum.
    Mr. Yocum. Thank you, Congressman Cummings.
    Before I and my wife went through these last few years, our 
eyes just weren't opened. I think maybe there is some 
reluctance on the part of anyone to purchase long-term care 
insurance because they don't want to see themselves in this 
position. They just positively don't want to.
    So I think one thing that would help sell it would be to, 
if possible, make it almost like a quasi-health insurance, you 
are going to need it sometime. Somebody in the family is going 
to need it and I think Dr. Benjamin's testimony has been very 
revealing because and my wife and I have seen this, the need is 
to provide some additional help at the home level and not 
necessarily in an institution. If we can point the prospective 
enrollee to all the different ways that long-term care can help 
them in the future, that it is not limited just to long-term 
care at a nursing facility, I think that would go a long way. 
And for me personally if we were to lose, get rid of the cap, I 
think I would be a lot more willing to spend the money on a 
monthly basis to keep a policy in effect.
    Mr. Cummings. I just wanted to again thank all of you for 
being with us today, and I also want to thank Delegate Shirley 
Pullian for being here, too. Thank you for being with us.
    Mr. Scarborough. I want to thank you, Mr. Cummings. I 
wanted to do a very brief followup, a couple of quick 
questions. Dr. Benjamin, I wanted to ask you, first of all 
hearing Mr. Yocum's testimony brought to mind the question of 
how much would it cost for an average stay in a Maryland 
nursing home for a year. Do you have a rough estimate that you 
can give the subcommittee?
    Mr. Benjamin. I can give that for you in writing. There is 
a fairly wide variation. I can get that for you in writing.
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    Mr. Scarborough. Let me ask you this. Obviously it is going 
to be fairly expensive. In your capacity, have you found 
traveling across this State that most residents of your State 
believe that they are covered for long-term care in some way, 
either through their job or through Medicare?
    Mr. Benjamin. Yes. That is a misperception that a lot of 
people have that they are covered and they are not. Or that 
Medicaid does cover it or Medicare covers it. A lot of people 
think that Medicare will cover it and they do not know that 
they have to spend down to do that, that is correct.
    Mr. Scarborough. Mr. Atwater, I wanted to ask you, just 
clarifying a point or two, we had gotten the information that 
your organization's long-term care plan was temporarily closed 
or closed down for now. Are you still offering new policies?
    Mr. Atwater. Yes, sir. We are offering it under the broker 
that I mentioned earlier, Maginnis & Associates. We have not 
stopped it. It is still being offered unless it happened in the 
last few weeks or so. I need a new legislative department if 
they have.
    Mr. Scarborough. We had called Florida and identified 
ourselves as being from Florida, and we will get the 
information to you, and we were told that they were not 
offering it currently. I was going to expand upon that just to 
ask if that was the case, then what worked for you all and what 
didn't? In your capacity as president right now, what are you 
finding to be the successful points of the program that you are 
offering? What is working and what is not working?
    Mr. Atwater. Well, it is an individual choice whether you 
buy long-term care insurance or not. I may have some statistics 
here, how many we do have on long-term care insurance, if I can 
just look through this. Through our program we have some 3,100 
of our members who do have long-term care through our Maginnis 
& Associates broker. I have not heard what is working and what 
isn't. It is an individual choice whether people want it or 
not.
    When I have been traveling around to the different States 
recently this spring, many of our members are truly interested 
in long-term care. Some have gone out and gotten their own at a 
private insurance company, American Express or something like 
that, and others have gotten it through Maginnis & Associates. 
I haven't heard any complaints.
    Mr. Scarborough. You know, there are two areas where we are 
separated, and I touched on them and I think they are the two 
areas that we are going to need to move together and find 
common ground and make sure that this bill does pass in some 
form, I suspect in the end in a form that takes a little bit 
from everybody; that is, a compromise form, but let me ask you, 
the first point you talked about was sort of the field of 
insurers that were eligible. My personal belief is that the 
more qualified insurance companies you have, the more choices 
that the insureds have and the more competition you have in the 
market. Obviously you agree with OPM's position that the field 
should be limited, very limited and restricted. Let me ask you, 
you just talked about choice, individual choice and 
flexibility. Don't you think in some way having more insurers 
out there, in the free market, would drive down the prices? And 
offer more flexibility in plans for your membership?
    Mr. Atwater. Sure, I agree that more choices would be 
better.
    Mr. Scarborough. Right.
    Mr. Atwater. That is something that we are going to have to 
talk about and work together in reaching an agreement on this. 
Right now of course we are in agreement with OPM on the plans.
    As far as offering choices, I would like to see it opened 
up as a personal statement. On the other hand, I kind of have 
to agree with the folks that are the experts in this area, 
which I am not, that maybe a limitation like our Federal 
employee insurance program would be a better way to go. I have 
to do more studying on that. But we are willing to open it up 
and talk to you and certainly work with you on it.
    Mr. Scarborough. That is something obviously that we do 
need to talk about because obviously the life insurance program 
is about as restrictive as possible where you only have one 
carrier. That is a pretty good market for one carrier to have. 
Obviously the FEHBP plan is expansive and I just tend to think 
the more qualified carriers we have participating the better, 
but again that is something that we need to come together on.
