[Senate Hearing 107-494]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-494

                      OFFERING RETIREMENT SECURITY
         TO THE FEDERAL FAMILY: A NEW LONG-TERM CARE INITIATIVE

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             APRIL 10, 2002

                               __________

                           Serial No. 107-23

         Printed for the use of the Special Committee on Aging


80-168              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2002
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001



                       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 John Breaux.........................     1

                           Panel of Witnesses

Bertram Scott, President, TIAA-CREF Life Insurance Company, New 
  York, NY.......................................................     2
Frolly Boyd, Senior Vice President, Group Insurance/Long-Case 
  Pensions, Aetna, Inc., Hartford, CT, and Board Member, 
  Americans for Long-Term Care Security..........................    19
Frank D. Titus, Assistant Director for Long-Term Care, and Acting 
  Associate Director, Retirement and Insurance, United States 
  Office of Personnel Management, Washington, DC.................    31
Paul E. Forte, Chief Executive Officer, Long Term Care Partners, 
  LLC, Charleston, MA............................................    46

                                APPENDIX

Prepared Statement of Senator Debbie Stabenow....................    73
Letter from Americans for Long-Term Care Security................    74
Statement of the American Council of Life Insurers on Long-Term 
  Care Insurance.................................................    75

                                 (iii)

  

 
  OFFERING RETIREMENT SECURITY TO THE FEDERAL FAMILY: A NEW LONG-TERM 
                            CARE INITIATIVE

                              ----------                              


                       WEDNESDAY, APRIL 10, 2002

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:35 a.m., in 
room SD-628, Dirksen Senate Office Building, Hon. John Breaux 
(chairman of the committee) presiding.
    Present: Senator Breaux.

       OPENING STATEMENT OF SENATOR JOHN BREAUX, CHAIRMAN

    The Chairman. The committee will please come to order. Our 
guests, if they will, please take their seats, and our 
witnesses, their positions at the table.
    Good morning to everyone. Thank you very much for being 
with us this morning in the Special Committee on Aging.
    Today's hearing of our Aging Committee marks the 10th 
hearing that the Aging Committee has held on long-term care 
during this Congress. Our previous hearings have addressed the 
broken nature of our long-term care system in this country. It 
is clear that Medicaid costs are skyrocketing in a system that 
is both inflexible and biased towards institutional care. 
However, today's hearing offers us an opportunity to look at 
one of the potential solutions for our long-term care crisis in 
America.
    In the fall of the year 2000, Congress passed and President 
Clinton signed into law the Long-Term Care Security Act. This 
legislation charged the Office of Personnel Management, OPM, 
with establishing a new long-term care insurance program for 
all of our Nation's Federal employees. Like many aspects of 
Government, where things move very slowly, I am pleased to 
report that this program is already up and running. The program 
is significant because the Federal Government is the Nation's 
largest employer. If the new Federal long-term care insurance 
program is successful and proves to be popular, then it will 
serve as a model for other companies and other employers. The 
old adage of ``Lead by example'' definitely applies here.
    As you will hear from our witnesses today, people are more 
likely to buy the long-term care insurance and might at a 
younger age if they are offered it by their employer. Since 
most people don't know that the Government won't pay for their 
long-term care needs, the consumer education that employers 
offer to their employees about long-term care is critical 
toward educating the public about this problem.
    As 60 percent of those reaching 65 will need long-term 
care, the 77 million baby boomers will literally break both 
State and Federal budgets unless they take personal 
responsibility for their care and purchase long-term care 
insurance.
    Financial planners now recommend that, in addition to 
having 401(k) plans and IRAs to plan for retirement, people 
should also have long-term care insurance. This will protect 
their assets, offer choices of care, and provide peace of mind 
for the entire family.
    My wife and I plan to meet very soon with some of the 
insurance agencies to discuss which type of plan is best for 
us.
    I look forward to hearing from our witnesses today about 
the status of long-term care insurance and also to hear about 
the specifics of the new Federal long-term care insurance 
program.
    We are pleased to have as our panel of witnesses Mr. Bert 
Scott, who is President of TIAA-CREF Life Insurance Company of 
New York; Frolly Boyd, who is Senior Vice President of Group 
Insurance/Long-Case Pensions with Aetna; and a board member of 
Americans for Long-Term Care Security and Mr. Frank Titus, who 
is Assistant Director for Long-Term Care and Acting Associate 
Director, Retirement and Insurance, with the Office of 
Personnel Management; and Mr. Paul Forte, Chief Executive 
Officer of Long Term Care Partners in Charleston, MA.
    Lady and gentlemen, we are pleased to have you here. Mr. 
Scott, you may begin.

