[Senate Hearing 106-533]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 106-533

             LONG-TERM CARE INSURANCE FOR FEDERAL EMPLOYEES

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



                                HEARING

                               before the

               INTERNATIONAL SECURITY, PROLIFERATION, AND
                     FEDERAL SERVICES SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 16, 2000

                               __________

      Printed for the use of the Committee on Governmental Affairs



                     U.S. GOVERNMENT PRINTING OFFICE
64-898 cc                    WASHINGTON : 2000
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Sales Office
         U.S. Government Printing Office, Washington, DC 20402



                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio            RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico         ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi            MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania          JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
             Hannah S. Sistare, Staff Director and Counsel
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                  Darla D. Cassell, Administrive Clerk

                                 ------                                

      INTERNATIONAL SECURITY, PROLIFERATION, AND FEDERAL SERVICES 
                              SUBCOMMITTEE

                  THAD COCHRAN, Mississippi, Chairman
TED STEVENS, Alaska                  DANIEL K. AKAKA, Hawaii
SUSAN M. COLLINS, Maine              CARL LEVIN, Michigan
PETE V. DOMENICI, New Mexico         ROBERT G. TORRICELLI, New Jersey
ARLEN SPECTER, Pennsylvania          MAX CLELAND, Georgia
JUDD GREGG, New Hampshire            JOHN EDWARDS, North Carolina
                   Mitchel B. Kugler, Staff Director
              Richard J. Kessler, Minority Staff Director
                      Julie A. Sander, Chief Clerk
                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Cochran..............................................     1
    Senator Akaka................................................     2
    Senator Collins..............................................     2
    Senator Cleland..............................................     8
Prepared statements:
    Senator Collins..............................................    23
    Senator Cleland..............................................    35
    Senator Akaka................................................    37
    Senator Levin................................................    53

                               WITNESSES
                         Tuesday, May 16, 2000

Hon. Charles E. Grassley, a U.S. Senator from the State of Iowa..     3
Hon. Barbara Mikulski, a U.S. Senator from the State of Maryland.     5
Hon. Janice Lachance, Director, U.S. Office of Personnel 
  Management.....................................................    10

                     Alphabetical List of Witnesses

Grassley, Hon. Charles E.:
    Testimony....................................................     3
    Prepared statement...........................................    29
Lachance, Hon. Janice:
    Testimony....................................................    10
    Prepared statement...........................................    39
Mikulski, Hon. Barbara:
    Testimony....................................................     5
    Prepared statement...........................................    31

                                APPENDIX

Questions and responses for Ms. Lachance from Senator Cochran....    48
Copy of S. 2520..................................................    55

 
             LONG-TERM CARE INSURANCE FOR FEDERAL EMPLOYEES

                              ----------                              


                         TUESDAY, MAY 16, 2000


                                    U.S. Senate    
                Subcommittee on International Security,    
                      Proliferation, and Federal Services  
                   of the Committee on Governmental Affairs
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:03 a.m. in 
room 342, Senate Dirksen Building, Hon. Thad Cochran (Chairman 
of the Subcommittee) presiding.
    Present: Senators Cochran, Collins, Akaka, and Cleland.

 STATEMENT OF HON. THAD COCHRAN, A U.S. SENATOR FROM THE STATE 
                         OF MISSISSIPPI

    Senator Cochran. The Subcommittee will please come to 
order.
    We welcome our witnesses at our hearing today, which we 
have convened to consider legislation to establish long-term 
care insurance programs for Federal employees and retirees, 
including members of the uniformed services.
    We are very happy to have with us two distinguished 
Senators as our first witnesses, Senator Chuck Grassley of Iowa 
and Senator Barbara Mikulski of Maryland. They have both shown 
leadership in this area and have introduced legislation on this 
subject which will be considered by the Subcommittee this 
morning.
    We know that long-term care insurance is very important to 
help individuals meet their family responsibilities and plan 
for the many challenges of caring for an elderly loved one. But 
few employers offer a long-term care insurance benefit to their 
employees and only 8 percent of Americans currently have long-
term care insurance policies.
    So, by considering a program that will offer affordable 
long-term health care is something that will be very important 
and beneficial to those who work for and are retired from 
service for the Federal Government.
    As the Nation's largest employer, the Federal Government 
can serve as a model, too, for other employers across the 
Nation who have employees with the same needs as Federal 
employees and retirees.
    So we are at a point where we can do something that will 
have, I think, some very important repercussions throughout the 
country if we recommend legislation to the Senate on this 
subject.
    Our distinguished colleague from Hawaii is the Ranking 
Minority Member of the Subcommittee. Senator Akaka, I will 
recognize you to offer any comment you would like to make at 
this time.

  STATEMENT OF HON. DANIEL AKAKA,\1\ A U.S. SENATOR FROM THE 
                        STATE OF HAWAII

    Senator Akaka. Thank you very much, Mr. Chairman. Senator 
Cochran, I want to join you in welcoming Senator Grassley and 
Senator Mikulski, who along with my good friend, Senator 
Cleland, have worked so hard in getting us to where we are 
today.
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    \1\ The prepared statement of Senator Akaka appears in the Appendix 
on page 00.
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    I also wish to express my deep appreciation to Janice 
Lachance, the Director of the Office of Personnel Management, 
for the tremendous job that she and her team has done in seeing 
these bills through the legislative process.
    I commend you all on your leadership, perseverance, and 
determination. I am proud to co-sponsor Senator Grassley's 
bill, S. 2420 and S. 2218 offered by Senator Cleland. Both 
bills offer members of the Federal family the opportunity of 
purchasing long-term care insurance.
    As the Ranking Minority Member of this Subcommittee, I am 
hopeful that we will take quick action to move legislation to 
address the long-term care insurance needs of the 13 million 
individuals who will be eligible for this benefit.
    Mr. Chairman, I will stop here and continue later.
    Senator Cochran. Thank you very much, Senator. Senator 
Collins.

