[Senate Hearing 107-689]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 107-689
 
                       LONG-TERM CARE FINANCING:
                         BLUEPRINTS FOR REFORM
=======================================================================

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             JUNE 20, 2002

                               __________

                           Serial No. 107-27

         Printed for the use of the Special Committee on Aging









                       U. S. GOVERNMENT PRINTING OFFICE
81-856                          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) 512-1800  
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001






                       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           JOHN ENSIGN, Nevada
DEBBIE STABENOW, Michigan            CHUCK HAGEL, Nebraska
JEAN CARNAHAN, Missouri              GORDON SMITH, Oregon
                    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
Statement of Senator Ron Wyden...................................    30
Statement of Senator John Ensign.................................    31

                                Panel I

Hon. John Rockefeller IV, a U.S. Senator from the State of West 
  Virginia.......................................................    33
Hon. Howard Dean, Governor, State of Vermont.....................    45
Hon. David Durenberger, Chairman, Citizens for Long-Term Care 
  Coalition, Washington, DC......................................    52
Carol O'Shaughnessy, Specialist in Social Legislation, 
  Congressional Research Service, Washington, DC.................    91
Steven Chies, Vice Chair, American Health Care Association, 
  Washington, DC.................................................   113

                                Appendix

Statement for the Record submitted by the American Association 
  for Geriatric Psychiatry.......................................   129

                                 (iii)






            LONG-TERM CARE FINANCING: BLUEPRINTS FOR REFORM

                              ----------                              --



                        THURSDAY, JUNE 20, 2002

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee convened, pursuant to notice, at 9:32 a.m., 
in room SD-192, Dirksen Senate Office Building, Hon. John 
Breaux (chairman of the committee) presiding.
    Present: Senators Breaux, Wyden, and Ensign.

            OPENING STATEMENT OF SENATOR JOHN BREAUX

    The Chairman. The Select Committee on Aging will please 
come to order. This morning, we have a very distinguished panel 
of witnesses who we are very anxious to hear. I am joined by 
our colleague, Senator Wyden, and other Members of the Special 
Committee on Aging will be with us in just a moment.
    I would just point out in opening remarks that our 
committee has the responsibility to look ahead and see that, as 
a nation, we are prepared to handle the long-term care needs of 
the pending age wave of the 77 million baby boomers. 
Unfortunately, our country, arguably the strongest nation in 
the history of the world, still lacks a comprehensive long-term 
care system, and that is why this Committee on Aging has 
devoted 13 separate hearings in the 107th Congress to the issue 
of long-term care, examining what is currently available in our 
country, how we finance long-term care, and what we still need 
to do to guarantee a wide range of quality, affordable services 
to all disabled and elderly persons.
    To capture the highlights of all the expert witnesses who 
have testified before our Aging Committee, we have produced a 
Findings Report, which I have in my hand, which members have 
seen and I think is available outside. This Findings Report is 
kind of a road map. It is a road map on how we can hopefully 
get from here to where we as a nation would like to be as far 
as providing services to our nation's seniors.
    [The Findings Report follows:]
    [GRAPHIC] [TIFF OMITTED] 81856.072
    
    [GRAPHIC] [TIFF OMITTED] 81856.073
    
    [GRAPHIC] [TIFF OMITTED] 81856.074
    
    [GRAPHIC] [TIFF OMITTED] 81856.075
    
    [GRAPHIC] [TIFF OMITTED] 81856.076
    
    [GRAPHIC] [TIFF OMITTED] 81856.077
    
    [GRAPHIC] [TIFF OMITTED] 81856.078
    
    [GRAPHIC] [TIFF OMITTED] 81856.079
    
    [GRAPHIC] [TIFF OMITTED] 81856.080
    
    [GRAPHIC] [TIFF OMITTED] 81856.081
    
    [GRAPHIC] [TIFF OMITTED] 81856.082
    
    [GRAPHIC] [TIFF OMITTED] 81856.083
    
    [GRAPHIC] [TIFF OMITTED] 81856.084
    
    [GRAPHIC] [TIFF OMITTED] 81856.085
    
    [GRAPHIC] [TIFF OMITTED] 81856.086
    
    [GRAPHIC] [TIFF OMITTED] 81856.087
    
    [GRAPHIC] [TIFF OMITTED] 81856.088
    
    [GRAPHIC] [TIFF OMITTED] 81856.089
    
    [GRAPHIC] [TIFF OMITTED] 81856.090
    
    [GRAPHIC] [TIFF OMITTED] 81856.091
    
    [GRAPHIC] [TIFF OMITTED] 81856.092
    
    [GRAPHIC] [TIFF OMITTED] 81856.093
    
    [GRAPHIC] [TIFF OMITTED] 81856.094
    
    [GRAPHIC] [TIFF OMITTED] 81856.095
    
    [GRAPHIC] [TIFF OMITTED] 81856.096
    
    [GRAPHIC] [TIFF OMITTED] 81856.097
    
    [GRAPHIC] [TIFF OMITTED] 81856.098
    
    The Chairman. Today, we will be hearing from another group 
of expert witnesses who will talk about reform options to pay 
for a comprehensive long-term care system. Much good work has 
already been done and we want to take advantage of that wisdom. 
Other witnesses have come up with new approaches that are 
worthy of our time and attention, and equally important is the 
chance to learn what other developed countries around the world 
are doing to finance their long-term care service, as well.
    While we have talked about this issue in terms of billions 
of dollars that are spent each year on services and the 
institutional bias that exists and the unmet need for the 
services that exist, what we really need to remember is that 
the issue of long-term care is very personal for individuals 
and their families and their relatives and their friends. It 
affects each and every one of us and our families at some point 
in time. It will affect all of us, if it already has not done 
so.
    I would just like to read a short copy of a letter that I 
received which is really typical, unfortunately, of many of the 
hundreds and hundreds of letters that this committee has 
received from families around the country expressing their 
concern. This one is from a constituent of mine from Louisiana, 
and she says, ``My name is Frances Stevenson. I am 73 years old 
and I live in Napoleonville, LA, with my husband, Dave. Dave is 
76 years of age, is insulin-dependent diabetic who has had 
several mini-strokes, high blood pressure, dementia, and has 
had a feeding tube since May 1999 when his blood sugar elevated 
above 400. He wears diapers and must be bathed and changed at 
least twice a day. I must monitor his blood sugar at least 
three times a day, must bathe him in the evening, change his 
feeding bag daily, give medicine, insulin, and tend to his 
oxygen tank.''
    ``Last May, Dave had surgery to remove his gallbladder, and 
at that time, he spent several days in an intensive care unit 
and a few more days in step-down. Home health care is allowed 
to come in for a few weeks at a time after each stay in the 
hospital and then I am on my own. My family helps me as often 
as they can, but each of them have jobs. My son is an Army 
officer stationed in Washington, DC. He gets to come home only 
about once a year. I have tried to get the VA to give us some 
aid since Dave is a World War II veteran. He served in the 
Marines for 5 years.''
    ``I have been paying for an aide to come in and bathe him 
every morning for the last 4 years. Dave and I worked very hard 
throughout our whole lives and we felt that we would be all 
right in our later years. I can barely make ends meet with the 
costs of medicine, insurance, diapers, pads, bandages, a 
nursing aide, et cetera. The Council on Aging put Dave on a 
program in February, but that will end in a few weeks. He had 
24-hour sessions of respite care, 34 hours of personal care, 
and 18 hours of sitter care.''
    ``I want him to be cared for at home because I know that is 
where the best tender loving care will be given. I need home 
health care and someone to help with home living. Please give 
us some help.''
    I think you would agree with me that this story of one 
person from Louisiana is far too typical of literally hundreds, 
and indeed thousands of Americans throughout this country as we 
struggle with the process of aging. If it is bad today, I would 
only point out that by the year 2040, we are projected to be 
spending some 75 percent of our nation's entire financial 
budget on Medicare, Medicaid, and Social Security. If we have 
problems today with about 40 million Americans over the age of 
65, we can only wonder what it will be like when 77 million 
additional baby boomers become seniors who are going to be 
living a lot longer than their children would have expected.
    So we have a challenge that I think is not insurmountable, 
but it indeed is one of the biggest issues facing us as a 
nation. Hopefully, this report will move us toward the process 
of looking at what we have done in 13 hearings and hopefully be 
able to come together in a bipartisan fashion to determine what 
some of the answers are.
    I am delighted that I am joined by my two colleagues, who I 
will introduce in just a minute. I want to recognize a group of 
intern teachers that we have from Louisiana who work in our 
office for a short period of time to try and learn a little bit 
about how Congress works. Hopefully, being at our hearing today 
will give them a little sense of how hearings work in the U.S. 
Senate.
    I would recognize Senator Wyden for any comments that he 
might have.

                 STATEMENT OF SENATOR RON WYDEN

    Senator Wyden. Thank you, Mr. Chairman.
    The first question, of course, that comes up when somebody 
talks about long-term care is can America afford such a 
program, particularly now with the war on terrorism, the claim 
on funds in a variety of areas. I think that is going to be the 
key question.
    To me the question is not can America afford it, the 
question is can America afford not to do it, given this 
demographic tsunami that is coming. I think the answer is 
clearly yes. People can go through $40,000 a year easily on 
long-term care now. Given the population trends that you have 
outlined, it is obvious that the costs are just going to get 
worse.
    So I would like to just touch very quickly on a couple of 
areas that I think are particularly important as we explore by 
way of trying to lay out a structure for new public and private 
partnership.
    The first area that I feel very strongly about is making 
much more aggressive use of waivers so that programs at the 
State and local level can stretch the public dollars that are 
available for long-term care. One of the things that I am 
proudest of, when I came to the House after 7 years as Director 
of the Gray Panthers--I had a full head of hair and rugged good 
looks--Senator Rockefeller, who my guess is did not even know 
who I was, helped me with a program that really helped to start 
the assisted living field. It was a waiver program so that you 
could use Medicaid dollars that were then earmarked for nursing 
home care for home health care, and a number of States around 
the country have used it. Governor Dean is going to talk today 
about more aggressive use of waivers with home health and I 
support what the Governor is talking about, as well.
    However, I think we should also look in a multi-
disciplinary way at waivers. For example, I do not see any 
reason why we do not allow waivers so that the VA, HUD, and 
Medicaid, could not team up on some innovative approaches in 
terms of long-term care. Those would be using existing dollars. 
They could come out of the State and local level. This is an 
area I will want to explore with our witnesses. So more 
aggressive use of waivers would be a top priority for public 
funds.
    Then on the private side, where I know a number of Senators 
had an interest, I would like to see us allow penalty-free 
withdrawals from private retirement accounts for long-term 
care. We allow those penalty-free withdrawals for a whole lot 
of other stuff that America feels strongly about, like college 
and saving for a home and that sort of thing. I would like to 
see us take a look at penalty-free withdrawals from retirement 
plans for long-term care so that we could shore up a little bit 
of what is going on the private side in terms of saving for 
retirement.
    Finally, a third area that I know Senator Rockefeller has a 
lot of history on, I would like to see us go back to explore 
the idea of a voluntary Part C of Medicare. As all you know, we 
have got Part A, the hospital portion, Part B, the outpatient 
portion. We have talked over the years sort of sporadically 
about a voluntary Part C of Medicare that could be designated 
for long-term care, where perhaps government contributions 
could be matched by private contributions, as well.
    Your report in my view, Mr. Chairman, gives us a very good 
outline. I am looking forward to having a lot of people at that 
witness table who I have worked with over the years give their 
views and working with you, and Senator Ensign has had a long-
term interest in this, as well, so I think we have got some 
bipartisan opportunities here.
    The Chairman. Thank you, Senator Wyden.
    Senator Ensign of Nevada?

