[Senate Hearing 107-106]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 107-106

       LONG-TERM CARE: WHO WILL CARE FOR THE AGING BABY BOOMERS?

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             JUNE 28, 2001

                               __________

                            Serial No. 107-9

         Printed for the use of the Special Committee on Aging


                   U.S. GOVERNMENT PRINTING OFFICE
74-686                     WASHINGTON : 2001

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                       SPECIAL COMMITTEE ON AGING

                  JOHN B. BREAUX, Louisiana, Chairman
HARRY REID, Nevada                   LARRY CRAIG, Idaho, Ranking Member
HERB KOHL, Wisconsin                 CONRAD BURNS, Montana
JAMES M. JEFFORDS, Vermont           RICHARD SHELBY, Alabama
RUSSELL D. FEINGOLD, Wisconsin       RICK SANTORUM, Pennsylvania
RON WYDEN, Oregon                    SUSAN COLLINS, Maine
BLANCHE L. LINCOLN, Arkansas         MIKE ENZI, Wyoming
EVAN BAYH, Indiana                   TIM HUTCHINSON, Arkansas
THOMAS R. CARPER, Delaware           PETER G. FITZGERALD, Illinois
DEBBIE STABENOW, Michigan            JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              CHUCK HAGEL, Nebraska
                    Michelle Easton, Staff Director
               Lupe Wissel, Ranking Member Staff Director

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening statement of Senator Russell Feingold....................     1
Statement of Senator Thomas Carper...............................     3
Statement of Senator John Breaux.................................     4
Statement of Senator Larry E. Craig..............................    17

                                Panel I

Hon. Tommy G. Thompson, Secretary, Department of Health and Human 
  Services.......................................................     5
David F. Durenberger, Chairman, Citizens for Long-Term Care......    24
Carol V. O'Shaughnessy, Specialist in Social Legislation, 
  Congressional Research Service.................................    68
Robert B. Blancato, Executive Director, The 1995 White House 
  Conference on Aging; and President, Matz, Blancato & 
  Associates, Inc................................................    87

                                 (iii)

  

 
       LONG-TERM CARE: WHO WILL CARE FOR THE AGING BABY BOOMERS?

                              ----------                              


                        THURSDAY, JUNE 28, 2001

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 11:20 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. John Breaux 
(chairman of the committee) presiding.
    Present: Senators Breaux, Feingold, Carper, and Craig.

           OPENING STATEMENT OF SENATOR RUSS FEINGOLD

    Senator Feingold. We will call the committee come to order.
    The chairman, Senator Breaux, is on his way from the floor 
and is very involved with the patients' bill of rights. He will 
be here shortly, but I would like to begin the hearing.
    This is the first in a series of hearings that Chairman 
Breaux has called on the subject of long-term care, and I am 
just delighted that he has done this. I can't imagine an issue 
that is more important for the future of our country, and I 
commend him for taking this step.
    I am especially pleased, of course, to have the honor of 
starting this hearing because the first witness, Secretary 
Thompson, who I still prefer to call Governor Thompson, is the 
very first witness.
    There is no more appropriate witness that we could have 
here today than the Secretary.
    I have worked on long-term care issues for nearly 20 years 
now, first as a member of the Wisconsin State Senate, where I 
chaired the Aging Committee for 10 years, and now as a member 
of the U.S. Senate and this committee. And when I was elected 
to the State Senate in 1982, Senator Thompson was already a 
distinguished legislator and a part of the leadership in the 
State assembly.
    Four years later, he was already overseeing the State's 
long-term care programs as our Governor. The State experience 
in long-term care he brings with him to his current position is 
extremely valuable, because it is really at the State level 
that most of the work on long-term care reform has been done.
    As Secretary Thompson will attest, long-term care is not a 
partisan issue, at least it has not been in Wisconsin. The 
reforms we have been able to enact in Wisconsin, and especially 
the Community Options Program, which is the centerpiece of 
those reforms, was very much a bipartisan effort.
    The program was actually begun under Governor Lee Dreyfus, 
a Republican Governor. It was greatly expanded under Governor 
Tony Earl, a Democrat, and then further expanded and fostered 
under then-Governor Thompson.
    This kind of bipartisan political consensus should not be a 
surprise. Members of both parties in State government know all 
too well what we face. They know that the current system is a 
train wreck waiting to happen.
    In Wisconsin we saw the train wreck beginning to happen 
earlier than other States, in large part because we had so many 
nursing homes. And the prospect of an exploding Medicaid budget 
actually motivated policymakers to initiate some structural 
reforms to help alleviate the problem.
    And let me emphasize, however, that Wisconsin has been able 
to buy itself some time because of those reforms but not 
completely avoid the coming crisis.
    States cannot rely solely on their own resources to tackle 
this problem. A sustainable solution can only come with 
fundamental Federal reforms of our long-term care system.
    In previous Congresses, I introduced legislation that I 
believe is a sustainable solution based on Wisconsin's long-
term care reforms. It allowed States to provide those needing 
long-term care with the kind of flexible, consumer-oriented, 
consumer-managed services that we have seen in Wisconsin that 
will actually lower long-term care costs.
    It paralleled the long-term care reforms that had received 
bipartisan support during the larger health care reform debate 
of the early 1990's, reforms that were the result of a 
multiyear effort by long-term care reform advocates.
    Long-term care reform has not been on the national agenda 
in a serious way, in my view, since that time. With the 
exception of a few improvements, such as the family caregiver 
provisions included in the reauthorization of the Older 
Americans Act, we have only really treaded water at the Federal 
level, and we have left States to fend for themselves in this 
area.
    Despite this lack of support, some States have done some 
wonderfully creative things with the resources they have.
    And in this regard, Secretary Thompson deserves a great 
deal of credit for the work done in Wisconsin to create the 
Family Care Program, which utilizes existing Federal Medicaid 
waivers to package together a much more flexible system of 
long-term care services. This is something I think other States 
will want to examine, and I want to touch on that with the 
Secretary later.
    So let me again thank the chairman for calling these 
hearings. Long-term care reform has been a long time coming. It 
has been 7 years since the Senate has considered it in a 
serious way. I hope we will not wait another 7 years before 
finally taking action.
    With that, I am delighted to turn to my friend and the 
Secretary, Tommy Thompson.
    Secretary Thompson. I wonder if Senator Carper would like 
to make an opening statement?

               STATEMENT OF SENATOR THOMAS CARPER

    Senator Carper. Well, I do, but I don't want to delay 
Governor Thompson's testimony.
    But I do have--let me just do this first thing.
    I just left the Senate floor. Senator Breaux was awaiting 
the outcome of the vote on his amendment. He said: I don't want 
to leave until I am sure what is going to happen.
    So he should be along very, very shortly.
    Let me just say welcome to my old colleague--I shouldn't 
say old colleague--my former colleague. [Laughter.]
    And it is great to see you, great to be with you. And I 
wish you, as you know, all the best in your new job.
    All right, if the chairman were here, I would thank him--or 
ranking member--for calling today's hearing. And I certainly 
thank our witnesses, including our lead-off witness, for 
testifying.
    It seems like the most important issues do not always 
receive the most attention, either here in the halls of 
Congress or from the media. And I think it is great that this 
committee today is shining the light on a potential crisis and 
one that is under appreciated but is very serious nonetheless.
    And as I get older--I am 54 this year--I continue to 
appreciate more the seriousness of this issue.
    I often say that our health care system in this country 
resembles what I describe as a patchwork quilt and one that, 
for that matter, is fraying a bit at the edges for many of our 
people.
    If our system of health insurance is a patchwork quilt, I 
think it is fair to say that our system of long-term care is a 
crazy quilt. [Laughter.]
    As Senator Durenberger will testify later on, ``There is no 
national cohesive long-term care system,'' in this country. And 
Senator Durenberger will also attest this makes what system we 
do have, ``inefficient, inequitable, and often ineffective.''
    Most Americans believe that Medicare will cover their 
health care needs when they retire. Most Americans don't know 
if they end up in a nursing home, Medicare won't cover the 
cost. Most Americans don't know that the single largest payer 
of long-term care, Medicaid, requires that people effectively 
impoverish themselves in order to access public assistance.
    I have seen firsthand the high cost of long-term care. My 
mom, who is almost 79 years old, today lives in a terrific 
nursing home in Ashland, KY, where she battles Alzheimer's 
disease and requires constant care to maintain her quality of 
life.
    As the father of two young boys, I also worry that our 
children will someday face the same problems as our generation, 
my generation, ages.
    The cost of long-term care will be a growing burden for our 
nation to bear. In the absence of reform, I question whether we 
can carry that burden.
    The magnitude of this challenge suggests the needs for some 
significant Federal response.
    At the same time, as a former Governor who made use of a 
Medicaid waiver to expand options for home and community-based 
long-term care, and to help people stay out of institutional 
care wherever possible, I know that sometimes the best thing 
the Federal Government can do is to give States and local 
communities the flexibility that they need to meet local needs.
    We all know that this is a complicated issue. That is why 
hearings like this one are so important. I look forward to 
hearing from our witnesses, and I am especially pleased to 
welcome Governor Thompson.