    Also, you talked about relaxed underwriting, something else 
that I think we need to balance out. Usually I think just about 
every insurance person you bring in will tell you when you have 
relaxed underwriting that actually causes the cost to go up, 
which is the case 99 percent of the time. I do certainly 
understand your point, though, that relaxed underwriting also 
allows the field of participants to expand, so that is 
something that we are going to have to balance also, because if 
we relax the underwriting so much that absolutely everybody is 
qualified, that means that this program is going to cost those 
that you represent. Do you think that is a fair assumption to 
make?
    Mr. Atwater. It is a fair assumption and we need to work 
with you folks on that.
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    Mr. Scarborough. Mr. Cummings.
    Mr. Cummings. Just a followup on that----
    Mr. Atwater. I knew I should have mentioned your bill, sir.
    Mr. Scarborough. You really should have.
    Mr. Cummings. Just following up on Mr. Scarborough's 
question, we have to maintain that balance. There has to be 
that balance between how much latitude we allow as to who comes 
into the program and that has a direct effect of course on the 
cost. That is one of the problems that we are running into, 
trying to figure out how to keep that balance, and have 
reasonable restrictions as to who is covered so that the 
premiums are at a decent rate because if we are not careful, we 
will create a Cadillac package and nobody will want it and we 
will have defeated our purpose.
    I am just wondering, do you have certain things that you 
look to for trying to maintain that balance. I am sure that you 
have an appreciation based upon your answer to Mr. 
Scarborough's question, do you have an appreciation for that 
balance that we are trying to come up with?
    Mr. Atwater. I guess I would have to research the whole 
thing more, sir. I am not ready to make a comment regarding 
that.
    Mr. Cummings. I understand. I think in our next panel they 
will probably be able to talk about some of their experiences 
which might be helpful to us.
    Mr. Scarborough. I want to thank all of you for coming and 
testifying today. It certainly has been very helpful. We 
certainly hope that we can continue to work together because 
this is obviously something that is critical for the people of 
Maryland and for the country. So thanks a lot. We appreciate 
it.
    Mr. Scarborough. We are now going to call our next panel 
up. On our next panel we have Dave Carver, Ken Grubb and Dave 
Cavanaugh. David Carver is currently the district manager for 
Benefits Planning and Analysis for AT&T. In this position he 
led AT&T's efforts to obtain long-term care insurance for their 
employees. Ken Grubb, president, New York Life Insurance Co., 
is testifying today on behalf of the Health Insurance 
Association of America as a member of its long-term care 
committee. He has been with us before. We have David Cavanaugh, 
Manager of Business Development and Special Projects for Wright 
& Co. Wright & Co. is a national firm providing administration, 
consultation and insurance benefits to the Federal and private 
sector. Wright & Co. currently offers policies which link life 
insurance and long-term care insurance in a single policy.
    And the panel are obviously experts at testifying because 
they are already standing and ready to take the oath.
    [Witnesses sworn.]
    Mr. Scarborough. We ask that you stay to the 5-minute 
limitation, and any additional comments that you have that you 
would like in the record that you can't get in during the 5 
minutes, we will gladly submit to the record.
    Mr. Carver, if you can begin.

 STATEMENTS OF DAVID M. CARVER, DISTRICT MANAGER FOR BENEFITS 
   PLANNING AND ANALYSIS, AT&T KENNETH A. GRUBB, PRESIDENT, 
NYLIFE ADMINISTRATION GROUP/NEW YORK LIFE INSURANCE CO., HEALTH 
   INSURANCE ASSOCIATION OF AMERICA; AND DAVID E. CAVANAUGH, 
MANAGER OF BUSINESS DEVELOPMENT AND SPECIAL PROJECTS, WRIGHT & 
                              CO.

    Mr. Carver. Mr. Chairman, Congressman Cummings, I 
appreciate this opportunity to appear before your committee 
today to discuss AT&T's experience as an employer that offers 
long-term care insurance to our employees. I am the district 
manager for Benefits Planning and Analysis at AT&T. In this 
position, I led AT&T's effort to obtain long-term care 
insurance for our employees.
    In 1990, AT&T began work on the planning phase of their 
long-term care program. The market at that time was 
considerably less developed than it is today. Our initial 
research began with the development of basic principles to 
guide AT&T in its decisionmaking process.
    Items that needed to be reviewed included tax status of the 
product, review of employee need, product integrity and the 
general communications approach that the company would follow 
in order to maximize the benefits of this product for our 
employee population.
    In 1990-1991, there was considerable discussion of whether 
an employer could offer long-term care as an employer paid 
coverage and the potential tax consequences of the benefits 
that the employee might receive from such a plan. At that time 
there was no specific part of the IRS code that completely 
covered this type of benefit.
    Early on AT&T focused on employee need in two areas. First, 
financial protection and second, determination by the employee 
of their own personal evaluation of need. We were comfortable 
that a carefully designed plan could accomplish both goals. 
Financial protection could be assured by making the breadth of 
benefits extensive enough and that determination by the 
employee of their own needs could be accomplished by offering 
significant choice of plan designs. It was determined that AT&T 
long-term care would be a voluntary employee pay all plan. It 
would be incumbent upon AT&T to ensure that the program was 
designed such that it was fair and equitable for all plan 
participants. While AT&T wanted to insure the largest group of 
participants, we also needed to ensure that the product itself 
was not compromised by allowing unreasonable advantages to 
different population groupings.
    AT&T was particularly concerned about anti-selection. We 
struck a balance that would encourage employees to join when 
first eligible, and minimize the likelihood that one individual 
would have an advantage over another. Active employees that 
were actively at work would be accepted without underwriting 
during the initial open enrollment eligibility period. Spouses 
and employees who enrolled later would be allowed to complete 
the underwriting short form, all other potential participants 
would have to go through the standard underwriting form.