STATEMENT OF BERTRAM SCOTT, PRESIDENT, TIAA-CREF LIFE INSURANCE 
                     COMPANY, NEW YORK, NY

    Mr. Scott. Thank you, Mr. Chairman. Good morning, Mr. 
Chairman and members of the committee. Before I get started 
with my formal remarks, I would like to congratulate you on the 
birth of your first grandson.
    The Chairman. Yes, we are getting into this aging process 
aggressively and rapidly. [Laughter.]
    Mr. Scott. My name is Bertram Scott. I am the President of 
TIAA-CREF Life Company and Executive Vice President of TIAA-
CREF. As the world's largest and oldest pension company, our 
focus has always been to provide our participants with the 
financial tools to plan for a secure retirement. Therefore, at 
a time when the largest segment of our population, the boomers, 
are entering their retirement years, it is all the more 
important that we address this critical threat that long-term 
care expense puts on retirement security.
    Mr. Chairman, we commend your efforts to bring attention to 
this threat and your leadership in holding hearings on long-
term care insurance, in particular, the new Federal initiative. 
Today, I hope to provide background on the long-term care 
insurance market by discussing why it is important for 
individuals to provide for their retirement security by 
planning to cover long-term care expenses; industry data on 
long-term care expenses and the vital role long-term care 
insurance plays in protecting and preserving retirement assets; 
the need to further educate consumers about long-term care 
costs that are not covered by Medicaid; how the Federal 
initiative will stimulate consumer and employer awareness and 
interest in long-term care insurance; the potential benefit of 
additional tax incentives as a complement to enhanced consumer 
education.
    To demonstrate a couple of key points that I will allude to 
in my testimony, I have brought two ACLI charts that reference 
attitudes and behaviors of long-term care policy holders. The 
pie chart illustrates the importance long-term care policy 
owners placed on owning a policy when preparing for their own 
retirement. An astonishing 98 percent found it to be an 
important part of their planning, with a full 70 percent saying 
it was very important.
    The bar graph shows the importance policy holders place on 
insurance to cover long-term care expenses as compared to those 
relying on personal savings. It illustrates that 86 percent of 
those who place a high importance on long-term care planning 
rely on their long-term care policies to cover their expense; 
whereas, those who do not consider it important will rely on 
their personal savings.
    TIAA-CREF began providing long-term care insurance to its 
participants over a decade ago in recognition of this emerging 
need. Our position is heralded by support from the American 
Council of Life Insurance and the Health Insurance Association 
of America. They are focusing on the critical need for consumer 
education about long-term expenses and tax incentives for 
individuals to invest in their retirement security by 
purchasing long-term care insurance.
    The industry is encouraged that Congress made long-term 
care insurance available to 20 million eligible Federal workers 
and their families. This initiative serves to educate many 
Americans on long-term care and the importance of planning 
ahead to protect against the catastrophic cost of extended 
care.
    One of the greatest risks to individual savings is the 
unanticipated cost of long-term care. Unfortunately, many 
people underestimate the cost and are shocked and unprepared 
when it hits home. Although 67 percent of Americans recognize 
that the cost of long-term care is the greatest threat to 
retirement security, only 35 percent have planned for it. A 
recent ACLI study shows a link between retirement plan and 
long-term care education. It found that when employers provided 
potential enrollees with education about long-term care 
policies, employees were much more likely to enroll for group 
coverage. What is more, those who considered coverage tended to 
be much younger, thus filling a gap for employees under 60 who 
otherwise would not consider coverage. The report concluded 
that employer-sponsored education about long-term care led 
employees to consider it as an integral part of retirement 
planning.
    Despite the encouraging data among policy holders, they 
still only comprise 10 percent or about 6 million of the 
elderly, with even fewer younger owners. The reason may be the 
decision to buy long-term care is difficult. There are many 
choices. There is also the misperception that the cost of 
coverage is too expensive.
    The reality is that long-term care insurance is the most 
economical solution when compared against the actual cost of 
service. According to the U.S. Department of Labor, the 
national cost of nursing home care averages $56,000 a year and 
is expected to rise to $190,000 in 30 years. The industry has 
adapted to meet the escalating cost of long-term care. As a 
result, the face of long-term care insurance has changed 
significantly over the past 10 years. Insurers now offer 
comprehensive coverage with fewer restrictions. Consumers are 
buying richer coverage, including inflation protection, 
resulting in higher average premiums. Premiums have risen from 
1995 from $1,500 to $1,700 in 2000, but today's policies are of 
more value--you get more value for your dollar--than they were 
5 to 10 years ago.
    There are also significant cost differences over a 10- to 
30-year period between total premiums paid if purchased at age 
45 versus 55 or 65. Lower premiums and a higher likelihood of 
qualifying for coverage at a younger age should be weighted 
against higher premiums paid over a shorter period of time if 
purchased at an older age. Some helpful considerations when 
deciding whether to buy long-term care is an individual's 
assets and retirement income, their ability to pay premiums 
without adversely affecting lifestyle, and their ability to 
absorb possible premium increases without causing hardship.
    Increasingly, a 2001 ACLI study found that 70 percent of 
long-term policy owners recognize the importance of planning 
for long-term expense. The percentage is higher among less 
affluent owners. Why? I believe because long-term care 
insurance best serves moderate-income individuals and couples. 
This is illustrated in a recent HIAA study. It shows that long-
term care insurance purchasers had a median income of $42,500 
in 2000 and 70 percent of that group had liquid assets of more 
than $100,000. While the income and assets of the average buyer 
is on the rise, the average age for individual buyers is 
lowering, according to industry studies, dropping from 69 to 
67. The average age of purchasers in the group market is even 
lower, at approximately 43.
    As I mentioned earlier, only 10 percent of our elderly have 
long-term care insurance coverage. Perhaps this is because 
there is a common misperception that the Federal Government 
covers long-term care costs for all Americans through Medicaid. 
In reality, most long-term care services are paid out-of-pocket 
or provided informally by family and friends. The more affluent 
individuals have the means to self-insure for long-term care 
insurance.
    Regardless, many boomers, the age that will double the 
number of elderly over the next 30 years, still believe that 
the Government will take care of their long-term care needs. 
This misperception will potentially result in burdens on the 
Federal Government and States that will be impossible to meet 
over the next 20 to 30 years.
    The industry believes that education is the key to 
correcting this misperception and encouraging the purchase of 
long-term care insurance to address long-term care expenses. We 
also believe that the new Federal initiative will complement 
our efforts to educate the general public, raising awareness 
about the high cost of long-term care, and emphasize that the 
Government does not pay for care for the vast majority of the 
population. It will reinforce the message that individuals must 
take responsibility to protect themselves from the higher cost 
of long-term services. The message should be clear: The 
Government will not pay for long-term care expenses for most 
Americans.
    We are optimistic that the example set by the Federal long-
term care program will encourage more employers to offer long-
term care insurance as a voluntary employee benefit. There is 
one final benefit of the Federal initiative that cannot be 
overlooked. In the process of providing long-term care 
insurance materials to policymakers and congressional staff, we 
believe that policymakers will become sensitized to the need 
for long-term care insurance. As a result, we hope that your 
colleagues will join you in supporting legislation that 
provides a Federal above-the-line tax deduction for the 
purchase of long-term care insurance as well as a tax credit 
for individuals and their caregivers.
    Thank you for inviting me to testify today. We applaud your 
leadership in encouraging all Americans to use long-term care 
insurance as a vital planning tool for safeguarding their 
retirement security.
    [The prepared statement of Mr. Scott follows:]

    [GRAPHIC] [TIFF OMITTED] T0169.001
    
    [GRAPHIC] [TIFF OMITTED] T0169.002
    
    [GRAPHIC] [TIFF OMITTED] T0169.003
    
    [GRAPHIC] [TIFF OMITTED] T0169.004
    
    [GRAPHIC] [TIFF OMITTED] T0169.005
    
    [GRAPHIC] [TIFF OMITTED] T0169.006
    
    [GRAPHIC] [TIFF OMITTED] T0169.007
    
    [GRAPHIC] [TIFF OMITTED] T0169.008
    
    [GRAPHIC] [TIFF OMITTED] T0169.009
    
    [GRAPHIC] [TIFF OMITTED] T0169.010
    
    [GRAPHIC] [TIFF OMITTED] T0169.011
    
    [GRAPHIC] [TIFF OMITTED] T0169.012
    
    [GRAPHIC] [TIFF OMITTED] T0169.013
    
    The Chairman. Thank you very much, Mr. Scott, for your 
statement.
    Next, Ms. Boyd.

    STATEMENT OF FROLLY BOYD, SENIOR VICE PRESIDENT, GROUP 
 INSURANCE/LONG-CASE PENSIONS, AETNA, INC., HARTFORD, CT, AND 
      BOARD MEMBER, AMERICANS FOR LONG-TERM CARE SECURITY

    Ms. Boyd. Good morning, Mr. Chairman. Thank you for this 
opportunity to speak to you today. My name is Frolly Boyd. I am 
the Senior Vice President of Aetna Life Insurance Company's 
Group Insurance Division based in Hartford, CT. I would like to 
request that the text of my formal statement be added to the 
record.
    The Chairman. Without objection.
    Ms. Boyd. I would like to thank you, Mr. Chairman, Senator 
Breaux, for cosponsoring S. 627.
    As one of the Nation's oldest and largest providers of 
health and related group benefits, Aetna has taken a leadership 
role in group long-term care insurance. In addition to 
representing Aetna, I am also here today on behalf of Americans 
for Long-Term Care Security, ALTCS. I serve on the board of 
ALTCS, a 34-member coalition of consumer and industry 
organizations that seeks to build public awareness about long-
term care and advocates legislation to help Americans better 
prepare for their retirement security. I believe you have a 
list of the membership.
    Aetna and Americans for Long-Term Care Security believe 
that the Government must continue to provide a safety net for 
the truly needy. At the same time, the Government should also 
provide incentives for private sector solutions, such as long-
term care insurance.
    Congress needs to act now. With the baby-boom generation 
preparing to retire, the cost of long-term care will place an 
intolerable strain on the Medicaid program.
    Contrary to popular belief, Medicare pays virtually nothing 
for long-term care services. Medicaid is the one and only 
Government program providing long-term care coverage and pays 
for over two-thirds of all nursing home patients in the United 
States. This has put a tremendous strain on State budgets. 
Because of the widespread practice of transferring and 
sheltering assets to achieve Medicaid eligibility, the middle-
class elderly end up in nursing homes paid for by Medicaid 
monies.
    For America's 77 million baby boomers, paying future long-
term care costs is their largest looming expense. In 2020, one 
out of every six Americans will be age 65 or older--roughly 20 
million more seniors than today. By 2020, the number of 
Americans 85 and older--the people most likely to need long-
term care--will double to 7 million.
    It is no secret that long-term care is very expensive. The 
average annual cost of a 1-year nursing home stay is $55,000. 
But in some areas of the country, it is closer to $80,000. It 
costs almost $16,000 annually for daily visits by a home health 
care aide. Alarmingly, these expenses are projected to 
quadruple over the next 30 years, eroding hard-earned 
retirement nest eggs.
    Medicaid will never be able to foot the bill for the 
millions of baby boomers that will need long-term care services 
in the near future. Helping people pay for these services 
directly through quality long-term care insurance products 
should be part of our Nation's answer to this crisis.
    That is why Aetna and Americans for Long-Term Care Security 
strongly support the Long-Term Care and Retirement Security Act 
of 2001.
    The bill would allow individuals an above-the-line Federal 
income tax deduction for the premiums they pay to purchase 
long-term care policies. Additionally, it provides up to a 
$3,000 tax credit for family caregivers to help cover their 
long-term care expenses. Most importantly, for employer group 
long-term care products, it will also permit long-term care 
insurance coverage to be offered under employer-sponsored 
cafeteria plans and flexible spending accounts.
    While not a complete panacea, this legislation will provide 
some needed relief to the growing numbers of Americans who are 
overwhelmed by caring for their disabled parents and relatives, 
while encouraging many of those caregivers to begin preparing 
for their own long-term care needs.
    I believe the tax breaks contained in S. 627 will 
dramatically increase the public's appetite for long-term care 
products and provide needed relief to Federal and State 
government programs.
    Another important reason this legislation is needed: its 
very passage will generate publicity and increase public 
awareness. Consumer education is critical.
    One of the barriers to growth in the marketplace is 
consumers' misconception about who pays for long-term care and 
their lack of awareness. A recent survey found that only 25 
percent of people age 55 and older think they or their family 
would be responsible for long-term care expenses. The truth is 
most health plans do not cover long-term care, and Medicare 
coverage within the health plans is very limited.
    The cost of long-term care insurance is also cited as a 
reason why few consumers own a policy today. Many people assume 
insurance covering nursing home costs must be expensive. In 
reality, long-term care insurance policies can be quite 
affordable, especially when purchased at a younger age.
    For example, a 40-year-old might pay an annual premium of 
about $259 for a standard group long-term care policy. That 
annual premium rate would apply for the life of the policy. The 
same policy for a 50-year-old would cost $482, and for a 60-
year-old it would cost $1,136.
    Long-term care policies have also dramatically improved. 
Increasingly, insurers are offering comprehensive coverage for 
the wide variety of benefit options and design flexibility. 
Today's policies cover a variety of services, a variety of 
providers, and a variety of care settings, such as both 
facility- and home-based care. We strongly applaud and 
encourage legislative efforts to develop uniform consumer 
protection provisions so that the public can be assured that 
the benefits that they expect will be paid on time, when 
needed, and without hassle.
    In conclusion, we believe that swift passage of this bill 
will help families struggling with the staggering costs of 
long-term care and enable others to protect themselves by 
purchasing private coverage. As the baby-boom generation ages 
into retirement, they must be encouraged to buy private 
insurance now to provide for their own eventual long-term care 
needs. Continued reliance on Medicaid and other programs is not 
the answer. The tax relief embodied in S. 627 will go a long 
way in providing aging Americans with retirement security. 
Thank you, Chair.
    [The prepared statement of Ms. Boyd follows:]