           STATEMENT OF SENATOR JOHN BREAUX, CHAIRMAN

    The Chairman. Thank you, former Governor Carper and former 
Governor Thompson, and thanks to the committee for getting 
started.
    I was on the floor with an amendment. We were just kind of 
waiting on the outcome of it. And----
    Senator Carper. Well, what happened?
    The Chairman. It passed. [Laughter.]
    If it had failed, I wouldn't have shown up. [Laughter.]
    But, no, it passed, and we are happy.
    I won't delay the Secretary's statement any longer. And I 
do want to say that this committee is particularly concerned 
about the questions that longevity bring to us as a society and 
us as a Congress in particular.
    I have often said that the good news is that people are 
living a lot longer; the bad news is that people are living a 
lot longer.
    And what I mean by that is that we certainly are happy that 
medical technology and science has allowed life expectancy of 
women to be almost 80 years of age and men almost 75 years of 
age, and that is good. But it also presents society an 
incredible number of problems on how we take care of those 
people in their golden years.
    It is not enough for people just to live longer; they also 
must be allowed to live better. And I think that is the real 
challenge that we have.
    And when you look at the fact that most of the Federal 
dollars that are spent on helping seniors, in terms of how they 
spend those years, so much of it is spent in institutionalized 
care, which I think is not necessarily the best way to be 
spending those dollars.
    I mean, what you have done in your State, in Wisconsin, as 
a leader, is something that is very important to the rest of 
the country to hear about.
    And we are spending anywhere from $40,000 to $80,000 a year 
in putting people in nursing homes. I seriously question if 
that is the best procedure for the majority of senior citizens 
in this country.
    We have 77 million baby boomers who are rapidly approaching 
that period of time when they are in their golden years. So we 
are going to have a lot more people living a lot longer. I 
mean, that is the huge challenge that we face as a society.
    And this hearing is really to try and hear, Mr. Secretary, 
what you did in your State and what your ideas are about what 
we might be doing as a Nation under your leadership as 
Secretary of Health and Human Services, and what we might do as 
a committee and as a Congress to try and help you to reach that 
goal of allowing people to live longer but also allowing them 
to also live better lives.
    So we are happy that you are here. We apologize for the 
delay, and happy to hear from you.
    [The prepared statement of Senator John Breaux follows:]

               Prepared statement of Senator John Breaux

    I have called for this hearing-the first in a multi-part 
series on long-term care in an effort to provide a forum for 
examining the potential crisis we face given the changing 
demographics in this nation. Advances in medical technology 
ensure that most of us will live into our 70s and 80s. When one 
pairs that fact with the statistic that there are 77 million 
baby boomers who are aging, it is apparent that there will be 
increasing demands on our long-term care system in the next 
couple of decades.
    I am especially grateful to Secretary Thompson for taking 
the time out of his busy schedule to be here with us today. The 
Secretary was committed to finding innovative solutions to 
funding long-term care when he was Governor of Wisconsin and he 
brings that same commitment to his new capacity. I look forward 
to hearing about the federal initiatives that I know that the 
Department of Health and Human Services has commenced in an 
effort to support states in their long-term care efforts.
    I believe today's hearing will provide an opportunity for 
all of us to gain an improved understanding not only of the 
current status of long-term care services and how they are 
financed but also a sense of what the future is likely to 
behold. We all know that the population aged 85 and older is 
the group most likely to need assistance with daily living. 
Whereas in 1998 there were 4 million Americans in that age 
group, the U.S. Census Bureau expects that number to jump to 7 
million by the year 2020-a vivid illustration of the new 
demands that will be placed on the system in the near future.
    I feel that the time is ripe for a call-to-action on the 
issue of long-term care-and that is the purpose of today's 
hearing. Policymakers, providers and consumers need to partner 
to determine the most appropriate avenues for reform. Today's 
hearing will provide all of us with a better sense of what this 
nation's long-term care population is facing and I look forward 
to subsequent national dialog on this issue so vitally 
important to America's seniors.