    AT&T would prefer not to exclude participants from its 
plans. However, AT&T does not believe that a person with a 
known preexisting condition should be able to apply for 
insurance, pay the same rates as everyone else and know that 
they will receive benefits or have a far higher likelihood of 
receiving benefits than the general insured population. It was 
felt that getting a long-term care insurance product in front 
of employees at that time when employees needed to make benefit 
decisions would be critical to the success of the initial 
enrollment.
    Our company research had shown that our employee population 
had a tendency to do nothing when given the opportunity, 
especially if doing nothing allowed them to maintain the status 
quo.
    The long-term care insurance program was launched when AT&T 
introduced its new cafeteria plan, which was one of the largest 
communication efforts that AT&T would undertake to its 
management population in the 1990's. Once the general program 
outline was completed, specific plan design features needed to 
be developed. AT&T wanted employees to have as much flexibility 
as possible while insuring that adequate coverage would exist. 
The market in 1990 offered two major plan design features: 
nursing home coverage and home health care coverage. Most 
products available in the marketplace would be nursing home 
only or nursing home and home health combined, which we would 
know as comprehensive care. AT&T decided to offer both. A 
survey of nursing home costs revealed that annual nursing home 
expenses varied from $20,000 to over $50,000 per year. That was 
1990. This translated into a benefit range of $60 to $140 per 
day. Our initial design, therefore, was to create six plan 
choices by offering $60, $100 and $140 per day benefit levels 
in both of those coverage categories of nursing home only and 
comprehensive care.
    Our next decision was how long should coverage be given. 
When we first looked at this feature, AT&T wanted unlimited 
duration. However, in order to incorporate a sense of cost 
control into the plan, we decided upon limits that were 
multiples of the daily dollar amounts. The nursing home only 
coverage was given 5 years duration, and the comprehensive 
coverage was given 7 years. Under this design, if the 
participant were to use the benefit less frequently than daily 
and or obtain a daily benefit cost below the daily benefit 
purchased, then the duration of benefits could be extended well 
beyond the 5 or 7 years.
    Determination of eligibility for benefit payment came next. 
The long-term care market had developed a methodology to 
determine eligibility for benefit payment based upon a person's 
functional ability in several categories called activities of 
daily living, or ADLs. AT&T would need to specify which ADLs 
would be evaluated, and how many ADLs a plan participant would 
need to have lost function in before the participant would be 
eligible for benefit reimbursement.
    Next was the waiting period once you are eligible for 
benefits. This is the period of time that the individual would 
be expected to spend in benefits status before the plan would 
begin paying benefits. This period needs to be carefully 
evaluated for its impact upon the premium costs of the plan, 
meaning that you don't want it too short, and the individual 
cost to the plan participant who must incur those costs until 
benefit payments are made.
    There are many more features that are necessary to ensure 
the delivery of high quality long-term care product. The ones 
that I have discussed just now are the major features AT&T 
looked at in its initial plan design development. The next step 
AT&T employed was to determine the principles that we would 
follow in evaluating the potential vendors for our product. 
AT&T looked at the following: A single carrier rather than 
multiple carriers; financial strength and market commitment of 
the carrier; and the carrier notability.
    Our original bid went to 9 potential vendors. Four were 
selected as finalists that received site visits. AT&T 
incorporated principles into the bid specification. These were 
to allow carriers to differentiate themselves. The bid 
specification was written in such a way as to encourage 
creativity.
    We wanted to ensure and enhance program integrity. The 
balance in this type of insurance program can be sifted down to 
two elements, premiums and the incurred claims. The potential 
vendors were encouraged to present ways to maximize coverage 
and to minimize premiums. We needed to meet the diverse 
employee retiree needs of the company. The population of AT&T 
was a diverse group of employees, retirees and their eligible 
family members, all with varying needs. AT&T wanted to present 
a long-term care product that would be flexible enough to meet 
this diverse set of individuals and their needs.
    We also needed to balance affordability versus 
availability. Affordability was measured by the percentage of 
the population that could reasonably be expected to afford the 
product. In this comparison, availability refers to the number 
of potential plan participants that would be accepted into the 
plan based upon the underwriting restrictions. With a selection 
of our vendor, the next step was to develop enrollment 
expectations. Based upon the six levels of benefits that AT&T 
decided to offer, it was estimated that a 5 to 7 percent 
overall enrollment rate should be expected for management 
employees. Enrollment rates of 2 to 3 percent were expected for 
retired employees and occupational employees. AT&T has exceeded 
these targets with management enrollment currently at 14 
percent, retired employees at 3 percent and our occupational 
employees at 4 percent. These percentages strictly are employee 
population and not their family percentages. We are very 
pleased with the initial enrollment figures, and the continued 
participation that the program has experienced.
    The AT&T plan has been enhanced on two separate occasions, 
once in 1996 and again in 1999. In 1996, AT&T changed the daily 
benefit amounts from the $60, $100, $140 to higher amounts to 
$80, $120, $160 and $200 per day. We also added the assisted 
living facilities as a covered service under the comprehensive 
plan.
    In 1999, after Congress enacted the tax qualifications 
under HIPAA, we amended the plan to comply. Working with our 
long-term care carrier, we were also able to make additional 
plan enhancements in comprehensive and nursing home only 
coverage. In addition, we felt necessary to add a third plan 
option.
