[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
LONG-TERM CARE AND MEDICAID: SPIRALING COSTS AND THE NEED FOR REFORM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
APRIL 27, 2005
__________
Serial No. 109-24
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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------------------------------
COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
RALPH M. HALL, Texas JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida Ranking Member
Vice Chairman HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia BART GORDON, Tennessee
BARBARA CUBIN, Wyoming BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman GENE GREEN, Texas
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania JIM DAVIS, Florida
MARY BONO, California JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon HILDA L. SOLIS, California
LEE TERRY, Nebraska CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey JAY INSLEE, Washington
MIKE ROGERS, Michigan TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee
Bud Albright, Staff Director
David Cavicke, Deputy Staff Director and General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
NATHAN DEAL, Georgia, Chairman
RALPH M. HALL, Texas SHERROD BROWN, Ohio
MICHAEL BILIRAKIS, Florida Ranking Member
FRED UPTON, Michigan HENRY A. WAXMAN, California
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia FRANK PALLONE, Jr., New Jersey
BARBARA CUBIN, Wyoming BART GORDON, Tennessee
JOHN SHIMKUS, Illinois BOBBY L. RUSH, Illinois
JOHN B. SHADEGG, Arizona ANNA G. ESHOO, California
CHARLES W. ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi TED STRICKLAND, Ohio
STEVE BUYER, Indiana DIANA DeGETTE, Colorado
JOSEPH R. PITTS, Pennsylvania LOIS CAPPS, California
MARY BONO, California TOM ALLEN, Maine
MIKE FERGUSON, New Jersey JIM DAVIS, Florida
MIKE ROGERS, Michigan TAMMY BALDWIN, Wisconsin
SUE MYRICK, North Carolina JOHN D. DINGELL, Michigan,
MICHAEL C. BURGESS, Texas (Ex Officio)
JOE BARTON, Texas,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Allen, Kathryn G., Director, Health Care, Medicaid and
Private Health Insurance Issues, U.S. Government
Accountability Office...................................... 78
Feder, Judith, Dean, Public Policy Institute, Georgetown
University................................................. 140
Hansen, Jennie Chin, Board of Directors, Class of 2008, AARP. 132
Holtz-Eakin, Douglas, Director, Congressional Budget Office.. 31
Ignagni, Karen, President and CEO, America's Health Insurance
Plans...................................................... 104
Krooks, Bernard A., Littman Krooks LLP....................... 115
McClellan, Mark B., Administrator, Centers for Medicare and
Medicaid Services.......................................... 20
Moses, Stephen, President, Center for Long-term Care
Financing.................................................. 111
O'Shaughnessy, Carol V., Specialist in Social Legislation,
Domestic Social Policy Division, Congressional Research
Service.................................................... 90
Page, Lee, Associate Advocacy Director, Paralyzed Veterans of
America.................................................... 73
Stucki, Barbara, Project Manager, the National Council of the
Aging...................................................... 125
Material submitted for the record by:
Allen, Kathryn G., Director, Health Care, Medicaid and
Private Health Insurance Issues, U.S. Government
Accountability Office, response for the record............. 169
Feder, Judith, Dean, Public Policy Institute, Georgetown
University, response for the record........................ 173
Holtz-Eakin, Douglas, Director, Congressional Budget Office,
response for the record.................................... 172
O'Shaughnessy, Carol V., Specialist in Social Legislation,
Domestic Social Policy Division, Congressional Research
Service, response for the record........................... 168
Page, Lee, Associate Advocacy Director, Paralyzed Veterans of
America, response for the record........................... 174
(iii)
LONG-TERM CARE AND MEDICAID: SPIRALING COSTS AND THE NEED FOR REFORM
----------
WEDNESDAY, APRIL 27, 2005
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to other business, at 11:24
a.m., in room 2123 of the Rayburn House Office Building, Hon.
Nathan Deal (chairman) presiding.
Members present: Representatives Deal, Bilirakis, Upton,
Gillmor, Norwood, Cubin, Shimkus, Shadegg, Buyer, Pitts, Bono,
Ferguson, Rogers, Myrick, Burgess, Barton (ex officio), Brown,
Waxman, Rush, Eshoo, Green, Strickland, Capps, Allen, Baldwin,
and Dingell (ex officio).
Also present: Representatives Wilson and Engel.
Staff present: Chuck Clapton, chief health counsel; David
Rosenfeld, majority counsel; Jeanne Haggerty, Majority
professional staff; Eugenia Edwards, legislative clerk; Brandon
Clark, health policy coordinator; Bridgett Taylor, minority
professional staff; Amy Hall, minority professional staff;
Jessica McNiece, research assistant; and David Vogel, research
assistant.
Mr. Deal. The subcommittee will come to order. We will have
members joining us, I am sure, in just a few minutes, so we are
pleased to open this hearing today, and we have two panels.
The first is two individuals, very distinguished
individuals, Dr. Mark McClellan, who is the Administrator of
the Centers for Medicare and Medicaid Services, and Dr. Douglas
Holtz-Eakin, who is the Director of the Congressional Budget
Office.
Gentlemen, we are pleased to have you with us today. This
is a hearing that I think all of us have looked forward to. Dr.
McClellan, I realize that your testimony was a little late
getting in, and we would just encourage you to get it here a
little earlier. It will facilitate, perhaps, some of the
members and their questions, and understanding your testimony
today. But we are pleased to have both of you here.
I will recognize myself, as I have just done, for purposes
of an opening statement. As we deal with the question, in
particular, of the spiraling costs of Medicaid, we are hearing
from our Governors, as I am sure Dr. McClellan, you are hearing
from Governors as well. My Governor and many Governors that
members of our subcommittee have met with, both formally and
informally, are continuing to tell us that they simply can't
afford the program, as it is currently in place, and they are
requesting that we make changes.
Hopefully, some time during this session of Congress, we
will have the opportunity to address that issue in greater
detail. But I think your testimony here today will lay a
groundwork for us to understand what the parameters of the
problem are, and perhaps some of the solutions that may be
available to us.
Everybody, I am sure, has their own personal story about
dealing with the problems of long-term healthcare, for example,
which is a major component, obviously, of the Medicaid
expenditures. I have been jokingly told by some that I need a
license to operate my home, because some 8 years ago, by
fortuitous circumstances, my mother, who is now 98, came to
live with us, because she had to have a leg amputated, and was
bound in a wheelchair, and could no longer live alone. About
the same point in time, my wife's mother and father came to
live with us as well. Her mother had been diagnosed with
Alzheimer's, and she has since passed away, but her father, who
is now 91, continues to live with me, and with us in our home.