 STATEMENT OF HON. TOMMY G. THOMPSON, SECRETARY, DEPARTMENT OF 
                   HEALTH AND HUMAN SERVICES

    Secretary Thompson. Thank you so much, Chairman Breaux.
    And let me just start out by thanking you for your 
leadership and your vision. Congratulations on your amendment.
    And the nice thing about being in front of you, Senator 
Breaux, is it gives me an opportunity to thank you for your 
leadership in so many issues. And this issue is probably the 
most important one of all the ones that you have taken such 
strong and passionate leadership. And I just want to take this 
opportunity to thank you and compliment you.
    My good friend, Russ Feingold, truly was a leader back in 
Wisconsin on aging problems. He was the chairman of the Special 
Committee in the State Senate, and he led the efforts on our 
very good and comprehensive Community Options Program so 
elderly citizens could stay in their own home, and he also took 
a very strong and passionate leadership on Alzheimer's.
    And I am sorry he is not here so that I could compliment 
him in person. But I am sure that somebody will tell him that I 
said nice things about him. And they are well-deserved, and I 
want to applaud him.
    Senator Carper. I will tell him. [Laughter.]
    Secretary Thompson. And, Senator Carper, it is always a 
pleasure--it is difficult for me to call you Senator, because--
I know it is difficult to get over the word ``Governor.''
    Senator Carper. I still call people on the phone, I say, 
``Hello, this is Governor Carper,'' and they say, ``Oh, no, it 
isn't.'' [Laughter.]
    ``Wait a minute. What happened?'' But I thank you so very 
much for your friendship and partnerships on so many efforts 
that we have teamed up together on in the past, and I am sure 
we will in the future. And I thank you so very much for being 
here.
    This hearing is so important regarding the long-term care 
needs of our Nation's elderly and our disabled citizens.
    In 1900, a person born in the United States could expect to 
live 49 years from birth. In the course of the past century, we 
have added nearly three decades to the life expectancy of a 
newborn.
    Three decades is also about how long we have had Medicare 
and Medicaid. These programs have served millions of Americans 
very well. Yet as the population of older Americans has grown 
and as the possibilities for new kinds of long-term care have 
increased, Medicare and Medicaid have pretty much remained the 
same as when they were first begun in the mid-1960's.
    And I know that, Senator Breaux, you have taken a 
leadership in this effort, and I absolutely compliment you on 
that.
    For example, Medicaid will pay for your care in a nursing 
home. But if a State, like Delaware, Wisconsin, Louisiana, 
wants to pay for respite care--that may help keep families 
together and be a better alternative--it has to come to 
Washington, DC., for a waiver. That just doesn't make any sense 
to me, and I am sure it doesn't make any sense to you.
    It is time to modernize Medicare and Medicaid, to customize 
them to meet the wide array of needs of our growing population 
of senior and disabled Americans.
    And one of the key elements of this modernization is the 
transformation of long-term care.
    Long-term care used to be limited almost exclusively to 
nursing homes, as you mentioned, Senator Breaux, which consumed 
a substantial amount of the Medicaid budget. Now long-term care 
can be provided in a wide range of settings and today accounts 
for one-quarter of total Medicaid long-term care expenditures.
    There are more choices than ever for persons who are 
elderly or have a disability, and I think that is great. But I 
think we can do a much better job.
    The States are providing long-term care with the aid of 
about 250 home and community-based waivers from the Department 
of Health and Human Services. These waivers provide 
approximately $7 billion of care, funding that enables the 
State governments to serve more than 1 million people. We are 
working with a few States to pilot waivers that allow for a 
much more positive, complete, coherent system.
    Public service at every level of government must do a 
better job of preparing for the future. That is why the 
proposals outlined in the President's New Freedom Initiative 
are so promising and encouraging.
    The New Freedom Initiative is designed to break down the 
barriers faced by the 54 million disabled Americans. His 
proposals will give our elderly and disabled the freedom to 
participate more fully in the community and, yes, in the 
workforce as well, a goal that everyone shares. And it is a 
goal shared by all three political parties: the independent, 
the Republican, and Democrat.
    Mr. Chairman, we have no time to lose. Today the 35 million 
people aged 65 or older account for about 13 percent of the 
total population. It is projected that this population, or one 
in five, will be age 65 or older in a few years.
    Preparing for the future requires us to rethink the 
strategies of the past. Innovative approaches to delivery of 
long-term care services have the potential to preserve the 
independence and enhance the quality of life of all of our 
seniors, and be able to enjoy it in a cost-efficient manner.
    The Federal Government now provides 60 percent, nearly 60 
percent, of the funding for nursing home care. Providing 
quality, cost-effective care is going to become increasingly 
important as the baby boomers age.
    Community-based care could save individuals and families 
and taxpayers and the government a substantial amount of money. 
More importantly, it promises to help seniors more fully 
sustain their independence and their personal freedom.
    In addition, while today's hearing is focused on community-
based alternatives to nursing homes, let me touch briefly on 
the subject of nursing homes.
    Nearly 3 million Americans spend at least some portion of 
the year in our nursing homes.
    Let me share some good news. According to the second annual 
CMS report--that is the old HCFA, now Centers for Medicare and 
Medicaid Services, CMS--their report on nursing homes quality, 
several quality indicators point to some very positive emerging 
technologies and trends.
    For example, since 1998, there has been a 35 percent 
decrease in the proportion of deficiencies for care problems 
resulting in actual harm to nursing home residents.
    That is going in the right direction. Am I satisfied? No. 
Should anybody be satisfied? No.
    But nursing homes cited for immediate jeopardy represent 
fewer than 2 percent of all nursing homes. Improper use of 
physical and chemical restraints has also declined. And the 
problems of involuntary weight loss is on a downward trend.
    This news is encouraging. Is it good enough? No, but it is 
encouraging, and we are going in the right direction, and we 
want to continue to build upon it.
    But we face serious nursing home worker shortages that 
compel us to look for creative solutions to this problem. To 
help us address these issues, I have discussed with Labor 
Secretary Elaine Chao to ask the Labor and HHS to work 
collaboratively to find effective solutions. Our staffs plan to 
meet early next week to map out a new strategy that would join 
the DOL's training dollars with nursing programs supported by 
HHS.
    I plan to investigate other cross-departmental 
opportunities to see if we can address this nursing shortage on 
a governmentwide basis.
    We also are going to make a fresh examination of the 
Medicare and Medicaid regulations to determine if current 
regulations actually present barriers to training needed 
workers.
    And we are also working to identify and publicize promising 
State-developed practices.
    In Wisconsin, we have utilized the single-task workers for 
several years in situations that are safe and appropriate. So 
today I am announcing that the Centers for Medicare and 
Medicaid Services will be providing administrative guidance to 
the States to enable greater use of single-task workers in 
transporting nursing home residents from one area of the 
facility to another, under supervision and under training. CMS 
will issue a proposed regulation to address other types of 
single-task as well.
    But even with these improvements in nursing care, States 
are still facing the barriers in the development and 
implementation of community-based care systems, including the 
Medicaid program itself.
    Medicaid seems to have a bias toward institutional care, a 
bias rooted in the experience of earlier years when nursing 
homes were almost the only alternative. That is apparent in 
kinds of services that are offered, as well as in determining 
the eligibility.
    But institutional care is only one of several options. As 
Governor of Wisconsin, I had the opportunity, under the 
supervision of the Federal Government, to get a waiver to pilot 
another approach, the Family Care, the Pathways to Independence 
Program.
    As we redesigned our own State's long-term care system, we 
introduced the Family Care benefit to our Medicaid programs. 
This benefit offers State coverage of long-term care services 
for elderly Wisconsin citizens, as well as other adults with 
disabilities.
    Aging and disability resource centers were then established 
in each participating county. Seniors, as well as others 
eligible for the benefit, are now able to go to the centers to 
obtain program information, seek counseling and be enrolled in 
a care-maintenance organization, the entities responsible for 
managing those benefits.
    The Family Care Program allows seniors to choose their own 
personal care setting and integrates personal and family as 
well as physician assessments into a care plan, which is 
individualized for each individual senior.
    Its principles are simple: Give people the information they 
need to make the positive decisions. Do it in a way that they 
can understand it, and in a one-stop shop environment so they 
can go there and get the necessary treatments that they need. 
And make the funds flexible so that they follow the individual, 
not the funds flowing to the institution, so they follow the 
person to the most appropriate setting, paying for what that 
individual person needs.
    Another initiative, which is called the Program of All-
Inclusive Care for the Elderly, or PACE, also offers very good 
promise. PACE operates from a managed-care model and provides 
comprehensive and high-quality medical, social and long-term 
care services to the frail elderly eligible for nursing home 
care. This helps these older citizens maximize their autonomy 
as well as their continued community residence.
    Finally, we should support those families that provide the 
majority of long-term assistance to the loved ones requiring 
help due to injuries, accident of birth, disability, or long-
term illness. Their efforts are providing those in need with 
what is usually the best care available.
    The Caregiver Support Program, which was recently announced 
by our Administration on Aging, is a dynamic new initiative. 
And I hope our efforts with community-based long-term care will 
continue to reveal additional ways that the Federal policies 
are able to be made more family friendly.
    Personal savings are going to become an increasingly 
important component of long-term care financing as our elderly 
population continues to grow. We must take the steps today that 
will encourage people to start saving for tomorrow.
    Specifically, the president has proposed that individuals 
be allowed to deduct the cost of purchasing eligible, private 
long-term care insurance. This will provide, hopefully, the 
incentive, or an additional incentive, for people to take 
greater financial responsibility for their long-term care needs 
and will encourage the use of long-term care insurance.
    By providing tax deductibility for policies that meet the 
eligibility standards, quality long-term care insurance will 
play a larger role in the financial security of older 
Americans. And by making such incentives available, more 
employers will join the trend in offering long-term care 
benefits to their employees.
    This concept recognizes that individuals have a 
responsibility to plan for their future and empowers them to do 
so with the help of their employers.
    Employer-sponsored long-term care plans would be subject to 
ERISA and the protection it affords participants and 
beneficiaries.
    We have also proposed allowing the taxpayers to claim an 
additional personal exemption for providing long-term care to 
qualified family members who live in the taxpayer's home. 
Providing such an exemption would recognize the formal and 
informal costs to family caregivers that provide long-term 
care.
    Community-based care can be tailored to the needs of the 
individual and can maximize the independence of the men and 
women who need assistance. It can also alleviate some of the 
burdens that our family caregivers are currently facing, 
enabling more individuals to remain in their homes.
    To get started on the enormous task at hand, I have asked 
Tom Scully, the CMS administrator, to begin identifying issues 
that we must consider as we evaluate how to improve our long-
term care service delivery system.
    He will be reaching out to the States and to other parties, 
and especially to this committee, with interests in long-term 
care, including ordinary citizens, medical associations, 
nursing facilities, and senior citizen groups. Mr. Scully will 
discuss with these groups the critical decisions that must be 
made as we determine how we can best provide long-term care to 
those who need it.
    We  have  taken  some  important  steps  in  helping  our  
States transition to community-based care, and I can assure you 
that the administration looks forward to working with you on a 
bipartisan basis as we begin to equip our States for such a 
shift.
    And so, therefore, thank you, Mr. Chairman, for your 
concern, your passion for this important issue. And at this 
time, I am pleased to answer your questions and those of other 
committee members.
    [The prepared statement of Secretary Thompson follows:]

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    The Chairman. Mr. Secretary, thank you very much for a very 
detailed and very fine statement about the principles and 
things you are trying to accomplish, as well as what you have 
done also in your State of Wisconsin.
    We have been joined by our ranking member, Senator Larry 
Craig.
    Senator Craig, do you have any comments you would like to 
make?
    Senator Craig. Well, Mr. Chairman, first let me ask 
unanimous consent that my statement be a full part of the 
record.
    The Chairman. Without objection.
    [The prepared statement of Senator Craig follows:]

               Prepared Statement of Senator Larry Craig

    Good morning. I am pleased to join John today in helping 
launch what promises to be a valuable series of hearings 
examining the challenges of assuring affordable, accessible, 
and flexible long-term care to America's seniors--particularly 
now, as the first of the massive Baby Boom generation approach 
retirement age.
    Medicare prescription drugs and Social Security may be 
getting more ink at the moment, but the looming demands of our 
faltering long-term care system are perhaps of equal weight and 
concern. By the time all the Baby Boomers have retired, in 
approximately 2030, more than 70 million older Americans will 
be in need of some form of long-term care. And perhaps even 
more alarmingly, the number of Americans 85-and-older, those 
most likely to need daily assistance, will nearly double by 
2020.
    As we prepare to meet this challenge, one issue of 
particular concern to me--and, I know, to Senator Breaux--is 
the reality that despite decades of well-intentioned talk, this 
country continues to devote the lion's share of its limited 
long-term care funding to institutional nursing home care, 
rather than to assisting seniors in living independently in 
their own homes and communities. In addition to being more 
cost-efficient than nursing home care, home and community based 
care is vastly preferred by America's seniors and their 
families.
    When a mother or a spouse is only one bad fall away from 
permanent institutionalization, just a few hours of simple in-
home assistance with difficult tasks can make a tremendous 
difference, not only to the older person's quality of life, but 
also to his or her family and to the taxpayers. It is families 
and taxpayers, of course, who often must shoulder the cost of 
long-term institutionalization--a cost that now averages a 
staggering $40,000 per year per resident.
    Initiatives such as the Older Americans Act Family 
Caregiver program, which I strongly supported, and which this 
Committee recently examined, offer modest steps in the right 
direction. But much more remains to be done. For example, a 
look at efforts undertaken by many states--including Secretary 
Thompson's Wisconsin--offers much in the way of encouraging 
innovation. I understand that state experimentation with long-
term care solutions will be the focus of our next hearing, one 
I am very much looking forward to.
    Finally, I would just add that no serious review of our 
long-term care system will be complete without a serious effort 
to simplify the current disjointed hodgepodge of long-term care 
programs and benefits. Navigating the current maze of Medicaid, 
Medicare, Older Americans Act, block grants, and other long-
term care programs is a daunting challenge even for well versed 
policy experts, not to mention seniors themselves.
    We have our work cut out for us, and I am eager to get 
started. Thank you.