    Determination provisions to the contract were one of the 
key elements of the entire bid process. No matter how well 
intentioned the vendor may be or how diligent AT&T was in the 
selection process, the ability to change carriers and do it 
without harm to the plan or to the participating employees is 
critical. Long-term care insurance is an asset intensive 
product with a long potential investment horizon. The insurance 
company established active life reserves to account for their 
assumption of liability. However, the interest or investment 
gains from these active life reserves would be critical to the 
financial health of the program. There are a few items that we 
were unsuccessful in implementing into our long-term care plan 
or continue to be frustrated by, and that is the mandating of 
certain provisions in certain States, difficulty in protecting 
the integrity of the plan and exclusion from section 125 of the 
Internal Revenue Code.
    We have many general positives we feel, and that is in 
general the development and availability of long-term care 
product in the insurance marketplace, the increased awareness 
across the country of the need for this type of coverage, our 
enrollment experience and our continued good experience with 
lower than expected lapse rates.
    Clearly AT&T has a wealth of experience in putting together 
a program for our employees. I am pleased to have the 
opportunity to share this experience with you, and we look 
forward to being available for your questions as you move ahead 
in putting together the legislation that will enable Federal 
employees to obtain long-term care insurance at the workplace.
    [The prepared statement of Mr. Carver follows:]
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    Mr. Scarborough. And because of AT&T's experience in this 
field, I think your insights have been very helpful. I want to 
say to all of you gentlemen, because we are pushed for time, 
any additional comments you want to put into the record, we 
will gladly do that. I have a lot of questions, so if you don't 
have any objections, I am going to be submitting some 
questions, and I am sure that Congressman Cummings will be 
doing the same.
    If you have the responses back to us within 30 days, that 
would be helpful, and we can put them into the record.
    Mr. Grubb, welcome back.
    Mr. Grubb. Good afternoon, Mr. Chairman and Mr. Cummings. I 
am Ken Grubb, president of New York Life Insurance Co.'s long-
term care subsidiary, and I am pleased to speak to you again on 
behalf of the Health Insurance Association of America [HIAA], 
the Nation's leading trade association of health insurance 
providers. HIAA provides coverage to 115 million Americans. My 
comments are intended to give you our association's thoughts on 
the legislation under consideration that would offer long-term 
care insurance to Federal employees and their families.
    I purchased long-term care insurance for myself, my wife 
and our three children through my company-sponsored plan. If 
our children are only in their 20's, why do we insure them? We 
should help Federal employees and their dependents understand 
that long-term care insurance is not just for the elderly. 
Forty percent of people in nursing homes today are under the 
age of 65.
    There has been a lot of talk in this hearing about 
affordability. The cost of my children's insurance is under 
$220 per year. And as Mr. Yocum said, it is unlimited coverage, 
so it will never end. Like Mr. Yocum, I am keenly aware of 
problems families face because of long-term care needs. My 
parents both needed care, and they had no insurance coverage. 
They had very limited savings. It is almost the same story Mr. 
Yocum told, with only Social Security as a source of income. I 
paid for their care to allow them the dignity that they deserve 
and to avoid the painful choices they would have to make to 
qualify for Medicaid.
    Today employers lose $29 billion a year in lost employee 
productivity due to long-term care related issues. By offering 
this benefit to its employees, the Nation's largest employer, 
the Federal Government, would send a strong message to all 
employers that long-term care insurance should be part of their 
benefits package, too. HIAA would like to make the following 
summary points with respect to proposed bills with details in 
our written testimony.
    No. 1, the key to a successful Federal long-term care 
insurance program is an effective education and marketing 
campaign. The Federal Government's endorsement of long-term 
care insurance and your playing an active role in educating 
employees is critical to the success of this program.
    Two, using artificially low premiums as a major determinant 
for good long-term care insurance is a dangerous route to take. 
A policy with rich benefits, offered at low premiums and 
minimal underwriting is a sure sign of disaster. Implementing 
such a program would result in an unsustainable plan with 
unstable premiums.
    Three, OPM should not be responsible for adjudicating 
claims. HIAA opposes any type of third party adjudication.
    And finally, No. 4, it is essential that market competition 
determine which carriers offer the plans under the Federal 
program. All interested companies should be allowed to freely 
compete in a fair selection process. Some contend that too many 
choices under a free competition model would confuse consumers, 
discourage product purchases, drive up marketing costs and 
increase prices. HIAA disagrees with these contentions. The 
industry believes, and the current long-term care insurance 
marketplace has proven, that free competition works.
    We have many reputable and financially sound companies 
offering a wide array of benefits at stable premiums because of 
open competition. Some new generation products have actually 
been introduced with lower premiums than their predecessors. I 
know ours was, and we have never raised our rates. The risks of 
consumer confusion, high marketing costs and uncertain 
penetration rates are part of what carriers deal with today. 
The industry has successfully overcome these challenges and is 
thriving because of free competition.
    We suggest care be taken to avoid fostering the growth of 
only one company or a small consortium of companies. This could 
actually hinder product development and stifle competition. 
Limited consumer choice could cause Federal employees to look 
outside the program for more affordable or better quality 
coverage. HIAA is aware of a proposal to select a single 
consortium of companies to offer the Federal program. We are 
currently evaluating that proposal. Details of how such a 
concept would work are unclear, and critical issues such as the 
mechanics of how this proposal would work are unresolved. Until 
they are clarified, HIAA is reserving comment.