                STATEMENT OF SENATOR JOHN ENSIGN

    Senator Ensign. Thank you, Mr. Chairman. I will keep my 
remarks brief. I am looking forward to hearing from the panel.
    Anybody who has gone around their States--who has spent any 
time at all looking into this issue-realizes that there are 
some serious concerns not only today, but even more so into the 
future. I think the demographics show as the Chairman mentioned 
this morning, as we go into the future, that if we do not start 
addressing this problem now, we are going to be behind the 
biggest eight-ball that we could possibly imagine.
    The continuum of care that is out there, and there are a 
lot of innovative things being done in the continuum of care, 
is such a big issue. This is because almost everybody is 
thinking about their continuum of care as they are getting 
older. Obviously, the closer you get and the more gray hair 
that you get, or the less hair, whichever the case may be---- 
[Laughter.]
    The more that we have the fear that we may be in a 
situation where the care is not good. The care is something 
that is not only inadequate, but sometimes neglectful. There 
are a lot of people doing a lot of good stuff out there, but I 
think a lot of people, as they get older, have a big fear of 
the type of care that is going to be available.
    So I think that this is an incredibly important issue for 
us. Unfortunately, we are not getting enough younger people 
thinking about the issue yet and I think that that is going to 
be one of the keys. Government has an important role in this, 
but the more that we can get the private sector involved and 
get individuals when they are younger to start saving and 
buying long-term care insurance--I think that that has got to 
be a big part of the answer.
    Then as innovative ideas come forward and we figure out the 
best ways that we can use preventative medicine to keep people 
out of assisted care, the better off that we are going to be. 
This is because more people will be able to take care of 
themselves. A great example of this is the physical therapy 
cap. Now, there is a budgetary reason. If we do not get people 
back to being more on their own or maybe in a less-intensive 
health care situation, the more expensive it is for us and the 
worse their quality of life is.
    So preventative medicine, to me, as part of this whole 
thing, has to be stressed, where we have dietitians teaching 
diabetics and cancer patients and heart patients how to eat 
better, not only how to shop for the food, how to buy the food, 
how to prepare the food. We have got to have physical 
therapists and speech therapists and occupational therapists 
involved in these things and then communities and non-profits 
involved. I think that if we look at this from a holistic 
approach, I think that we are all going to be better off and 
that is all going to be part of the solution for the future.
    I appreciate the Chairman's interest in this issue. I think 
you need to be applauded for this because this is such an 
important issue.
    The Chairman. Thank you, Senator Ensign.
    You mentioned long-term care insurance. I would note for 
the first time that the Federal Employees Health Benefit Plan 
will be offering long-term health care insurance for the nine 
million Federal employees, not only Members of Congress, but 
also nine million others. As well, and I think that will be a 
very important test to see how it works. It is already 
available in the private sector and I think people are just 
becoming aware of the need for it.
    We have a very distinguished panel of witnesses, as I 
mentioned. I will introduce them all collectively. It starts 
with a very distinguished colleague who has a long history of 
service in the health care areas. He chaired the Pepper 
Commission a few years back which dealt with the question of 
providing health insurance for the millions of Americans who 
are uninsured, outlining a blueprint for the future. 
Unfortunately, Congress has not really acted on those 
recommendations. We still have about 44 million Americans who 
have no insurance at all. We talk about Medicare not being 
enough. There are 44 million Americans who have nothing and 
that is still a problem and Senator Rockefeller was one of the 
leaders on that Pepper Commission.
    Howard Dean will be our next witness. He is back to the 
Aging Committee. He has been before us on a number of occasions 
with his ideas and suggestions. He is testifying on behalf, 
really, of his own views, but also representing the National 
Governors Association, which has really gotten involved in this 
issue, and is incredibly important. We are looking forward to 
his testimony.
    Our former colleague of this committee, as well as, and the 
Senate Finance Committee, David Durenberger, is back as 
Chairman of the Citizens for Long-Term Care Coalition, which 
has done outstanding work in trying to put together all of the 
health care groups to address this problem collectively 
because, really, we all have the same goal in mind. So your 
work in that coalition is outstanding.
    Carol O'Shaughnessy will be testifying. She has been around 
on the Hill a number of times before this committee, and has a 
real expertise in health care and aging issues in particular. 
The work that they have done over at CRS, the Congressional 
Research Service, which provides us with information, has been 
most helpful.
    Steve Chies is Vice Chairman of the American Health Care 
Association, which is a federation of all of the nonprofit as 
well as the for-profit assisted living facilities, nursing 
homes, residential services, et cetera, who have a major role 
in this area of helping us with long-term care. He also will be 
testifying.
    I know Senator Rockefeller has a busy schedule, so Jay, if 
you would like to give your testimony, maybe we can ask you a 
few questions and you can leave. Welcome to the committee.

STATEMENT OF HON. JOHN ROCKEFELLER IV, A U.S. SENATOR FROM THE 
                     STATE OF WEST VIRGINIA

    Senator Rockefeller. Actually, I do not have a busy 
schedule, Mr. Chairman, but I am delighted that----
    The Chairman. But you want to get out of here anyway? 
[Laughter.]
    We are glad to have you.
    Senator Rockefeller. Thank you, Mr. Chairman, and both of 
your colleagues here. I am very happy to be here.
    We did, in fact, and Senator Durenberger was a member of 
the Pepper Commission, which passed out a long-term care policy 
11-to-4, and this was a very, very split commission 
ideologically, but not split on the concept of doing long-term 
care and doing it in a real and workable way.
    We are delivering what I would say would be fiscally 
irresponsible tax cuts for the next decades. Americans 
throughout this country are dealing with other kinds of 
problems, and that is when are they going to sell their homes? 
When are they going to raid their savings, get rid of their 
retirement benefits because of long-term care problems? 
Families come in to take care of them, and then their assets 
get depleted, exhausting personal resources, having to get rid 
of properties in order to get people qualified for Medicaid.
    So government coverage for nursing home care operates 
primarily and substantially through the Medicaid program, which 
is fraught with problems, as Governor Dean knows better than 
anybody, and it is the safety net for the poor, always has 
been, and is now grossly underfunded and States are suffering 
because of unwise actions on our part here in Congress.
    Medicare, and everybody knows this, is not designed to do 
long-term care. It does lots of things, but it does not do 
prescription drugs and it does not do long-term care and those 
are probably two of the biggest needs in the country, along 
with mental health coverage.
    So accessing the Medicaid program, by definition, getting 
into it requires impoverishing yourself. We know that, but it 
needs to be said and said and said again. It has not changed 
since the late 1980's when we were dealing with this. It is 
still the problem of demeaning yourself and giving up what you 
have.
    We have serious issues of quality. We are faced with a 
system which encourages care in institutions rather than homes. 
People want to stay at home. I had a mother who died from 
Alzheimer's and she wanted to die at home, or we wanted her to 
die at home. She was not sure at that point where she wanted to 
die, but we wanted her to die at home. That becomes an 
enormously emotional things within families.
    It was more than 10 years ago that this bipartisan 
commission called the Pepper Commission issued its ``Call to 
Action'' and nothing has really changed. We had three basic 
concepts which we put forward. Home and community-based care 
should be available and they should be affordable, that is No. 
1. No. 2, those who need nursing home care for short periods 
should have enough resources, $30,000 for a single person, 
$60,000 for a couple, preserved intact in order to return home, 
so they are not depleted entirely. That was true then, is still 
needed now. No one should fear impoverishment if they must end 
their lives in a nursing home. Now, woven throughout the 
recommendation is the requirement that people would have to pay 
some, according to their ability to do so. That seemed fair 
then, the same now. So I want to talk just briefly about each 
of those ideas.
    First, a strong home care benefit was included in the 
Pepper Commission recommendations because people who need long-
term care want to stay at home. They do not want to be in an 
institution. They want to stay at home. Individuals with three 
or more impairments--and we used to call those, and still do, 
measures by acts of daily living, ADL, it is a way of measuring 
how impaired people are--should be eligible for home care 
services. Our expansion did not cap the hours of service, but 
we did include individual budgeting caps set for each 
beneficiary. The trick is to encourage informal caregiving 
rather than to displace it, and researchers believe that a 
strong home health care benefit would help on this.
    Today, the home health care benefit offers skilled care and 
possibly home health aides on a part-time or intermittent 
basis. Under current requirements, beneficiaries also must be 
confined to the home, despite the fact that many could leave 
home with assistance. So you get this question, if they are 
home, they cannot leave. So 24-hour care is not covered, nor is 
personal care covered, and if that is the only care a person 
needs, we can do a whole lot better.
    Today, in fact, I am going to be introducing legislation 
which is the first step to improve home care, the modernization 
of the benefit, which allows for increased mobility out of the 
home. Let us not forget that the next step must be to change 
the home care benefit fundamentally to allow those in need to 
remain in the home and then to fix this bias that we have, 
which we are, incidentally, curing in the Veterans 
Administration where we have taken this on. We have made the 
first change in long-term care in the VA system since the 
1960's without a whole lot of fuss, not that they have 
implemented it, but we have changed the law and they are in the 
process of rules and regulations, getting people out of 
institutions.
    Second, the Commission members recommended coverage of 
short stays in nursing homes regardless of income and we 
allowed at that time, I think, David, it was about 3 months and 
you did not have to pay. Income was not a factor. Most people 
who enter nursing homes can return home and public insurance 
for a 3-month stay provides the protection to do that.
    At present, nursing home residents with any savings simply 
do not qualify for Medicaid-financed nursing home care, and 
under certain limited conditions, Medicare will pay some 
nursing home costs for Medicare beneficiaries--this is 
Medicare--but that is sort of the skilled nursing and 
rehabilitation services caveat which does not get at the basic 
problem.
    So again, in this legislation, we are going to provide 
options to nursing home care under the Medicare benefit that 
would be payment for adult day health care. Paying for adult 
day care will provide a measure of respite, will reduce the 
bias toward institutionalization, and encourage people to stay 
at home. The next step, obviously, will be full coverage of a 
short stay in a nursing home without the condition of poverty.
    Third, the Pepper Commission recommended a measure of asset 
protection, and I discussed that. That is the idea that one in 
four Americans who have to stay 3 months or longer, that you do 
not deplete them. They can go to the nursing home, but you 
allow them to keep $30,000 if they are single, $60,000 if they 
are a couple, keep their assets. It is so horrible, what we do 
to people.
    In this legislation, we are going to give States the option 
of whether or not to pursue and sell off the homes of Medicaid 
recipients, and Governor Dean will probably have something to 
say about this. It is something that can be done in the short 
term. In the future, we will have to address the larger 
problem, as I say, of spending down to poverty.
    I was going to talk about the Pepper Commission is relevant 
today, and you did. You basically said, Mr. Chairman, yes, they 
are. It is just that everything is worse. The cost of nursing 
homes has doubled, all the rest of it.
    So I will close with a final thought. A long-term fix 
cannot be done without the government. That, we have to 
understand. We cannot ignore the government. The government is 
already involved. We need the Federal dollar and we need 
Federal leadership. The Pepper Commission concluded that 
Federal action is, ``essential to change the nation's 
fundamentally flawed approach to long-term care financing.'' 
End of testimony.
    The Chairman. Thank you very much, Senator Rockefeller.
    [The prepared statement of Senator Rockefeller follows:]
    [GRAPHIC] [TIFF OMITTED] 81856.001
    