    [GRAPHIC] [TIFF OMITTED] T0169.014
    
    [GRAPHIC] [TIFF OMITTED] T0169.015
    
    [GRAPHIC] [TIFF OMITTED] T0169.016
    
    [GRAPHIC] [TIFF OMITTED] T0169.017
    
    [GRAPHIC] [TIFF OMITTED] T0169.018
    
    [GRAPHIC] [TIFF OMITTED] T0169.019
    
    [GRAPHIC] [TIFF OMITTED] T0169.020
    
    [GRAPHIC] [TIFF OMITTED] T0169.021
    
    [GRAPHIC] [TIFF OMITTED] T0169.022
    
    The Chairman. Thank you very much, Ms. Boyd.
    We have a few minutes left in this vote, which has started. 
I want to recess the committee and return for the other two 
witnesses just as soon as we can. [Recess.]
    The committee will please come to order. When we left, Ms. 
Boyd had just completed her testimony.
    Mr. Titus.

 STATEMENT OF FRANK D. TITUS, ASSISTANT DIRECTOR FOR LONG-TERM 
CARE, AND ACTING ASSOCIATE DIRECTOR, RETIREMENT AND INSURANCE, 
  UNITED STATES OFFICE OF PERSONNEL MANAGEMENT, WASHINGTON, DC

    Mr. Titus. Thank you, Mr. Chairman and members of the 
committee. Good morning. My name is Frank Titus. I am the 
Assistant Director for Long-Term Care and the Acting Associate 
Director for Retirement and Insurance at the United States 
Office of Personnel Management, the sponsor of the Federal 
Long-Term Care Insurance Program. I want to thank you for 
inviting me this morning and for your support of this program.
    Your letter of invitation indicated that you were 
interested in basically five different areas: the process that 
OPM used that resulted in the selection of John Hancock and 
MetLife as Long-Term Care Partners, the companies that will 
administer this program; the composition of the Federal family 
that is eligible to apply for coverage under the program; the 
early enrollment period that is now underway and the open 
season that will begin on July 1 and run through the end of the 
year; our outreach and consumer education efforts, both past 
and planned; and how we will know whether we succeeded in this 
important offering or not. I will address each of these briefly 
in turn.
    First, our selection process. As you know, the Long-Term 
Care Security Act was signed into law in September of 2000, and 
shortly thereafter we created the Office for Long-Term Care 
Implementation in the U.S. Office of Personnel Management, and 
I was selected as the Assistant Director of that office.
    We began an outreach effort and held literally scores of 
meetings with stakeholder groups, industry representatives, et 
cetera, in an effort to understand as much as we could about 
the product, and about our stakeholders' interests, so we could 
develop a balanced group policy that would meet our stakeholder 
needs and that would attract very competitive bids from the 
insurance industry.
    That process culminated in the creation of a request for 
proposals that was issued on June 20, 2001. That request for 
proposals, which is the standard Government vehicle for 
contracting and obtaining services, contained evaluation 
criteria that were divided between technical criteria and cost 
criteria.
    The RFP said that the technical criteria taken together 
would be more important than cost, and it enumerated the 
criteria that were most important. From a technical standpoint, 
they were: education, marketing and enrollment, customer 
service, underwriting, and claims administration.
    Our cost evaluation was a bit different from standard 
Government cost evaluations in that this was not simply a low-
cost effort. Our cost criteria did evaluate the absolute 
premiums, but, more important, we evaluated the results that we 
thought those premiums would produce in actual experience in 
terms of something we called an experience fund.
    We also looked at the profit that carriers proposed and the 
proportion of that profit that they were willing to put at risk 
for performance. We looked at the reasonableness of the 
underlying economic and actuarial assumptions in terms of the 
NAIC model that is designed to produce premium stability.
    We assembled two interagency task forces for the evaluation 
of the technical and cost aspects of the proposals we received. 
They included members from OPM, Treasury, HHS, DOD, and the 
Pension Benefit Guaranty Corporation.
    We evaluated the initial proposals. We held meetings with 
the offerors. We requested best and final offers by October 15, 
and then the panels met again and made a recommendation to me 
as contracting officer.
    I am happy to say that while our competition was very 
rigorous and keen, at the end of the day the Government was in 
a no-lose situation. It was looking at highly rated proposals 
that we just couldn't lose on. But both the technical and the 
cost evaluation panels slightly favored the proposal that was 
submitted by John Hancock and MetLife as Long-Term Care 
Partners. My independent review of their proposal as the 
contracting officer concurred with their evaluation, as did the 
Director of the Office of Personnel Management, who ultimately 
was the selecting official.
    The Chairman. Run that by me again. Who was it? You said 
you had the two, Hancock and MetLife. Who was the third one you 
were talking about?
    Mr. Titus. Well, MetLife and Hancock came together as Long-
Term Care Partners, they formed a joint venture company to 
administer this policy.
    The Chairman. OK.
    Mr. Titus. I will just run through the rest very quickly.
    You asked who is eligible. The Federal family consists of 
employees and members of the uniformed services, retired 
employees and retired members of the uniformed services; their 
current spouses, including surviving spouses, who are in 
receipt of an annuity their adult children, adopted children, 
and step-children age 18 or over; and the parents, parents-in-
law, and step-parents of employees. The total Federal family is 
estimated to be some 20 million.
    Our early enrollment period, as I say, is now underway. It 
runs until May 15. It is for people who are already educated 
about long-term and long-term care insurance and are in a 
position to make an informed decision today.
    The primary difference between the early enrollment and the 
open season that will begin in July will be a tremendous 
education and outreach effort that is designed to educate the 
vast majority of people who are not knowledgeable about long-
term care and long-term care insurance so that they will be in 
a position to make an informed choice during the open season.
    The Chairman. You have another open season later on?
    Mr. Titus. Yes, beginning July 1 and running through the 
end of the year.
    The Chairman. OK.
    Mr. Titus. Now, finally, you asked about the consumer 
education and outreach. As I say, during the early enrollment 
period there's relatively little. During the open season that 
commences in July, it will be the largest ever educational 
campaign. It will be comprehensive and continuous. We have 
established implementation coordinators at each agency. We will 
be issuing 5 monthly bulletins entitled ``Get Smart about Your 
Future.'' We already have 750,000 subscribers for those 
bulletins, and thousands more are coming in each week.
    We have conducted one satellite broadcast on March 6. We 
have a satellite broadcast coming up on May 15 and another on 
July 17. They increasingly focus on long-term care, long-term 
care insurance, and then the Federal product. We have posters, 
fliers, brochures, magnets for your refrigerators, all those 
kinds of things.
    We will have a big kick-off before July 1, and after that 
we will have some 2,000 workplace meetings and community 
meetings nationwide. Finally, we will have a website, 
interactive decision support tools, and a toll-free number.
    Finally, you asked how will I know and how will OPM know 
whether we succeeded. Well, I was gratified to learn that you 
and your wife are interested in purchasing a policy, and I was 
very happy to deliver to you this morning an open enrollment 
kit and a personal letter of invitation to become what we are 
calling a charter member of the Federal Long-Term Care 
Insurance Program. So I guess one of the ways I will measure my 
success is to see whether you and your wife sign up.
    The other way that I will measure my success is to look at 
how many other charter members there are and the market 
penetration that we achieve among the total Federal family.
    GAO will be conducting independent reviews of our program 
during its third and its fifth years, and there are possible 
studies planned by HHS and others.
    That concludes my remarks. I thank you very much.
    [The prepared statement of Mr. Titus follows:]