But these are not unusual circumstances for families to
face. Very few have the opportunity to take their parents into
their home and provide for them. And it is not that my parents
or my mother or my father-in-law are wealthy people. They are
retired public schoolteachers, but they have not gone into a
publicly financed Medicaid nursing home environment. There are
many others out there who would like to have avoided a nursing
home as well, and I think one of the options that hopefully we
will explore, as we visit this issue of long-term healthcare in
particular, is how do we afford families the opportunity to
provide for themselves and for their loved ones, in an
environment outside of a nursing home. Many people would
desire, I think, that option, and I think that under our
current rules, we don't have the flexibility to allow States to
design programs that perhaps would accommodate those wishes.
There are many other facets, obviously, of the Medicaid
problem, but the one that I continue to harp on, and it is an
essential ingredient that I think causes the problem, and if we
can fix it, will perhaps provide the solution, and that is, the
current absence of individual responsibility in the program as
it is designed. It is the lack of individual responsibility
that causes the concerns of hospitals, who constantly tell me--
in a meeting I had recently with my local hospital, that in
excess of 70 percent of their emergency room visits could
probably be classified as non-emergency, and virtually all of
those are being paid for through Medicaid, a program that is
costing us huge amounts of money at both the State and Federal
levels.
It is that lack of personal responsibility in the design of
the program that needs to be fixed. If we do that, and
Governors have continually indicated that they would like to be
able to address that issue, that if we do that, I think
hopefully we can design something, as we approach the problems
and look for solutions, something that will individually make
us responsible for recognizing that this is not just something
that somebody else is going to pay for for us. We have a part
in it, and we ought to be responsible in our participation.
At this time, I would recognize Mr. Brown, the Ranking
Member of the subcommittee, for an opening statement.
Mr. Brown. Thank you, Mr. Chairman. I echo the chairman's
words and comments about the testimony of Dr. McClellan. He
came to us at 10:15 last evening, and I know the staff on both
sides of the aisle works really hard, but not all of them were
there when it came, and then it was edited this morning, in
sort of a second round. I hope you will work to do better than
that. I know it is always difficult to prepare for these
hearings.
I commend the chairman for enabling the subcommittee to
consider the future of long-term care, one of our healthcare
system's most critical issues. I would like to suggest, though,
a subtle but important shift in perspective. Instead of
focusing on spiraling long-term care costs, let us focus on
spiraling long-term care needs. Our population is aging, and
the need for long-term care is keeping pace. We should focus on
the actual issue, not one of its manifestations.
If we frame this discussion around the need to reduce long-
term care costs, we are basically saying that the cost of
caring for individuals is more important than the individuals
themselves. If, on the other hand, we focus on the need for
long-term care, we will not, then, neglect important
considerations. For example, we know there are gaps in access
to long-term, particularly home and community-based services.
Is that fact more or less important than long-term care--than
the fact that long-term care costs are growing? And we know
that regardless of how these services are financed in the
future, there are elderly and severely disabled Americans who
need long-term care now. Medicaid covers 70 percent of that
care. If we cut Medicaid funding today, we place particularly
vulnerable segments of our population at risk.
We can discuss reverse mortgage and long-term care
insurance and personal responsibility until we are blue in the
face, and there is a role for all of that, but the fact is, if
we cut Medicaid today, we jeopardize the health and safety of
people whom we know, of real people. All of our efforts to
prepare for the future don't change that basic fact. If you
think I am overly dramatic, talk to an elderly person at an
understaffed nursing home. Talk to her family, especially. Do
we really think that today's nursing homes are filled with
scheming seniors who are free riding on the taxpayer's dime?
There will always be people who try to game the system,
occasionally some successfully, but most Medicaid beneficiaries
don't want to be Medicaid beneficiaries. They simply have no
choice.
If we focus on long-term care needs, rather than long-term
care costs, we will make sure our efforts to prevent asset
transfers don't disenfranchise people in real need. We will
make sure the long-term care insurers do not cherry pick or
fail to deliver adequate benefits. We will think carefully
before forcing people in an ownership society to give up their
homes in order to get needed care. Instead of focusing on how
to reform Medicaid to address spiraling costs, let us focus on
how to make sure every American who needs long-term care has
access to it.
That means promoting private, long-term care savings. It
means investing in Medicaid as a cost effective safety net for
people in need. Absent a universal, long-term care system,
there will of course always be people in need. I understand Dr.
McClellan will talk about the President's commitment to home
and community-based care, and I share both Dr. McClellan's and
the President's enthusiasm for it. However, home and community-
based care waivers typically have enrollment caps. Making these
waivers permanent, as the President proposes, doesn't expand
access to home and community-based care. Additional funding is
needed to accomplish that, and I don't recall any increase in
funding for home and community-based care in the President's
budget. This care is cost effective, but there is unmet need
outside the nursing home population. Expanding access requires
additional dollars.
That doesn't mean we should give up on the idea of
expanding access to home and community-based services. In fact,
promoting access to these services should be a priority. But
championing the expansion of home and community-based care, and
at the same time, pushing for cuts in Medicaid, is a little bit
like handing a person an umbrella, then pushing him off a
cliff. We can't reduce the long-term care--we can't reduce the
need for long-term care by reducing our current investment in
it.
It is important to plan for long-term care needs in the
future. It is even more important to meet our long-term care
commitments today. If we are willing to cut Medicaid without
regard to those we hurt, why even bother with this hearing?
Apparently, the best way to reduce Federal long-term care
spending is simply to abandon those who rely on it. I think we
should take a different path.
Thank you, Mr. Chairman.
Mr. Deal. The Chair recognizes Dr. Norwood for an opening
statement, 5 minutes.
Mr. Norwood. Thank you.
Mr. Deal. Or 3 minutes, excuse me.
Mr. Norwood. Thank you very much, Mr. Chairman. Dr.
McClellan, I am certainly happy to see you here, and thus have
the opportunity to talk to you. I also would like to add to the
fact that you need to tell your staff to get us your statement
earlier. That is really unacceptable. It means to me you don't
think we are important in this issue, and I know this committee
finds this very important, or either--it is not important to
you guys.
Few of us can be certain, frankly, how technological and
medical developments will affect the issue of long-term care.
What we do know, that the current system is not going to be
able to meet the obligations of future generations. I think
that is fairly clear. It is unfortunate that Americans have
routinely avoided even thinking about long-term care until it
is too late, yet some studies show that upwards of 40 percent
of all Americans will need some sort of long-term care during
their lives, and two-thirds of all recipients of long-term care
must depend on Medicaid due to costs.
Recently, as I have recovered from my own little battle
with idiopathic pulmonary fibrosis, I have experienced the
difficulties of battling an illness, and I know the
irreplaceable value of being able to turn to your family, to
your wife, your faithful nurse. But many are not so fortunate
as I, and must rely on the government to provide for their
care.
While Medicaid is primarily a source of financing for long-
term care, the current financing system is ineffective, and is
often taken advantage of. When our social programs were
established, long-term care, as we know it, did not exist.