    [GRAPHIC] [TIFF OMITTED] 81856.002
    
    [GRAPHIC] [TIFF OMITTED] 81856.003
    
    [GRAPHIC] [TIFF OMITTED] 81856.004
    
    The Chairman. I think if we have a question or two for Jay, 
we can go ahead and do it now, if the other panel members do 
not mind.
    One of the things you put in your testimony that I find 
very interesting and I think a lot of Americans do not really 
understand is the chart that you put on the last page about how 
things have changed just since the Pepper Commission, in terms 
of the demographics of how this nation looks in the year 2000 
as opposed to what it looked like in 1990. We have a 12 percent 
increase in the number of people 65 years of age and older over 
1990. We have a 38 percent increase in the number of people 85 
years of age and older, which is the fastest-growing segment of 
our population and therein lies part of the problem. There is a 
17 percent increase, Senator Rockefeller points out, in people 
living alone and a 70 percent increase in the total U.S. 
expenditures on nursing home care just in that 10-year period. 
I mean, those are astronomical numbers that are only going to 
continue to get worse.
    Jay, let me just ask one question, and that is you 
mentioned the question of providing in the home health care 
areas. You also recommend, I think, as the Pepper Commission 
did, apparently, the coverage of short stays in nursing homes 
by Medicare, and you point out, regardless of income. It seems 
to me that we have to face a problem that we are looking at 
prescription drugs for seniors which I support, but it is going 
to come out of Social Security surplus. If we increase other 
Medicare benefits like covering nursing home stays, it is going 
to come out of Social Security surplus. We are rapidly spending 
the surplus for retirement on these programs that are very, 
very worthwhile.
    It seems to me at some point we have to consider, with the 
limited amount of money we have, are we, in fact, going to use 
tax dollars to take care of the nursing home for Warren 
Buffett? I am just using him as an example. I could probably 
use the Senator.
    Senator Rockefeller. Somebody else. [Laughter.]
    The Chairman. I could probably use someone else as an 
example, but it seems to me that as a nation, when we have 
limited resources, we have to say, all right, we are going to 
take care of those who need the help, but we are not going to 
use tax dollars to subsidize someone who is financially well 
off. Can you comment on that? I'm talking about means testing.
    Senator Rockefeller. Yes, I would be happy to. I think your 
point is well taken and adjustments like that could be made. I 
remember I started something called the Golden Mountaineer 
Discount Card program when I could not think of anything else 
to sort of help West Virginia during the depths of the recent 
recession and the legislature was all over my case because they 
said, what do you mean? We have got all these rich people who 
are going to be taken care of. So we did a little survey of 
that and discovered about 2 percent of West Virginians 
qualified as being wealthy and everybody else did not.
    But that still does not answer your point, and your point 
has merit and I can live with that. I think the important part, 
however, is that when people need to go for a short period of 
time, we talk about 3 months to a nursing home, that they 
should not have to go through all of what you would otherwise 
have to go through if you were going to qualify under Medicaid 
for long-term care and have to strip down everything, you know, 
get rid of your car, get rid of your house, all the rest of it. 
So you sort of create this window for people who are short-
termers wherein you say, OK, you have got your 3 months based 
upon your acts of daily living analysis and for that we are 
going to go ahead and pick up the cost, not 6 months, not 5 
months, not 10 months, but for 3 months.
    Yes, that is social cost, and yes, we have budget problems, 
and yes, we have terrorism, homeland security, and I cannot 
help you in that, Mr. Chairman, except to say that if we are 
talking about long-term care, these are the kinds of things you 
have to do.
    The Chairman. Thank you.
    Are there any questions of Senator Rockefeller?
    Senator Wyden. Just one. I think Senator Rockefeller has 
done an excellent job in terms of outlining the history and I 
think particularly your last point was important. This is an 
area that absolutely must have a useful government role. There 
are steps that can be taken in the private sector. I mentioned 
one I am interested in, and that is the idea that you could 
have penalty-free withdrawals from private retirement accounts 
in order to pay for long-term care, so it moves toward what 
Senator Ensign was talking about, which is trying to use the 
private sector to the greatest extent possible. But there must 
be a role for government here and the question is really 
whether government is going to be smarter or whether the 
government is going to continue to just sort of dawdle along.
    My question for you, Senator, is given the history here, 
why do you think that there has been commission after 
commission and yet nothing seems to happen after the latest 
report----
    Senator Rockefeller. I think the answer to that, Senator 
Wyden, is that Americans have a virtually unlimited capacity 
for denial on certain very tough issues that have to do with 
health care. We are also risk averse when it comes to health 
care. We were made risk averse by two events. One was 
catastrophic health care, which was a fantastic program which 
the House shot down after all those people chased Danny 
Rostenkowski down the street. We denied that from happening in 
the Senate three times and finally had to give up, so that was 
one. Then along comes the Clinton plan. Everybody goes 
ballistic, and now we have become totally incrementalist.
    In the process of that, we do CHIPs, but we cannot take it 
on to the parents, so that we are sort of frozen, one, by risk 
aversion, second, by always the excuse that this is going to 
cost money, it is going to come out of Social Security, going 
to come out of Medicare, et cetera. We have all these other new 
things going on post-September 11.
    But I think the most important thing that needs to be said 
is I do not think there is a bigger health care problem in this 
country that we have absolutely failed to deal with, face up 
to, even discuss, because it does not make for a particularly 
interesting discussion. You know, prescription drugs, you can 
get into some really good battles. The verbal part is colorful 
and all the rest of it.
    Long-term care affects everybody at some point. It is the 
most overwhelming health care problem, in my judgment, in the 
country and is entirely unaddressed because it is considered 
too expensive, it is considered too oriented toward the 
government for whatever number of reasons, and so we choose 
simply to deal with lesser problems, a little bit like mental 
health, except mental health is now changing. People are 
getting more friendly toward mental health. Nothing has 
happened in long-term care except, as I say, what we have done 
in the Veterans Administration, nothing.
    Senator Wyden. I think your answer is a thoughtful one. 
There is no question that part of this has just been being risk 
averse and being unwilling to take on tough issues. I think the 
one thing that I hope will be different now is that the country 
does have a history of moving when there is a crisis on the 
porch. In other words, you put it off if it looks like the 
crisis is even three doors down the block. I think you and 
others have laid out that the crisis is on the porch and I 
commend you for all of your good work and look forward to 
working with you.
    Senator Rockefeller. Thank you, Senator.
    The Chairman. The system is hanging on a string. I just 
hope we do not have to wait for the string to break before we 
do something.
    Senator Ensign, do you have a question for Jay?
    Senator Ensign. Yes. I actually want to explore with you 
maybe just a little different angle because I think it is 
something that we need to think about. The cases are so 
individualized, and we have talked about the continuum of care, 
as well, some type of short-term solution, and in my opening 
remarks, I talked about the need for physical therapy and the 
need for preventative medicine.
    But what I want to explore with you is the family 
responsibility. My grandmother, just turned 82 years of age. My 
parents are in their mid-60's, and between myself and my 
brothers and sisters, We are looking at the potentials for her 
care. She is still living on her own and she still wants to 
live on her own. However, if she did not want to live on her 
own, we are in a position to be able to afford to do those 
things. I agree with Senator Breaux as far as my grandmother 
goes she should not be one of these people that are helped by a 
government program. It should be some type of a means testing 
for this. But I still want to use her as the example. Let us 
just say we could not afford what we can afford. Maybe we are 
questionable.
    We know that older people, and you mentioned this, want to 
stay in their own homes. My grandmother does not want to move 
even into some of the wonderful private assisted living 
facilities. She does not even want to go to that first step. I 
have been to many of those places and they are absolutely 
wonderful and I think she would actually like it there, but she 
does not want to, so we are working with that right now.
    But there is this mentality with younger people, in how 
they are looking at this type of situation. It is a long way to 
say this, but it is easy to just kind of ship grandma off, and 
that is what I want to kind of explore. If we get more and more 
into, ``Well, the government can take care of them, that 
relieves me of my responsibility,'' that will we, in fact, be 
setting up a situation where families will be taking less and 
less responsibility for grandma or grandpa just because it is 
easier.
    It is hard work to take care of our elderly relatives. At a 
certain point, you cannot do it with Alzheimer's patients. I 
mean, you know that the family cannot do it. But there are a 
lot of times where it is hard work, but that is what part of 
life is. When you are a parent, you have children. Then when 
you are a parent and you get older, you have got your parents 
or your grandparents, and part of that is just the 
responsibility as a human being to help in those situations. 
But if there is a government program, you know what? We are 
such a selfish society that we will just let the government do 
it.
    Senator Rockefeller. I am anxious to reply to that. I do 
not think we are. I think we can be a society which ignores 
problems and which denies problems, but I do not think we are a 
selfish society. In fact, I think the families that you 
referred to have, in fact, been the government because it is--
and I do not think that West Virginia is particularly unique, 
but those who know Appalachia know that it is extremely family 
oriented, but everybody can say that.
    Kids come back. First of all, kids are dispersed all over. 
I have three sisters. When my mother had Alzheimer's, they were 
in four different States, all of them long ways away from where 
she was. So they are dispersed. They did not used to be.
    Families come back. I mean, the history of long-term care, 
say where I live, is families coming back from Oregon, from 
Ohio, from Kentucky, and they bring their kids for whom they 
have been saving for college tuition money desperately, they 
move into the house, they take the responsibility. They become 
the government. They relieve the government. They do this 
almost without exception, and then they get destroyed 
psychologically, financially, emotionally by this process of 
caregiving, which they cannot measure up to because of the lack 
of respite care, because of the lack of experience, because of 
the lack of people, because they are meant to be working, and 
they get caught up in it.
    My response would be somewhat the opposite, that the 
American people have been bailing out the government through 
their caregiving for all of these years. I am not saying that 
the government has to do all of this. That is why we put in 
that the people should pay something. Everybody should pay 
something.
    But, no, I do not buy that at all, Senator, that the 
American people would choose the easy way out. I think people 
do try. It is not Ozzie and Harriet anymore, and I recognize 
that, but people are pretty serious about their parents when 
they get in trouble and they are pretty willing to come back 
and do everything that is required. As long as that happens, 
there is less pressure on the government, and the explanation 
of that is who talks about long-term care? You have got a group 
of people here who are going to talk about long-term care, but 
how often do you hear it discussed at your town meetings and 
other things? People are talking about prescription drugs, they 
are talking about other things, but they are not talking about 
long-term care.
    Senator Ensign. Just to conclude, I guess we will have to 
agree to disagree. I think that there is some potential for 
that, for what I laid out to happen. I agree with you, though, 
it is very difficult on a lot of families depending on the 
level of need. That is why I believe that there is a need out 
there--a severe need--for more long-term care assistance.
    I guess all I am trying to raise is cautionary flags that 
we do not make it so easy, to not take responsibility. My 
grandmother was incredible when my parents were divorced when I 
was very young, letting us live with her for summer after 
summer after summer while my mom was trying to save a little 
money as a single mom, carrying change at Harrah's in Reno. I 
will never forget what my grandparents did for us, and so 
because of that, I feel a very, very strong commitment to her 
to making sure that she is taken care of.
    But in a situation where if the help can be like respite 
care, when you see people with disabled kids or with parents or 
grandparents or whatever it is, I think that is the way to go. 
All I am saying is that when we are going forward, I think that 
we need to be very careful that we do not just say, OK, here is 
the benefit, you are relieved of all of your responsibility at 
this time, instead of trying to set it up to where we can give 
the help that is needed, but still the family has the 
responsibility. That is all I am trying to raise as a point.
    Senator Rockefeller. All I would say back, and I do not 
want to abuse my time, is that that is, Senator, with all due 
respect, kind of the classic way that legislation thereby never 
takes place, because it is the cautionary flag. If we do this, 
is there a chance that the government becomes a substitute for 
the family? If people are disposed to worry about that 
sufficiently, I guarantee you there will not be anything 
happening in terms of a long-term care policy that works.
    So that is what I would fire back at you. I mean, it is the 
same thing, and the Chairman can remember this on Medicare 
reform. I remember we had a vote in the Finance Committee and I 
was one of two who voted against means testing. Now, should my 
mother--obviously, she should have been means tested. But what 
I did not want--the reason I voted against it, Senator, was 
because I did not want Medicare reform, and the means testing 
back at the time of this vote would have saved $3 or $4 
billion, but it became sort of the way you defined, were you 
serious about doing something about Medicare. Were you a 
serious player in this intellectual and cerebral and emotional 
argument. So if you were for means testing, that meant you 
were, and it was $3 or $4 billion.
    So it became an excuse, and what I do not want is the so-
called cautionary red flag that you raise, I do not deny that 
possibility episodically, but I do not want it to become 
something which then prevents us from dealing with what I 
consider to be the largest most intractable health care problem 
in this country.
    Senator Ensign. Thank you.
    The Chairman. Jay, thank you very much for your testimony 
and for responding to a very interesting series of questions 
and dialog. We thank you very much, and if you have to go back 
to work, we will be happy to excuse you.
    We will next hear from Governor Howard Dean. Howard, thank 
you and all the witnesses for being patient.