  STATEMENT OF HON. SUSAN COLLINS,\2\ A U.S. SENATOR FROM THE 
                         STATE OF MAINE

    Senator Collins. Thank you very much, Mr. Chairman. I have 
a lengthy opening statement that I would like to submit for the 
record in its entirety.
---------------------------------------------------------------------------
    \2\ The prepared statement of Senator Collins appears in the 
Appendix on page 00.
---------------------------------------------------------------------------
    I would like to make just a few comments. I want to start 
by thanking you for holding this hearing on this important 
issue, and also commend Senator Akaka and yourself, Mr. 
Chairman, and our two colleagues for their leadership on this 
issue.
    I am also pleased to note that we will be hearing from the 
Director of the Office of Personnel Management, Janice 
Lachance, who is from the State of Maine, so I am sure she will 
have a lot of wisdom to share with us on this issue.
    This is such an important issue. Long-term care is the 
major catastrophic health care expense faced by older Americans 
today. These costs are only going to increase as the baby 
boomer generation ages.
    We know that nursing home costs range from $40,000 to 
$70,000 a year, so a chronic illness requiring long-term care 
can easily bankrupt a family and result in taxpayers having to 
pick up the tab through the Medicaid program.
    Unfortunately, many Americans mistakenly believe that 
Medicare or their private insurance policies will cover the 
costs of long-term health care should they develop a chronic 
illness or a cognitive impairment such as Alzheimer's Disease.
    But, if they don't have specific long-term care insurance, 
that isn't the case. Too many Americans don't discover that 
they lack this kind of coverage until they are faced with the 
prospect of placing a frail parent or a loved one in a nursing 
home and then face the shocking realization that they will have 
to cover the costs themselves.
    During consideration of the patient's bill of rights I 
offered an amendment which was adopted by the Senate to expand 
the tax deductibility of long-term care insurance to encourage 
more Americans to purchase it.
    This provision, which is currently pending in conference, 
would permit individuals who purchase long-term care insurance 
on their own without an employer subsidy to deduct 100 percent 
of the costs.
    I am also very pleased to have joined Senators Grassley, 
Mikulski, Cleland, and Akaka last month in introducing the 
Long-Term Care Security Act which is before this Subcommittee 
today.
    I want to mention that I first became interested in this 
issue when a former colleague of mine at Hudson College talked 
to me about the enormous burdens that his family was facing 
when his sister, a retired civil servant, was placed in a 
nursing home and they discovered that they had no coverage.
    So, I think it is a common occurrence and indeed the 
legislation before us would help over 43,000 Mainers and their 
families who would be eligible for the long-term care coverage 
provided under this legislation.
    So, again, I want to thank you, Mr. Chairman, for shining a 
spotlight on this important issue. I do hope that we will move 
legislation through the Senate this year. Thank you.
    Senator Cochran. Senator Grassley, you may proceed.

 STATEMENT OF HON. CHARLES E. GRASSLEY,\1\ A U.S. SENATOR FROM 
                       THE STATE OF IOWA

    Senator Grassley. I thank Senator Mikulski for being here 
with me as we speak about this bill. Her presence, as well as 
references already made by Members of this Subcommittee to this 
being a consensus bipartisan approach have been well-stated and 
I won't repeat those.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Grassley appears in the 
Appendix on page 00.
---------------------------------------------------------------------------
    We all know how expensive long-term care is. As chairman of 
the Committee on Aging, we have had lots of hearings on this 
issue. This sort of insurance bill is one way to help meet 
those costs because long-term care is so labor intensive and 
expensive.
    I am interested in easing the fears associated with the 
long-term care. Insurance is an important way to build peace of 
mind. Long-term care insurance is increasingly available. It 
allows individuals to buy a policy that will cover their costs 
if they need long-term care.
    The younger the person, the lower the premium, so it pays 
to plan early. Despite its value, long-term care insurance is 
just now catching on. You said, Mr. Chairman, only 8 percent. 
That is probably 8 percent more than 10 years ago.
    The spark hasn't turned into a flame. Many Americans don't 
realize that there are products available. Sometimes they 
presume incorrectly that the government is going to cover their 
long-term care insurance. That obviously can happen through 
Medicaid, but first there's a process of impoverishing one's 
self to take advantage of that, which isn't a very good 
situation for those who are left behind.
    So, the question for policy makers is: How do we promote 
long-term care insurance? It makes sense to start with large 
employers. The Federal Government is an example. Insurance 
premiums are often group-based, the larger the group paying the 
insurance, the cheaper the rates for each participant.
    The Federal Government should help its employees to get 
long-term car insurance being a good employer. The bill that 
Senator Mikulski and I introduced would put the Federal 
Government's purchasing power to work. This legislation allows 
the government to negotiate group rates for long-term care 
insurance.
    Our bill would offer Federal employees a way to buy long-
term care insurance for themselves and their families at 
affordable, reasonable rates.
    From every indication, Federal employees would welcome this 
opportunity. Then, I am not going to read three examples that I 
have from constituents in my State that show how they would 
benefit from this, but that will be included in the record.
    These Iowans deserve credit for being aware of and informed 
about the potential financial risk associated with long-term 
care.
    Today, there are more than 20 million families who are 
caring for a family member at home with long-term care needs. 
Compare this number to just one million nursing home residents. 
Clearly, families are the experts when it comes to long-term 
care. These families know first-hand about the financial and 
emotional challenges that accompany long-term care.
    Unfortunately, in far too many cases families are 
unprepared to cover the cost of long-term care and find 
themselves facing financial devastation. We need to learn from 
these experiences and we need to take steps now to help 
families better prepare for long-term care.
    The enactment of this bill that we are discussing today is 
an important first step. As a leading employer, we have the 
opportunity now to help millions of American families plan 
responsibly for their retirement and gain the security that is 
necessary for achieving a high quality of life in retirement 
years.
    But there is a subsidiary benefit of this legislation that 
I want to emphasize: The Federal Government can and should set 
an example for other employers as to the importance of long-
term care in the lives of American families everywhere.
    Mr. Chairman, I thank you for holding today's hearing. I 
look forward to continuing to work with the bipartisan 
consensus group and expanding that group so that we can provide 
long-term care for Federal employees and set an example for 
other employees around the country.
    Senator Cochran. Thank you, Senator Grassley.
    Senator Grassley. If it is not going to make anybody mad, I 
would like to go visit with Senator Lott now. I've got an 
appointment with him.
    Senator Cochran. I am sure he would benefit from your 
visit.
    Senator Mikulski. Is that how we are going to do a 
bipartisan prescription drug benefit?
    Senator Cochran. Thank you, Senator, for being here to help 
us understand this legislation. You have been a strong leader 
as chairman of the Committee on Aging and in other ways you 
have been a proponent of this legislation. We appreciate your 
leadership.
    Senator Grassley. Thank you, Mr. Chairman.
    Senator Cochran. Senator Mikulski.
    Senator Mikulski. Mr. Chairman, I want to thank you for 
this hearing. Working with Senator Grassley on this bill has 
really been, I think, what bipartisan cooperation is all about.
    What he brought to the table in our conversation was his 
many years and long-standing record on adequacy for the 
elderly, his experience on the Finance Committee, his belief 
that there needs to be a relationship with the private sector, 
not a new government insurance policy, but linkages.
    He was just a wealth of knowledge and a well of courtesy 
and civility and I really do appreciate our mutual 
participation in this.
    Senator Grassley. You are very kind. Thank you.
    Senator Cochran. Thank you very much. Senator Mikulski.