    [GRAPHIC] [TIFF OMITTED] T0169.023
    
    [GRAPHIC] [TIFF OMITTED] T0169.024
    
    [GRAPHIC] [TIFF OMITTED] T0169.025
    
    [GRAPHIC] [TIFF OMITTED] T0169.026
    
    [GRAPHIC] [TIFF OMITTED] T0169.027
    
    [GRAPHIC] [TIFF OMITTED] T0169.028
    
    [GRAPHIC] [TIFF OMITTED] T0169.029
    
    [GRAPHIC] [TIFF OMITTED] T0169.030
    
    [GRAPHIC] [TIFF OMITTED] T0169.031
    
    [GRAPHIC] [TIFF OMITTED] T0169.032
    
    [GRAPHIC] [TIFF OMITTED] T0169.033
    
    [GRAPHIC] [TIFF OMITTED] T0169.034
    
    The Chairman. Thank you very much, Mr. Titus.
    Mr. Forte.

STATEMENT OF PAUL E. FORTE, CHIEF EXECUTIVE OFFICER, LONG TERM 
               CARE PARTNERS, LLC, CHARLESTON, MA

    Mr. Forte. Good morning, Mr. Chairman and members of the 
committee. Thank you for this invitation to testify. My name is 
Paul Forte. I am the Chief Executive Officer of Long Term Care 
Partners LLC, a new joint venture company between John Hancock 
Financial Services and MetLife. Long Term Care Partners is the 
exclusive administrator of the Federal long-term care insurance 
program. I am pleased to be able to participate in this 
important hearing on the need for private long-term care 
insurance, one of the key markets in the future, and on the 
Federal program, a landmark event in the development of that 
market.
    Since the mid-1980's, John Hancock and MetLife have labored 
to perfect our respective long-term care insurance products and 
to serve our ever expanding books of business. We have 
simultaneously participated in public policy initiatives, 
recognizing that without them, the private long-term care 
insurance market was not likely to grow.
    But of all the public policy initiatives in which we have 
been involved, none in our opinion is as significant to the 
future of the private long-term care insurance market as the 
establishment of the Federal program. This program will have 
far-reaching effects on the entire U.S. population, not just 
the 20-million-member Federal family.
    More than 3 years in the making, the Federal program is 
distinguished for its quality, its comprehensiveness, and its 
value. I would like to present some evidence for this 
assertion, but before I do, allow me to say a few words about 
the entity that will be administering the Federal program since 
that is near to my heart.
    John Hancock and MetLife first began working closely 
together on the Federal program in the fall of 2000. Our two 
companies discussed the best way to support it if we were 
fortunate enough to win the award. After much discussion, we 
decided to build a dedicated company from scratch.
    This company would have all of the expertise needed to 
manage a large national long-term care insurance program, to 
make it strong and to keep it strong. It would be responsible 
for everything from marketing and underwriting to customer 
service and claims adjudication. Further, it would make 
extensive use of the Internet and other technology so that it 
would be easy for Federal family members to access information 
and benefits quickly, wherever they were. It would give OPM and 
Federal family members a single point of contact. In short, it 
would take the best of everything from both companies and put 
it together under one roof.
    Needless to say, this approach took a lot of thought and a 
lot of hard work, and Long Term Care Partners is now underway. 
We are building our organization, recruiting talent, setting up 
systems, and developing service protocols. We are supporting 
the early enrollment program, which began March 25 and will run 
through May 15.
    Now to the reasons that I think the Federal program is so 
good:
    First, a generous allowance for informal care benefits, 
bringing friends, neighbors, and other non-professionals, 
including relatives, into the caregiving process;
    Second, care coordination and counseling services to help 
insured consider the many options they have before them and to 
access benefits when they need them;
    Third, the right to appeal all disputed claim decisions to 
an independent third-party examiner;
    Fourth, flexibility in moving from a periodic method of 
adjusting for inflation to an automatic compound increase 
method, without evidence of insurability and with appropriate 
adjustments to rates;
    Fifth, international insurance coverage so that insureds 
may receive benefits anywhere in the world.
    These features illustrate the quality of the Federal 
program and distinguish it from other long-term care offers 
available in the market. Since I have commented on several of 
these in my written testimony, let me say a few words about 
rates.
    The Federal program represents an excellent, overall 
consumer value, but in order to see this, you must compare 
Federal program benefits with those of other policies, because 
long-term care insurance is not a commodity. Every policy is 
different, with its own provisions, its own terms, its own 
limitations. If adjustments are made in the rates of other 
policies to allow for the benefits the Federal program offers--
for example, generous informal benefits, care coordination for 
insureds and family members, assisted living facilities covered 
at 100 percent of the daily benefit amount--the Federal program 
will come out on top.
    We estimate that Federal program rates are at least 15 
percent less expensive on average than comparably designed 
policies on a standard single-issue basis, and we expect these 
rates to be stable. OPM's recommendation that we set rates 
based upon ``moderately adverse'' actuarial assumptions means 
it is likely that these rates will be sufficient to support 
experience over the long term.
    This approach to setting premiums is fully consistent with 
the rate stabilization initiatives in the current National 
Association of Insurance Commissioners model. In any event, all 
rates quoted are guaranteed not to increase for the initial 7-
year contract period unless OPM approves the increase.
    I would like to note, Mr. Chairman, that neither John 
Hancock nor MetLife has ever raised long-term care insurance 
rates on any employer group contract, and we have hundreds of 
them.
    Before closing, I would like to assure this committee of 
the commitment that Long Term Care Partners brings to the 
Federal program. Some of us have been involved in long-term 
care insurance for the better part of our adult careers and 
have waited a long time for a stimulus of this magnitude. Many 
of us have felt satisfaction at watching the Federal program 
develop from its initial legislation into the impressive 
structure it is becoming. All of us are dedicated to making the 
Federal program a success because we believe in it and in the 
people who are making it happen here in Washington.
    On behalf of the staff of Long Term Care Partners and of my 
associates at John Hancock and MetLife, I would like to thank 
you again for this opportunity to appear before your committee 
and for your valuable time. I will be happy to answer any 
questions you may have.
    [The prepared statement of Mr. Forte follows:]