   STATEMENT OF HON. HOWARD DEAN, GOVERNOR, STATE OF VERMONT

    Governor Dean. Thank you, Mr. Chairman. I want to thank the 
Senator from West Virginia, who is very good on these issues 
and has been for a long time.
    I have written testimony which I will submit and I am just 
going to go through some of the talking points.
    In our State, we have 120,000 people on Medicaid out of a 
population of 600,000. I did that on purpose. We insured 96 
percent of all our children under 18, and of the 4 percent that 
are not insured, 3 percent are eligible for the program. So we 
essentially have universal health insurance in our State for 
those under 18.
    More than 50 percent of all Medicaid recipients, because we 
have universal health insurance, are under 18. They use 14 
percent of all the money. Out of the 120,000 people we have on 
Medicaid, we have 2,500 receiving long-term care assistance. 
They use nearly 50 percent of the money. This is an enormous 
financial problem for the States, and since you match our money 
in every State--different rates, obviously, for different 
States--it is an enormous problem for the Federal Government.
    We have actually done some of the things that you are 
talking about doing. Let me make some suggestions. First of 
all, I think the notion that you have to be very careful that 
was raised by Senator Ensign is a very good notion. I agree 
with Senator Rockefeller that we ought not to let cautionary 
red flags prevent us from doing anything about this, but I 
think if you create the wrong program, you are going to create 
a need that is going to eclipse any ability to finance any of 
this, so we have to do this right.
    I am going to recommend two things, one of which we have 
done. Institutions use up a huge amount of money. We do not 
think we need any more nursing home beds in this country for 
the foreseeable future, because if you do what we did, you will 
not need it. We passed a bill about 5 or 6 years ago that 
reduces the number of nursing home beds by 10 percent and we 
think we can take another 10 percent of our nursing home beds 
out. How can we do this with an aging population? Because of a 
waiver.
    Now, we do not want more waivers. What we want is a law 
that allows us to do what we are doing without any waivers and 
allows every State to do it. We have basically said, we will 
take the Medicaid money that is going to skilled nursing 
facilities and we will use it in assisted living facilities. I 
think we are the only State in the country that uses Medicaid 
in assisted living facilities, and more importantly, in home 
health care. I think we have now 1,000 slots where we can take 
care of people in their own homes and they can get Medicaid 
assistance. The qualification is that you have to be eligible 
for nursing home entry.
    The Chairman. Do you have a waiver for both of those?
    Governor Dean. Yes.
    The Chairman. For home health care and for assisted living?
    Governor Dean. Yes. So we are basically able now to use the 
financing that we have to take care of more people. For every 
Medicaid dollar that we get, we can take care of twice as many 
people as we can if we did not have this waiver. So with the 
money that we get, we can simply take care of a whole lot more 
people.
    Now, something like 30 percent of all the people in nursing 
home-type care are, in fact, taken care of in their own homes 
by using Medicaid dollars for skilled nursing care that needs 
to come into the house, respite care, which I think everybody 
agrees is necessary because families really do struggle when 
they are taking care of their folks, and it really is not easy 
on these people.
    I think we all have our stories. I certainly have seen 
people, particularly with Alzheimer's, who are otherwise 
healthy but who are very difficult to take care of. If you try 
to do that on your own without any kind of support, you are 
basically asking for a situation where you and your family and 
your kids get burned out as you are trying to take care of your 
elderly parent whose Alzheimer's is deteriorating.
    So these services are necessary, but even if you have 
respite services and even if you have long-term care in the 
home and skilled nursing care in the home and all these things, 
you can still take care of twice as many patients as you can 
inside a skilled nursing facility because the money is 
reallocated.
    Now, this is not to say we do not need skilled nursing 
facilities. Of course, we do. This is a gradual aging process. 
People who have serious conditions like Alzheimer's or many 
conditions when you get to be in your 70's, 80's, and 90's, 
these conditions are not usually reversible. So as folks 
continue to transition, they do need more care and they do need 
to go from home into assisted living or oftentimes into a 
skilled nursing facility.
    But right now, we put folks in this country into skilled 
nursing facilities who do not need to be there and we do it 
because everybody lives in Ohio and the mom is in Nevada and 
they cannot come back and they cannot leave their lives and 
they cannot, for most people, cannot decide they are going to 
move to Nevada or move her to Ohio or whatever, and so they end 
up in the nursing home.
    The most common way people get in the nursing home is they 
go into the hospital. They get sick. They do not need to be in 
the hospital anymore, and then everybody wants to get them out 
of the hospital. They cannot go home because we do not have the 
back-up, so they end up in a nursing home. Once you are in a 
nursing home, it is almost impossible to get out, because 
basically what happens is that the level of care that a patient 
needs will rise to the level of the institution that they are 
in.
    This is why I started off by saying, be careful what you 
create, because if you simply create a long-term program that 
stresses nursing homes, guess what? You are going to have a 
whole lot more nursing home beds and you are going to be able 
to take care of half the number of patients.
    So the first thing I would ask for, Mr. Chairman, is a 
program which actually eliminates the necessity for us to get 
waivers and allow people and encourage States to put people in 
their own homes with the kind of back-up care that is 
necessary, augmenting the kind of family care that Senator 
Rockefeller and Senator Ensign were talking about, because if 
you augment the family care, most families do want to do the 
right thing, but they cannot because it is just an overwhelming 
task in many cases. You can eliminate the need for a skilled 
nursing facility in many, many cases by simply supporting the 
desire of families and the patients themselves to stay in their 
own homes.
    The next piece is more controversial. I am going to start 
out speaking for the NGA, but let me just be really clear that 
I really do not, because I am going to go beyond what the 
testimony is. I believe we ought to have health insurance for 
every American. That is something I have been very up-front 
about for a long time as a physician. It is something that I 
got into politics because of.
    One of the pieces of that is this so-called swap which has 
been talked about for many years, which is the notion that 
States ought to be responsible for making sure all children, I 
think up to the age of 22, get health care, and we ought to 
have some flexibility as to how to do that and we ought to have 
some financial responsibility, and then the Federal Government 
ought to take over responsibility for all those over 65, 
including dual-eligibles.
    The numbers work very well. If you tell States they have to 
insure everybody up to 22, they will yell and scream and say it 
is an unfunded mandate, but it turns out that you are within $1 
billion in the States' favor if the Federal Government, in 
turn, takes over responsibility for dual-eligibles and nursing 
home/long-term care.
    So I would urge the committee to look at that, although 
look at it carefully, because the biggest single problem here 
is that States generally, I think, do a better job than the 
Federal Government will be able to do in terms of inspecting 
and regulation of nursing homes. If you have one enormous 
entity regulating all the nursing homes in the country, I think 
you are going to have some problems.
    Now, you have problems in States. From time to time, there 
is a big issue in one State where there is an investigation and 
the people are being treated badly in nursing homes and so 
forth and so on, but while that is going on in that State, 
presumably 40 out of the other 50 are doing a very good job.
    We do a pretty good job. We make mistakes and so forth. 
Everybody makes mistakes. But I think having that flexibility 
of somehow keeping the regulation at the local level and having 
some partnership aspects, or at the State level, will serve you 
and serve the Federal Government and, most important of all, of 
course, serve the patients best.
    But the biggest reason for the Medicaid costs being out of 
control in this population is the institutional bias of the 
program. The program is biased, heavily biased toward 
institutional care and it makes it very, very difficult without 
going through the hoops that are required in the waiver program 
to get the OK to spend the same amount of money taking care of 
more people in the area that they want to be taken care of, 
which is their own home.
    Let me just close by thanking you very much for doing this, 
by saying this is a very difficult area, because when you are 
talking about long-term care insurance, what you are talking 
about is not making sure people get adequate health care, you 
are talking about asset preservation.
    We have long-term care insurance in this country. It is 
called Medicaid. If you go to a nursing home in this country, 
you do not get kicked out if you suddenly cannot pay the bills. 
Most States--all States, as far as I know--prevent that from 
happening. Medicaid simply takes over. The issue is, for 
middle-class people, do you want to force them to impoverish 
themselves and impoverish their spouse in order to survive in a 
nursing home?
    I am not trying to say we do not need long-term care 
insurance. We do need long-term care insurance. But I think we 
have to recognize that this is not an issue like universal 
health care, where there are 40 million people who do not have 
it and, therefore, they get bad care because they end up in the 
emergency room after ignoring a problem for 3 months and it 
ends up costing the system more money. This is an issue where 
it is not access, where it is asset preservation. It is an 
important issue. There is a role for the private sector here. 
There is a role for the government here and I wish you good 
luck in sorting it out.
    The final word is that I think Senator Rockefeller is 
absolutely right. This is an issue that somehow has been pushed 
to the back burner for a long time. It is a major issue 
confronting this country. It is certainly a major issue 
confronting the budgets of all of our States, every single one 
of which is in one form of deficit or another these days. 
Medicaid is the biggest driver in the State budgets, all 50 of 
our budgets, and in Medicaid, the biggest drivers are long-term 
care and pharmaceutical prices.
    So I think these hearings have been very timely. I know you 
have put an enormous amount of effort and time into this and I 
sincerely hope that you will get a bill that will give the 
States more flexibility to spend both your money and our money 
more wisely, cover more people in the circumstances that they 
want to be covered, and also to be careful when you create a 
long-term care program that it not have a bias that is contrary 
to the wishes both of the patients and of those of us who end 
up budgeting for the care. Thank you.
    The Chairman. Thank you, Governor. As a medical doctor, you 
certainly bring a unique perspective to this issue.
    [The prepared statement of Governor Dean follows:]
    [GRAPHIC] [TIFF OMITTED] 81856.005
    