STATEMENT OF HON. BARBARA MIKULSKI,\1\ A U.S. SENATOR FROM THE 
                       STATE OF MARYLAND

    Senator Mikulski. Thank you very much, Mr. Chairman. I 
would like to thank you and our Ranking Minority Member, 
Senator Akaka, for holding this hearing and for all of the hard 
work on this issue.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Mikulski appears in the 
Appendix on page 00.
---------------------------------------------------------------------------
    I noted the work of Senator Grassley as we took what was 
once a national goal and turned it into national legislation.
    I would also like to thank my colleague, Senator Cleland, 
because of the expertise that he brought from the Armed 
Services Committee to our conversation about how we needed to 
have a larger umbrella for not only Federal retirees but also 
the military retirees as well, and brought that considerable 
knowledge.
    Senator Collins' work on the elderly has been well-known 
and appreciated on both sides of the aisle. I think Senator 
Collins on this very Subcommittee, sir, her work on dealing 
with senior scams really was, I think, an outstanding effort.
    Right now people have more money in their checkbook and 
their checkbook is safer because of what Senator Collins did. 
This is really what a bipartisan effort should be all about.
    So, we look forward now that we've got our plan to present 
it to you and hope that the Committee will act and we can take 
it to our colleagues on the Floor. As you know, a parallel bill 
has passed the House of Representatives and it would be just 
great if we could have this bill done by Fathers' Day. But, we 
will leave it to you to act in your wisdom.
    I like this legislation because it does four things: It 
enables Federal and military workers and retirees and their 
families to buy long-term care insurance at a group rate. These 
rates are projected to be anywhere from 15 to 20 percent below 
the current private market when you buy it as an individual.
    It would also create a model that hopefully private 
employers could use to establish their own long-term care 
insurance program.
    More importantly, or equally importantly, it will give help 
to those who practice self help by offering employees the 
option to better prepare for retirement or the possibility of 
disability or chronic illness.
    In addition to that, it reduces the reliance on Federal 
programs like Medicaid for the American taxpayer. So, this is a 
framework that really could have a substantial impact on our 
Medicaid program and a substantial impact on American families. 
It will also impact on the rate structures so that the private 
sector could flourish, but at the same time these policies 
could be more affordable.
    This legislation gives choices, flexibility, hopefully 
financial security and peace of mind, and most of all, what we 
hope is affordability. Many people, when they are faced with a 
chronic illness like Alzheimer's or Parkinson's, do not have 
many choices. They are often forced to spend down to qualify 
for Medicaid or a spouse devotes him or herself to the care of 
a loved one or an adult child quits their job to care for an 
aging or ill parent.
    Either way, the choices are quite Spartan and often quite 
expensive. I got into this whole issue because of two major 
factors that occurred in my own life. My own dear father who 
saw to the education of my sisters and I was struck by the 
ravages of Alzheimer's. This is why we were so sympathetic to 
the First Family, Mr. and Mrs. Reagan, and our first caregiver, 
Mrs. Reagan.
    But not every one is the President of the United States and 
not everyone has a daughter who is a U.S. Senator who could 
help sort through this.
    With my father, it would have been cruel to keep him at 
home because he became so disoriented and it was so difficult 
for my mother who herself was a diabetic and a person with 
angina. We had to turn to long-term care. We sought a Chevy 
Cavalier, or Lumina or Ford Taurus nursing home for our father. 
We first had to make sure it was safe because with the loss of 
his cognitive ability, we wanted to be as protective of him as 
he was protective of us.
    So we did our homework. We followed the checklist for what 
nursing home standards should be. We checked with the ombudsmen 
reports. We knew it was safe. Then we looked at the bill. It 
was $3,000 a month in the late 1980's, $36,000 a year.
    My father was a grocer. Mother worked in the store with 
Dad. Their legacy is not some big trust fund, but the respect 
of the people they served and the love of their children. We 
looked out for our father, but we watched as the family had to 
spend down their life savings.
    As I visited Dad and talked with other people in the 
nursing home, they were facing the cruel choices of spending 
down their life savings, the impoverishment of the spouse at 
home, or going into the funds that they had saved for their own 
children's college tuition. That was the sandwich generation.
    Well, we went to work and created the Spousal Anti-
Impoverishment Act that at least provided a better safety net 
so you didn't have to spend down to $3,000 with a lien on the 
family home or the family farm.
    That was a down payment on long-term care, but 
unfortunately, it was the only payment on long-term care.
    So, we believe that if middle-class families could have the 
option to purchase long-term care insurance, it would be the 
first safety net and to give help to those who practice self 
help.
    I support tax credits for long-term care insurance. That 
should be a no-brainer and we should just pass it with other 
legislation that Congress is working on.
    But at the same time, when I was approaching my own 60th 
birthday, an excellent insurance broker called me and asked, 
``You talk all this about long-term care. What are you doing 
for yourself?''
    Well, I was going to roll the dice and hope Congress was 
going to do something. Well, that and the Tooth Fairy might 
give dental care. So, I felt I'd better get with the program 
here.
    When I looked at the rates and used the kind of consumer 
education that I hope we make available to our Federal 
employees, I saw that if I could buy long-term care insurance 
before my 60th birthday, it would be one rate. Six weeks after 
that birthday, that rate would have doubled. By the time I hit 
65 it would have quadrupled, presuming no health status change.
    All of us know that once you get past that 60,000 miles, 
you need a lot of maintenance and a lot of little parts start 
to go wrong.
    Well, my sparkplugs are still firing, and I have long-term 
care insurance, and I could afford it. But I would like to make 
that available for our constituency by starting with the 
Federal Government.
    If we could create this large pool, let the private sector 
be best at what they do, and we are best at what we do, which 
is providing information and options, I think we could have a 
significant impact on the very nature of making long-term care 
insurance available and affordable to one group of people which 
we could then expand to others.
    So, this is why I would hope that we could pass this 
legislation. I think that when we deal with the issues of long-
term care we really do need public-private partnerships.
    We can't have a new government program. I don't think we 
could afford to do it. But we can have a new government 
approach that makes long-term care affordable, available and 
reliable.
    So, having said that, I would like to just urge the 
movement of our bill. I want to thank you for all of your 
courtesy and collegiality and look forward to working with you 
all the way taking this up to the bill signing.
    Senator Cochran. Thank you, Senator Mikulski, for your 
excellent statement. It was not only persuasive and eloquent, 
but entertaining as well. We appreciate your leadership, too. I 
mentioned that of Senator Grassley, but we know that you have 
been a leader in this cause and the legislation before us is 
proof of that.
    In many ways we are going to be looking to you to help us 
get this problem solved and legislation to the President, I 
hope, before Fathers Day. Is that next month? I am a father, 
but I can't keep up with all these dates.
    Senator Mikulski. It is June, about the weekend somewhere 
around June 20. So, we have a lot of time.
    Senator Cochran. That's right. There are no excuses.
    Senator Mikulski. Well, at least to move it to the Floor.
    Senator Cochran. Senator Akaka, do you have any questions 
or comments?
    Senator Akaka. Well, I want to thank Senator Mikulski for 
not only her personal but glorious statement that supports what 
we are trying to do. I want to thank you very much for your 
leadership, too.
    Senator Mikulski. You, too, sir.
    Senator Cochran. Senator Collins.
    Senator Collins. I just want to join my colleagues in 
praising Senator Mikulski for her long-standing interest in 
solving this problem. She has indeed been a real leader and she 
always brings such good personal experience to put a practical 
face on the problems facing the Senate. So, I very much 
appreciate your leadership.
    Senator Mikulski. Thank you.
    Senator Collins. And your kind words.
    Senator Mikulski. Thank you.
    Senator Cochran. Senator Cleland.