    Long-term care is the largest unfunded liability facing 
Americans today. HIAA applauds tax incentives suggested for 
those paying long-term care insurance premiums. These 
incentives recognize the vital role that insurance plays in 
helping individuals, rather than the government, pay for long-
term care costs. Long-term care insurance can give millions of 
people the opportunity to remain financially independent.
    Thank you, Mr. Chairman and Mr. Cummings, for considering 
ways to give this sense of security to your fellow Federal 
employees and to their families. We look forward to working 
with you to, as Mr. Cummings said so eloquently, do it right.
    [The prepared statement of Mr. Grubb follows:]
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    Mr. Scarborough. Thank you, Mr. Grubb. We appreciate your 
testimony.
    Mr. Cavanaugh.
    Mr. Cavanaugh. Thank you, Representative Cummings and 
Chairman Scarborough, for asking us to be here. I am Dave 
Cavanaugh and I am representing Wright & Co. in Washington, DC. 
We are a national firm. We have been providing administration, 
consultation and insurance benefits to the Federal and private 
sector over the last 35 years. And because of time, I will make 
my comments brief, but you did ask us to come and see if we 
couldn't provide you with some information as far as the linked 
benefits concept, that being where we take a universal life 
insurance policy and put long-term care riders on there and see 
if we cannot come up with some benefits. That is what we have 
done.
    The need for the linked benefits approach teaming the 
universal life and long-term care is becoming more evident 
every day. From your Civil Service Employee Benefit Association 
members to our various Federal association members, such as 
SEA--the Senior Executive Association--the message is clear. 
Long-term care is an integral need for all Americans. Besides 
relieving the U.S. Government of an increasing burden, the 
linked benefits concept will serve numerous purposes to the 
individual and family members. Purposes that include awareness, 
flexibility, cost savings, asset protection, and even one area 
which has been addressed today, and that is, an appeal to 
younger people. We feel that is an imperative.
    Because of the advancements in medical science, they are 
creating a longer living American population. This ever 
increasing and aging population needs to protect themselves and 
their families from the financial burdens imposed by nursing 
home or at home confinements. Not only is there the 
consideration of money factors, but also the dignity and 
integrity during the aging process of the individual and the 
family members. Clearly this is a financial and peace of mind 
issue.
    With the creation of linked benefits, the pairing of 
universal life insurance and long-term care addresses the 
aforementioned problems in a very efficient manner. Not only is 
long-term care and life insurance provided, but they are 
provided on a sound economic basis while giving various options 
during the completion of the aging process. These options 
include the long-term care coverage, a cash accumulation fund, 
death benefits and, if necessary, a recapture of dollars laid 
out.
    In further clarification of these points, we have put 
attachment A into our testimony for the linked benefits, and 
you can refer to it as necessary.
    You also asked for assistance in areas of how the product 
is typically sold, what the options are that are available, and 
what classes and categories the Federal employees might find 
for the product to be attractive, and so we will do that. In an 
attempt to save time, again we have listed all of those items 
for you and they are in our written testimony.
    Finally, what we would like to say to you is that you've 
requested modifications on the bills, and we believe that 
attachment B will
provide you with the necessary wording for each of the bills 
that have been recommended, and we would like to make ourselves 
available for any further information and help that we can 
provide you. In light of the time factor, I hope that I have 
done a good job and haven't made this the old FedEx commercial.
    [The prepared statement of Mr. Cavanaugh follows:]
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    Mr. Scarborough. Mr. Cavanaugh, you are ruthlessly 
efficient.
    Mr. Cavanaugh. I take that as a compliment.
    Mr. Scarborough. That is meant to be a compliment. You 
represent your company well. I want to ask all three of you to 
answer a couple of questions that I have. Obviously you all are 
experts in this field. You have studied it extensively, and 
know it better than 99 percent of people not only across 
America, but especially in Congress.
    The first question has to do with something that Mr. Grubb 
actually touched on, but it was a question that I asked our 
last panel, and it had to do with relaxed underwriting. The 
argument has been made by some, and I suspect as this debate 
gets more political, it will be made by many others on the 
House floor that we must relax underwriting so much that just 
about everybody can get into the plan.
    While I have no objections to being extraordinarily 
inclusive, I do think that we need to have experts testify as 
to what the downsides of basically letting everybody in with no 
underwriting requirements, especially for a plan that seeks to 
do two things: one, to keep costs low for Federal employees 
and, two, get as many people into the plan as possible, and 
doing that through lower costs.
    Let me ask you all to testify as to what impact that would 
have, a very lax underwriting standard on long-term care. Mr. 
Grubb, you have already testified to it, and if you would like 
to restate your position.
    Mr. Grubb. As we have described it in the past, guaranteed 
issue works if you have the entire population as part of your 
risk pool. Given that this plan is voluntary, you would have a 
high risk of anti-selection if you just said we will take 
anybody.
    So the downside is that guaranteed issue would certainly 
increase the cost of the program. We do have some guaranteed 
issue programs in our portfolio, but all employees are part of 
it, so you can spread the risk. Everything I have heard about 
the Federal program is that it is going to be voluntary. So the 
downside would be increased cost.
    Mr. Scarborough. So there would be marginally or 
substantially increased costs?