People in need of support often received care from a family
member, or were institutionalized. All of us can remember our
grandfathers, grandmothers, and how long-term care was handled
for them. As we enter the 21st century, care is significantly
different. Unfortunately, our financing mechanisms have not
kept pace. In that light, it is impossible to talk about
reforming Medicaid without addressing the funding of long-term
care, which I understand is about 56 percent of the cost.
Because Medicaid is an alternative to private insurance,
the program encourages people, encourages people to drop
coverage or avoid long-term care planning, and rely instead on
this free Medicaid. Put simply, Medicaid discourages proper
planning, and is quickly becoming a welfare program for middle
income families. With clever estate planning and asset
protection schemes, individuals can qualify for Medicaid and
receive long-term care taxpayers' expense.
Moving away from such abuse would allow Medicaid to return
to its proper mission, and I am sure everybody on this
committee agrees with that. And it would provide a safety net
for those who truly need it. I am looking forward to your
testimony and your guidance on this very subject.
Mr. Chairman, thank you for the time.
Mr. Deal. I thank the gentleman. The Chair now recognizes
the gentlelady from California, Ms. Eshoo, for 3 minutes for an
opening statement.
Ms. Eshoo. Thank you, Mr. Chairman, for holding this
hearing, and also for the markup that we had earlier today.
Welcome to our witnesses, Dr. McClellan, it is especially good
to see you.
The financing of long-term care for the elderly population
in our country really does need to be addressed, so that the
challenge won't become our No. 1 economic problem of tomorrow.
And I think that it is an economic issue. I don't know how many
members of this committee have even taken advantage of buying
long-term care insurance through the Federal Government. That
might be an interesting little survey to do. I am one of them,
because I can't help but think daily that if something happens
to me, I--my young children are not going to be able to take
care of me. So--but it is something that is expensive. It isn't
something that everyone thinks that they need, because most of
us think that we really are not in a position where we will
need it.
It is an issue that touches all families at some point in
our family life. I know that. I took care of my own father and
mother, and we have heard stories from other members as well.
While it is important to note that modern medical care has
enabled more and more seniors to live longer, healthier lives,
there still comes a time when families are simply not able to
provide the full care for a loved one. The next step is
professional care, either at home, in an assisted living
facility, or in a nursing home. And none of us want to go to
nursing homes. I think that is one thing that everyone would
raise their hands and say we are in agreement on. We just don't
want to have to do that.
So given the level of care required, personal resources,
and insurance benefits are often quickly used up. Approximately
one in eight Americans is over the age of 65, and this number
is expected to increase dramatically. Congress really should
act before this wave of seniors overwhelms our current Nation's
public programs for long-term care. We should look at long-term
care creatively, and include a mix, I think, of approaches to
address its viability by combing some of the aspects of
incentives for private financing as well as public financing.
Congress should also build on current programs by expanding
eligibility.
Individuals have diverse needs and diverse circumstances,
so I don't think that really one size fits all, and there
should be a varied approach which would respond to these needs
and these circumstances. I hope our witnesses today will
address the long-term care partnership program, and whether or
not this program would have much impact on the growth of
Medicaid long-term care spending.
So I look forward to hearing the witnesses. They are all
stars in their own right, and I think this committee can really
gain from your vision and your experience and what you can tell
us. Thank you, Mr. Chairman, and I yield back.
Mr. Deal. I thank the gentlelady. I recognize the
gentlelady, Ms. Cubin.
Ms. Cubin. Thank you, Mr. Chairman. I agree with everything
that has been said so far, and so I won't repeat that. But I do
want to just add a couple other comments.
There are a lot of policies, rules and regulations, that
simply waste money in Medicaid and Medicare when going into a
nursing home. One example that I can think of is that you have
to be in the hospital for 3 days before you can go into a
nursing home, when the doctor knows very well, the family knows
very well, that a nursing home is definitely what is needed.
My mother is in advanced stages of Alzheimer's right now,
and my father has planned well financially for their
retirement, but even at that, he says he will put her in a
nursing home over his dead body. He is fortunate enough to be
able to hire people to come in and help him right now, but that
may not last forever, and I am concerned about what happens to
people who have actually planned, but the prices are so
exorbitant that the surviving spouse finds themselves in a
situation where they can't afford to pay for their care,
because the system is abused, and because there is waste in the
system, and it is ineffective. We need an entirely new system,
so with that, I will yield back my time.
Mr. Deal. I thank the gentlelady. I recognize Mr. Allen for
an opening statement.
Mr. Allen. Thank you, Mr. Chairman. I appreciate your
convening this hearing to examine Federal long-term care
initiatives. The need for long-term care is expected to grow
substantially in the future, straining both public and private
resources, so we need to bolster our long-term care
infrastructure to meet the needs of our growing elderly
population.
While most care is provided by family members, most public
funding is for institutional care. Home and community-based
services which can help heavily burdened families are available
sometimes in a limited number of communities. In 2002, the
Maine State legislature established a blue ribbon commission to
examine the financing of long-term care, and consider
opportunities to build on the Federal State commitment to
caring for the State's elderly and disabled population.
Like most States, Maine found that nursing facility care is
the most intensive and costly component of the long-term care
system. Approximately 26,000 individuals in Maine received
financial assistance for long-term care needs in 2001. Funds
were allocated as follows: 61 percent for nursing facility, 20
percent for home-based care, and 19 percent for assisted
living.
MaineCare, the State's Medicaid program, accounted for 70
percent of the patient days in nursing facilities. While the
average cost, average actual cost of operations for nursing
facilities was $167 per day, the average allowable MaineCare
costs was $129 a day, and the average MaineCare reimbursement
was $117 per day. This rate includes both Federal and State
dollars. In the national study being released today, the
average shortfall in Medicaid nursing home reimbursement was
$12.58 per Medicaid patient day in 2002, translating into an
annual shortfall of $4.5 billion.
The point I am making here is that Medicaid is, in some
instances, both wasteful and in some instances, simply not even
coming close to paying for the costs of care of Medicaid
patients. And I urge anyone looking at this area not to make
assumptions about Medicaid across the spectrum of the country.
My father was in a nursing home in Maine for about almost 2
years before he died, and I have been in a lot of nursing homes
in Maine, and they are really stretched, and the people who are
in them--Maine went through a process of really putting a lot
of pressure on nursing home facilities, and encouraging
community-based care over the last 15, 20 years, and the result
is the people in nursing homes today in Maine really need to be
there. I have no idea whether that is comparable in other
States, but I do think that we have to deal with that
particular issue, we have to deal with the fact that too many
seniors don't want to think about, and middle aged people,
don't want to think about being in long-term care, and that
long-term care insurance sometimes is available, but often is
too expensive for many people.