STATEMENT OF HON. MAX CLELAND,\1\ A U.S. SENATOR FROM THE STATE 
                          OF GEORGIA.

    Senator Cleland. Mr. Chairman, thank you very much. I just 
want to say that I feel like Senator Mikulski, Senator Grassley 
and I have been working on this long-term insurance question 
for a long time.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Cleland appears in the 
Appendix on page 00.
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    But its time has come. Victor Hugo once said that an 
invasion of armies could be resisted, but not an idea whose 
time has come. I particularly am pleased to work with them from 
the point of view of including the military personnel on active 
duty as well as military retirees and their families in this 
package.
    With an aging American population, the need for elder care 
and long-term care services is rapidly growing. At this time, 
Mr. Chairman, only about seven million Americans have long-term 
care insurance.
    Long-term care insurance is relatively new and has only 
been sold about 20 years. Many Americans do not realize that 
health insurance and Medicare do not cover long-term care needs 
and Medicaid covers these needs for only the impoverished with 
$80,000 or less in assets and $50 a month in income.
    It has also been reported that almost half of women in 
caregiver roles, 41 percent, quit their jobs or take family 
medical leave to care for a frail older parent or parent-in-
law.
    Consider in just 11 years the first wave of baby boomers 
turns 65. I am on the cutting edge of the baby boomers, so I am 
going to be in that category. These Americans, having worked 
for some 30 years or more tell us they now fear retiring 
because they are unable to pay for assisted living needs. They 
have good cause for worry.
    The emotional and financial burdens for the American family 
can be staggering. Very few have had the opportunity to plan 
ahead.
    We, the Members of the Senate, have the perfect opportunity 
in this legislation to help so many avoid the potential long-
term care crisis.
    The concept of long-term care insurance was introduced a 
decade ago in the 101st Congress. Yet, each session this 
proposal has met with barriers imposed by partisan issues and 
unanswered questions about how such a model would work.
    With our growing numbers of retiring Federal and military 
employees, long-term care needs have increased as a national 
priority.
    Hubert Humphrey once stated that the moral test of 
government is how that government treats those who are in the 
dawn of life, children, those who are in the twilight of life, 
the elderly, and those who are in the shadows of life, the 
sick, the needy, and the handicapped.
    As a disabled, 25-year old Vietnam veteran, I was able to 
come out of the shadows of life with the help of the military 
and the VA health care system and family and friends. But I can 
certainly understand the concerns of Americans facing the 
dilemma of long-term care.
    Long-term care can be frightening and overwhelming when one 
is unprepared with the needed resources. Among the many long-
term care insurance issues, the main areas of debate have 
centered around competition and the Office of Personnel 
Management's role in administering such a plan.
    Through our bipartisan effort, Senators Mikulski, Grassley 
and I have collaborated with OPM, the Department of Defense, 
potential beneficiaries, and the insurance industry in 
resolving these issues by creating a Federal employer-based, 
long-term care insurance program which can be a model for the 
Nation and will allow Federal employees, active duty members 
and military retirees and their families to purchase long-term 
health care insurance at 10 to 20 percent of what the market 
rate out there is now.
    The House passed this measure on May 10 of this year. I am 
very pleased that this measure now introduced in the Senate as 
S. 2420, proposes the largest employer-based long-term care 
insurance program in American history.
    It includes Federal employees, members of the military 
services, reservists, National Guardsmen and women, retirees, 
spouses, surviving spouses, parents, parents-in-law, and adult 
children.
    This program has a potential of 13 million beneficiaries. 
It is my hope, Mr. Chairman, that we not lose our momentum and 
pass this measure soon. If enacted now, it will take at least 
18 months or as long as the Year 2002 for this program to be 
fully implemented.
    Our plan proposes age-based premiums so each year we delay 
the higher the premiums that beneficiaries will have to pay.
    I urge my colleagues to move this proposal and pass the 
Federal Employer Long-term Care Insurance Program. Let's do 
more than tell working Americans to weather the storm of long-
term care.
    Let's change the climate for a brighter, more secure 
tomorrow. Thank you, Mr. Chairman.
    Senator Cochran. Thank you, Senator Cleland for your 
excellent statement and your hard work on this legislation.
    Senator Mikulski, thank you again for being here and 
leading off our hearing today with Senator Grassley.
    We are now pleased to have the Director of the Office of 
Personnel Management, Ms. Janice Lachance, as our next witness.
    We have been working with the Office of Personnel 
Management. Our staff members have met with staff members of 
that agency and others to help prepare for this hearing and 
also to prepare a legislative solution to the problem of long-
term care expenses for families who are involved with employees 
of the Federal Government, both military and civilian.
    Ms. Lachance, welcome. We appreciate your being here and 
providing us with the statement which we have agreed to put in 
the record in full.
    We hope you will make any summary comments that you think 
are appropriate. You may proceed.