    [GRAPHIC] [TIFF OMITTED] 81856.006
    
    [GRAPHIC] [TIFF OMITTED] 81856.007
    
    The Chairman. Next, we will hear from our former colleague, 
Senator David Durenberger. David.

  STATEMENT OF HON. DAVID DURENBERGER, CHAIRMAN, CITIZENS FOR 
            LONG-TERM CARE COALITION, WASHINGTON, DC

    Senator Durenberger. Good morning. Thank you, Chairman 
Breaux and members of the committee. Thank you for holding this 
hearing today, but more importantly, thank you for your 
continued leadership on long-term care issues. You will 
eventually be honored for all 13 of those hearings. I greatly 
enjoyed my years of service on this committee and I am honored 
to be testifying.
    As Chairman of Citizens for Long-Term Care, I have been 
privileged to represent more than 60 national organizations 
representing seniors, people with disabilities, long-term care 
providers, labor unions, insurers, and other professionals. 
Last year, this diverse group of organizations coalesced behind 
the development of a national framework for reforming long-term 
care financing. Among its recommendations was the strong 
assertion that long-term care is an insurable event, and so it 
requires an insurance-based solution as opposed to the current 
welfare-oriented approach.
    Today, we are releasing an analysis that provides a new 
perspective on how policymakers should view long-term care 
within the context of national entitlement program reform. In 
short, it concludes that as the nation's population ages, it 
has become increasingly clear the Nation needs an expanded 
national financial security policy for access to both health 
and long-term care just as much as it needs a national energy 
policy or a national defense policy.
    The major findings are: long-term care spending is growing 
rapidly and the costs threaten Medicaid and family budgets. In 
2002, 40 States anticipate budget shortfalls because of growing 
Medicaid budgets.
    Second, Social Security and Medicare reform will be 
threatened unless long-term care financing is included.
    Third, we must develop a national commitment to long-term 
care financing that includes a limited social insurance cash 
benefit, generous incentives for private insurance, increased 
personal savings and some of the tax policy changes that 
Senator Wyden mentioned, and a Medicare program better designed 
to treat chronic illness.
    Finally, the inclusion of long-term care in Social Security 
and Medicare reform will increase efficiency, promote family 
caregiving, increase private resources, lower the cost of care 
per beneficiary, and better treat chronic illness, among other 
benefits.
    The fiscal challenges Federal and State legislators face 
with the growing pressures on financing, on workforce issues, 
and on the care quality have been articulated both by Governor 
Dean and by the NGA's request for a Commission on Medicaid. Our 
report makes the case for including long-term care financing 
reform in the Social Security and Medicare reform dialog over 
our nation's financial security goal.
    In our judgment, the time to begin is now. The chairman 
referred earlier to how do we deal with spending the surplus. 
The reality, Mr. Chairman, is it is time to bring 1935 and 1965 
programs into the realities of the 21st century. It is that 
simple.
    In the past, when health and income security of our seniors 
and people with disabilities were threatened, society responded 
with the development of Social Security in the mid-1930's, and 
Medicare and Medicaid in the mid-1960's. These programs were 
designed and built on what we knew in the early and mid-20th 
century. But by the end of the 1970's, policymakers were well 
aware of new realities and the need for change in the programs' 
responsibilities.
    In 1982, President Ronald Reagan proposed a new federalism 
as his effort to clarify inter-governmental responsibility for 
financial security. The heart of this proposal, endorsed by the 
National Governors' Association and led by Dick Snelling, would 
have made the Federal Government responsible for financing 
supportive services for the elderly and for people with long-
term disabilities. State government would have taken 
responsibility for the financial commitment to non-disabled 
low-income individuals, those eligible for short-term public 
assistance, or as we know it, welfare.
    In 1990, under the direction of Senator Rockefeller, the 
Pepper Commission made a recommendation that was much like the 
CLTC recommendation, that there be an insurance premise under 
long-term care financing. The need for long-term care would 
exceed the ability of Medicaid State-Federal financing system 
to keep pace with demand, and we said in 1990, you have to move 
to an insurance system.
    As a member of the Senate's Committee on Finance, I 
participated in both of these efforts and I am well aware of 
the politics of health and financial security. I am convinced 
that President Reagan and the NGA were right in 1982, that the 
Democrat and Republican House and Senate leadership on the 
Pepper Commission were right in 1990. I am convinced the many 
national long-term care associations who make up CLTC are right 
today.
    The combination of demographics and cost increases that are 
driving calls for Medicare, Medicaid, and Social Security 
modernization require we look for new solutions to address the 
future needs of people with disabilities and our aging 
population. We cannot expect our elected officials to undertake 
the bruising political battles associated with Medicare and 
Social Security reform only to have the same issues again 
several years later in the form of long-term care financing 
reform.
    If Congress reforms Social Security and Medicare without 
addressing long-term care financing, they will have missed a 
unique opportunity to fully address the health and financial 
security of society's most vulnerable members.
    The important analysis that CLTC releases today represents 
the consensus of nearly every association with a stake in 
improving access to and the quality of long-term care services 
and supports in this country. Despite the usual differences 
between the many associations, they all share the belief that 
long-term care financing must be reformed before the current 
situation becomes more critical, and to that end, they 
recognize they inherent reasonableness and the rationality of 
integrating this issue with any entitlement reform discussion. 
We hope the work that CLTC has produced helps generate much-
needed interest and understanding in this regard.
    I thank you for the opportunity to testify and will be 
happy to answer any questions.
    The Chairman. Senator Durenberger, thank you very much for 
your work as well as your testimony. It is very, very critical 
to finding a solution.
    [The prepared statement of Senator Durenberger follows:]
    [GRAPHIC] [TIFF OMITTED] 81856.008
    