I look forward to hearing everything you have to say, and
Mr. Chairman, I yield back.
Mr. Deal. I thank the gentleman. The Chair recognizes Mr.
Pitts for an opening statement. Ms. Bono. Dr. Burgess.
Mr. Burgess. Thank you, Mr. Chairman. I will submit my
statement for the record as well. I just want to welcome Dr.
McClellan. Good to see you again, sir, and just for the record,
I too have long-term insurance. I have a private policy with GE
Capital that I bought before coming to Congress.
Mr. Deal. The Chair recognizes Ranking Member Dingell, for
an opening statement.
Mr. Dingell. Mr. Chairman, thank you. I commend you for
this hearing. As a Nation, we must develop a comprehensive,
long-term care policy in order to care for the 10 million
people needing long-term care, and millions more that will need
it in the next 20, 40, and 60 years. This is an important but
complicated issue that the committee should be going into, so I
thank you again for holding this hearing, as well as the
witnesses who are here today to cooperate with us and educate
us.
The majority of long-term care is provided for free through
family or friends. Of the services purchased, Medicaid is the
biggest payer, and the greatest safety net. It provides care
for millions of elderly people and individuals with
disabilities that have had the misfortune of becoming ill and
needing help with their daily basic activities of ordinary
life.
Sustained care is expensive and, without Medicaid, almost
impossible for many. Most people struggle even with Medicaid to
meet their most essential needs, such as eating, bathing, or
going to the bathroom. Still, Medicaid always benefits from
evaluation and updating. For example, we need to be rid of the
program's bias toward institutional living, and provide home
and community-based care where appropriate.
Unfortunately, instead of talking about ways to shore up
Medicaid as a safety net, there are now efforts in this House
of Representatives and in the administration, under the
leadership of my Republican colleagues, in trying to actually
cut it. The millions of ill people and individuals with
disabilities who need long-term care services are a principal
factor in increasing the cost of long-term care, not Medicaid.
Medicaid is, on the contrary, one of the most efficient
healthcare programs in the country.
The Governors Association is united in their opposition to
Medicaid cuts. They recognize that the cuts will seriously harm
States' abilities to provide the care that we as a
compassionate society need to offer. We should be helping both
the people who depend on the program, as well as ensuring that
the States which manage the program are not harmed by decisions
made here.
Aside from public financing, there is also an insurance
industry out there selling long-term care insurance. While they
may be providing a vital and important service, we need to
avoid the mess we found ourselves in with the Medigap policies
of the late 1980's. I do not want to be sorting through stories
of unscrupulous insurers confusing and scaring beneficiaries
into buying expensive policies that do little. I support long-
term care insurance as an option, but there must be adequate
protections with standardized policies and consumer
protections, such as inflation protection, non-forfeiture
provisions, and a minimum daily option for some. But some is
the key word, whether through partnership programs with
Medicaid or by itself, long-term insurance is not appropriate
for millions of low and modest income families that are already
finding it difficult to secure food, shelter, transportation,
and healthcare, along with saving for retirement or education
of their children.
Also, notably, creating incentives for the purchase of
long-term care insurance may do little to alleviate the waste
on public programs today. We need to develop a coherent long-
term care policy that preserves and expands the safety nets of
today, not cuts them.
I want to thank you, Mr. Chairman, and all of my
colleagues, and the witnesses for their participation in this
important hearing, and I hope that we will, from it, be able to
begin to make some judgments about where our priorities should
be.
Thank you, Mr. Chairman.
Mr. Deal. The Chair recognizes Mr. Ferguson for an opening
statement.
Mr. Ferguson. Thank you, Mr. Chairman, and thank you for
calling this hearing, which will shed some light on an issue
that requires urgent attention as a new generation of
Americans, the baby boomers, grow closer to retirement age, and
the Medicaid program continues to hemorrhage money.
Medicaid, as it stands right now, is financially
unsustainable, and without true reform, the Medicaid program
may not be around for those in future years for those who
really need it. Today, we are looking at the issue of long-term
care, an inevitability that many of us will rely upon in our
later years, and a segment of our healthcare system which is
draining billions of dollars from our Federal programs.
Long-term care services are a huge segment of our Nation's
healthcare spending, totaling $157 billion in 2002,
representing 12 percent of all personal healthcare
expenditures, but that total spending amount is expected to
increase, as more people reach retirement age than there are,
proportionally, younger workers to pay for and take care of
their needs. The result is that public and private spending for
long-term benefits for the elderly could double from 2000 to
2025, even assuming no expansion in benefits.
And increasingly, Medicaid has been relied upon to serve as
a safety net for people requiring long-term care. In fiscal
year 2003, Medicaid paid about $83.8 billion for long-term care
services, almost doubling from 10 years ago. These dollars
primarily paid for institutional care and care in home and
community-based settings.
Congress has made strides in addressing the issue of long-
term care, but there is still a long way to go. For example, in
2000, Congress authorized a new grant program under the Older
Americans Act, to provide information and assistance to
caregivers, counseling, respite and other home and community-
based services, to families caring for their frail older
members.
We need to look further into alternatives to the current
system, including building upon past reforms, encouraging long-
term care insurance, and closing loopholes that people use to
take advantage of Medicaid and other Federal programs. Thank
you again, Mr. Chairman, for holding this important hearing,
and I look forward to working with you, and I appreciate our
witnesses for being here today, as we look to reform long-term
care in our country.
I yield back.
Mr. Deal. I thank the gentleman. The Chair recognizes Mr.
Waxman for an opening statement.
Mr. Waxman. Thank you, Mr. Chairman, and I want to thank my
colleague, Ms. Baldwin, for allowing me to go before her,
because I have to go to another hearing, but I appreciate that
we have a chance to hold this hearing with the pair of docs
that sits before us, a pair of doctors, Dr. McClellan and Dr.
Holtz-Eakin, but we do have a paradox, and that is what are we
going to do with the long-term care for elderly and disabled
people?
Medicaid has served as a safety net for those very
vulnerable people, and it is important that we continue the
Medicaid program to serve that purpose until such time as we
have an alternative. One alternative that obviously would have
made sense would have been a social insurance system. Everybody
would have paid into it, and then everybody who needs it would
have it available. Most people are not going to need nursing
home care. Others are looking at private long-term care
policies, and I think that is a direction that we are probably
going to be taking more and more.
The Federal Government now offers that to Federal
employees, but as Mr. Dingell pointed out, we have got to make
sure that these policies meet some kind of standards, because
people can buy a policy, and find that they don't have much of
anything if there is no inflation protection and otherwise. But
Medicaid serves this important purpose now, to fund the safety
net for those who desperately need it.
Now, I think all of us would like to see alternatives, in
terms of letting people stay in the community and not go into a
nursing home. Long-term care is not just nursing home care, and
perhaps we can come up with some agreement along those lines.