STATEMENT OF HON. JANICE LACHANCE,\1\ DIRECTOR, U.S. OFFICE OF 
                      PERSONNEL MANAGEMENT

    Ms. Lachance. Thank you, sir. I am so grateful to all of 
you for holding this hearing, but also, for all of the work 
that every one of you has put in to get us to this point.
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    \1\ The prepared statement of Ms. Lachance appears in the Appendix 
on page 00.
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    It is a truly remarkable collaborative effort among the 
administration, bipartisan Members of Congress and the Senate, 
and really, a broad range of stakeholders and the industry to 
get us to this point. I am very, very grateful for all of you.
    For too many in this country old age has become a time when 
getting ahead amounts to barely staying even. We are all here 
to change that for millions of Americans by building the kind 
of statutory framework that will provide long-term care 
insurance and security.
    The fact that we are here today proves that people are 
coming to terms with the very real fact that the population of 
the United States is getting older and it is a population that 
will need long-term care options.
    Families today provide 80 percent of the long-term care 
needed by older persons. If I could put that in perspective for 
you, you and your family can reasonably expect to spend more 
time caring for an older relative than caring for your own 
children.
    This is an issue that is very, very dear to my own heart. I 
know Senator Collins talked about the 43,000 Mainers who would 
benefit from this.
    There are two that I particularly care about. They are my 
parents in Saco. I think about how fortunate I am that they are 
living long, full lives. But I do worry, as do all children my 
age, how they are going to deal with the spiraling increases in 
long-term care costs if and when they need it.
    And how are all of us going to deal with the heart-
wrenching choices we are sometimes forced to make to provide 
the care and comfort our loved ones will need in their later 
years. How can we keep them from being crushed by debt because 
of illness? How can we make sure they get the right care for 
their needs and that it is quality care? How can we make sure 
they get all the long-term care they need?
    I would like to share with you, if you have a moment, a 
story that illustrates this point. Earlier this year I received 
a letter from the wife of a Federal retiree with 30 years of 
government service. He was a veteran. Because the retiree 
suffered a series of strokes that required extensive and very 
expensive hospitalization and therapy, the couple exhausted 
their FEHBP benefits and decided to apply for Medicaid.
    Unfortunately, under Medicaid guidelines he was denied 
coverage because the family was over income and over assets. In 
fact, their retirement income alone disqualified them from 
Social Security SSI and Disability.
    Desperate for long-term care, the couple put their home up 
for sale, sold their cars, and began using up their retirement 
income, all in an effort to become poor enough to qualify for 
long-term care coverage.
    Now, we have already contacted their health plan and asked 
them to look into other options to assist them right now 
because they need the help right now. They and millions of 
families like them will need the kind of care you are 
discussing here today for many, many years to come.
    As the Director of OPM, I can tell you that far too many 
members of the Federal workforce are in the very same 
situation, struggling with the challenges of caring for those 
they love who require special medical attention over a long 
period of time now.
    So, for some time OPM has been working with you and other 
stakeholders to make long-term care insurance available for 
current and retired Federal retirees, military personnel 
retirees and their eligible family members, in short, for the 
people we love.
    Under H.R. 4040, OPM would have the authority to design a 
long-term care insurance package that offers an array of long-
term care services to meet the needs of the broadest population 
possible.
    This proposal would also provide the flexibility to 
contract for benefits with one or more private carriers. This 
means that it would give us the flexibility needed to obtain 
the best value for the entire Federal family. Contracts will be 
awarded the right way, solely on the basis of contractor 
qualifications, price, and reasonable competition.
    By using the size of the Federal family, some 13 million 
people, as leverage, we will be able to provide this insurance 
at group rates, expected to be 15 to 20 percent lower than 
individual rates. So, we believe it will be a very good deal, 
indeed.
    Now, once this proposal is adopted, OPM intends to run a 
campaign to educate possible participants about the benefits of 
buying this insurance and this particular program.
    We will also solicit and evaluate potential insurers, 
choose a contractor, and then hold an open enrollment period. 
Our hope is that by making private long-term care insurance 
available to the Federal family at negotiated group rates, we 
will once again serve as a model to other employers across the 
Nation.
    We will also heighten our Nation's awareness of the growing 
need for people to start planning for their own future long-
term care needs.
    We believe the House bill and its companion Senate bill and 
S. 2218 all offer OPM the legislative framework necessary to 
launch a successful long-term care insurance program.
    I urge you to give these bills your earliest consideration 
and reach consensus so that this legislation can be enacted as 
quickly as possible.
    Long-term care insurance will greatly enhance the quality 
of life for both Federal employees and members of the Armed 
Services. It will let them care for their aging parents and 
will let their children care for them with dignity and 
financial security. It is the right thing to do and it is the 
right time to do it.
    At this time, Mr. Chairman, I will be glad to answer your 
questions.
    Senator Cochran. Thank you very much, Ms. Lachance.
    Under the S. 2420, your office is authorized to contract 
with one or more qualified carriers to provide long-term care 
insurance policies. OPM is also required to ensure that each 
resulting contract is awarded on the basis of contractor 
qualifications, price and reasonable competition.
    Can you explain to us how you expect the contracting 
process to work under these provisions?
    Ms. Lachance. Certainly, sir, I will be glad to do that. We 
have worked closely with a number of stakeholders and the 
insurance industry to talk with them about their capability, 
their willingness to participate in this program. We have found 
them to be a very willing partner in all of this.
    We spend a significant amount of time, once the legislation 
is passed, consulting with all of these groups, deciding who 
would be a part of this pool specifically, and then coming up 
with the proposal that insurance companies or a consortium of 
insurance companies could bid on.
    At that point we will evaluate the proposals and sit down 
with those who we feel are qualified and begin a negotiation 
process to make sure those who we represent have the best 
possible deal and the best benefits possible at the most 
reasonable rates.
    Then, at that point only would we award the contract.
    Senator Cochran. The legislation, S. 2420, also requires 
OPM to ensure reasonable competition among insurance companies 
interested in bidding for long-term care insurance contracts.