    [GRAPHIC] [TIFF OMITTED] 81856.009
    
    [GRAPHIC] [TIFF OMITTED] 81856.010
    
    [GRAPHIC] [TIFF OMITTED] 81856.011
    
    [GRAPHIC] [TIFF OMITTED] 81856.012
    
    [GRAPHIC] [TIFF OMITTED] 81856.013
    
    [GRAPHIC] [TIFF OMITTED] 81856.014
    
    [GRAPHIC] [TIFF OMITTED] 81856.015
    
    [GRAPHIC] [TIFF OMITTED] 81856.016
    
    [GRAPHIC] [TIFF OMITTED] 81856.017
    
    [GRAPHIC] [TIFF OMITTED] 81856.018
    
    [GRAPHIC] [TIFF OMITTED] 81856.019
    
    [GRAPHIC] [TIFF OMITTED] 81856.020
    
    [GRAPHIC] [TIFF OMITTED] 81856.021
    
    [GRAPHIC] [TIFF OMITTED] 81856.022
    
    [GRAPHIC] [TIFF OMITTED] 81856.023
    
    [GRAPHIC] [TIFF OMITTED] 81856.024
    
    [GRAPHIC] [TIFF OMITTED] 81856.025
    
    [GRAPHIC] [TIFF OMITTED] 81856.026
    
    [GRAPHIC] [TIFF OMITTED] 81856.027
    
    [GRAPHIC] [TIFF OMITTED] 81856.028
    
    [GRAPHIC] [TIFF OMITTED] 81856.029
    
    [GRAPHIC] [TIFF OMITTED] 81856.030
    
    [GRAPHIC] [TIFF OMITTED] 81856.031
    
    [GRAPHIC] [TIFF OMITTED] 81856.032
    
    [GRAPHIC] [TIFF OMITTED] 81856.033
    
    [GRAPHIC] [TIFF OMITTED] 81856.034
    
    [GRAPHIC] [TIFF OMITTED] 81856.035
    
    [GRAPHIC] [TIFF OMITTED] 81856.036
    
    [GRAPHIC] [TIFF OMITTED] 81856.037
    
    [GRAPHIC] [TIFF OMITTED] 81856.038
    
    [GRAPHIC] [TIFF OMITTED] 81856.039
    
    [GRAPHIC] [TIFF OMITTED] 81856.040
    
    [GRAPHIC] [TIFF OMITTED] 81856.041
    
    [GRAPHIC] [TIFF OMITTED] 81856.042
    
    [GRAPHIC] [TIFF OMITTED] 81856.043
    
    The Chairman. Next, we will hear from Ms. O'Shaughnessy.

    STATEMENT OF CAROL O'SHAUGHNESSY, SPECIALIST IN SOCIAL 
  LEGISLATION, CONGRESSIONAL RESEARCH SERVICE, WASHINGTON, DC

    Ms. O'Shaughnessy. Thank you, Senator Breaux. Good morning, 
Senator Breaux and Senator Ensign. Thank you for the 
opportunity to testify. Today, I am going to take a little 
different tack and talk about international trends for long-
term care financing, which I know you are interested in.
    The first point is that population aging is a worldwide 
phenomenon. The aging of societies over coming decades has 
commanded the attention of policymakers worldwide and will have 
dramatic implications on pension plans, income programs, and 
health and long-term care systems. While growth of the elderly 
population in industrialized countries of North America and 
Europe is well recognized, developing countries are also 
experiencing rapid growth in their older populations, predicted 
to increase by two- to fourfold by 2030.
    By 2015, in 9 of 11 Western European countries, older 
persons will represent 18 percent or more of the total 
population, and by 2015, an astonishing one-quarter of Japan's 
population will be 65 and older. While the United States, 
Canada, and Australia are relatively young by world standards, 
a large growth rate will come in coming years, as members of 
the panel have discussed.
    These demographic factors will have immense impact on 
public and private spending for pensions, social welfare, and 
health and long-term care systems. Policy makers worldwide are 
planning, or have already taken steps to change their long-term 
care financing and service delivery systems. Although countries 
differ in approach, many have recognized that the provision of 
long-term care is one of three pillars of social support for 
the elderly, along with retirement income and medical care.
    Comparison among countries is challenging because of the 
different economic and political circumstances of each country 
and the nature of the social contract that each country shares 
with its citizens. For example, two countries that have 
instituted long-term care reform, Germany and Japan, have 
certain characteristics that differ from other countries. 
Germany has more than a century-old tradition of public 
responsibility for health care of its citizens. Japan unlike 
many other countries, has a long tradition of filial 
responsibility for older family members. Older family members 
usually go to live with their oldest son, with the daughter-in-
law providing most of the care.
    A landmark study prepared for the Organization for Economic 
Cooperation and Development, OECD, for its 29 member nations, 
indicated that comprehensive reform to address the economic and 
social implications of aging populations will be necessary, and 
OECD noted that there is a limited window of opportunity for 
many nations to take action.
    Regarding long-term care, OECD recommended a number of 
things that have been talked about in the hearings over the 
course of the last year. First, OECD recommended that financing 
schemes should be developed to share the financial burden 
jointly by the working age and older populations.
    Second OECD recommended coverage of catastrophic costs, 
which Senator Rockefeller just spoke about; third, there should 
be wide support for home care programs and family care rather 
than institutional care, and, fourth, there should be a 
harmonizing of long-term care services with health care policy.
    A key challenge according to the OECD for its 29 member 
nations is to develop systems that can provide chronic care and 
improve the balance between health care and chronic care, 
between family and formal care systems, and between medical and 
social services. As in the United States, many nations have 
found this very difficult to accomplish.
    During the 1990's, a number of nations enacted major 
legislation to change long-term care systems. Some details of 
some of those systems are in my written testimony, but I would 
like to highlight certain aspects of programs in Germany and 
Japan that have drawn attention in the U.S.
    In 1994, Germany created an employer-mandated social 
insurance program where employer and employee share in a 1.7 
percent tax on wages to pay for long-term care on a pay-as-you-
go basis. The program is a capped entitlement with maximum per 
person benefits; it provides nearly universal coverage. Over 90 
percent of persons in Germany are covered by the plan, and 
eligibility for assistance is not related to income and assets.
    However, the program was not intended to be fully 
comprehensive. Cost sharing by recipients is a key element. 
When costs of care exceed the benefit maximums, the difference 
must be paid by the individual or his or her family, and if the 
individual cannot pay, a means-tested welfare system kicks into 
place.
    The German plan provides both cash and services up to 
maximum amounts for various multi-levels of care; home care 
services are specifically designed to supplement family care. 
Cash has been a predominant choice of long-term care clients, 
but recent trends show that people prefer a combination of cash 
as well as formal services.
    Japan, which has a very large elderly population 
implemented a social insurance program in 2000. The program 
provides both home care and institutional care according to 
five levels of need. As in the German program, benefits for 
care are fixed, depending on the level of need that is 
required, and public subsidies pay for one-half of the care. 
The other half of the cost is funded through income-related 
premiums and a flat 10 percent copayment by individuals. So 
there is a mix of public-private funding in this program.
    In summary, Mr. Chairman, reviews of various countries have 
found some similarities in the goals of reform. These include 
the following. Policymakers are attempting to find the right 
balance between public and private responsibilities, as in the 
U.S. Countries are striving to create a more balanced approach 
to home and community-based care. In some cases, the desire to 
control institutional care, as Governor Dean had mentioned, has 
been a propelling reason for seeking out home and community-
based care.
    Countries recognize the important role of unpaid care 
provided by family and friends and a key feature of these 
designs in various countries is to avoid creating, as Senator 
Ensign was talking about, disincentives to family support and 
to supplement the informal care that is provided. A number of 
countries are developing systems that allow consumers greater 
choice between services and cash payments, as we are 
experimenting with in this country.
    Responsibilities for administration are generally 
decentralized. Also, in terms of financing, in some countries, 
eligibility is based on need, not ability to pay. But on the 
other hand, as in Germany and Japan, those reform programs 
require individuals to pay for a portion of their costs, either 
through fixed or variable rate schedules, either through 
premiums or cost sharing.
    Just to conclude, Mr. Chairman, Senator Rockefeller talked 
a lot about adult day care programs; adult day care is a 
blossoming industry in this country. We actually got the idea 
for adult day care from Britain and from Russia in terms of the 
experimentation that they had done, in the early part of this 
century. This is an example of a model that we have transferred 
from other countries.
    So that concludes my statement. I will be glad to answer 
questions.
    The Chairman. Thank you very much, Ms. O'Shaughnessy.
    [The prepared statement of Ms. O'Shaughnessy follows:]
    [GRAPHIC] [TIFF OMITTED] 81856.044
    
    [GRAPHIC] [TIFF OMITTED] 81856.045
    
    [GRAPHIC] [TIFF OMITTED] 81856.046
    
    [GRAPHIC] [TIFF OMITTED] 81856.047
    
    [GRAPHIC] [TIFF OMITTED] 81856.048
    
    [GRAPHIC] [TIFF OMITTED] 81856.049
    
    [GRAPHIC] [TIFF OMITTED] 81856.050
    
    [GRAPHIC] [TIFF OMITTED] 81856.051
    
    [GRAPHIC] [TIFF OMITTED] 81856.052
    
    [GRAPHIC] [TIFF OMITTED] 81856.053
    
    [GRAPHIC] [TIFF OMITTED] 81856.054
    
    [GRAPHIC] [TIFF OMITTED] 81856.055
    
    [GRAPHIC] [TIFF OMITTED] 81856.056
    
    [GRAPHIC] [TIFF OMITTED] 81856.057
    
    [GRAPHIC] [TIFF OMITTED] 81856.058
    
    [GRAPHIC] [TIFF OMITTED] 81856.059
    
    [GRAPHIC] [TIFF OMITTED] 81856.060
    
    [GRAPHIC] [TIFF OMITTED] 81856.061
    
    [GRAPHIC] [TIFF OMITTED] 81856.062
    
    The Chairman. Our final witness will be Mr. Steve Chies.