But I want to say one thing that should be very clear. For
those who think that having a Medicaid program is the reason we
have people without insurance is just absolutely absurd. It is
only recently that insurance products have even been available,
and we don't yet even have the standards to apply to those
policies across the board.
I am also in strong disagreement with people who want to
say that we should punitively go after seniors and force them
to take out reverse mortgages, so that they should go out and
then use that money to buy health insurance, long-term care
policies. I don't know at what point you are going to do that
in people's lives, but if you are going to do it at the point
where they need nursing home care because they have less than
$2,000 in assets, that is--that doesn't make any sense at all.
Many States can go after the house afterwards, and some, in
fact, do that. There should be a role for both private and
public approaches to helping people with long-term care needs.
I think we can look to see how to make the program better. But
I think this is a program that is going to need more money, not
less, and I hope we are not going to have people who voted for
the instructions for conferees on the budget to say that there
should not be a cut in Medicaid, turn around now and slash $10
or $20 billion of the Federal dollars for the Medicaid program,
because making a policy in that context will certainly lead to
disaster.
Thank you, Mr. Chairman.
Mr. Deal. The Chair recognizes Mr. Bilirakis for an opening
statement.
Mr. Bilirakis. Thank you, Mr. Chairman, and I, along with
you and the others, do want to welcome Dr. McClellan and Dr.
Holtz-Eakin here today, and we apologize for your sitting there
as long as you are just listening to us, gibberish up here, but
in any case, thanks for being here, to you and all the other
witnesses.
Mr. Chairman, we know that the escalating costs of long-
term care is a very personal issue that has profound public
policy implications. The CBO Office estimates that total
spending on long-term care exceeded $200 billion last year,
nearly a quarter of which was financed through the Medicaid
program.
These costs are expected to rise substantially in the
future as the need for long-term care grows with an ever
increasing elderly population. The consequences of surging
long-term care costs are significant for States and the Federal
Government. Medicaid is becoming an increasing portion of
Federal and State budgets, crowding out other important
priorities. In my State of Florida, the Medicare spending
accounts for $14 billion, almost one quarter of the State's $57
billion budget. Florida spent more than $3 billion on long-term
care through Medicaid last year, which will consume more than
half of the State's budget in just 10 years at its current
growth rate, and I think we all would agree that this growth is
simply unsustainable.
The Florida Governor, Jeb Bush, has proposed an innovative
approach to Medicaid reform, and already has developed programs
through federally approved waivers to improve the management
and coordination of long-term care and encourage home and
community-based service programs. Other Governors, as we know,
are experimenting with alternatives to meet the needs of their
Medicaid populations.
Congress must act to help Florida and other States better
control their Medicaid programs, and provide them the
flexibility they need to meet the demands of the increasing
number of Americans who receive long-term care services through
Medicaid.
Mr. Chairman, Medicaid is a partnership. It is a
partnership with the States. And whatever we do, we should not
do and ignore, completely ignore what the States' wishes might
be in that regard. We have got to sit down with them around a
table and work it out together. We have to examine how to
provide incentives to encourage people, especially younger
generations, to plan for their future care. There is so much
that we have to do, and I have a statement here, Mr. Chairman,
I would like to put into the record, but I would basically say
that first of all, for over the last 2 years, we had a
taskforce from this subcommittee, which has been working on
this subject. It was not done with the idea of tying it into
budgets or budget decreases, or anything of that nature. It was
done because we all felt that we have got to bring Medicaid up
to par with what is happening today, and what the States'
demands are.
And if this committee wants to reform Medicaid in such a
way that it is not going to hurt the people who need it, that
it will preserve the dignity of those who need long-term care
services, et cetera, we can do it, if we put aside
partisanship, and if we are willing to sit around a table and
work together on a plan that will really work and not hurt
those that really need it.
Thank you, Mr. Chairman.
Mr. Deal. I thank the gentleman. The Chair recognizes Ms.
Baldwin.
Ms. Baldwin. Thank you, Mr. Chairman, and I thank all of
the witnesses, both first and second panel, who will be
testifying this afternoon. I look forward to engaging in an
informative discussion about the options before us as a
Congress and as a country.
Many of my colleagues, in their opening statements, have
shared their personal accounts, probably because all of us
learn a lot more about long-term care through those very
personal experiences we have than we do in any hearing room or
briefing. I still recall a moment where I was sitting in a
chair besides my grandmother's hospital bed, my grandmother who
raised me since I was 2 months old, and hearing from the
doctor, well, we need to discharge her, but she is not ready to
go home yet, and you learn a lot about our long-term care
system through those personal experiences. And through my
grandmother, as her primary caregiver during her last years, I
learned a lot about what many millions of American families
struggle with, caring for someone with increasingly demanding
needs, the painful decisions that families need to make when a
loved one needs more care, or ultimately, to move into a
nursing home, and about the financial stresses that are faced
writing those very big monthly checks for nursing home care.
So I am pleased that this committee is taking up this very
important issue. I think we have a real opportunity here to
make some critical adjustments to Medicaid that will strengthen
the program for future generations. As we consider the various
options before us as a Congress and a country, I hope we keep
numerous considerations in mind, but specifically, furthering
our efforts to help States provide long-term care in the least
restrictive setting possible, and strengthening consumer
protections for those who do purchase long-term care insurance.
Again, I look forward to today's witnesses and discussion,
and thank the witnesses for their testimony and their patience.
Mr. Deal. The Chair recognizes the chairman of the full
committee, Mr. Barton, for an opening statement.
Chairman Barton. Well, thank you, Mr. Chairman, for holding
this hearing. I think this is one of the critical hearings we
are going to have in this subcommittee this year. I want to
thank our two witnesses that are here before us, and then the
panelists that are on the next panel.
I just met with the five Directors of the Children's
Hospitals in Texas, one in San Antonio, one in Houston, one in
Dallas, one in Fort Worth, and one down in the Valley. And they
all told me that 70 percent of their patient load is paid by
Medicaid. These are our children. Medicaid was set up 30, 35
years ago to take care of low income, indigent healthcare for
our population, but what has happened is it has become a
surrogate for long-term care for our seniors. Two-thirds of our
dollars in Medicaid are going for long-term healthcare in
nursing homes, which means the group that I just met with are
having to scramble to fund care for our younger low income and
indigent population, and if we don't take care of them at that
age, they become a bigger and bigger burden as they progress,
as they grow up.
So this hearing today is to try to see if there is not some
way to at least begin a dialog about long-term healthcare, and
find out if there is not some way to take it off the backs, or
at least relieve the burden on Medicaid, so we free up dollars
to help the people that I was just visiting with from the
Children's Hospitals of Texas. This country has not wanted to
address the issue of long-term healthcare. The last time we
talked about it on the floor of the House, I believe Claude
Pepper of Florida was still chairman of the Rules Committee,
and he actually brought to the floor a long-term healthcare
bill, and we may have even implemented it briefly and then
repealed it. I could be corrected on that if that didn't
happen.