    Mr. Grubb. Substantially increased costs. There is a way to 
mitigate the risk a great deal. We have programs which we call 
simplified underwriting. They allow us to ask several simple 
questions which basically determine that the person applying is 
not already eligible to go on benefit. You spoke to that 
yourself a moment ago. If you do that, the risk goes down 
dramatically, as would the potential impact on cost.
    So my recommendation in a voluntary program would be to go 
with simplified issue as opposed to guaranteed issue. That way 
you keep the people out of the program who would drive the 
costs up initially.
    Mr. Scarborough. Mr. Carver.
    Mr. Carver. The anti-selection, and if I may, I am going to 
relate it to what we currently experience on our life insurance 
program. We have a voluntary life insurance program also, and 
basically what happens is when you allow everyone in, employees 
will look at both the program that you are sponsoring and the 
program that may be available individually or somewhere else. 
So what happens is your good risks that can pass underwriting 
will go somewhere else, and you will end up with the bad risks 
because you are accepting all comers. That is why the rates 
will go up. We wanted to accept as many as we possibly could. 
We felt it was reasonable that we were trying to provide an 
employee pay all plan for our employees. So we tried to 
minimize the amount of activity that needed to take place in 
the underwriting, and I do agree with Mr. Grubb you are going 
to experience a program that is considerably higher in costs to 
those employees that are going to pay for it.
    Mr. Cavanaugh. I am probably going to echo the words 
already said, but when you have a simplified issue program 
where you can get a little bit of a peek under the tent of the 
group of people that you are looking at, you are going to get 
better results.
    I know politically it would be a wonderful situation where 
you would be able to say everybody is in the pool, but the 
problem with that is at some point in time you are going to 
create a bigger political problem, and that is are the 
insurance companies going to be able to be financially solvent 
and meet all of the risks that they have.
    So there are ways that you can negotiate with the 
underwriting departments and fool around with the design of the 
policies as well as the individual being able to meet some type 
of an underwriting process. But I definitely commend you for 
addressing this problem so that it doesn't become a political 
football or a bigger problem than you already have.
    Mr. Scarborough. The second question that I have, and it 
will be my last question for all of you to answer before I turn 
the mic over to Mr. Cummings, is a question that to me seems 
very obvious, but maybe I am missing something.
    OPM has suggested that the best and perhaps the only way to 
ensure the lowest premiums for employees is to basically have a 
monopoly, have one carrier. I personally believe that the more 
qualified carriers we can have in there, the more competition 
we can have, the more choice we will have, and the more the 
prices will go down, especially as more and more Americans 
learn about long-term care and the universe of those that are 
insured expands.
    I don't want to ask too much of a leading question, but I 
am going to anyway.
    Does anybody on the panel believe that a monopoly will 
provide lower prices for long-term care participants or having 
more insurance companies in there for more competition? And I 
am sure you will say a monopoly if it is your company.
    Mr. Grubb. No, I wouldn't. And I think there is another 
risk here, and that is whether a single company can really 
handle this. A single company in an employer group can do it 
because of the economies of scale and the critical mass, but 
one company covering the entire Federal population, potentially 
10 million people, becomes unwieldy from an administrative 
perspective.
    So I am not advocating a single carrier. My answer to your 
monopoly, I think, would be 10-10-326, or whatever it is.
    My wife has just placed on every telephone in our house a 
10-10-326 sticker, which we use, and I don't think that we 
would be getting 5-cents a minute telephone rates if we had 
monopolies on the telephone. I don't believe that a monopoly 
would result in lower prices. I think free competition clearly 
drives down prices, as the new generation of lower price 
products demonstrates.
    Mr. Scarborough. Mr. Carver, you don't have to respond to 
that AT&T part of his answer. He is saying monopolies and phone 
companies are pretty good things.
    Mr. Carver. No, we believe in competition. The way that I 
look at it from an employer's perspective, you have to break it 
down into competition for the selection process. We had nine 
carriers. We broke it down to four carriers. When you get down 
to a model where you are looking at four carriers, there is an 
easy way of adopting a solution, and that is to say tell me 
what your prices will be if you are the only one selected, and 
tell me what your prices would be if there are going to be 
three carriers selected.
    You will see that their prices will be considerably 
different given those two models, and they will be lower in the 
single carrier situation. A carefully constructed one will 
allow flexibility where you may have a limited number of 
carriers given the size of what you are talking about.
    But I think the point is to say the single carrier model 
would be the least expensive model as far as what the carriers 
will offer during the bid process. That doesn't necessarily 
mean that it would be a model that you would be satisfied with 
as only taking the lowest cost because once it is in place, the 
cost to remove that model also must be considered, and you may 
say two would be appropriate, but you can actually incorporate 
that into the process and that way you can determine with the 
facts of what the carriers are going to offer in product as to 
what the differentiation is in cost.
    Mr. Scarborough. Thank you.
    Mr. Cavanaugh.
    Mr. Cavanaugh. I want to take a little bit of testimony 
from today and throw it right back. Mr. Carver himself said we 
need to eliminate the do-nothing aspect of employees, whether 
Federal or private sector. Mr. Atwater said we need to sell, 
which means that we need to educate people on what the problem 
is and how to solve it and we need to do that on an affordable 
basis.
    There is no way in the world one insurance company is going 
to be able to go through all of the capital expenditures that 
are needed to be able to do that and still wind up with an 
affordable product for the individual. That is a strong 
consideration that needs to be taken into consideration.