    How would you ensure that that occurs?
    Ms. Lachance. Again, in working with the insurance 
industry, we are going to make sure that all the insurance 
companies who are interested in this will be at the table when 
we discuss the proposal, the prospects, the legislation, and 
work with them to ensure that there is adequate competition and 
adequate notice of what we are looking for so that they can 
come forward with their best possible products.
    Senator Cochran. Included in the provision is the awarding 
of a contract on the basis of qualifications as well. How will 
you judge the qualifications of each contractor?
    Ms. Lachance. We want to make sure that this is a program 
that qualifies under the Internal Revenue Code for health long-
term care benefits, so we are going to use the standards that 
they use.
    In addition, we are going to make sure that each insurance 
company who is involved in this can do business in all 50 
States; that they include adequate consumer protections in 
their proposal; that they take on all of the risks; and that 
they promise to keep the money that is collected from this 
program in a separate pool, separate from any other funds that 
they collect.
    Senator Cochran. There are some private sector employers 
who have long-term care contracts for their employees. Have you 
had an opportunity to compare the process you just outlined to 
the process used by private sector employers?
    Ms. Lachance. We have. We have talked to some consultants 
who have worked extensively with private sector companies who 
have offered this, as well as the Department of Health and 
Human Services who has extensive experience in this area.
    We are looking at a similar approach, but obviously ours 
has to be different because it is so much bigger. We feel it is 
important to work with all of the stakeholders and make sure 
that it is the kind of process that really results in the 
contract going to the best company or companies and also that 
it has the best benefits for those we represent.
    Senator Cochran. I am going to ask you another question 
about S. 2218, a companion bill that we are reviewing this 
morning along with S. 2420.
    Then I am going to yield to my good friend, Senator Akaka 
for any questions that he might have.
    But under S. 2218 OPM is authorized to contract with a 
primary carrier with respect to the assumption of risk, no less 
than two carriers to act as re-insurers, and as many carriers 
as necessary to administer the program.
    My questions are: How would the contracting process work 
under this assumption of risk situation and does this create 
any particular problem for OPM?
    Ms. Lachance. Mr. Chairman, we are probably more 
comfortable with a program that is more flexible or as flexible 
as possible because it is something that has never been done 
before.
    But we are confident that we could come up with a good 
product for Federal employees and retirees, for the entire 
Federal family with whatever bill is ultimately enacted.
    We are comfortable with all the approaches.
    Senator Cochran. Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    The Office of Management and Budget issued a Statement of 
Administration Policy prior to the House taking up its long-
term insurance bill under suspension just last week.
    There were several issues raised by the SAP that I would 
like to ask you about today. One issue is the application of 
appropriate accounting practices and principles to protect the 
interests of beneficiaries under the long-term care contracting 
program.
    The question is, how will you assure that participating 
carriers adhere to appropriate common practices and principles?
    Ms. Lachance. Thank you, Senator. We believe that there 
will be enough information in the program to ensure the 
financial integrity of the contract and enable us to monitor 
how the program is being administered.
    Cost accounting standards, of course, are very important. 
That is one way at getting at that information. But even 
without that provision in the bill, we believe we would still 
be able to have enough information to do a good job on behalf 
of our beneficiaries.
    Senator Akaka. Our Federal work force average age is 46 
years old. Not only are they thinking about their own 
retirement, but a good number of them are already caring for 
aging parents or relatives.
    As you mentioned, about 80 percent of persons over the age 
of 65, who need assistance, receive help from relatives.
    The question concerns appropriations. S. 2420 does not 
authorize appropriations for the implementation and 
administration of the long-term care insurance program. Rather, 
it uses the employees life insurance fund for these purposes.
    How will OPM limit exposure to the fund's resources and 
maintain the distinction between the long-term care 
administrative account to be created with the fund and the fund 
itself.
    Ms. Lachance. Certainly. We feel that either approach would 
work well for us. We obviously would prefer an appropriation 
because that is the way we are all accustomed to doing 
business. But we do feel as though we can set up the kind of 
accountability that would allow us to keep track of every 
dollar that is taken out of the life insurance fund to get this 
program launched.
    The way the program is launched is going to be critical to 
its success. So, we are comfortable that having those resources 
at the ready for us to invest in this kind of start-up and they 
will be critical to a successful program. We think we will be 
able to keep track of every dollar and make sure that it is all 
reimbursed within the first year by the carriers once the 
program is off the ground.
    Senator Akaka. Well, Mr. Chairman, I will give up my time 
for questions here. May I ask that my full statement be added 
to the one that I made earlier? \1\
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    \1\ The prepared statement of Senator Akaka appears in the Appendix 
on page 00.
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    Senator Cochran. Absolutely, your statement will be made a 
part of the record as will the statements of Senator Collins 
and Senator Cleland. We thank you for your participation in 
this.
    Let me ask you, Ms. Lachance, about this issue. Under S. 
2420, the master contract expires in 7 years. Under S. 2218 the 
contract term is 5 years. What would be the procedure for 
making the transition to a new carrier or carriers in the event 
a change occurs at the end of a contract term?
    Ms. Lachance. Senator, I think what we would have to do at 
the time the term expires would be once again assess how 
successful the program has been. We are going to have help in 
that from GAO, according to all versions of the bill.
    We are also planning on spending a lot of time with our 
customers to make sure that they are satisfied, not only with 
the benefits, but with the service they are getting from the 
carrier.
    Then we will be able to evaluate whether or not a change 
has to be made and then we would go ahead with the open process 
and the open competitive contracting process once again.
    Senator Cochran. Is there any necessity for a statutory 
provision dealing with the termination by an insurance carrier 
before the end of its contract period?
    Ms. Lachance. In our conversations with the industry, we 
have not really heard anything like that. I will be glad to 
double-check that and get back to you for the record if we do 
think we need something. But it has never been an issue that 
the insurance companies who we have been working with have felt 
that they could not fulfill the terms of the contract.