So this is the beginning of a dialog in the House, at
least, on the substance of long-term healthcare, which means
Medicaid reform, and I hope some time this summer, we can find
some consensus and decide to do more than hold a hearing,
because it is very, very important. And I am going to close,
Mr. Chairman, with reading a paragraph from the committee staff
memo that was put out for this hearing. It says: ``Long-term
care is one of the most significant demographic and physical
challenges of this century, and of particularly importance
because of our rapidly aging population. In 2000, there were an
estimated 9.5 million people with long-term care needs in the
U.S., including 6 million elderly and 3.5 million non-elderly.
These numbers are projected to grow dramatically in the coming
years, especially after 2030, when the baby boom generation
begins to reach 85.'' Just parenthetically, I will be 80, if I
am lucky enough to be alive in 2030. ``The senior population,
12.6 percent in 2000, is projected to rise to 20.5 percent by
2040. The fastest growing share, 85 plus, is projected to rise
from 1.6 percent to 3.8 percent. This population, which is most
likely to need long-term care, is projected to more than triple
from 4 million to 14 million nationally.''
So it is very important, Mr. Chairman, that we begin this
dialog, and hopefully find some consensus on solutions to it.
And again, I want to thank you for the hearing, and I want to
thank our two witnesses before us right now, and then the
panelists on the second panel.
[The prepared statement of Hon. Joe Barton follows:]
Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy
and Commerce
Thank you, Chairman Deal, for holding this important hearing today.
I also want to thank all of our witnesses for their testimony, which
will provide valuable perspectives on the crisis facing long-term care
financing.
I begin with a quote: ``Although Medicaid was originally designed
to provide health care to low-income women and children, it has become
our country's ``de facto'' payer of long-term care for the elderly and
disabled . . . The unsettling notion here is that we have no real,
comprehensive long-term care system in this country and yet we are
spending billions of dollars for a system that was not designed--it
just evolved. Unfortunately, the system we have is inefficient,
outdated, incomplete and unable to meet the needs of current or future
recipients. Simply stated, this is an issue that just can't wait.''
I'd like to take credit for such astute observations, but credit
goes to Sen. John Breaux who made this statement more than three years
ago as Chairman of the Senate Special Committee on Aging. His call to
action was timely then and critical now.
Public spending on long-term care and Medicaid generally is growing
at an unsustainable rate. There just are not enough taxes or taxpayers
to keep it going without bankrupting the budgets of working families,
not to mention the national economy. Medicaid is already the biggest
item in state budgets, exceeding elementary and secondary education
combined. Unreformed, analysts predict Medicaid will bankrupt every
state in as little as 20 years--absorbing 80-100% of all state dollars.
At the moment, Medicaid accounts for more than 40% of total long-
term care spending and nearly half of spending for institutional care.
Medicaid long-term care costs account for one-third to one-half of
total Medicaid expenditures in most states and about half of Medicaid
long-term care spending is for the elderly.
The senior population--12.6% in 2000--is predicted to rise to 20.5%
by 2040; the fastest growing share, 85+ (``the oldest old'') is
projected to rise from 1.6% in 2000 to 3.8% in 2040: this is a 42%
increase in the population most likely to need long-term care.
We need to understand the relationship between the availability of
Medicaid and long-term care planning: Why do so few people plan ahead
if long-term care costs can be so devastating and Medicaid is a welfare
program meant only for the poorest among us? We need to learn what can
be done promote greater accountability and encourage individuals with
sufficient resources to take responsibility for planning for their
future health care needs. I look forward to hearing our witnesses'
opinions on these important questions.
It is also clear that current efforts aimed at estate recovery
neither encourage long-term care planning nor result in appreciable
recovery of funds for Medicaid. We may need to look at making changes
to the rules created under OBRA '93, but rarely enforced by states, to
impose consequences on states that fail to comply with these
requirements. We also need to examine new ways to bring home equity
into the financing equation on the front-end--to forestall or at least
minimize reliance on public funding.
In the final analysis, Comptroller General David Walker got it
right when he testified in 2002: ``Only if the limits of public support
are clear will individuals likely take steps to prepare for a possible
disability.'' We have not done a very good job at making this
distinction and the public should not be faulted for responding
rationally to the complex and confusing financing structure that we
allowed to develop. We must provide clarity before the care needs of 77
million baby-boomers overwhelm our ability to provide a safety net for
the truly needy--for whom Medicaid was originally intended.
There are serious challenges facing Medicaid today, long-term care
financing among them, and the program is clearly at a crossroads. I
hope some of the suggestions our witnesses offer today will help the
Committee as we plan to move forward with Medicaid reform. We need to
look for innovative bipartisan solutions for the problems facing
Medicaid in order to strengthen and improve the program. Medicaid
beneficiaries deserve nothing less. So do America's taxpayers.
Mr. Deal. I thank the Chairman. The Chair recognizes Ms.
Capps for an opening statement.
Ms. Capps. Thank you, Mr. Chairman. As we can tell from the
opening statements, most of us agree that the growing cost of
long-term care in Medicaid is a rising challenge. And thank you
for being here for the hearing, those of you who are
presenting. We should be looking at some of the various ideas
out there to improve long-term care and sustain Medicaid
support for it.
I believe we need to be careful that we do not too hastily
embrace proposals which would harm those who need care or waste
taxpayer dollars, and we should also be careful not to jump to
conclusions that are not supported by evidence. Many proponents
of change claim that wealthy seniors in large numbers are
gaming the system and stealing from Medicaid. They argue that
we must make dramatic changes to asset transfer limits in order
to cut back on these practices. But there is, to my knowledge,
nothing but anecdotal information to support these claims.
GAO has reviewed this issue twice since 1993, and found
little evidence to support it, and the proposals they have put
forward might catch some people who are, indeed,
inappropriately receiving benefits, but they would certainly
deny care to many elderly or disabled Americans who are
impoverished, who desperately need and depend upon coverage.
This would certainly save the Federal Government money, but at
what cost to families struggling to support loved ones who need
long-term care? We should measure the cost of this effect on
families, on wage earners who must stop working in order to
care for elderly and other, and on and on.
Perhaps there is evidence out there, but it should be
produced before we make drastic changes, and the changes we
make should fit the problem. Some people are expressing
interest in expanding the use of long-term care insurance. That
approach might have some merit, but there are some pitfalls we
must avoid as well. There must be adequate consumer protections
put in place to ensure that the elderly and disabled are not
abused, and real savings to Medicaid needs to be demonstrated.