                STATEMENT OF SENATOR LARRY CRAIG

    Senator Craig. Welcome, Mr. Secretary.
    We are extremely pleased you are with us today. And I am 
extremely pleased that John has started a series of what I 
think are most valuable hearings on the issue of long-term 
care.
    And of course you have outlined some of the concerns, my 
concerns, about affordability and accessibility and flexibility 
and all those kinds of things that really begin to fit as we 
recognize this massive wave coming at us out there in our 
demographics.
    I am part of that wave, ultimately, as many in this room 
are. And if we don't have the sense to shape it now or help 
begin to shape it, I think it is a very, very real problem.
    Obviously, Medicare and prescription drugs and Social 
Security are the items that get the bulk of the ink today. But 
out there in our future is this long-term care issue that you 
have clearly recognized and are beginning to take action on it.
    I look at these numbers that, by 2030, 70 million older 
Americans will be in that status of long-term care, and then 
you keep looking outward and seeing those numbers double, and 
it says to us so loudly. And that is why we in this committee, 
I think, can effectively use the committee as a bully pulpit, 
not only to get attention to and to help you all, but, most 
importantly, to dramatize the importance of moving in this 
direction.
    Mr. Chairman, I do have some questions.
    The Chairman. OK.
    Senator Craig. But let me ask you to proceed with 
questions, and I will come back to them, because I am anxious--
--
    The Chairman. That will be fine.
    Senator Craig [continuing.] To see where the Secretary is 
going and where we might assist him.
    The Chairman. That will be fine. Thank you, Senator.
    Let me start by asking maybe sort of a generalized 
question. I am interested in, how do we as a Nation compare, if 
you know, with how other developed nations treat their elderly?
    It seems to me that in other countries that are developed 
countries around the world that it seems to be that there is 
more at-home care for seniors then we do in this country. Is 
there any indication of what other nations are doing in this 
area that we can compare with and get some ideas?
    Secretary Thompson. I am sure there are, Senator. I am not 
that familiar with what other countries are doing. I haven't 
taken enough study. I have certainly done a lot of study about 
what we are doing in the United States, and I just don't think 
we are doing enough.
    I think the way the system was set up in the mid-1960's 
with Medicare and Medicaid, it was very much, as you have 
indicated, a bias toward institutionalized care, and we have 
continued to do that.
    And only recently in the 1990's have we started to address 
alternative care, respite care, and stay-at-home, and setting 
up programs for that. And it is so much more important for us 
to continue to do so, and to modernize Medicaid to allow us to 
provide for the services at home rather than just an 
institutionalized setting.
    And so I think that we have to do a better job. But I can't 
point to a country that is doing that much better job, but I am 
sure there are some examples.
    The Chairman. I think particularly in Asia it is sort of a 
cultural thing that is very important. I like the idea.
    I am one of the sponsors of the tax credit for long-term 
care insurance. I think that is a no-brainer; we should be 
encouraging that.
    I like the idea that you talked about; the Administration 
has proposed that taxpayers be allowed to claim an additional 
personal exemption for providing long-term care services to 
qualified family members who live in the taxpayer's home.
    If you think about it, we do that for children. I mean, you 
have the child tax credit if you are taking care of children. 
And now if you want to encourage people to help take care of 
parents or perhaps grandparents in a home setting, is it not 
appropriate to also have some type of assistance to provide for 
that?
    And I think the concept of a grandparent credit, if you 
will, whatever you want to call it, would be something that 
would be good public policy.
    Let me just ask, you talked about the waivers, that you 
have all these States that have applied for 250 waivers to use 
their Medicaid dollars to do things other than just place 
people in nursing homes, and you talked about home and 
community care and the PACE program.
    Explain to the committee exactly what do you mean when we 
are talking about alternatives other than nursing homes, your 
community-based type of things that the department is allowing 
States to use their money to do. What are we talking about them 
doing?
    Secretary Thompson. Well, there are so many programs out 
there.
    There is the Cash and Counsel program, that has just set up 
a waiver in four States, in which the money is going to be able 
to be used for individuals to come in. And they are being 
counseled and to be able to actually get the cash to purchase 
services in the community.
    There is the COP program, Community Options Program, in 
which elderly citizens can make the option of staying home. It 
used to be only with State dollars that you could do it, but 
then the Federal Government allowed us to come in and get 
waivers and to be able to use the Medicaid waiver dollars to be 
able to purchase services.
    And what I tried to do in Wisconsin is to set up so that 
caregivers in the Community Options Program are put into an 
overall comprehensive program, where, if your uncle or aunt or 
your mother or father needed services, you would go to a 
central place and get the information, and actually have the 
doctor make an assessment, have the parent or brother or sister 
or son or daughter make an assessment of what that individual 
needs.
    And then the community, that collection point, that center, 
would purchase the services, whether it would be food, come in; 
maybe it would be nursing home nursing care for 3 or 4 days a 
week; maybe come in and just take care of the parent or parents 
one night a week so that the son and daughter could get out and 
get away.
    It depends upon the individual, but it makes it much more 
localized, much more individualized, and allows the dollars to 
follow the individual instead of just flowing to the 
institution.
    The Chairman. I take it, Secretary, now the State really 
has to go through a waiver process to be able to use any of 
that.
    Secretary Thompson. Absolutely.
    The Chairman. And you would recommend that we would amend 
the Medicare law when we are doing the reform and 
modernization, to not make that a necessary step?
    Secretary Thompson. That is absolutely correct, and allow 
for the flexibility to do so in order to get the job done, 
because States have got a lot of things going, and we should 
allow and encourage that kind of flexibility to look for 
alternatives to provide long-term care.
    The Chairman. You have given us two good ideas: change the 
waiver process to allow more flexibility for the States and 
local communities to do more; plus the so-called--I would call 
it the grandparent tax credit for caring for people in the 
home, which are two good, helpful ideas.
    Secretary Thompson. I think it is good, common sense, 
Senator.
    The Chairman. OK.
    Governor Senator Carper. [Laughter.]
    Senator Carper. Thank you, Senator Chairman Breaux. 
[Laughter.]
    Secretary Thompson, when you were chairman of the NGA, I 
think you started something, really kicked into gear something 
called Center for Best Practices to identify those practices 
within the States which serve as laboratories and showed the 
way for the rest of us.
    Are there any States that come to mind, including your own, 
any States that come to mind where they are doing an especially 
good job, a creative job, in approaching these challenges? And 
how we might incent those States, how we might spread that 
word, how we might build on those successes?
    Secretary Thompson. There are a lot of States doing a lot 
of things, but I am not sure that any one State is doing 
everything.
    Oregon has got some good programs and has taken a 
leadership role in long-term care. Minnesota has got some good 
programs. Arizona has got a family care program like we have in 
Wisconsin. Delaware has some programs.
    The new Cash and Counsel waivers that were just granted, 
three States and one more is coming in. I think it is Arkansas 
is doing a good job under Governor Huckabee. I believe it is 
Florida and Arkansas have got these waivers.
    But to point out the best State, besides Wisconsin. 
[Laughter.]
    I would be a little bit hard-pressed to do that. But there 
are good examples out there, and we should encourage that.
    Senator Carper. Are there any arguments against the kind of 
change in waivers that you have called for?
    Secretary Thompson. Am I against it?
    Senator Carper. No, are there any arguments--what would be 
the arguments against doing what you have suggested?
    Secretary Thompson. Well, you are going to have competition 
from the nursing home industry, for sure.
    And you are going to have competition and opposition from 