    [GRAPHIC] [TIFF OMITTED] T0169.035
    
    [GRAPHIC] [TIFF OMITTED] T0169.036
    
    [GRAPHIC] [TIFF OMITTED] T0169.037
    
    [GRAPHIC] [TIFF OMITTED] T0169.038
    
    [GRAPHIC] [TIFF OMITTED] T0169.039
    
    [GRAPHIC] [TIFF OMITTED] T0169.040
    
    [GRAPHIC] [TIFF OMITTED] T0169.041
    
    [GRAPHIC] [TIFF OMITTED] T0169.042
    
    [GRAPHIC] [TIFF OMITTED] T0169.043
    
    [GRAPHIC] [TIFF OMITTED] T0169.044
    
    [GRAPHIC] [TIFF OMITTED] T0169.045
    
    [GRAPHIC] [TIFF OMITTED] T0169.046
    
    [GRAPHIC] [TIFF OMITTED] T0169.047
    
    The Chairman. Thank you for your testimony.
    Mr. Forte and Mr. Titus, I want to be a charter member of 
your program. We will sit down and we will negotiate on the 
premiums. [Laughter.]
    I thank all of you. I just think this is so important. I 
think the Federal effort with OPM and the partnership between 
MetLife and Hancock is incredibly important because hopefully 
we will get a lot of coverage on this, affecting not just 
Federal employees but, as you said, Mr. Scott, all of the 
civilian employees who also will be made better aware of the 
nature of the problem and the need for insurance.
    I am a very strong believer in insurance to spread the risk 
and to deliver products at an affordable price. I think you 
have all made some really good points, and most people think 
the current programs cover long-term care. Most people think 
they don't have a problem with it because they have Medicare, 
and they don't have a problem with it because if they really 
get poor, they have Medicaid.
    The truth is that Medicare, being as inadequate as it is, 
covering only 53 percent of an average senior's health care 
costs in this country, simply doesn't provide any real long-
term care coverage. We have had hearings before this committee 
in this room with Governors--the Governor of Kentucky was the 
last one--who said their Medicaid program is going broke. Why 
is it going broke? Principally because it is being used as a 
stop-gap measure to provide long-term care. It was never 
intended to do that. We are trying to put round pegs in square 
holes and square pegs in round holes, and it just doesn't fit. 
Medicaid was never intended to be a long-term care program for 
the Nation's elderly, and yet, by default, it has become so. We 
embarrass people and families by requiring them to spend all 
their assets so they can become poor enough for the country to 
give them some help.
    So I really believe that hopefully this major effort on the 
part of OPM is going to add to the coverage and publicity and 
knowledge that individuals need about what they should be 
purchasing and how they should go about doing it.
    Let me ask you, Mr. Titus, the FEHB insurance for Federal 
employees gives the employees a number of different options 
with a number of different companies. I take it that with 
regard to long-term care we have only one provider, which is 
the partnership between the two companies we have been speaking 
about.
    Mr. Titus. That is correct.
    The Chairman. Why do we not have a choice for employees to 
pick, you know, amongst more than just one provider?
    Mr. Titus. Well, as the name implies, long-term care 
insurance is just that: You are establishing a long-term 
relationship with the company. That is very different than 
health benefits where your premium is based on the plan's 
experience in only one year.
    The premiums that have been set for long-term care are 
premiums that basically have a life of more than 40 years, and 
they are designed to be stable and to be level.
    It is just a very different product, and we looked at both 
models. There was a legislative proposal which would have 
attempted to replicate the FEHB program in terms of long-term 
care. In consultation with industry and experts and in 
surveying what was done by other employers, we could not find 
any model where employers were offering basically competing 
insurance products.
    As you know, and as has been testified this morning, not 
many people purchase this product because it is not well 
understood; and we felt that if people had to choose between 
five or six different competing products, the result would be 
not only much higher marketing and administrative costs in 
terms of rolling out the program, but probably lower 
participation rates.
    We wanted to be in a position where we could stand up and 
be advocates and cheerleaders for a very comprehensive and 
flexible product, and we couldn't do that if we had competition 
in the marketplace.
    The Chairman. How long is the contract with the joint 
venture program for?
    Mr. Titus. It is a 7-year contract. We will be evaluating 
their performance each and every year. As we approach the 
seventh-year anniversary, we will do an industry survey to make 
sure that the carriers are performing on a par with the best 
available in the industry. If that determination is positive, 
if we determine that there is no enrollee interest to be served 
by a recompetition, then we will renew.
    If we determine that we could get better performance at a 
better price by recompeting the contract, then that is what we 
will do.
    The Chairman. I am a big believer in giving people as much 
information as possible about products and then giving them 
choices to pick the one that best fits their particular needs 
and their family needs. But I understand the point that you 
make is from a standpoint of efficiency and cost, et cetera.
    Let me ask Mr. Scott and Ms. Boyd, is that, from your 
knowledge, sort of a typical arrangement with large employers 
where they would go out and negotiate and pick a particular 
long-term care provider? Or is it more likely that they would 
have several different choices?
    Ms. Boyd. It is the former. Certainly an employer, 
particularly in the area of life insurance, long-term care, and 
disability insurance, these areas, an employer would pick one 
supplier.
    The Chairman. You would agree?
    Mr. Scott. That is correct. I would agree, yes.
    The Chairman. So they are consistent with what the private 
market has been doing in this area.
    Ms. Boyd. Yes.
    Mr. Scott. That is correct.
    The Chairman. It is really interesting that 5 million 
people, I think is the figure that I had, approximately, have 
long-term health care insurance being provided by 100 
companies. What do you all in the private sector think that the 
potential realistically is? I think this is a market that is 
going to explode. If I was in the insurance business, I would 
be running as fast as I could to design programs that are going 
to be available for this explosion of seniors that we are about 
to have in this country.
    What do you think? Anybody, either one of you, have an idea 
about the potential out there for what a program that today 
covers 5 million people can be in the next 20 years? Any 
projections?
    Ms. Boyd. I think that it is indeed potentially explosive, 
and for a couple of reasons. I think that, first of all, 
awareness is growing because of the aging of the population. 
But I believe the industry would reflect what Aetna has 
experienced, and this goes back to under HIPA tax relief. It 
was very limited. But even after that, certainly at Aetna we 
saw a 40 percent increase in enrollment in our book of 
business.
    Now, as I said, part of that, I think, was due to general 
awareness, but also I think even though those tax breaks were 
limited, the signal was sent that individual accountability was 
very, very important. So I think the Federal program will 
indeed support that.
    Second, the publicity and awareness and education around 
the Federal program will send a very strong message. Employers 
are beginning to look at, as Mr. Scott referred to, voluntary 
products as they transfer costs to employees, and long-term 
care bought on a group basis is very affordable.
    So there is a great deal of interest, I think, in looking 
by employers at this opportunity.
    The Chairman. Do you have a number that you all could tag 
to this potential number of people that might be involved in 
purchasing this?
    Ms. Boyd. Well, the population that is growing, you know, 
those 65 or older, I think I mentioned was going to be 20 
million in my testimony. So that is the extent. I don't think 
we would expect to see that happen overnight. We saw a 40 
percent increase in our own book. I think you could expect to 
see that in this.
    The Chairman. From your perspective as insurance people, is 
there anybody who shouldn't have this insurance? I guess the 
answer is probably obvious, but could you elaborate on that?
    Ms. Boyd. Well, I think that like other parts of other 
insurance coverages, there is always a need and there are 
always different ways to solve that need. I think, again, Mr. 
Scott referred to the average age as certainly most suitable 
for somebody with a moderate income. But I have it, and I think 
that anybody who wishes to protect their assets would want to 
look at this seriously.
    Mr. Scott. Mr. Chairman, I am remiss not to have a specific 
number for you, but I am sure we can get some better feel for 
that as time goes on here. I think the boom is quite 
significant, though, and I think we are all trying to position 
ourselves to take full advantage of that increase.
    The Chairman. I really think it is something that would be 
recommended, I mean looking at it, for people of all income 
levels. If you are fortunate enough to be wealthy, you would 
want to protect your assets, not have to spend them all.
    Mr. Scott. Absolutely.
    The Chairman. Have something to pass on to your children 
and grandchildren, et cetera. If you have a moderate income, 
you need it. Obviously you need it if you are very poor.
    Mr. Scott. That is the way we try to counsel people when 
they inquire about long-term care. Obviously we sell direct. We 
don't have intermediaries representing us in the marketplace. 
So when we counsel people about long-term care, we try to 
stratify them basically in the way you just indicated.
    If you happen to be independently wealthy or can self-
insure some of this, we still try to encourage you to protect 
those assets so you can pass those assets on to your heirs and 
not have them eroded by paying for long-term care--open-ended 
actually, because you don't know how long you are going to be 
paying for this, so you don't know what the impact will be on 
your assets.
    For those that are in greater need, we try to offer a more 
comprehensive program where it would cover more of the risk for 
them, and certainly for those that are on the lower end, we 
talk about Medicaid but we still try to talk about the 
importance of them buying coverage, too.
    The Chairman. I would like some discussion, if I can, on 
the type of long-term care that these insurance programs would 
cover. As we all know, there is a huge bias toward 
institutional care, which drives me crazy. You basically in the 
public now get Medicaid, and Medicaid covers nursing homes.
    Now, for some people a nursing home is absolutely 
essential, and there are wonderful facilities that take care of 
people who need 24-hour-a-day, 7-day-a-week care from an 