CBO estimates that expanding the current long-term care
partnership program would end up costing the Federal Government
$45 million over 10 years. Frankly, any savings that were
derived would probably not materialize for decades, since the
purchasers of long-term care insurance won't need coverage
until they are much older. I am not saying that we shouldn't do
this, but we should be aware of what we are getting into when
we do.
Finally, I will say I am pleased with the administration's
attention to encouraging community-based care for the elderly
and disabled. When you see bright spots of this kind of
continuity of care of communities, you realize that this is
certainly our goal, to have it be seamless across the Nation.
But the attention that the administration is giving is at odds
with the billions of dollars in cuts that are being asked for
in the budget. Community care, when possible, is far better for
beneficiaries than being in an institution, but sometimes it
costs more, and cutting Medicaid now will only stifle efforts
in this direction.
For example, my colleague from Nebraska, Mr. Terry, and I
have introduced legislation to increase wages for direct
support personnel under Medicaid, sorely needed, but the
obstacles facing this bill right now, and other improvements to
Medicaid, are going to be made all the more difficult by the
cuts the budget that we just voted for, the vote that we took
yesterday in the House, from the budget framework. So we have
our challenges now, and I hope that we can find ways to truly
improve Medicaid, and not resorting to the arbitrary cuts.
I yield back the balance of my time.
Mr. Deal. The gentlelady's time has expired. Mr. Gillmor.
Anyone on the majority side wish to make an opening statement?
Mr. Shadegg.
Mr. Shadegg. Thank you, Mr. Chairman. I do want to make an
opening statement. I want to thank you for holding this
hearing, and I want to thank our witnesses, both on this panel
and on the subsequent panel.
As a number of our colleagues have correctly pointed out,
both long-term care and Medicaid pose significant demographic
and important fiscal challenges to us as a Nation. It is
important that we examine those challenges, and that we address
them in a way that best serves all Americans.
It is our responsibility to make sure that Medicaid works
and provides both quality care and does so at a reasonable
expense. In this regard, I am pleased to highlight a model that
we should at least be looking at, because I believe it can
work. Arizona has been a pioneer in this area. More than 20
years ago, my State embraced the Federal waiver process to
create a viable alternative to traditional Medicaid. It created
what is called the Arizona Health Care Cost Containment System,
AHCCCS, which has been recognized for its success in providing
high quality medical care and also controlling costs. Building
off the AHCCCS program, we also, in 1988, created the Arizona
Long Term Care System, which currently enrolls more than 40,000
individuals, and greater than 90 percent of those individuals
report either being satisfied or very satisfied with the care
that they are getting.
I believe that the success of both of these programs,
AHCCCS and ALTCS, is in part due to their flexibility, and in
part due to the benefits they provide. Individuals can choose a
service provider, which then works with them to select the
level of service needed, and importantly, the setting in which
that service will be provided, including home-based care.
Regular monitor, case management, and member satisfaction
surveys are critical components of this system. In addition to
being supported by the enrollees, the program has achieved
substantial savings. A CMS study evaluated the program and
determined that the Arizona system had saved 16 percent of the
costs that would have been incurred if Arizona's program had
been traditional Medicaid. Another study found that the Arizona
model provided savings equal to roughly 35 percent of nursing
home costs that would have been incurred without the program.
I think it is important that we remember there are examples
out there where we can produce both quality care and savings,
and I compliment you, Mr. Chairman, on holding these hearings.
I encourage the committee to look at the Arizona model, not
necessarily as perfect, but as at least one which sets the goal
of both maintaining and actually vastly improving the quality
of the system, while also achieving savings. And with that, Mr.
Chairman, I yield back.
Mr. Deal. I thank the gentleman. Mr. Rush.
Mr. Rush. Thank you, Mr. Chairman, and I also want to
welcome both the witnesses on this panel and the following
panel.
Mr. Chairman, I must start off by saying that I disagree
with the premise of this hearing. The Medicaid program does not
need the types of ``reforms'' many of the detractors of the
program would suggest. Why is it that Medicaid needs--what
Medicaid needs is the political will of this Congress to step
up to the plate and fund a vital safety net program that cares
for our most vulnerable population.
Mr. Chairman, why is it that this Congress only has a taste
for reform when it involves programs for the poor, the
disabled, and the elderly? Why is this Congress' zeal--where is
this Congress' zeal when it comes to spiraling drug costs, or
when it comes to the spiraling budget score of the recently
passed Medicare prescription drug bill? Why don't we call for
reform in the spiraling taxpayer subsidies to corporate
interests in our recently passed Energy Bill, of course, which
I voted for.
Why doesn't this Congress take on reform when it comes to
the escalating costs in the occupation of Iraq, or our tax code
where corporations hide their funds in overseas tax shelters?
It seems that this Congress is very selective in its zeal for
reform, and it is always reserved for matters affecting the
poor and the vulnerable.
Having said that, I want to further highlight a particular
reform that I find to be completely outrageous and a blatant
attack on working class and middle class families, and that is
requiring them to take out reverse mortgages in order to pay
for their long-term healthcare costs. The House of
Representatives just passed a bill that repeals the estate tax
to the benefit of the very wealthiest Americans. Proponents of
this repeal argue that no matter how rich you are, your assets
should automatically be passed on as you see fit without giving
one cent to the Federal Government. Working class and middle
families did not benefit from this repeal at all, because their
assets have never met the threshold of the estate tax. It is
bad enough that these families did not benefit from this
repeal, but now, we have proposals floating around that will
require or encourage them to actually liquidate and use up the
only asset that they have, and that is their home.
The reason for this convoluted version of class warfare,
well, because Congress doesn't want Medicaid to pay for their
long-term care. They want working and middle class citizens to
pay themselves with literally their only asset, their homes. It
is an absurd proposition, and it is unconscionable.
Mr. Chairman, I am not an ideologue. I am a pragmatist and
I am a humanist, and I am tired of hearing about proposal after
proposal that only targets the most vulnerable members of our
society. I am tired of calls for reform that fall squarely on
the shoulders of many of my constituents. It is my hope that we
want to control costs and institute meaningful reforms, and
this committee will look elsewhere.
Thank you, and I yield back the balance of my time.
Mr. Deal. The Chair would ask unanimous consent that Ms.
Wilson, a member of the full committee, be allowed to
participate with an opening statement, and in questioning,
following members of the subcommittee. Without objection, so
ordered. Anyone else on the majority side wish to make an
opening statement? Anyone on the majority side? If not, I will
go to Mr. Green.
Mr. Green. Thank you, Mr. Chairman, and I would like to
welcome Dr. McClellan. As Congressman Waxman said, our pair of
docs are here, but again, those of us who are from Texas who
live in Washington a lot of time kind of get homesick every
once in a while. I hope you get to go home.