  STATEMENT OF STEVEN CHIES, VICE CHAIR, AMERICAN HEALTH CARE 
                  ASSOCIATION, WASHINGTON, DC

    Mr. Chies. Thank you, Senator. Let me also extend my thanks 
to the committee for the substantial amount of time that you 
have invested in examining the many aspects and future 
implications of our nation's long-term care financing crisis.
    As baby boomers approach retirement age, millions of 
Americans will be confronted by the need for long-term care and 
confounded by the inability to pay for the care that they will 
demand. Consider this fact. The average cost of a year's stay 
in a nursing home is in the range of $50,000, far too much for 
many Americans to pay, and it is fair to say that in America, 
the greatest long-term care risk that you face for financial 
and societal is to stay in a long-term care facility, as 
Senator Rockefeller mentioned.
    It is also fair to say that the heart of the nation's long-
term care financing structure, Medicaid, is quickly becoming 
one of the most underfunded government programs we have in 
relationship to its mission and mandate. A recent report by BDO 
Seidman showed that the Medicaid program is underfunding 
skilled nursing care by approximately $3.7 billion in the year 
2000.
    AHCA and NCAL have spent a great deal of time and resources 
examining the nation's long-term care financing structure. To 
assist us, we engaged the health policy experts of Abt and 
Associates, a well known, highly regarded public policy 
research firm based in Boston. Working with Abt, we developed a 
sophisticated micro simulation model that we have been using to 
test and analyze various approaches toward long-term care 
financing reform, and here are some of our observations.
    Because of demographic changes, Medicaid spending for long-
term care as a percentage of gross domestic product will double 
during the first half of the 21st century. The continuum of 
long-term care services will need to be greatly expanded to 
meet the needs of aging baby boomers, and access to this 
continuum is essential. Reliance on family caregiving will be 
strained simply because there are too few family members 
available to provide the care.
    To address these challenges, we concluded the following. 
Congress must not only continue to endorse and support the 
growth of a long-term care insurance market through changes in 
the tax code, but it must do so in a specific way to target 
assistance to low- and moderate-income Americans to help them 
purchase and maintain insurance. We believe a public-private 
program should be created to help all Americans prepare for 
their long-term care needs. Not only will this entail changes 
in the tax code to promote long-term care insurance, but should 
also include restructuring of our current patchwork system of 
financing long-term care into an effective, efficient public 
policy program at the Federal level.
    Mr. Chairman, our research shows that a national voluntary 
public-private program for financing long-term care is possible 
and can provide better access to the range of long-term care 
needs for Americans elderly and disabled. We believe it is 
possible to ease the growing dependence on Medicaid with 
policies to make it possible for a majority of individuals to 
pay privately for care they receive in the future. This could 
be accomplished by shifting the role of government from 
government paying for care services to government helping 
individuals and families plan for their long-term care needs.
    Tax incentives can be an important component in shifting 
the role of government. One incentive is the above-the-line 
deduction now being considered by this Congress and supported 
by you, Mr. Chairman, and other members of the committee. But 
more importantly, we see a critical need for a refundable tax 
credit, one that is targeted toward low- and moderate-income 
Americans, those who have the greatest need for government-paid 
long-term care services by Medicaid. If a major goal is to 
reduce dependency on the Medicaid program, then we see this as 
the best way to reach it.
    Once tax incentives allow for greater reliance on long-term 
care insurance, it becomes much more feasible to shift the 
government's role of the coverage of long-term care to the 
Federal level, thereby relieving the States of the increasingly 
onerous budgetary burden. This restructuring will allow for the 
coordination of both acute and long-term care services of the 
elderly and long-term care for the disabled. Coordinating the 
long-term care at the Federal level will eliminate today's 
failed patchwork financing system, thus creating a more 
efficient and seamless system for covering the care.
    Finally, Mr. Chairman, the key element necessary to 
establish the legitimacy and awareness of this program must be 
public education. The comments from Senator Rockefeller really 
hit home for me. A national effort designed to help individuals 
understand the risk they face and what options they have. Once 
they do, we believe they will choose to act responsibly and 
plan for their long-term care needs.
    That being said, we neither support nor advocate any system 
in which individuals do not take some financial responsibility 
for their care. This is the American way, and if you want to 
control your destiny, you must take some responsibility. This 
approach provides all Americans with the means to do just that. 
AHCA and NCAL believe the components of this financing model 
are viable and maximize the best the public and the private 
sectors have to offer for the good of all.
    This obviously cannot be implemented overnight but is 
likely to take several years. This is why it is important for 
all elected officials to recognize the severity of this 
problem, just as you do, Mr. Chairman and the members of the 
committee, and begin addressing this situation today, 
regardless of what the final approach we ultimately decide on.
    Again, thank you for this opportunity and for your 
dedication to try to help the elderly and disabled in this 
country.
    The Chairman. Thank you very much, Mr. Chies, and all the 
members of the panel for excellent testimony.
    [The prepared statement of Mr. Chies follows:]
    [GRAPHIC] [TIFF OMITTED] 81856.063
    