institutional setting and with medical professionals being on 
call the entire time. But there is a large number of people who 
are elderly who don't need 24/7 care.
    What does the Federal program cover when you say that we 
will provide $150 or $100 a day benefit? What type of care and 
who selects it and how does that work under the plan? Paul, do 
you want to elaborate on that?
    Mr. Forte. Yes. Well, the Federal program, Mr. Chairman, 
will offer enrollees a wide variety of options for how they get 
long-term care in the future. It will cover, of course, all 
kinds of institutional care, for example, nursing care and 
assisted living facilities care, and other kinds of care that 
would be provided in an institution. But it will offer, we 
think, an unprecedented degree of flexibility for home- and 
community-based care.
    I noted earlier in my remarks that this program will not 
only have a generous home care benefit, but it will have an 
informal care benefit that is really strong, namely, you will 
be able to get a significant amount of benefit each day from 
people who are non-professionals. These could be people living 
in your community. They could be neighbors. They could be 
friends. They could even be family members--provided that those 
family members are not living in your household at the time 
that you become benefit-eligible, in other words, at the time 
that you submit your claim.
    So you will have an opportunity to get care from people who 
are known to you, with whom you are comfortable, people who may 
be available, retirees, others in your neighborhood.
    The Chairman. Is the Federal Government going to have a 
formulary of providers that you negotiate with, say, in order 
to get the price down? Or do you say anybody in assisted living 
you can take your money and go into where you want to go?
    Mr. Forte. We will have, through our information and 
counseling service, we will make people aware of networks of 
providers who are willing to offer, say, assisted living at 
lower than market rates.
    The Chairman. All right. When you have coverage for 
prescription drugs, the providers negotiate with the suppliers 
to get the best price, et cetera. Are we going to do that with 
your companies? Can they pick any nursing home they want? Can 
they pick any assisted living facility? Can they pick any home 
health care deliverer they want?
    Mr. Forte. They have total freedom to choose any facility 
that they want.
    The Chairman. Do you look to a point when you would 
negotiate with the providers to establish formularies from a 
price standpoint to say, all right, whoever is going to make 
the best offer, we will cover them, but we will restrict who 
you can go to?
    Mr. Forte. This is something that hasn't been strictly 
formalized right now, but we are in the process of discussing 
that.
    The Chairman. OK. How do the private companies deal with 
this issue?
    Ms. Boyd. Mr. Chairman, as a health company, we certainly 
are able to--we also pay out a dollar amount or reimburse 
services, so we do not restrict where someone can go for care. 
But we are able to leverage the buying power that we have to 
create discounts for them.
    The Chairman. How many customers do you have in your long-
term care?
    Ms. Boyd. We have 90,000.
    The Chairman. 90,000?
    Ms. Boyd. Yes. We would expect in the future to really 
leverage that ability.
    The Chairman. So if you are leveraging 90,000, you have got 
a potential 20 million. Can we talk? [Laughter.]
    Mr. Forte. We have every expectation that not only in terms 
of the cost of services but in terms of the quality of 
services, we will certainly have negotiating leverage, and we 
expect that one of the things that this program is going to do 
is raise the bar for all providers across----
    The Chairman. I mean, you have the ability to do that. You 
are going to be the largest provider of long-term care by far. 
You have the ability to influence the quality of the services 
as well as the price. It is not just who can do it the 
cheapest. You can do it the cheapest if you do it, you know, in 
your back garage somewhere and say that is a long-term 
facility. But I don't think anybody would want to go there, 
although it might be the cheapest. So, I mean, it is a question 
of quality and price together, which I think is very, very 
important.
    We are trying to get as much information out there to 
people to make, you know, educated decisions about where they 
want to go.
    Mr. Scott, how about your operation?
    Mr. Scott. We operate pretty much in a similar vein. 
However, we try to intercede with the participant to get them 
some direction as to what the best level of care and the most 
appropriate care might be for them. A little bit of the early 
version of the managed care activities that we have seen.
    I see this business kind of evolving over time to looking a 
little bit more like managed care, where from the standpoint of 
working with the participants and making sure they get the 
appropriate level of care at the right type of institution, in 
addition to that negotiating arrangements with those 
institutions to make sure that the price is fair and you are 
buying volume.
    The Chairman. I take it in the private sector the insurance 
enrollee can pretty much decide what facility they need to go 
to.
    Mr. Scott. That is correct.
    The Chairman. Whether it is assisted living or whether it 
is a nursing home.
    Mr. Scott. That is correct.
    The Chairman. You just have a blanket amount. What is the 
normal--I mean, I think in the case of OPM, at least the thing 
they printed out for me, daily benefits amount--under three 
different plans, Plan A is $100, Plan B is $150, Plan C is $150 
daily benefit amount. How does that compare to what your 
policies are? Is that in the ballpark?
    Ms. Boyd. Very similar.
    Mr. Scott. Very similar to what we offer.
    Ms. Boyd. Ours range from $150 to $300.
    I would just like to make one correction point. We talked 
about this buying power. From an Aetna perspective, we have 50 
million health members, so it is the leverage on the health.
    The Chairman. The total thing.
    Ms. Boyd. So we have already proved that negotiating power, 
so I think it will be very valuable.
    Mr. Forte. Mr. Chairman, I would like to make one 
observation. Since long-term care insurance is a relatively new 
form of protection and many people who are buying the product 
now may not have need of that product for many years, as Frank 
was indicating earlier, we think it is very important to give 
them the assurance that they are going to have an enormous 
amount of control over the kind of care that they get and how 
they get it.
    Now, we use care coordinators who will be working with the 
insured's own health care practitioner, and we will make a 
number of recommendations for how that person could get care in 
an optimal fashion, the best care for the best needs. But we 
want to indicate--I would like to indicate that this is what we 
consider patient advocacy and not gatekeeping. We are not going 
to prevent people from accessing care because they do not use 
providers or facilities that we have designated. This is 
extremely important. I think we can all agree that in the world 
of health care where there are, you know, millions of claims 
each day and costs going up, that might be a necessity. We all 
will use our health plan at any point. It could be today. With 
long-term care, that is not desirable from a marketing or 
management viewpoint.
    The Chairman. Well, can you all make recommendations as to 
which plan is suitable? You can, can't you?
    Mr. Forte. Absolutely. We----
    The Chairman. You can?
    Mr. Forte. Pardon me?
    The Chairman. You can.
    Mr. Forte. Yes, we have----
    The Chairman. I have got three choices, A, B, and C. You 
can look at my situation and recommend A over B or B over C?
    Mr. Forte. We will--we can certainly ask questions about 
where you are living, what kind of care you might be interested 
in, what kind of care we think might be appropriate for your 
particular health condition, and we can make recommendations as 
to how you set that benefit.
    By the way, those are just three pre-packaged options. You 
can buy under the early enrollment program, Mr. Chairman, up to 
$300 a day on the Federal program. Under the open season, you 
will have an option for an unlimited plan. There will be no 
length of time that you can receive benefits, and I just 
thought I would mention that since that is a little unusual 
with respect to group programs. Most group programs do not 
offer unlimited coverage.
    What you are looking at is just sort of some pre-packaged 
options to sort of help you get a read on it quickly. But you 
can customize a plan by either calling our 800 line or going to 
our website.
    The Chairman. The $100 to $150 is just a particular 
concept, it is not only features that you are offering? You can 
buy $300 a day if you want it?
    Mr. Forte. You could certainly buy $300 a day. I mean, 
people are going to be eligible for this program all over the 
world, and costs vary from place to place.
    The Chairman. In the private sector, can you recommend 
which is the best one for an individual?
    Ms. Boyd. I think this is an important point, that long-
term care is very complex and it is not only which plan but it 
is what are your circumstances. The trend certainly that we are 
following is that we will profile.
    The Chairman. What is the Boehner bill all about, if you 
can make recommendations on what you are selling, is it just 
different from retirement plans?
    Mr. Forte. This is different than retirement plans. The 
Boehner bill would allow us to make broader recommendations on 
some of----
    The Chairman. That doesn't make any sense. We have got one 
standard if you are selling a retirement plan or a different 
standard if you are selling a long-term health insurance as far 
as what you can do with your customers?
    Mr. Forte. We can make recommendations to people today on 
health insurance. We have just chosen not to do that in many 
ways because what we are trying to do is allow the person to 
kind of walk down the path to make their own decision.
    Mr. Scott. The Boehner bill is an investment advice bill, 
so that is different.
    The Chairman. This is advice on long-term care. It is just 
as important as investments. I mean, I don't see the 
distinction. It is a distinction without a difference that 
companies that sell products for pension retirement cannot 
advise their clients as to which one is the best. But if you 
are selling long-term health care insurance, which is an 
investment for the rest of your life, you can. That doesn't 
make any sense, does it?
    Ms. Boyd. Well, I think that what you are actually advising 
on is not necessarily which facility to use, but based on your 
family situation and your needs----
    The Chairman. You tell them which plan best fits them. That 
is advice.
    Mr. Scott. Yes.
    Ms. Boyd. Which plan.
    The Chairman. Yes.
    Mr. Scott. What we should be doing and what we do often is 
walk through the person's background, what they have, what are 