people that think the Federal Government should set all of the 
standards and make all the programs fit one mold.
    I just don't think that is the right--especially in this 
area. You have to encourage a lot of things.
    Louisiana, for instance, under Senator Breaux's leadership, 
got a nice waiver through at the beginning of the year for 
children. I think about--if I remember correctly--3,900 
children were able to live at home, if I am correct about that 
waiver.
    You know, if it was just the Federal Government, Louisiana 
would not have been able to get that waiver. If we had just, 
you know, a one-size-fits-all, Wisconsin could have not tried 
this Family Care plan that I think is going to be a model for 
the country.
    Senator Carper. About a year and a half ago, almost to the 
day, my sister and I were down in Florida at my mother's home. 
And my mom, we had just moved my mom to this nursing home, I 
mentioned earlier, up in Ashland, KY, close to where my sister 
lives.
    And we were going through my mom and dad's home, packing 
things up, a lifetime of memories. One of the things we came 
across as we were going through--my dad died about a decade 
ago.
    But one of the things we came across as we went through all 
these boxes and things and papers and through the attic and 
all, we found an insurance policy. ``What is this?'' It turned 
out to be an insurance policy for long-term care that my mother 
had purchased several years earlier for herself.
    And my mom was one of those people in Florida who got phone 
calls all the time from others who were trying to sell her 
things--a vacuum cleaner that I remember she paid three times 
more than it was worth. [Laughter.]
    Getting the roof replaced on the house, which was perfectly 
fine.
    But she bought this long-term care policy, which was now 
about to expire but lasted a couple of years.
    You talked earlier about providing some incentives through 
the tax code to encourage employers to provide and people to 
acquire. I want you to just go back and just talk about this a 
little bit more.
    My mom did it without the incentive, even without the 
encouragement of my sister and me. But it was a stroke of 
genius on her part.
    Secretary Thompson. Yes, it was.
    Senator Carper. But, what--could you go back and talk a 
little bit more about the kind of incentives we need to provide 
through the tax code for employers to offer and for individuals 
to take advantage of long-term care.
    Secretary Thompson. What we need to do, Senator, we need 
to--first off, we need to get information out there.
    I don't think we do a very good job of advising seniors, 
you know, about what is available under Medicare, what is 
available under Medicaid, what is paid for and what isn't. And 
to tell them that it is not--if they really want to do what is 
necessary, they need to have a long-term care insurance policy. 
And we should be doing more of that.
    And, you know, until this committee started holding 
hearings, I don't think that subject was ever discussed. But to 
use the tax code, you know, to be able to deduct it.
    It is really an investment by the Federal Government, 
because that long-term care insurance, as your mother had, it 
certainly helps you and your sister, but it is also helping the 
Federal Government, because if she didn't have that--or the 
State governments, through Medicare and Medicaid. It is just an 
investment, you know, that is going to save the Federal 
Government future expenditures.
    And so we should use the tax code to encourage them. We 
should use it so that employers see this is an opportunity for 
them to give expanded coverage for their employees, to be able 
to take care of their employees, you know, in their retirement 
years.
    These should be the best years for everybody. They should 
be beyond their worries. They have raised their children, paid 
their debts to society. And they should be able to pick and 
choose where they are going to live and be able to have the 
opportunity to have long-term care insurance that is going to 
help subsidize and give them the independence and the quality 
of life that they deserve and that you certainly want them to 
have, Tom.
    Senator Carper. Do you have any idea if a dollar sign has 
been put on this particular proposal, or the other one that you 
laid on the table, with respect to what was the extra exemption 
for those who take into their home----
    Secretary Thompson. That is for the Caregiver program.
    Senator Carper. Any ideas what the price tag on those might 
be?
    Secretary Thompson. I did have that figured, and I--but I 
will send it to you, Tom.
    Senator Carper. Thank you.
    Secretary Thompson. Thank you, Governor Senator. 
[Laughter.]
    The Chairman. Thanks so much, Governor.
    Questions, Senator Craig?
    Senator Craig. Well, I think most of them have been 
covered.
    Obviously, to create these kinds of flexibilities, waivers 
can be granted now to some extent.
    Mr. Secretary, are there other legal, structural obstacles 
within the law that you think we ought to focus on, beyond 
creating new components, as the chairman was delineating, from 
a tax credit or deduction?
    Have you scanned the law, as it relates to Federal 
involvement today, to see what other obstacles might be out 
there that we could reform or adjust to deal with this?
    And of course with your, you know, Family Care Program in 
Wisconsin and the flexibility it gave, what might you suggest?
    Secretary Thompson. Well, it took us 2 years to set the 
stage in weekly discussions with the former HCFA, now CMS.
    And then, once we had the knowledge base and the 
discussions how far we could go, then the waiver only took 
about 90 days to get approved, which is fairly rapidly, but it 
took 2 years of preparatory time to get there.
    And the big obstacle always has been is that when Medicare 
was set up, it was to pay for nursing care services in a 
nursing home. And it never really realized or expected that our 
elderly were going to live as long as they did or that there 
would be other alternatives--respite care in the community. And 
so the system pays for the services in a nursing home.
    And they now provide for home-care services, but you still 
get a waiver for it. And Medicaid does not provide for respite 
care unless you get a waiver. And so what you need to do, is 
you get the waiver.
    We are very, very much--we are eager to give these waivers, 
because they allow for new alternatives. You have provided a 
grant, you and the Federal Government, of $70 million for 
States to apply for this money to make changes, and that is a 
wonderful program.
    I went to the National Governors Conference and told them 
that there was $50,000 planning grants and all they had to do 
was fill out--and I made up a two-paragraph form that all you 
had to do was sign. And out of the 56 States and territories, 
54 have already since February applied for the $50,000. And so 
we have only got one territory and one State left to do it.
    But it tells me there is a tremendous degree of excitement 
out there at the local level that wants to do something in this 
area. And that $70 million, I am sure, you know, when they get 
all their applications in, is going to go very rapidly.
    Senator Craig. Sure.
    Secretary Thompson. And I think we are going to get some 
innovative ideas.
    And I would like to come back to you with some of those 
ideas and discuss with you, you know, how we are going to be 
able to fund them and how we should be able to distribute this 
money.
    Senator Craig. Good. Thank you.
    The Chairman. Secretary, thank you very much. I think you 
have been very helpful, and we clearly think your ideas that 
you have suggested are very, very positive.
    And this begins the dialog, which we do need a national 
dialog on this issue, and your presence has been very helpful.
    Thank you very much.
    Secretary Thompson. Thank you.
    The Chairman. We would like to invite up a panel, 
consisting of our good friend and former colleague, former 
Senator David Durenberger, who is chairman of Citizens for 
Long-Term Care, which I have had a chance to review their 
publication and find it to be most interesting and very 
helpful; also, Ms. Carol O'Shaughnessy, who is a specialist in 
social legislation for the Congressional Research Service, 
which is always very helpful to us; and Mr. Bob Blancato, who 
is executive director of the 1995 White House Conference on 
Aging.
    We welcome all of you.
    And, Senator Durenberger----
    Senator Craig. Mr. Chairman.
    The Chairman [continuing.] Glad to have you back.
    Yes, sir?
    Senator Craig. Before David starts, let me apologize. I am 
going to have to step out.
    I also received the brochure and read it, and it is an 
impressive concept. And I will look forward to further input on 
it.
    But I apologize to the panelists.
    The Chairman. It is a busy day, I understand.
    Senator Craig. Command calls, but thank you.
    The Chairman. We have several different things going on at 
once, as you can imagine, and we certainly understand that.
    David Durenberger.