                       INFORMATION FOR THE RECORD
          There is no need for a statutory provision relating to the 
        termination of an insurance carrier prior to the end of the 
        contract period. Termination of contract provisions will be 
        incorporated in the master contract and in implementing 
        regulations. Both the contract and regulations will provide for 
        a notification period prior to termination of the contract and 
        a continuity of services provision.

    Senator Cochran. What will OPM do to ensure that there are 
no adverse consequences to policy holders when there is a 
change of insurance carriers at the end of a term?
    Ms. Lachance. We are going to make sure that all of the 
consumer protections that are in place when somebody buys a 
policy or purchases a policy will stay in place throughout the 
life of their policy.
    People have to be able to plan. Obviously, there may be 
some changes. The landscape of long-term care itself may 
change, so we will want to keep up with that.
    But we think there are some fundamental consumer 
protections that have to be a part of every contract that we 
issue, no matter who the carrier is. That will be what the 
customer is buying, this policy, not necessarily a relationship 
with the particular contractor.
    Senator Cochran. There are State laws and licensing 
procedures and I am sure that they are different in some 
respects from State to State.
    Given the different capabilities of States to oversee 
insurance carriers, how will OPM ensure that the qualified 
carriers are financially sound?
    Ms. Lachance. We will be working continuously with them to 
make sure they have the adequate resources to make good on 
whatever promises they made in the process. That is going to be 
an integral part of our role.
    We want to work closely with Members of Congress and 
Congressional committees, as well as GAO, to make sure that 
this is the best possible program it can be. Obviously, that is 
a fundamental requirement for success.
    So, we will be very heavily involved in making sure that 
these companies have the resources they need to do this 
appropriately.
    Senator Cochran. Given the financial conditions of a 
carrier that might change during the contract, do you see any 
need for a requirement for OPM to guarantee the financial 
stability of a carrier?
    Ms. Lachance. I don't anticipate that, sir.
    Senator Cochran. What contingency or claim reserve 
requirements would OPM require of carriers who do not have 
adequate resources to fulfill their obligations to the policy 
holders?
    Ms. Lachance. I know we would require adequate reserves as 
we do in the FEHBP. However, I am not sure we have really come 
to any specific conclusions on that, given the fact that we 
really are just starting the conversations on this.
    Senator Cochran. Senator Akaka, I have several other 
questions to ask. I think I am going to submit some of 
these.\1\
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    \1\ The questions and responses from Senator Cochran appears in the 
Appendix on page 00.
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    If you have any other questions, I would be glad for you to 
ask them.
    Senator Akaka. Thank you for this opportunity. I should 
tell you about my State of Hawaii. Thirteen point two percent 
of the population at present are 65 years and older in Hawaii.
    Although Hawaii enjoys one of the highest life 
expectancies, 79 years compared to a national average of 75 
years, the State's rapidly aging population will greatly affect 
available resources for a long time. So, this issue is very 
important for my State.
    My question is: Are there any estimates of how much the 
Federal Government has lost in terms of lost time, employee 
absences and lost productivity due to long-term related 
activities and expenses?
    Ms. Lachance. I wish I had the answer to that, Senator. I 
really don't know. We try, as you know, to accommodate family 
situations. We try to be a model not only in this area but in 
the health insurance area, but also in family friendly 
policies.
    I know that people are very grateful and enthusiastic about 
those benefits and flexibilities they have, but I am afraid I 
don't have that kind of estimate.
    It is really through anecdotal evidence and people talking 
with us about why they need leave under the Family Medical 
Leave Act, for example, that we would know how much it is 
needed and how much it is being used.
    Senator Akaka. How will the premium payments be handled for 
policy holders who do not use direct deposit for their payroll 
or retirement benefits? Will this add extra costs to the 
program?
    Ms. Lachance. I don't think it would add extra costs, 
Senator, because I think it is pretty routine now for us to be 
able to pay our bills through some sort of debit system right 
out of our checking accounts. That is what I would anticipate 
would be established for people who are not Federal employees 
or do not get a check or compensation from the Federal 
Government.
    Senator Akaka. What happens to long-term care insurance 
policies for active Federal employees or members of the Armed 
Services who leave government employment or separate from the 
service? Will they be able to take the policies with them? If 
so, how would that work?
    Ms. Lachance. Yes, sir, they would be able to keep the 
policy with them. We would just have to change the way they 
make the monthly payment or the annual payment, however they 
have arranged to do that, and just make sure that they have 
some sort of direct withdrawal from their checking account so 
that the policy does not lapse. It would be paid directly to 
the insurance carrier.
    Senator Akaka. Well, it is essential that the Federal 
Government, as the Nation's largest employer, offer its 
employees choices to provide for their retirement by ensuring 
financial stability in the future.
    Long-term care insurance is one such option. There are 
already some active Federal employees and retirees who have 
long-term care insurance. Will these people be able to transfer 
their individual policies to the Federal group program?
    Ms. Lachance. We are going to look into that, Senator. We 
are going to do everything we can to make sure that people who 
already have a policy get the benefit of the money they have 
already paid in.
    It may depend on the individual policies, but we are going 
to spend a significant amount of time to make sure that those 
who want to switch over to the Federal plan get as much benefit 
out of whatever amount of money they have paid in as premiums 
to some other carrier or under some other policy.
    Senator Akaka. What about policy holders who begin to pay 
on their policy but for any number of reasons, such as the 
inability to pay or unforeseen financial expense stop paying 
the premium?
    Are there protections for individuals who have paid into 
policies and would they have a percentage of the money returned 
to them?
    Ms. Lachance. I am not sure that there would be any money 
coming back. But let me tell you about one of the consumer 
protections that we anticipate having in the program.
    That is non-forfeiture protection. What would happen is the 
insurance carrier would work with that person to evaluate what 
the value of the premiums that they have paid in is and make 
sure that they have benefits equal to that amount.
    So, there may be a shorter benefit period as a result, but 
they will get benefits for what they have paid in. Nobody is 
going to lose any money if they choose to walk away from the 
policy or decide they can no longer pay for it.
    Senator Akaka. Would an insurer be able to cancel the 
policy? If so, under what conditions?
    Ms. Lachance. I could get back with you on the record for 
that. The only reason that I can anticipate, and with the kinds 
of consumer protections that we are looking at, Senator, the 
only reason that a policy could be canceled would be for non-
payment of premiums.
    Senator Akaka. I see. Well, My final question, Mr. 
Chairman, has to do with tax. Federal employees health 
insurance premiums will soon be considered pre-tax income. Will 
long-term care insurance be offered under a premium 
conversation program whereby employees can elect to pay 
premiums on a pre-tax basis?
    Ms. Lachance. Unfortunately, the Internal Revenue Code 
specifically prohibits that, so we will not be able to do that. 
But that may be the next phase of our effort, to provide long-
term care for Federal employees.
    Senator Akaka. Well, thank you very much for your 
responses. I wish you well.
    Senator Cochran. Thank you, Senator.
    Ms. Lachance, one of the benefits of employer-provided 
group long-term care insurance is that the premiums for the 
policy are typically less expensive than the premiums for a 
similar individual policy purchased on the open market.
    We have heard this morning that the group rates under the 
Federal program are expected to be 15 to 20 percent lower than 
individual rates. How confident are you that OPM can achieve 
rates that are 15 to 20 percent lower than the open market?
    Ms. Lachance. I am very confident, sir. That estimate comes 
from a number of sources. We have worked extensively with 
consultants and people who work in this area, experts who have 
consistently come up with this kind of discount rate for our 
program. And we have talked with the insurance carriers who 
fully believe this is doable.
    So, we are excited about the prospect and we think it will 
make a big difference in affordability for a number of people 
who might have been putting off this decision.
    Senator Cochran. Employer-sponsored long-term care 
insurance is a relatively new concept in employee benefits. 
There is not a great deal of experience with this insurance 
product.
    As the product matures and develops over time, there is the 
possibility that the cost to the carriers of providing the 
insurance may increase or decrease necessitating a change in 
premiums.
    What will the process be for considering premium 
adjustments during the term of a master contract with a carrier 
or multiple carriers?
    Ms. Lachance. Our hope is to have that established in the 
initial contract so that people will know what they are getting 
into when they make this decision to purchase. I don't have any 
specifics now because we are really just in the discussion 