    The other aspect is along the lines of what Ken said, a 10-
10, whatever that number is, that kind of assistance from the 
Federal Government in educating or letting the Federal employee 
know that it is available and out there in conjunction with 
whatever companies provide the coverages is going to be an 
important factor. I say that from an insurance broker aspect 
dealing with a number of companies, not just with one 
particular company in my particular sights. So affordability is 
going to be an important factor from both sides of the 
spectrum.
    Thank you.
    Mr. Scarborough. Mr. Cummings.
    Mr. Cummings. I just want to get this concept, just 
following up on Mr. Scarborough's questions. If you have a 
consortium and if you have a group of insurance companies 
working together but basically one policy, is that what you are 
talking about or are you talking about something else?
    Mr. Grubb. It certainly could be that. As we have discussed 
how this might take shape, one of the things we have talked 
about is having a core group of benefits. AT&T does that. We do 
that in our group offerings, where the suggested plans are 3-
year, 5-year, and unlimited with amounts up to $300 a day.
    However you go through that appropriate selection process, 
the consortium could offer that core set of benefits maybe even 
at a standard rate. Employees whose needs are different could 
select from a wide variety of offerings that the companies in 
the consortium could offer. So you would have a standard group 
of benefits at potentially standard rates as well as a wider 
variety if the standard benefits don't meet the needs of that 
particular individual.
    Mr. Scarborough. Mr. Carver, why did you offer long-term 
care insurance? Why did your company offer it?
    Mr. Carver. Essentially it was circumstances that the 
company had identified areas where employees felt there was 
gaps in our coverages with regard to our medical, really. We 
had circumstances within the company where we had a number of 
employees, I think that had basically written into benefits 
administration and had said that here was the problem.
    They were an AT&T employee, yet they had a spouse or they 
were a retiree that had a spouse and the medical coverage that 
was provided by AT&T was not covering the circumstances in 
which the employee's spouse was experiencing their medical 
difficulty, which ended up being the custodial care, a specific 
exclusion under our medical plan, and that is what the long-
term care was being classified as. And so we saw it as a gap in 
our coverage.
    Mr. Cummings. In your written testimony you talked about 
when you all initially offered the insurance, you had projected 
a certain percentage of employees would take advantage of it 
and, overall, a higher percentage than what you projected took 
advantage of it. And I take it that you all were surprised by 
that?
    Mr. Carver. Actually I was very surprised by that. I felt 
very comfortable with our projections going out, and I really 
do believe the way that we presented it in our communications 
where the employees were in a situation that our company had 
created with the introduction of other programs where they had 
to look at their package of benefits and they had to 
investigate certain options, put them at a much more higher 
level to investigate things like long term care and to take the 
time and effort to understand it.
    I hadn't really related that when I was putting the package 
together, and I really felt that was what really drove the 
increased participation.
    Mr. Cummings. I know you had an open enrollment period, but 
did you do a lot of pushing on the long-term care piece or was 
it just part of the package?
    Mr. Carver. It really was just part of the package. We did 
have specifically the ability for our employees to call a 
separate 800 line. They could get other information for the 
long-term care product through that 800 line, and it was a 
separate brochure that described long-term care because it was 
a totally new product that was included in the open enrollment 
package. We didn't send out great notices of this impending new 
product coming down the line.
    Mr. Cummings. You talk about the ADLs. You spent some time 
in your written testimony talking about how people would be 
able to take advantage of the policy. What is the triggering 
mechanism for the policy?
    Mr. Carver. When we designed the plan, one of the things 
that I discussed with not only AT&T, the people on my project 
team, but also with the carriers, was that when you are looking 
at the activities of daily living, it is fairly clear that when 
you are talking about an elderly population, that it is a 
matter of degree when you do the evaluation. And then 
eventually the deterioration would be expected to continue.
    So when we talk about claims and claims denial, it is not 
really claims denial, it is claims delay. When a person has 
started to lose function in particular activities of daily 
living, they are not expected to next year all of a sudden have 
improvement in those activities of daily living. The propensity 
would be as they grow older, they are going to continue to 
deteriorate in the activities of daily living. So the point is 
to be able to measure their functionality and at some point in 
time trigger the benefits.
    So you may have denial at one point, but it is not a denial 
to say that we are never going to see this claim again, it is a 
denial of delay, and eventually that person is going to achieve 
benefit status. So when we did the ADLs, that is how we tried 
to set them up.
    When you first get contact, somebody may not qualify 
because they may not understand all of the different things 
that occur. But when they get evaluated they should have a file 
on them because eventually I should expect that person is going 
to deteriorate into claim status.
    Mr. Cummings. You said a little earlier that you all upped 
the daily benefit level at some point. How did that come about?
    Mr. Carver. Which one?
    Mr. Cummings. You said there was a time when it was $60.
    Mr. Carver. $60, $100, $140.
    Mr. Cummings. Then you bumped it up.
    Mr. Carver. Absolutely.
    Mr. Cummings. I'm asking how did that come about. I assume 
you saw a need. I'm just trying to figure out how do you come 
to the conclusion. Is there a group of people that say we need 
to move this up a little bit; is it your office working with 
the insurance company? I mean what happened there?
    Mr. Carver. OK. Well, what happened there was that the 
general survey of nursing home costs across the country, we 
were doing that evaluation, because we have an inflation 
increase that is more of a flexible inflation increase, not an 
automatic. So we did on our evaluation, because we wanted to 
give an inflation increase offer to employees, and during that 
evaluation, it was found that nursing home costs had increased 
sufficiently enough that we felt the $60 one was--would be 
inadequate, and that there needed to be higher limits, because 
the nursing homes costs, in particular cost areas, had 
increased rapidly.