STATEMENT OF DAVID F. DURENBERGER, CHAIRMAN, CITIZENS FOR LONG-
                           TERM CARE

    Mr. Durenberger. Mr. Chairman, Mr. Mainstream, thank you 
very much. It is a pleasure to be here.
    Larry Craig, it is a pleasure to see you as well.
    Let me begin by thanking you for the invitation to testify. 
I think it is very significant. Not as an invitation to me but 
I think what you propose doing here, now and in the future has 
a great deal of significance.
    It is good to be on the other side of the table. I already 
know the answers to the questions, as well as the questions. 
[Laughter.]
    Today I am not here representing the 4.5 million 
Minnesotans, who actually invented what someone said earlier, 
``Republican, Democrat, and Independent,'' as in our Governor, 
but rather, represent a confederation of dozens of membership 
organizations from aging, insurance, long-term care providers, 
disability advocates, professionals, unions. We call it 
Citizens for Long-Term Care.
    And I am here to briefly, on their behalf, offer a bit of 
history, a word of encouragement, and a promise of help.
    I have special respect for the members of, and in the role 
of this committee,  having  served  on this  committee  as well 
 as on  the Finance and what is now called HELP Committee. The 
issues here are complex, the stakes are high, the competing 
priorities are many.
    Change comes hard, but this committee is uniquely 
positioned by its nature and its history to make the crucial 
contribution to long-term care reform.
    Steven Covey creates two categories, which are instructive 
in this context. They are dealing with issues which are urgent 
and important, and those which are not urgent but important.
    As a member of the Senate, I always struggled with the idea 
that if something was not urgent, it couldn't be important. And 
I came to realize that a tyranny of the urgent kept me from 
attending, as you illustrated by your late arrival here today, 
to some very, very important things. It is almost the plague of 
service in the Senate and the Congress today.
    But one exception has been this committee. Over the years 
that I am familiar with, going back to 1979, the people of 
America have been extremely well-served by this committee. The 
leadership of people like John Heinz, David Pryor, Chuck 
Grassley, before you, and now you, Mr. Chairman, is really 
something that is in the nature of an undervalued national 
opportunity.
    So God knows we need this kind of leadership now on this 
issue.
    Citizens for Long-Term Care is an additional resource to 
the deliberation of ideas about long-term care issues. I dearly 
hope that a rich dialog between all the viewpoints that 
Citizens represent--and I will tell you, we represent every one 
of them will benefit from your work.
    Most of these people used to be adversaries in this 
business. They have now found a way to come to make common 
cause and to find common ground. And I think Larry Minnix from 
AAHSA was in here to see you last week and delivered some of 
our reports.
    We believe that we can be helpful to you, Mr. Chairman and 
members of the committee, to create a work product that will 
lead the Nation to a comprehensive approach to the most 
important social health and welfare issue of the next three 
decades.
    Long-term care, as Governor Senator Carper said earlier, is 
either a patchwork or a crazy quilt of services, providers, 
caregivers, and other supports that people have to access in 
times of crisis to help them manage the crisis.
    The greatest failure in long-term care is an antiquated 
public policy that impedes personal planning, preparation, and 
decisions.
    On the acute medical care side, we see an industry that has 
been defined by advances and innovations in care because public 
policy has placed a primacy on developing policies that help 
people address their medical needs. People are encouraged and 
they are supported in making advance decisions about financing 
their acute care needs, even though they don't know what they 
might be.
    An overwhelming number of people in America have insurance, 
a primary care physician, other important protections against 
catastrophic medical costs. And the medical profession has 
always had a financial incentive to innovate. Public policy 
does not do the same thing for long-term care.
    In Minnesota, 95 percent of our citizens have health 
insurance; 94 percent do not have long-term care insurance.
    Too often, people are forced to make their decision about 
long-term care in a crisis. When a loved one is faced with a 
need for supportive care, we find that people are unprepared to 
address the issues involved.
    It happened to me with my dad; it happened with my mom.
    They are unaware of what the most appropriate type of care 
is, where to get it, and what other services might be 
available.
    Finally, they don't understand how to finance the needed 
care, because they assumed it was paid for by Medicare, and 
they fail to address the potential need for long-term care. 
People are forced to make critical decisions in a time of 
crisis.
    With all kinds of honorable intentions, government then 
steps in to assist people, and we just heard that in the 
testimony. Whether it is Federal or State government, 
government steps in to assist people who are unable to pay for 
care themselves.
    But in the end, the recipients, in a sense, become victims, 
not only of poverty and a spend-down, but of the system which 
takes away their ability to be anything but.
    The goal too often is relief, not recovery. For many, 
especially aged persons and families, the disablement of the 
spirit is as tragic as the disability of Alzheimer's, spinal 
cord injury, or cerebral palsy.
    Long-term care has been based on such a public assistance 
or welfare model for too long. Society does not want to abandon 
the disabled or the elderly. Our members in CLTC who represent 
people with disabilities recognize their members' need for it, 
but they believe there can be a better system.
    The compassionate alternative is developing an insurance-
based system that supports all people in times of crisis.
    And just for purposes of record, Mr. Chairman--I see my 
time has expired--I need to, not to remind you so much as 
probably to remind others that we have been here before.
    Part of my comments relate to the dependence on State 
governments in this joint Federal-state responsibility. Yet 
Americans are Americans wherever they may live. I have never 
been able to understand why their choices are limited by their 
place of residence when it comes to long-term care.
    President Reagan recognized that in 1982, and he proposed 
as part of his New federalism program the Federalization of the 
Medicaid program. And you can imagine the consequence if we had 
done that.
    In 1985, Ron Wyden and I and John Chafee introduced long-
term care insurance tax reform.
    In 1987 and 1988, as you will recall, we did the Medicare 
Catastrophic Act, and we included in there changes in the 
social insurance approach to long-term care.
    In 1990, the Pepper Commission said you can't do this on 
welfare, you cannot do this on savings; you have to build 
yourself a social and a private insurance system.
    So, Mr. Chairman, I cannot adequately express on behalf of 
the millions of people that are represented by our 63 
association members how grateful we are to you personally, to 
your staff, and to the members of this committee for beginning 
this national dialog, which I understand you will probably take 
across the country over time. And we are all pledged to make it 
successful. Thank you.
    [The prepared statement of Mr. Durenberger follows:]

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    The Chairman. Thank you, Senator Durenberger, very much for 
your statement, but also for your long and continued 
involvement in these types of issues. It is encouraging to see 
that once you leave this place, you can still make a big 
difference. And we thank you for that.
    Mr. Durenberger. Thank you.
    The Chairman. Ms. Carol O'Shaughnessy.

   STATEMENT OF CAROL V. O'SHAUGHNESSY, SPECIALIST IN SOCIAL 
          LEGISLATION, CONGRESSIONAL RESEARCH SERVICE

    Ms. O'Shaughnessy. Senator Breaux, good morning, and thank 
you for the opportunity to testify before you today. I have had 
the pleasure of working with the staff of the Senate Special 
Committee on Aging for many years.
    Today, I will give an overview of long-term care consumers, 
providers, and spending, and will summarize my written 
statement.
    Long-term care refers to a wide range of supportive and 
health services for persons who have lost the capacity for 
self-care due to illness or frailty.
    You had asked about what kinds of services comprise long-
term care. Services range from care in nursing homes, assisted 
living, and boarding care facilities to home and community-
based services through home health and homemaker services, 
adult daycare, and home-delivered meals.
    The cost of care is related to the type, intensity, and 
duration of care that is needed by an individual, as well as 
the availability of informal supportive services from family 
and friends.
    Researchers and policymakers have debated the question of 
whether or not home and community-based services are cost-
effective. This question is very complex, and many factors must 
be considered, including how best to target home and community-
based services, the effective mix of services to divert persons 
from institutional care, and how to assist informal family 
caregivers in their responsibilities.
    I will say just a few words on a long-term care population. 
About 9 million adults receive long-term care assistance, but 
the vast majority, or 80 percent, are in community-based 
settings, not in nursing homes.
    Persons aged 65 and older represent about 60 percent of all 
adults who receive assistance, but the need for long-term care 
affects persons of all ages.
    About 3.5 million adults receiving care are under age 65.
    The Chairman. Let me interrupt you, if I can.
    You said, 80 percent of the 9 million are in nursing home 
facilities----
    Ms. O'Shaughnessy. Are in home and community-based 
settings, not in nursing homes.
    There is a disproportionate expenditure. We are spending so 
much money on institutional care, but really there are more 
people in home and community-based settings, receiving care 
mostly from family and friends.
    The Chairman. I had heard it was even higher than that. I 
had heard the figure 95 percent.
    Ms. O'Shaughnessy. Well, this data comes from the most 
recent data from the national interview survey on disability.
    The Chairman. OK, please continue.
    Ms. O'Shaughnessy. OK.
    About one-third of elderly persons who receive care at home 
and in community-based settings have severe impairments. That 
is, they have limitations in at least three activities of daily 
living, such as bathing, dressing, toileting, or getting around 
inside the home. And without home and community-based support, 
these persons might require care in nursing homes.
    The likelihood of needing care increases dramatically with 
age. Over half of persons age 85 and older receive long-term 
care assistance.
    However, regardless of age, persons are more likely to be 
in community-based settings rather than in nursing homes. And 
there is a chart in the written testimony that displays this 
for you, chart 1.
    The demand for long-term care, as we heard from the 
Secretary, is expected to grow substantially in the future and 
will be driven by the aging of the baby boom generation. 
Estimates show that the number of elderly persons alone who 
need long-term care assistance could grow by 35 percent over 
the next 20 years and by 82 percent over the next 40 years. And 
in the testimony, chart 2 displays the growth and the need over 
the next several decades.
    Rapid growth in the number of people over age 85 presents 
special challenges, because they have the greatest risk of 
needing care. And demand will also increase as a result of the 
recent Supreme Court decision in Olmstead and advocacy efforts 
on the part of younger persons with disabilities.
    These factors will present challenges for some long-term 
care providers, who even now face difficulties in meeting 
demand for services in certain areas.
    I just want to make a point about the role of families and 
informal supports. Most long-term care assistance is provided 
by unpaid family members, and almost 60 percent of the 
functionally impaired elderly receiving care rely exclusively 
on informal, unpaid assistance.
    Many have argued that while public programs should not and 
cannot replace family caregiving, targeted initiatives to 
assist family caregivers are needed.
    A number of Federal programs--and I have displayed them in 
the testimony--support persons with disabilities. However, none 
focus exclusively on long-term care.
    It is as Senator Durenberger and the Secretary mentioned, 
is a patchwork quilt of programs.
    Many observers believe that the current system is flawed 
because of its overreliance on institutional care, the 
impoverishment of many persons as a result of paying for care, 
the heavy reliance on informal caregivers, and the uneven 
availability of home and community-based services.
    In terms of spending, the Nation spent $134 billion on 
long-term care in 1999. And this represents about 13 percent of 
total personal health care expenditures and amounts to slightly 
more than National spending on prescription drugs. And in the 
testimony, that is displayed on chart 5.
    Of the total long-term care spending, 67 percent is for 
institutional care and one-third is for home and community-
based services.
    And if you look at the chart on your far right, it displays 
the sources of long-term care funding. We see that Medicaid is 
the major payer. Personal out-of-pocket spending represents 
about 25 percent, with Medicaid at 44 percent. And Medicare and 
private insurance play much smaller roles.
    I will say a few words about Medicaid. Medicaid's role, as 
we heard this morning, is primarily through its financing of 
institutional care. And of total Medicaid spending in fiscal 
year 2000, 73 percent was for institutional care and just 27 
percent was for home and community-based care.
    And if you look at the second chart, you see that 
Medicaid's long-term care spending is still dominated by 
spending for nursing home care, even though home and community-
based services spending has risen over the last decade very 
rapidly. In fact, home and community-based has risen seven 
times as opposed to about a doubling in institutional care 
expenditures.
    Many States consider their home and community-based waiver 
programs, that the Secretary mentioned as key components in 
developing long-term care systems.
    And despite the rapid growth, however, many analysts 
consider the program to be only a partial step in providing 
comprehensive long-term care services because of the 
restrictions on eligibility and limitations in service 
availability throughout the Nation and within individual 
States.
    We have done some analysis of fiscal year 2000 expenditures 
and found that at least half of the States spend most of their 
money on institutional care in fiscal year 2000. Twenty States 
spent 75 percent or more of their Medicaid dollars on 
institutional care, despite the rapid increase in the waivers.
    Changing the way long-term care is financed has drawn 
attention of Congress for more than two decades, and proposals 
have included both incremental and large-scale approaches. A 
wide range of proposals has been advanced including social 
insurance, the tax incentives that you mentioned, grants for 
expanding home and community-based services, and combinations 
of these.
    To date, Congress has taken incremental approach. 
Obviously, the significant challenge for Congress is to 
reconcile the cost, as well as the relative roles of public and 
private sectors, in ways to assist family caregivers.
    Thank you, Mr. Chairman, and I would be happy to answer any 
questions.
    [The prepared statement of Ms. O'Shaughnessy follows:]