phase of this.
    But we believe that we can come up with a way that is fair 
to the carrier, but also gives the customer all of the 
protections they need so that they don't have to fear or be 
concerned about any large premium increases.
    In addition, we also want to make sure that we have a 
common consumer protection in there that talks about contingent 
non-forfeiture, that if premiums go up too quickly or beyond a 
certain percentage, that in fact the beneficiary or the 
policyholder could stop paying on the policy, could stop paying 
premiums, but still retain some measure of benefits for the 
amount of money they have already paid in.
    Senator Cochran. Will OPM take a role in negotiating these 
premium adjustments or adjustments in coverage? How will that 
be handled?
    Ms. Lachance. I believe we will be involved.
    Senator Cochran. While the premiums for this program will 
be paid 100 percent by the participants in this program, OPM 
will have to create an administrative infrastructure to 
implement and administer the program.
    How many employees do you think it will take for OPM to 
administer the program?
    Ms. Lachance. We run the Federal Employees Health Benefits 
Program with what is considered to be just a handful of 
employees. I am sure we could do the same kind of efficient job 
with this program as well.
    Senator Cochran. Do you have any estimates on the cost of 
the administration at this point?
    Ms. Lachance. We are looking at about $1 million a year to 
sustain the program.
    Senator Cochran. How does that compare with the Federal 
Employees Health Benefit Program?
    Ms. Lachance. I will have to get back to you on that.
    Senator Cochran. OK. You can answer that. That was a 
surprise question. My staff didn't write that.
    Ms. Lachance. You are allowed.
    Senator Cochran. Surprise. It is not a ``gotcha'' kind of 
thing. It just occurred to me.
    Ms. Lachance. Happily, somebody who runs the program is 
here and says it is $20 million to run the FEHBP.
    Senator Cochran. That is more than a handful then; isn't 
it?
    Ms. Lachance. Well, that is also the entire cost. But we 
have about 176 employees.
    Senator Cochran. Given the varying financial resources of 
perspective enrollees and the potential eligibility of some for 
Medicaid benefits, long-term care insurance may not be a sound 
expenditure of funds for everyone.
    In addition, some organizations recommend that long-term 
care insurance not be purchased until an individual is 50 or 60 
years old.
    What role will OPM and the participating carriers play to 
ensure that all respective enrollees are furnished the 
necessary information to evaluate the advantages and 
disadvantages of obtaining long-term care insurance?
    Ms. Lachance. We plan an extensive education campaign, 
Senator. Every study that has looked at the take-up rates and 
how long-term care insurance policies have been implemented 
includes a very significant education process and information 
process.
    So we want to use every medium. We want to make sure that 
all of the benefits experts in the agencies across the 
government have the information they need to answer questions.
    We are going to use electronic media. We are going to use 
paper. We are going to use every possible way to provide 
information to those who have to make this important decision.
    We expect a typical take-up rate which is about 3 to 6 
percent, although we would like to see it go higher than that. 
But I do believe that we will be able to provide the kind of 
education that people will need to make the kinds of choices 
that you are describing.
    Senator Cochran. Under S. 2420, OPM has the authority to 
design the long-term care insurance package, including which 
benefits are offered. How will you design the benefit package?
    Ms. Lachance. We have a number of hallmarks, Senator, and 
values we want to make sure are reflected in this. First of 
all, we want it to be as flexible as possible. We understand 
that there are many different circumstances for those who need 
this kind of coverage.
    We have talked a lot here about people who prefer to stay 
with their families. Senator Mikulski described the situation 
where they felt her father had to be in a nursing home. We want 
it to be as flexible as possible so that people can get the 
right kind of care in the right setting at the time they need 
it. That is the first issue.
    The second issue is to make sure that all of the 
appropriate consumer protections are included in the policy. We 
are using as our benchmark the National Association of 
Insurance Commissioners. They have done a lot of good work in 
this arena and have come up with a set of standards that they 
protect the consumer.
    We want to make sure this is the floor for what we design 
and that the people we cover have at least those protections. 
Those are the two principal points that we are going to try to 
achieve.
    Senator Cochran. Will there be a lot of optional benefits 
as well as required benefits to be provided by the carrier?
    Ms. Lachance. That is typically how it works. I would 
suspect that would happen in this case as well. People can buy 
a policy and then choose to add on and pay extra for additional 
benefits they feel they may need.
    Senator Cochran. Senator Akaka, I am planning to submit the 
rest of the questions that I have.\1\ If you have any other 
questions, please feel free to ask them.
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    \1\ The questions and responses from Senator Cochran appear in the 
Appendix on page 00.
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    Senator Akaka. I think she is answering so well. We have 
talked about putting the greatest number of enrollees together 
to decrease the cost.
    In order to be successful in the Federal long-term care 
insurance program obviously you would seek the greatest number 
of enrollees.
    How would medical underwriting be handled under this 
program?
    Ms. Lachance. Yes, sir. We have had a number of discussions 
with the carriers on this. We would like to keep underwriting 
to a minimum, at least a minimum for active Federal employees 
and active members of the military.
    Obviously, you have to balance underwriting requirements 
with providing an affordable, quality product. So, we want to 
be as inclusive as possible while maintaining the product's 
affordability. We think we can achieve both because of the size 
of our community and our family.
    Senator Akaka. Affordability is always a big question. In 
1997, the average annual private market premium for an 
individual aged 50, who purchased a base plan with no inflation 
protection or non-forfeiture benefit was $385, according to the 
Health Insurance Association of America. That same person, with 
inflation protection and non-forfeiture benefit, would pay 
$1,110 per year. What is inflation protection and how is it 
computed?
    Ms. Lachance. Inflation protection means that what you are 
paying for today will have the same meaning and the same 
redemption value when you need the benefit, perhaps 30, 40, or 
50 years from now.
    We plan on offering it because we think it is important. 
What you don't want to do is fall into a trap where you are 
paying for a certain amount of benefits, for example, $100 a 
day, and then by the time you need the benefit, that $100 is 
meaningless.
    We want to make sure people are informed about these 
choices that they have. They will have to weigh their own 
individual circumstances to see whether it is worth it to them 
or not to purchase this kind of inflation protection.
    Senator Akaka. Am I correct in assuming that any Federal 
plan would have to have inflation protection and non-forfeiture 
benefits?
    Ms. Lachance. Yes, sir. It is appropriate to assume that 
will be part of the package that will be available for 
purchase.
    Senator Akaka. In order for the government's program to be 
successful, there must be an adequate take-up rate. Employees 
must feel comfortable with the products offered. How will OPM 
educate employees and annuitants as to the need for long-term 
care insurance and an individual's suitability for the product?
    Ms. Lachance. We plan on having a very, very significant 
education campaign. We will be working with the Department of 
Defense to reach their communities and really try to get beyond 
the typical borders that we have with Federal employees and 
retirees.
    We are going to use every possible medium. We are going to 
try to have an interactive tool on our Website that will walk 
people through the suitability of the product and whether it is 
beneficial for them to have this kind of insurance, and at what 
point in their lives they may want to buy it.
    We will be using traditional paper. We will use CD-ROMs. We 
are going to train the trainer so that people who are involved 
in this process who work at various agencies across government 
will have the information they need to answer questions from 
potential customers.
    So, we plan a full court press on the education front, 
knowing there is a direct correlation to the number of people 
who will ultimately purchase the policy.
    Senator Akaka. Again, I thank you very much for your 
responses. I can't help but recall in your statement that long-
term care insurance is the answer to the kind of retirement 
problems that we have today.
    Ms. Lachance. Thank you.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Senator Cochran. Thank you very much, Senator Akaka, for 
your participation in this hearing.
    Ms. LaCHANCE, thank you and the members of your staff for 
your hard work in helping acquaint us with this legislation, 
the House-passed bill as well as your perspective on the 
provisions of the Senate bills that have been introduced and 
that are the subject of this hearing.
    I am confident that what we have learned today will enable 
us to report out a bill at an early date. We hope that we can 
work out final legislation to submit to the President which he 
can sign and provide a new program for Federal employees that 
will be very beneficial to them and to their families.
    Thank you very much. The hearing is adjourned.
    [Whereupon, at 11:14 a.m., the Subcommittee was adjourned, 
to reconvene at the call of the Chair.]
                            A P P E N D I X

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