their assets, what are they able to afford in retirement, if 
they are annuitized, like many of our participants are, how 
much money do they get each year in their annuity plan, can 
they afford the premium, and what is the likelihood--what is 
their health history.
    The Chairman. You make a recommendation.
    Mr. Scott. We make--well, we will give them several 
choices. We may not make a specific recommendation. We could. 
We are not limited.
    The Chairman. You can do that?
    Mr. Scott. Yes.
    Mr. Forte. We could--one of the first things I would want 
to know, for example, is what part of the country you plan to 
retire in and whether you think that----
    The Chairman. South. [Laughter.]
    Ms. Boyd. Right on.
    Mr. Forte. That would be Louisiana, sir?, The Chairman. 
Maybe even further south.
    Obviously, if you were going to retire to a very high cost 
area, like Miami Beach, you know, you are going to be looking 
at a plan that is closer to $300 a day. You would want maybe 
the top level daily benefit that was currently offered. Then, 
of course, you would also want to think about how you were 
going to adjust for inflation.
    The Chairman. I understand everything you are telling me, 
but the point I am trying to figure out in my own mind is why 
we have Federal laws that say if you are selling a pension plan 
to people, to a person, that you can present what you have to 
offer but you can't recommend which aspect of it is best for 
that client. If you are selling long-term care insurance to the 
same client the next day, you can show him all the options and 
you can recommend which one is the best for them, but you can't 
do it if you are selling a pension plan. It ought to be the 
same, as far as I am concerned, one way or the other.
    All right. Let's go to restrictions. If I am 58 years old 
and have early stages of Alzheimer's, are you going to sell me 
a long-term care plan?
    Mr. Forte. Mr. Chairman, each person's underwriting profile 
is different, and our underwriters will take a look at your 
profile. If you are already an Alzheimer's patient, it is 
likely that you would not be accepted for coverage. The 
application that you have in front of you, which I believe is 
what we refer to as the short form----
    The Chairman. You have seven questions.
    Mr. Forte. It has got seven questions. Those begin by 
asking you about your ability to perform certain activities of 
daily living. Then it goes on to make inquiry into any one of a 
number of very serious illnesses that might cause you to become 
dependent in the activities of daily living and so forth.
    The Chairman. If you answer any one of these----
    Mr. Forte. If you answer yes to any one of those, we 
recommend that you do not go any further with your application. 
You should wait for the open season, at which time we may be 
able to offer you something else, a non-standard policy whose 
underwriting terms you could pass successfully.
    The Chairman. OK. How close are we to adverse risk 
selection in this?
    Mr. Forte. Pardon me?
    The Chairman. How close are we to adverse risk selection if 
you are only going to insure people who are fairly healthy?
    Mr. Forte. Well, this is not--this plan will cover people 
who do not have perfect health. There are a number of health 
conditions, of course, that you might have that are not on that 
part of the seven questions. We will, of course, accept people 
whose health is not perfect.
    Take someone, for example, who has diabetes, whose diabetes 
is controlled through oral medication, it was adult onset. That 
person might very well be accepted for coverage. Someone, on 
the other hand, who was an insulin-dependent diabetic from 
childhood might be declined.
    So it really depends on your situation. But to your point 
about not accepting people who are currently not healthy, this 
is a true insurance program. We are accepting people into the 
program whose health is reasonably good. We are not accepting 
people who already constitute a potential claim. In fact, the 
statute expressly makes reference to the fact that this program 
is not for people who will become--either are now a claim or 
will become a claim almost immediately. If we were to do that, 
sir, it would be almost impossible for us to offer this program 
at competitive rates and to make it attractive enough to those 
people who are in very good health and who would have the 
option to go to an individual long-term care insurance 
underwriter and get a policy for them.
    The Chairman. How does it work in the private sector, Mr. 
Scott?
    Mr. Scott. In the group business, we have what we call 
simplified underwriting, something very similar to what you 
have in front of you. If we are offering to a group employer, 
we ask a limited number of questions to get a sense of the 
health history. Because it is group, you are going to be 
spreading the risk among a larger number, so, therefore, you 
can take people with a somewhat questionable health history 
because you assume you will have healthier people.
    On the individual side, we have a much more extensive 
health care questionnaire where we ask detailed questions about 
the person's history and background and then make an 
underwriting decision based upon how they answer those 
questions.
    The Chairman. How many people do you think that currently 
are applying for long-term health care insurance are denied 
access to it because of pre-existing conditions?
    Mr. Scott. About 10 percent. That is our number. Our number 
is about 10 percent.
    The Chairman. Ms. Boyd.
    Ms. Boyd. I mostly would agree with that, yes.
    The Chairman. About 10 percent?
    Mr. Forte. Mr. Chairman, that is also true on the group 
side, about 10 percent, particularly for actively--on the 
retiree side, it could be a little higher.
    The Chairman. OK. A final point. What--maybe two points. 
What would be the optimum age, if there is one, for someone to 
purchase these packages? Is there an optimum age, best age?
    Mr. Forte. I am not sure that there is an optimum age. I 
would say that if you are approaching age 50 and you haven't 
yet purchased long-term care, you really ought to give it very 
serious thought because you are close to retirement, because at 
that age, actuarially, your risk of contracting some kind of 
illness goes up fairly significantly.
    The Chairman. Your thoughts?
    Ms. Boyd. In the employer market, I would say average age, 
about 35 to 40 would be a very good age.
    The Chairman. 35?
    Ms. Boyd. Yes. The earlier that you purchase, the cheaper 
and more affordable the product is going to be. Although you 
would be accumulating over a long period of time, you still 
would be paying in a lot less than you would have to pay out. 
Remember also that the need for long-term care is not just an 
elderly issue. You can have a need for long-term care at any 
time in life. There are as many people under the age of 65 in 
need of long-term care or in nursing homes as there are over.
    The Chairman. Could something like what we are offering 
here in the private sector be a way to provide this type of 
coverage to Medicare patients through the Medicare program with 
the Government paying a portion of the premium? Could it be 
adaptable to that? Mr. Forte?
    Mr. Forte. I am not sure I understand the question, Mr. 
Chairman. Are you asking----
    The Chairman. Medicare doesn't cover long-term care, and, 
you know, I am thinking about trying to see--there is a big 
debate on adding prescription drug coverage to Medicare, and 
many of us are fighting for a private delivery system of 
prescription drugs instead of having a micromanaged, top-to-
bottom, federally run, federally fixed prices on prescription 
drugs, to do it through an insurance program. If we were to 
want to add long-term care to Medicare, couldn't we just 
incorporate this type of delivery system as a portion of 
Medicare, have the Government pay a portion of the premium?
    Mr. Scott. That is a good question. I really haven't 
thought about that. I am not sure. I would have to take a 
little bit of time to think about it.
    I guess funding would be an issue and how you would 
underwrite that would be two issues that come to mind that 
could be problematic.
    The Chairman. Well, the way this would work would be the 
Medicare program would just do what OPM did, do a request for 
proposals from various providers and select one or several that 
we would make part of the Medicare program; and a Medicare 
recipient would pay a portion of the premium, the Federal 
Government would pay a portion of the premium, and private 
companies would deliver the product. Most of the people that 
you are going to be selling this to are Medicare-eligible. They 
just won't get it through the Medicare program.
    Mr. Scott. That is correct.
    The Chairman. This is like a Medigap add-on, what we are 
talking about here. I would just like to make it part of 
Medicare itself. I think Medicare should cover prescription 
drugs. Medicare should cover long-term health care. If we are 
going to have a program that takes care of seniors' health 
needs, obviously prescription drugs is one of them. Also, 
obviously, long-term care is another. Yet Medicare doesn't 
cover either one of them. You know, we have got a program that 
is frozen in the 1960's. What was needed in the 1960's is not 
what the priorities are in the year 2002.
    Mr. Scott. Again, not having given this a lot of thought, 
but the only thing I can--another item that I think might be 
problematic is the fact that people might wait now until they 
are Medicare-eligible and then assume it is going to get paid 
for and not buy long-term care insurance and then increase the 
burden of Medicare disproportionate to what you might think it 
would be initially.
    You know, one of the nice things with that--``nice'' maybe 
is not the best term--is that because Medicaid and Medicare 
don't pay for this, we have a better opportunity to try to 
educate people about the need to do this earlier in their lives 
and to pay for it now. If you eliminate that, then we put a lot 
more pressure on all of us to educate people about the 
importance of doing it early.
    The Chairman. Well, this has been very, very helpful. I 
think we have made a good record for what you all are 
attempting to do. I congratulate OPM for moving aggressively in 
this area, for the companies that have participated in the 
joint venture. I think that getting this information out will 
be a lot easier now that you have got a potential target of 20 
million people who are Federal employees and their families 
that will be able to benefit from it. I think that will be 
helpful to the private sector because more people will know 
about it who are not Federal employees.
    I just think this is a huge, huge potential area that we 
are going to be moving into in the future because it is 
absolutely essential and necessary, and I think we have got 
some positive things that are happening in regard to this.
    With that, this will conclude our hearing. We thank you all 
very much for being with us.
    [Whereupon, at 11:01 a.m., the committee was adjourned.]