    So we wanted to expand our offerings on the top level. And 
also during that time, we offered employees that had originally 
participated the option to increase their coverages under the 
inflation increase, under the plan provisions. So it was a 
total evaluation in the marketplace to reassess where we needed 
to be as far as the average daily benefits were concerned.
    Mr. Cummings. So I take it that you feel very strongly that 
this is something that is needed, say, with regard to what 
we're trying to do with Federal employees then?
    Mr. Carver. Yes, I do.
    Mr. Cummings. Mr. Cavanaugh, I just have one question. The 
linked benefits, does that--I take it that that is more of--you 
see that as something being more attractive than them not being 
linked?
    Mr. Cavanaugh. Yes, for two reasons. When you just have the 
long-term care benefit, it's going to meet strictly and solely 
that need, and the focus of that particular need is in an older 
age group, which is going to limit the number of people that 
are going to participate, which is going to limit your pool. 
It's also going to limit the number of dollars that the 
insurance company is going to be collecting.
    When you get a wider span of appeal, then you're going to 
get a wider participation. When you get a wider participation, 
you get a bigger spreading of the risk, you get more people in 
the pool, et cetera. So it just seems to be more of a logical 
appeals situation, and it also solves more needs.
    And no matter what, in the linked benefits concept, there 
is going to be someone, whether it's the insured or whether 
it's the members of the family that are going to derive any 
benefit or some benefits out of the policy.
    Mr. Cummings. You know, as I read the various testimony, I 
think a dismal picture is being painted of the future with 
regard to--I mean if we don't do things like this, would you 
agree?
    Mr. Grubb. Absolutely.
    Mr. Cavanaugh. Absolutely.
    Mr. Carver. Absolutely.
    Mr. Cummings. I was wondering what you all see. Someone 
once said people act on the basis or motivated on the basis of 
two things or a combination of them, one of two things or a 
combination; either they're trying to avoid pain or gain 
pleasure. And I think here it's probably a combination, we need 
to avoid some pain, and we need to make sure that we gain as 
much pleasure as we can by allowing people to live in dignity.
    And I'm just wondering, what do you all--my last question 
is, what do you see happening if we don't have these kinds of 
insurance policies available on a pretty wide basis, ranging 
basis? I guess, with your population getting older, and you're 
living longer and the health care costs are going up. I was 
just wondering what do you all project? We will start from left 
to right.
    Mr. Carver. Your left?
    Mr. Cummings. My left, I'm sorry.
    Mr. Carver. Without the expansion into the long-term care 
marketplace, what AT&T sees is that many of our employees and 
our retirees who felt that they had saved and had sufficient 
assets will find that those assets may be being utilized for 
long-term care expenses that aren't being paid for under any 
insurance policy, and that they will have less of an 
inheritance to pass to their children. And they will also have 
a reduced quality of life in the remaining years unexpectedly.
    Mr. Grubb. I couldn't agree more. There's a term I heard 
recently at a conference about the ``eccho generation.'' We 
talk a lot about the boomers and then you have the decline and 
now the ``eccho generation'' is coming behind it. The ``eccho 
generation'' is bigger than the boomers ever thought about it 
being. If we don't take care of this trend now, how many people 
can afford using the numbers that were mentioned in testimony 
today, of $100,000, or $400,000. It's amazing numbers for what 
the costs of long-term care is going to be.
    The government doesn't want to pay those bills. I go back 
to my parents' situation. The most important thing is what you 
just said, Mr. Cummings, and that's dignity. My parents saved 
their entire lives, and it was the dignity that they wanted to 
retain, the control over their own destiny. Long-term care 
insurance allows and provides for that. That's why we bought 
long term care insurance for our kids who were in their 20's. 
We did it so they would know that they will always have that 
dignity, and we know, as their parents, that we've taken care 
of it, so they don't have to face the same situations we did.
    Another thing that is critically important and as an H.R. 
professional I'm sure the gentleman to my right is going to 
speak to this too. Adult day care is very quickly going to pass 
child care as the No. 1 issue that human resources people have 
to take care of. That day is coming very, very quickly. When 
we're no longer caring for our children, we're caring for our 
aging parents. That is a very big issue. So if we don't take 
care of this, I think the entire economy is in big trouble.
    Mr. Cavanaugh. I think you can maybe make one analogy, and 
that is we all need to get the stitches now on the wound, or 
we're going to have some major surgery in the future, real 
major surgery. We have to address the problem. And we have to 
do something about it, because otherwise it's going to get much 
bigger than any of us can ever imagine. And Dr. Kevorkian may 
become a very, very popular individual.
    Mr. Cummings. I want to just thank all of you for your 
testimony. I want to thank everybody for being here. And I want 
to also thank the people here at the War Memorial facility here 
for doing such a good job, we really appreciate it.
    And Mr. Chairman, again, thank you and your staff and my 
staff for all they've done to make this happen.
    Mr. Scarborough. Mr. Cummings, I want to thank you for 
making this hearing possible, for working so hard to bring us 
up here and make it work. I thank you and, gentlemen, thank you 
for testifying today. I would like to thank everybody in 
attendance.
    We are adjourned.
    [Whereupon, at 3:09 p.m., the subcommittee was adjourned.]

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