    [GRAPHIC] [TIFF OMITTED] 81856.064
    
    [GRAPHIC] [TIFF OMITTED] 81856.065
    
    [GRAPHIC] [TIFF OMITTED] 81856.066
    
    [GRAPHIC] [TIFF OMITTED] 81856.067
    
    [GRAPHIC] [TIFF OMITTED] 81856.068
    
    [GRAPHIC] [TIFF OMITTED] 81856.069
    
    The Chairman. Governor Dean, I think that the story in 
Vermont has been unique and I think it has been highly 
successful. I was really impressed with the fact that you said 
that because of the waivers you have received, that you have 
been able to essentially spend the same amount of money and I 
think you had talked about actually covering almost twice as 
many people with the same amount of money through the use of 
alternatives other than just skilled nursing facilities. Do I 
understand that correctly?
    Governor Dean. That is true, although you have to throw in 
cost-of-living, so it is not the same dollar amount, but it is 
the same adjusted dollar amount. We can take care of twice as 
many people outside a skilled nursing facility as we can inside 
and they are just as sick.
    The Chairman. You have had to come to the Federal 
Government----
    Governor Dean. Excuse me. They are just as sick as the ones 
who would have been in. We are not talking about really ill 
people who clearly need to be in skilled nursing facilities.
    The Chairman. Now, you have come to the Federal Government 
to request the authority to have those waivers, right?
    Governor Dean. Right. I think the first waiver is not 
uncommon--I am pretty sure there are other States that have 
it--which allow us to spend Medicaid money on home health care. 
We happen to have a fair number of slots. It is about a third 
of all our slots.
    The Chairman. You can also spend it for assisted living 
facilities?
    Governor Dean. Yes. That, I think, is relatively unique, 
and certainly some of the members of the panel have more 
expertise than I do, but I am not aware of another State that 
has that, although there may be----
    The Chairman. Your recommendation is that you should not 
have to come to Washington to get the waivers, that the State 
ought to have the flexibility to use the money as they see fit 
within the options that are out there?
    Governor Dean. Not only that, although I am never in favor 
of Federal mandates. Certainly, anything that you can do to 
push States to take care of the maximum number of people 
outside the skilled nursing facilities and even assisted 
living. Somebody mentioned the least restrictive environment. 
That is what people want. People want to be in their own homes 
if they can be.
    Obviously, at some point, it does not make sense to spend 
$250,000 keeping somebody in their own home when they could do 
it for a good deal less in a skilled nursing facility. But for 
most people, we can keep them in their own homes for about half 
of what it costs to put them in a skilled nursing facility, and 
they can be pretty sick, particularly if family is willing to 
participate in their care, or able or they are present in town, 
which is the case for most people.
    The Chairman. Mr. Chies, you have heard Governor Dean's 
recommendations. On behalf of your association, what do you 
think about them?
    Mr. Chies. We have supported waivers in the past and will 
continue to support the waiver process. I think, Governor, I am 
aware of at least 38 States that have similar waiver programs 
for assisted living and home-based services, so it is being 
done extensively out there and I think the Governor's 
recommendations probably to allow States to do that on a much 
more broader basis is probably indicative of what the States 
are demanding out there.
    The Chairman. So I take it what Governor Dean is suggesting 
is that the current waiver process, whereby they have to come 
to Washington and officially request a waiver to use Medicaid 
funds for things other than skilled nursing facilities, that 
that be made a sort of permanent waiver? I take it you are not 
trying to get away from some kind of Federal guidelines----
    Mr. Chies. No.
    The Chairman [continuing.] Because that is not going to 
happen. I mean, if we are going to have my State get 70 percent 
of the Medicaid money, from the Federal Government, then we 
want to make sure that we have a responsibility to see that the 
money is being spent responsibly. I mean, this is a partnership 
here. We do not just toss it up in the air and hope it comes 
down and does good, but we have a responsibility to make sure 
that we are doing what we intend to do. Do you support that 
concept, Mr. Chies?
    Mr. Chies. Yes. Mr. Chairman, I think you will find that 
most long-term care providers would agree substantially with 
what the Governor has presented here. I think the Medicaid 
waivers is a short-stop effect here. It is not really where we 
need to be as a society. We need to look at a much broader 
program of getting people the resources and letting them 
control it. The discussions from Carol about Germany and Japan, 
about the ability for people to have cash payments to go out 
and buy the service that they want makes a lot of sense from 
our perspective and allow the marketplace to drive the quality 
and the quantity of services that people receive.
    The Chairman. Are your nursing home owners moving into 
other types of long-term care facilities? If I was in the 
nursing home business, I would be broadening my base of 
operations as fast as I possibly could into assisted living 
facilities and home health care, as well as the traditional 24-
hour-a-day, 7-day-a-week skilled nursing facilities. In some 
States, there is a group of operators of nursing home 
facilities operators that are very much against the being able 
to use waivers for other types of facilities, because they feel 
it takes business away from them. Can you comment on that?
    Mr. Chies. I think that is a fair rendition of what is 
going on in the field out there. I think the reason you will 
see a lot of operators oppose assisted living is because of the 
pinched State budgets we have had in the Medicaid program and a 
concern that there will not be sufficient funding to adequately 
care for the people that do require nursing home care. But many 
long-term care providers who are in various segments of the 
business--the organization I work for right now has a number of 
assisted living and housing units and we believe they are very 
compatible in terms of how you move people through a continuum 
of providing care and services.
    The Chairman. I thank you for that answer. I would just 
suggest that all of them look to the future and that is where 
some of the answer is going to be, not only from a service 
standpoint, but also from an economic and business standpoint. 
People are going to be demanding that type of care. They are 
already demanding that type of care. So it is good to hear that 
they are moving in that direction and that the association 
essentially supports the waiver process that Governor Dean, I 
think, has so well outlined for us.
    Governor Dean. Mr. Chairman, if I might just add one thing, 
just to make sure this does not get glossed over, because this 
was a real point of contention between ourselves and the 
industry when we did this, we did pass a bill mandating that 
over a period of years we reduce the total number of nursing 
home beds by 10 percent and we are now in the process of taking 
it down another 10 percent and nursing homes, smaller, weaker 
ones, have started to close.
    The Chairman. That does not mean 20 percent less care.
    Governor Dean. No.
    The Chairman. It means----
    Governor Dean. It actually means 20 percent more care 
because you take down 20 percent of the beds and you can add 40 
percent more care capacity outside the system by using the 
money. But this is not painless for nursing home operators. The 
smaller ones cannot get into the health care business because 
they are mom-and-pop organizations with maybe 30 beds. The 
larger chains could, if they wanted to, and some of them have 
done that and some of them have not.
    The Chairman. David, you know the problem we struggle with 
up here. We are trying to add a prescription drug benefit to 
Medicare and we have got ranges from $1 trillion to $190 
billion on how much we are going to spend in that area. We 
still have 44 million Americans who have no health insurance at 
all. At least if you are on Medicare, you have got about 53 
percent of your health care being paid for through Medicare. If 
you are one of the 44 million Americans who have no health 
insurance, you are subject to emergency rooms as your principal 
provider for health care in the country. Now we are talking 
about long-term care.
    The money is coming out of the Social Security trust fund, 
and that is where it is coming from. You can say, well, I want 
a $1 trillion drug program. I can write you a great drug 
program for $1 trillion, free drugs for everybody, and some 
would endorse that. But you have got to realize where it is 
coming from. It is coming from your children and our 
grandchildren's Social Security retirement.
    All of this is a money problem as much as anything. Long-
term health care insurance, which Steve has endorsed and I 
think I have introduced, is a refundable tax credit approach. 
That is going to cost money. That money is going to come out of 
Social Security retirement funds right now.
    Do you have any suggestions? You have outlined some really 
good suggestions. The question is, how do we pay for it? If you 
had the answer, we would make you king for a day or maybe for 
the rest of your life.
    Senator Durenberger. First, if you take a look at this Abt-
produced study called Life Plan, I think it gives you an 
example of how you might do this, if you want something other 
than my opinion. There is an example of how, over time, we 
might do it.
    Second, and I am speaking only for myself, part of the 
reason that we are all recommending dealing with long-term care 
financing reform at the same time we deal with the others is 
there are a lot of resources available. They may not all be in 
the Federal Treasury, but the Federal Treasury decisions are 
being run by our predecessors in 1935 and 1965, basically. So 
you have to tackle the realities of that in the context of the 
21st century. What do we know now compared to what we knew 
then?
    We have in retirement today, including myself, I guess, 
although I am not retired, a huge amount of wealth that is 
about to be transferred to another generation. We have 
something like $14 trillion in home equity in America today. I 
do not know what we have in savings and 401(k)s and (b)s and 
all that sort of thing, and I think Ron Wyden already spoke to 
that. Some changes in the tax code enable people to make 
different decisions.
    So the point of changing this from a ``wait until you have 
got a problem and then make a decision'' to a system in which 
we make the financial security decisions when we are young or 
when we go to work, and then when the occurrence of need 
comes--maybe within a year, you have a developmentally disabled 
child, or 7 years from now, when like my mom, you have a 
dementia called Alzheimer's, but you have prepared financially 
for that eventuality and you have not waited until the need 
arises to make these decisions.
    That is why, when I listen to this conversation, with all 
due respect to all my colleagues who are in government, much 
better decisions are made by people in families than are made 
by Governors, or Congressmen, or Tommy Thompson at HHS, or Tom 
Scully at CMS, and the idea of an insurance system which is 
partially social insurance, partially private insurance, the 
idea of the Germany system, which, at Carol's suggestion, I 
went over and looked at last week, is that families make these 
decisions, and if they make them in advance, there are lots of 
resources in this country, privately held as well as the 
retirement plan surpluses, that can, over time, be committed to 
meeting these needs.
    The Chairman. Senator Ensign, any questions?
    Senator Ensign. First of all, I just want to say thank you 
to all of you. It has really been a terrific hearing and I 
think some great suggestions here. Obviously, there are some 
incredible challenges for us as policymakers up here.
    Governor Dean, I think that your suggestion is probably the 
easiest one of everything that has been talked about up here as 
far as being able to do, and if the only thing we can do is 
incremental, that is at least an incremental step we ought to 
be taking. I want to try to work with you on that and the 
Chairman trying to be able to do that in a bipartisan way. It 
is short term but it has shown real progress. You have shown 
leadership on this, and that it could be done across the 
country.
    Ms. O'Shaughnessy, I thought it was really fascinating, 
some of the things that you were talking about. I am glad that 
you studied them and I want to follow up with a question on the 
experience. I was talking to Senator Rockefeller about the 
family incentive. What have those other countries found, 
because, for instance, Japan is famous for how they take care 
of their parents, their grandparents. They are known all over 
the world for how they revere the elderly. We sometimes are a 
throw-away society for our elderly and that is the cautionary 
flag I was trying to raise is that we do not encourage more of 
that, but that we actually get more to the incentive of keeping 
family to-family decisions and types of care as much as we 
possibly can.
    What has been the experience of Japan and Germany as far as 
that? Has anybody looked at that aspect of it?
    Ms. O'Shaughnessy. Well, in terms of Japan, with the 
demographic factors and the lower fertility and increasing 
number, I mean, 25 percent in just a few years of the total 
population will be elderly, and what has happened is that women 
in Japan going into the workforce more dramatically than 
before--all these factors have put a huge amount of pressure on 
the family structure there. So they recognized after some years 
of thought, that they needed to incrementally assist 
individuals through a formal care system.
    I looked at it a little bit in terms of evaluation, which 
the Japanese government puts out, and basically, they are 
saying that people seem to be very satisfied with the care that 
they are getting through the formal system, but, you know, you 
still have this strong family network that has got to be there 
just to serve the number of people.
    Also in Germany, realizing that the German plan is not 
comprehensive--it is universal but it does not provide 
comprehensive coverage--the levels of care, I think the highest 
they can pay, except for one exception, is something like 
$1,400 a month for care. Most people are either at level one or 
level two, so you are still relying upon the informal support 
system a great deal even though you have a minimum benefit that 
helps take off the pressure, and perhaps is for nursing care at 
home that the families do not know how to do.
    In terms of looking at countries, Austria and Australia 
also enacted national family caregiver programs in terms of a 
limited benefit. I think that is the way at least OECD sees the 
issue going--enact programs that will assist families, not 
supplant them.
    Senator Ensign. Mr. Chairman, I will just conclude with an 
observation. My son has a wonderful piano teacher and they have 
a severely disabled son who is now about 16 years of age. A 
couple of comments on them.
    First of all, it is unbelievable to see the difficulties 
that they go through with this child. He is the typical child 
that most families would probably not be able to handle and 
would institutionalize. A lot of families would, anyway. Maybe 
not most, but certainly a lot of families would. But to see the 
relationship with him and his siblings, who are younger, and 
the way that they interact with him is awesome to see, and I 
know that these kids are going to be better people because of 
learning to serve him.
    But also, watching mom and dad and financial hardships that 
it has been on their family, there is no question about that. 
They are making it through it. They are doing OK. But part of 
the help that is really needed is a lot of what has been talked 
about, here such as respite care.
    I do not want to get away from encouraging people, and that 
is the point I was trying to make, by setting up a system where 
it is just easy. You know, just put them in an institution 
where it is more expensive, the care and all that kind of 
thing. Rather let us get people the help that they need so they 
can stay together as a family with much home care as is needed. 
If they need to go into a facility or whatever, get them out as 
quickly as possible. But keep as much of the incentive there as 
possible to keep families together.
    I think, overall, if we set that out as one of our main 
goals, I think that we can form the right policies up here to 
take care of the problem that people are concerned about. The 
problem of impoverishing themselves by going in and then once 
they go into a facility they are stuck there, and they know 
they are going to be there for the rest of their lives. We need 
to go toward where they know that there is some hope, where 
they are not afraid to get the help because maybe they can end 
up worse than before; where they were actually a little more 
independent and those kinds of things.
    I think that if we put our heads together and not let 
ideology get in the way we can get there. It is just a question 
of how we get there, and I think that if we are willing to work 
together, I think we can really come up with some policies that 
will be good for the country and that will be more affordable. 
I do not think any of it is affordable, especially with our 
aging population. But it is a question of what is going to be 
more affordable, and I think that doing the right thing and 
trying to keep family as much together as possible and doing 
the things like Governor Dean is doing, is a more affordable 
way to do those things. You help more people and you keep them 
in situations where the quality of life is better as well.
    So I think, overall, all of those goals can work together 
and I really want to applaud your leadership, Mr. Chairman. You 
have really done a great job.
    The Chairman. Thank you very much, Senator Ensign, and 
thank you for being with us for the entire hearing.
    I think today's hearing really represents a wake-up call to 
America about the enormous challenge and the enormous problems, 
but also at the same time the enormous opportunities that those 
challenges present us in addressing something that is not going 
to go away. The Congress can talk about it, but until we start 
acting, the problem will only increase in its severity and the 
challenge of helping to solve it.
    Again, the Aging Committee has done a summary of all 13 
hearings we have had with ideas and concepts, and hopefully, we 
can build on that report that we have presented and move 
forward aggressively with legislation to try to address this 
problem. It is one of the top priorities, I think, that this 
Congress should face.
    I want to also recognize the son of Frances Stevenson, a 
woman from Napoleonville in Louisiana. Her son, Major 
Stevenson, is here and we thank him for attending our hearing, 
and also, again, my wife and our teacher interns from Louisiana 
who have sat through this long hearing and hopefully have an 
idea of how their government works.
    The panel has just been terrific. We thank each and every 
one of you very much for your presentations, and with that, the 
committee will stand adjourned.
    [Whereupon, at 11:06 a.m., the committee was adjourned.]
                            A P P E N D I X

                              ----------                              

[GRAPHIC] [TIFF OMITTED] 81856.070

[GRAPHIC] [TIFF OMITTED] 81856.071

                                   - 