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    The Chairman. Thank you, Ms. O'Shaughnessy.
    Next, Bob Blancato.
    Bob, welcome. Welcome back.

 STATEMENT OF ROBERT B. BLANCATO, EXECUTIVE DIRECTOR, THE 1995 
WHITE HOUSE CONFERENCE ON AGING; AND PRESIDENT, MATZ, BLANCATO 
                       & ASSOCIATES, INC.

    Mr. Blancato. Mr. Chairman, thank you. Nice to be here.
    I commend you for calling these hearings on long-term care 
and getting ready for the boomers. You are right, we do need a 
plan of action. You will have my complete statement, so let me 
make five quick points.
    First, this is not a new issue, but there is new urgency. 
In 1977, I began work with the House Select Committee on Aging. 
We held hearings on long-term care. Fourteen years ago, our 
chairman, Claude Pepper, went to the House floor with a long-
term care amendment.
    In 1994, to prepare for the White House Conference on 
Aging, we went to the American people to set the agenda. Their 
top priority issue was comprehensive health care, including 
long-term care. And at the conference, five of the top 10 
resolutions were on long-term care.
    Fourteen years ago, long-term care was an issue with some 
foresight; today it is one of urgency. The reasons are many.
    Demographics is certainly one. Today our medium age is the 
highest ever at 35.3. One key reason: Boomers between 45 and 54 
grew by 49 percent between 1990 and 2000.
    Second, Boomers and long-term care, public education, and 
personal experiences: Long-term care is not a mainstream issue 
compelling enough boomers into action. Why? In part because 
boomers delayed planning for their future, in part because of 
denial about aging.
    Also, boomers have a false sense of security that Medicare 
will take care of their long-term care. Public education and 
awareness efforts must be intensified and improved. Before we 
tackle the complicated issues of financing and coverage, let's 
get everyone on the same page about what long-term care is, who 
pays now, and how.
    I hope that the ongoing work of OPM dealing with the Long-
Term Care Security Act will help educate boomers. This 
committee should also look at the many private groups who are 
doing great work in consumer education on long-term care. It 
must be a priority in the plan of action.
    Maybe we just need a message. Americans, and especially 
boomers, have always responded to messages. One message is, you 
never know when.
    My example, I have been a boomer all my life. I have spent 
more than 25 years in national aging policy, including long-
term care. When did I focus on long-term care in a personal 
way? One year ago, because of a long-term care health crisis 
affecting my mother.
    My take away? The cost of care for her in 2001 dollars is 
staggering. What about 20 years from now?
    Too many boomers wait for the crisis to land on the 
doorstep. That is wrong. Crisis planning is an oxymoron.
    Third, a call to action with a timetable: Let's set a 
timetable to move long-term care legislation in 2001. Top on 
the list is the bill you mentioned, S. 627, the Long-Term Care 
and Retirement Security Act.
    As president of Americans for Long-Term Care Security, we 
strongly support this bipartisan bill and commend you, Mr. 
Chairman, for being an early cosponsor.
    This is the kind of public-private incentive package that 
is needed. ALTCS views all the main pieces of this bill as 
critical; they must all stay together and be passed together.
    Also this year, let's inventory all Federal programs in 
long-term care. How many are there? Are they working? Can we 
achieve cost-savings by reducing duplication? What successes 
can we build on? Are there State and Federal programs that have 
produced what we really need, long-term care service systems 
with a continuum of care?
    And as work on comprehensive Medicare reform continues 
later this year, let's move to a Medicare that does what 
boomers want it to do: provide more long-term care coverage, 
provide more preventative coverage.
    Fourth, family caregivers are key: Let's keep emphasizing 
family caregivers in all future long-term care policy. It was a 
strong start in 2000 with the National Family Caregivers 
Support Program.
    Long-term care affects many constituencies--boomers, 
seniors, women, families, persons with disabilities. But the 
crosscutting issue, especially for boomers, is family 
caregiving.
    We need to build more policy around caregivers. And if we 
do, we will get more of a buy-in from boomers.
    It is not only a health issue, it also is an economic 
issue. In 1997, a MetLife study revealed that caregiving costs 
American businesses as much as $29 billion a year. That is a 
wakeup statistic.
    And five, long-term care, a Federal investment: Future 
long-term care policy decisions will take some political 
courage. It is easy to score a bill, get shocked when it is 
high, and walk away. But with some long-term care legislation, 
the question is, is it in fact an investment that will achieve 
future savings, especially for Medicaid?
    You know, next year we celebrate the 30th anniversary of 
the Older Americans Act nutrition programs. They were set up to 
help at-risk seniors from having to be institutionalized 
because of poor nutrition.
    Has it worked? Absolutely.
    Seniors have been in the congregate or home-delivered meal 
programs for 20 years or more. This means they are still in 
their homes, still in the community, and not in nursing homes.
    That was a new appropriation in 1972. It was a good 
investment. The same thing with funds spent on research, 
especially Alzheimer's research. These are good investments.
    Our goal should be long-term care that features 
universality, financial security, service availability, a real 
commitment to quality care, and a sensitivity to the needs of 
different constituencies. And it should specifically change the 
existing funding bias of Federal programs toward institutional 
care.
    The time to act is now. Other timetables are not going to 
wait. In 2010, retirees grow from 13 to 20 percent of our 
population. And as you well know, in 2011, the first wave of 
boomers turns 65 and are Medicare-eligible.
    Mr. Chairman, certainly when it relates to boomers, long-
term care, it may not be our issue today, but it could be 
tomorrow.
    Thank you very much.
    [The prepared statement of Mr. Blancato follows:]