                            A P P E N D I X

                              ----------                              


             Prepared Statement of Senator Debbie Stabenow

    Chairman Breaux and Senator Craig, thank you for holding 
today's hearing on ``Offering Retirement Security to the 
Federal Family--the Long Term Care Initiative.'' As a member of 
the Budget Committee, and a strong supporter of many health 
care and senior programs, I think it is critically important 
that we not only examine these issues but also celebrate 
success.
    For the first time, approximately 20 million members of the 
Federal family--federal and postal service employees and 
annuitants, members and retired members of the uniformed 
services and qualified family members--can apply for federally-
sponsored long term care insurance. This benefit was created 
under the Long-Term Care Security Act, Public Law 106-265, 
which was enacted in September of 2000.
    One of the greatest threats facing older people and their 
families today may be the financial, social, psychological and 
family consequences of needing long term care. Long term 
personal or ``custodial'' care is not covered by most health 
care programs, including the Federal Employees Health Benefit 
Program and TRICARE. In making this important long term care 
insurance program available, OPM has worked carefully to ensure 
the insurance coverage offers the kinds of benefits and 
features that would be most beneficial to members of the 
federal family. This includes key benefits for care in the 
home, care in nursing homes, in assisted living facilities and 
a variety of other facilities.
    According to statistics reported by OPM, six out of every 
ten Americans who reach the age of 65 will need long term care 
services. In addition, 40 percent of people receiving long term 
care today are between the ages of 18 and 64. This points up 
the importance of long term care insurance not only for older 
Americans, but for our population in general. Data indicates 
that long term care insurance is as necessary as homeowner's, 
automobile or medical insurance.
    An example of how important it is recently came up in terms 
of the Farm Bill. While the Farm Bill terminates certain 
federal appointments of Extension Service employees, it retains 
eligibility for some specific federal benefits, such as the 
Federal Employees Health Benefits Program, the Federal Employee 
Group Life Insurance Program and the Civil Service Retirement 
System.
    Some constituents contacted me and told me that they had 
concerns about the Farm Bill because it did not include the 
federal long term care benefit on the list of programs these 
people would continue to be eligible for. While chances are 
that, by virtue of their continued eligibility for the Federal 
Employees Health Benefit Program, these individuals may have 
been determined to be eligible for the long term care benefit, 
I was advised by OPM to specifically add language to the Farm 
Bill to ensure that this benefit was explicitly available to 
these employees. I am currently working with my Agriculture 
Committee colleagues during conference negotiations on the Farm 
Bill to make sure long term care insurance is added to the list 
of benefits. It will not cost the federal government any money, 
but will provide a very important benefit to members of the 
federal family.
    I look forward to hearing from all of our witnesses today.

    [GRAPHIC] [TIFF OMITTED] T0169.048
    
    [GRAPHIC] [TIFF OMITTED] T0169.049
    
    [GRAPHIC] [TIFF OMITTED] T0169.050
    
    [GRAPHIC] [TIFF OMITTED] T0169.051
    
    [GRAPHIC] [TIFF OMITTED] T0169.052
    
    [GRAPHIC] [TIFF OMITTED] T0169.053
    
    [GRAPHIC] [TIFF OMITTED] T0169.054
    
    [GRAPHIC] [TIFF OMITTED] T0169.055
    
    [GRAPHIC] [TIFF OMITTED] T0169.056
    
    [GRAPHIC] [TIFF OMITTED] T0169.057
    
    [GRAPHIC] [TIFF OMITTED] T0169.058
    
    [GRAPHIC] [TIFF OMITTED] T0169.059
    
    [GRAPHIC] [TIFF OMITTED] T0169.060
    
    [GRAPHIC] [TIFF OMITTED] T0169.061
    
    [GRAPHIC] [TIFF OMITTED] T0169.062
    
    [GRAPHIC] [TIFF OMITTED] T0169.063
    
    [GRAPHIC] [TIFF OMITTED] T0169.064
    
    [GRAPHIC] [TIFF OMITTED] T0169.065
    
    [GRAPHIC] [TIFF OMITTED] T0169.066
    
    [GRAPHIC] [TIFF OMITTED] T0169.067
    
    [GRAPHIC] [TIFF OMITTED] T0169.068
    
    [GRAPHIC] [TIFF OMITTED] T0169.069
    
    [GRAPHIC] [TIFF OMITTED] T0169.070
    
    [GRAPHIC] [TIFF OMITTED] T0169.071
    
    [GRAPHIC] [TIFF OMITTED] T0169.072
    
    [GRAPHIC] [TIFF OMITTED] T0169.073
    
    [GRAPHIC] [TIFF OMITTED] T0169.074
    
    [GRAPHIC] [TIFF OMITTED] T0169.075
    
    [GRAPHIC] [TIFF OMITTED] T0169.076
    
    [GRAPHIC] [TIFF OMITTED] T0169.077
    
    [GRAPHIC] [TIFF OMITTED] T0169.078
    
    [GRAPHIC] [TIFF OMITTED] T0169.079
    
    [GRAPHIC] [TIFF OMITTED] T0169.080
    
    [GRAPHIC] [TIFF OMITTED] T0169.081
    
    [GRAPHIC] [TIFF OMITTED] T0169.082
    
    [GRAPHIC] [TIFF OMITTED] T0169.083
    
    [GRAPHIC] [TIFF OMITTED] T0169.084
    
    [GRAPHIC] [TIFF OMITTED] T0169.085
    
    [GRAPHIC] [TIFF OMITTED] T0169.086
    
    [GRAPHIC] [TIFF OMITTED] T0169.087
    
    [GRAPHIC] [TIFF OMITTED] T0169.088
    
    [GRAPHIC] [TIFF OMITTED] T0169.089
    
    [GRAPHIC] [TIFF OMITTED] T0169.090
    
    [GRAPHIC] [TIFF OMITTED] T0169.091
    
    [GRAPHIC] [TIFF OMITTED] T0169.092
    
    [GRAPHIC] [TIFF OMITTED] T0169.093
    
    [GRAPHIC] [TIFF OMITTED] T0169.094
    
    [GRAPHIC] [TIFF OMITTED] T0169.095
    
    [GRAPHIC] [TIFF OMITTED] T0169.096
    
    [GRAPHIC] [TIFF OMITTED] T0169.097
    
    [GRAPHIC] [TIFF OMITTED] T0169.098
    
    [GRAPHIC] [TIFF OMITTED] T0169.099
    
    [GRAPHIC] [TIFF OMITTED] T0169.100
    
    [GRAPHIC] [TIFF OMITTED] T0169.101
    
    [GRAPHIC] [TIFF OMITTED] T0169.102
    
    [GRAPHIC] [TIFF OMITTED] T0169.103
    
    [GRAPHIC] [TIFF OMITTED] T0169.104
    
    [GRAPHIC] [TIFF OMITTED] T0169.105
    
    [GRAPHIC] [TIFF OMITTED] T0169.106
    
    [GRAPHIC] [TIFF OMITTED] T0169.107
    
    [GRAPHIC] [TIFF OMITTED] T0169.108
    
    [GRAPHIC] [TIFF OMITTED] T0169.109
    