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    The Chairman. Thank you, Bob, very much.
    I thank all three of our panelists for the beginning of 
what hopefully will be a national dialog on this issue, to 
better educate the folks about the need for long-term care.
    Bob, let me ask you, I mean, you have been a leader in 
this. Do you have long-term care insurance?
    Mr. Blancato. I do.
    The Chairman. Congratulations.
    Mr. Blancato. I just turned 50, I have to admit. That 
proves I am not in denial about aging. [Laughter.]
    But I did. I researched it, and I purchased it. And part of 
it was motivated by the fact of my mother's situation; they do 
not have long-term care insurance, and the cost of care is 
quite staggering.
    The Chairman. Let me ask anyone on the panel, is there a 
market out there now? Or is it an infant market? Or is it 
something that you would find companies are interested in 
promoting and selling? Or is it not a good market as is 
currently structured?
    If the concept is, like we are talking, in terms of 
prescription drugs under Medicare, is to have the government 
help pay for the premium to allow people to buy coverage 
insurance in a competitive market, can there be a market for 
long-term care insurance that would be viable and workable and 
affordable?
    Mr. Durenberger. Well, I will just make one comment, 
because our recommendation was a restructuring of social 
insurance and the incentives for private insurance.
    We also made the decision that, as it relates to a previous 
question that you asked, it is pretty hard for Americans to go 
to some other country. It is OK to learn from other country's 
experiences, but we really have to use an American system.
    And in America, private insurance combined with social 
insurance is the tradition. It is usually bought at work, where 
you get earnings and employee benefits and so forth.
    So if you look at it from that standpoint, the places to 
look probably are at experiments which have taken place, I 
think, largely at the State level. I know in Minnesota the 
legislature authorized the State government, for employees of 
State government, and some other public employees--to offer 
long-term care insurance. The employee would have to pay the 
premium.
    The response was about twice what they expected. I think 
they expected something like 5,000 or 6,000 people. And they 
ended up with 12,000 or 13,000 people enrolling in the program. 
I think 3M, on the corporate side, has had a similar 
experience.
    But one of the things I am sure we find out, and you will 
find out from OPM, is it takes an awful lot of analysis of what 
is long-term care insurance and what is long-term care 
insurance. And that is one of the roles that an employer, as in 
a 3M, an employer as in a Minnesota public employees, at the 
current time I think has to play to sort out what is real need 
and what is the product that is going to meet that need.
    The Chairman. It may be that we are going to have the 
insurance folks come in and testify.
    But when they provide long-term care insurance, what are 
they providing the coverage for? Is it for coverage in a 
nursing home or is it also in some of these alternative 
settings?
    Bob.
    Mr. Blancato. They're beginning to cover a wider array of 
services than just nursing homes, assisted living coverage and 
some home-care coverage.
    And I think there is some merit in getting the industry 
here to talk about the market, because the market is changing, 
the market is growing.
    The question is, is it growing fast enough? Maybe in their 
mind, it isn't. But I think it is growing in the sense that 
there is more interest in it.
    But I think that the real question is involved in your 
question. The element of choice is going to be key to that 
market growing, especially for boomers to go into it, because 
this is a different generation.
    We are used to having more options and choices. And this is 
going to be necessary for that industry to do. And I think a 
lot of them are stepping up to do it.
    But I think, as the Senator said, what happens in the 
interim period--of the Federal employees, military personnel 
long-term care legislation, and how OPM chooses the carriers 
and goes through the process of selecting them, and the 
education process that is involved--is going to be immensely 
important to the whole future of long-term care insurance in 
this country.
    The Chairman. Carol, do you have a comment?
    Ms. O'Shaughnessy. If I could, yes, if I could add 
something to that.
    It is a very fast growing market. I mean, I think the last 
data I saw was something like 6 million policies have been 
sold. One of the issues to look at is the issue of 
affordability of the premiums. Some recent data from HIAA show 
that the average income of persons who purchased long-term care 
insurance is around, I think, $42,500; in 1995 it was $30,000. 
And persons who purchase long-term care insurance tend to have 
higher assets.
    So even if you were to increase the number of policies 
sold, one would have to look at the people at the very low end 
of the income spectrum, in terms of how to protect their income 
and offer protection for them as well. Affordability is the 
main issue.
    The Chairman. We have Medigap insurance for prescription 
drugs. Unfortunately, only the people who buy it are the people 
who have to use high volumes of prescription drugs. Therefore, 
obviously, the cost is very, very high.
    Is that the same thing that is true for long-term care 
insurance now, do we know?
    Ms. O'Shaughnessy. In terms of?
    The Chairman. That you only buy it--of course, I would 
think that if you live long enough, you are going to need some 
type of long-term care. It is a question of whether people 
believe that. And younger people tend not to believe that, so 
you only buy it right before you need it. And obviously it 
becomes very expensive.
    Is that correct?
    Ms. O'Shaughnessy. Well, the recent data on the buyers of 
long-term care insurance show that there are certain 
characteristics and demographic characteristics. I think the 
average age is 67. People tend----
    The Chairman. I mean, buying it at 67 will tell you 
something.
    Ms. O'Shaughnessy. Right. Exactly, exactly.
    According to HIAA, people who are planners are more likely 
to buy long-term care insurance. It is an issue for planning 
for the future.
    It is not like we know we have Social Security, and we have 
that, but what do we have to do to plan for our future needs.
    The Chairman. It is an educational problem, too; I mean, I 
think that what we have here is, I think, all of you have said 
that, and the Secretary has said it. And not enough people know 
that they are going to need it and realize they are going to 
need it.
    And when they think they are going to need it, they think 
that Medicare and Social Security pays for it.
    Ms. O'Shaughnessy. That is true.
    The Chairman. And then, that is a real educational problem 
that hopefully this Congress and this committee can help.
    How do we get people to move into this market, Dave, 
without just passing a long-term care insurance mandate?
    I mean, the average age of people buying this is at 67, I 
mean, that really is a problem right there. We ought to be 
buying it, you know, just as we buy car insurance or anything 
else or health insurance, because it would be a lot cheaper if 
more people were in the pool, obviously.
    I mean, any thoughts about how we encourage people to get 
into this much quicker?
    Mr. Durenberger. I would like to make two observations. 
They are both personal, as opposed to Citizens for Long-Term 
Care, because we aren't at this point in our common ground yet.
    First, I believe strongly that it is difficult to, in 
today's confused, crazy quilt, patchwork, whatever-it-is 
marketplace, to offer as an affordable a product as could be 
offered, with all due respect, no matter how good they are at 
it.
    If you clean up the system, they are going to be able to 
offer--the insurance industry will offer you a much more 
affordable product.
    One of the important things there, as you and I have both 
gone through in the early 1990's, is what role is the social 
insurance system going to play? I mean, what if we knew what 
Medicare was going to provide for at least 5 years and not, 
change benefits, coverage and eligibility as in subacute care 
every year?
    How can you write a good, private insurance policy if you 
don't know precisely what the national policy on social 
insurance is going to be? That is the first part of it.
    The second one is this, and it is just a question I have 
that only a few people can answer that I would like to ask the 
industry, and that is: Why couldn't you sell me or my children 
a disability policy when I am 21, on my first job, that I can 
carry until I am, in my mother's case, 89 with Alzheimer's? We 
have heard a lot of Alzheimer's here today. I don't know that 
that is unusual.
    But why can't I buy a policy at 21 that I can carry all the 
way through? When I am young, what it does is replaces income 
to facilitate the growth of my family, because that is what I 
am doing as an earner. When I am older, it helps to protect my 
assets.
    That, I think, on the private insurance side, is a key 
question that needs to be asked.
    The Chairman. Well, you know, we are talking about, right 
now, about adding $300 billion in the budget-allocated amount 
to reforming Medicare by providing coverage for prescription 
drugs. That is a huge amount over the next 10 years.
    If we were to all of a sudden require that Medicare covered 
long-term care with some type of an insurance plan, like we are 
talking about for prescription drugs, do any of you have a 
ballpark figure about what we would talk about in terms of how 
much?
    Ms. O'Shaughnessy. Well, I guess cost estimates will 
obviously depend on the range of services and numbers of people 
who would be covered and the types of services. So it is hard 
to----
    The Chairman. You say we spend; we spend more on long-term 
care now than we do on prescription drugs.
    Ms. O'Shaughnessy. Slightly more than on prescription 
drugs. One hundred thirty-three billion on long-term care.
    The Chairman. So the question then becomes, is that a 
ballpark cost for what it would cost us to do long-term care 
under Medicare?
    Ms. O'Shaughnessy. Well, most of that is from the Medicaid 
program. A small amount is from Medicare. It depends upon how 
you shift those resources.
    Mr. Durenberger. Mr. Chairman, you might take George 
Mitchell's proposals from back in 1993, 1994, 1995, something 
like that, and run them by CBO. And I think you will get a part 
of that.
    The Chairman. Yes.
    Mr. Durenberger. I forget which one he did, but it was like 
Medicare is the catastrophic after 18 months and----
    The Chairman. Well, I think that this has been very 
helpful.
    And I think that this is a busy time for the Congress. We 
are trying to finish up the patients' bill of rights bill by 
today or tomorrow afternoon, and adjourn for the Fourth of July 
recess.
    But this has been very helpful. All three of you are really 
expert in this area, and I thank you for your participation. 
And we are going to call upon you, if it is all right, in the 
future as we continue this national effort and this national 
dialog.
    Thank you very much.
    This will conclude this hearing.
    [Whereupon, at 11:53 a.m., the committee was adjourned.]