Mr. Chairman, I want to thank you and our ranking member
for holding this hearing on long-term care and Medicaid. The
hearing coincides with what may be happening this week on the
Budget Committee negotiations about the level of the Medicaid
cuts that will be included in the budget conference report.
Since it is one of our first hearings on the Medicaid issue, I
want to express my opposition to any legislative attempts to
balance the budget on the backs of the Medicaid program.
Medicaid is not the source of our budget problem. Medicaid is
not the driving force behind the increasing healthcare costs in
our country.
Just to put the program's costs in perspective, between
2000 and 2004, employer-sponsored health insurance premiums
rose 12.6 percent. Medicare's costs rose 7.1. During that same
time, Medicaid's cost grew only 4.5, despite the fact that
Medicaid witnessed a 23 percent increase in its beneficiary
population. If Congress is going to deal with our country's
budget problems, it shouldn't do so by placing a bulls-eye on
the back of the Medicaid program, which has kept cost growth
remarkably low despite a tremendous increase in demand.
Ultimately, our committee will be charged with finding the
cuts in Medicaid, as outlined in the final budget resolution,
which is why it is important for us to have an in-depth
examination of the aspects of the Medicaid program. I
appreciate our witnesses coming to testify today, both our
first panel and the second panel, and look forward to their
recommendations on long-term care policies. In my home State of
Texas, one in nine Texans are on Medicaid. Under the
President's budget, Texas would lose $2.4 billion over 10 years
in Federal Medicaid contributions, the third largest loss by a
State following New York and California. A cut this large puts
our States in a no-win situation, forcing them to make painful
cuts to optional Medicaid services. And Texas, again, doesn't
participate in a lot of the optional Medicaid services. With 90
percent of the Medicaid long-term care spending considered
optional, the accessibility and quality of long-term care will
surely decline under these cuts, and contribute to the
tremendous suffering among our vulnerable populations.
Again, Mr. Chairman, I am glad we are holding our first
hearing, and if we are going to get the marching orders, I
would hope we would look at it very judiciously on where we are
going to cut the programs in Medicaid. And I share the
Chairman's concern about our children's hospitals, but I also
know that Medicaid has not been the big cost increase that we
have seen, and I will yield back my time.
Mr. Deal. Anyone else wish to make an opening statement?
Ms. Wilson.
Ms. Wilson. Thank you, Mr. Chairman. Thank you for holding
this hearing, and thank you for graciously allowing me to
participate as well. I think that long-term care is the biggest
challenge that we face in Medicaid, and it is a challenge
today, but it is even more of a challenge in the future, when
we see our population age.
Medicaid and long-term care in Medicaid covers a variety of
populations. It is not only seniors. It is the adult disabled,
and it is medically fragile children in our foster care
systems. And it is an extremely important safety net for many
Americans. There is, within Medicaid, a prejudice toward
institutional care, when none of us want to spend our days in
an institution if we can stay at home, and yet, Medicaid favors
that kind of care, and in many cases, you need an exception to
the Federal rules to stay at home rather than go to a nursing
home. Seventy percent of our nursing home beds are paid for by
Medicaid, and our insurance on long-term care insurance
policies and laws are not aligned with statutes on Medicaid. It
is very hard to encourage somebody, to convince somebody they
should buy something like long-term care insurance, when they
can get it for free. We need to align these policies, and long-
term care in Medicaid is in need of reform.
At the same time, we underpay for the quality of care we
want our parents to have in Medicaid, and shift the costs to
others, and encourage nursing homes, or look the other way when
they cut corners, because we are not paying for the quality
that we demand on the regulatory side. All of us in this room
know, and most of us who have listened to radio or television
also know that there is a subspecialty of the bar on how to
divest yourself of your assets and qualify for Medicaid, how to
protect your kids' inheritance and still get the nursing home
coverage paid for.
We cannot afford for middle and upper income Americans to
give away their assets while we are underpaying for the quality
of care that low income Americans deserve. That is why this
system needs reform. I think we need a national strategy on
long-term care, particularly for seniors, that aligns our
policies on insurance and in the tax code with what we do on
Medicaid.
We also have to include a component of education, so that
people understand the potential and the cost of long-term care.
Most Americans, I think, figure that--think that Medicare will
cover them in a nursing home, and it doesn't for long-term
care, and we need to dispel those misperceptions. I think we
need a national strategy on long-term care. I expect to be
introducing some legislation in this area, but I also think we
need broader consensus, which is why I have proposed a national
commission to address and give us some big ideas for how we can
address this, both at a Federal level and integrated with State
policy.
And again, Mr. Chairman, thank you for allowing me to
participate.
Mr. Deal. I believe that concludes our opening statements.
[Additional statement submitted for the record follows:]
Prepared Statement of Hon. Paul E. Gillmor, a Representative in
Congress from the State of Ohio
Thank you, Mr. Chairman for holding this important hearing.
With a generation of baby boomers growing older, life expectancy on
the rise, a shrinking labor force, and smaller family units, the demand
for long-term care is likely to increase, producing an even further
strain on our nation's Medicaid program. Absent future demographic
realities, there no question that Medicaid is in dire need of
transformation now.
Today, it is safe to say that a majority of states are experiencing
skyrocketing Medicaid costs coupled with declining revenues. I think
that we can also agree that long-term care services represent a lion-
share of these costs.
In my home state of Ohio, despite recognizing the reality of a
broken system and enacting a number aggressive cost containment and
budget strategies, Medicaid expenditures are increasing at twice the
rate of growth of state revenues, amounting to a total $10.5 billion.
This figure represents over 40% of the state's general revenue fund
spending and is larger than Ohio's entire state budget in 1987.
Furthermore, Ohio's long-term care consumers comprise 24% of the
entire population served by the state's Medicaid program, yet they
gobble-up 74% of the Medicaid spending.
In response, the Ohio Commission to Reform Medicaid was formulated
in December 2003, and earlier this January, they released their
recommendations. I applaud Ohio's efforts, and would bring the public's
attention to its four primary long-term care recommendations:
Ensure access to a wide array of long-term care service and
financing options in home and community-based settings or in
institutions.
Ensure that the elderly and disabled, their families and/or
caregivers have easy, immediate access to a full range of cost-
effective options and needed information about long-term-care options,
especially in a crisis situation.
Encourage personal choice and responsibility for long-term care by
modifying estate and asset recovery, as well as state funding policy.
Create a cost-efficient long-term care system with consolidated
budgets, data collection and planning.
With the evolution of Medicaid over the years, reform ideas have
come and passed, or simply been swept under the rug. We must take hold
of today's circumstances and remain committed with our governors to
transforming our system into one of personal responsibility, quality
and efficiency, for our citizens that need it the most. I welcome the
well-balanced panel of witnesses, look forward to their testimony,
again thank the Chairman, and yield back the remainder of my time.
Mr. Deal. Gentlemen, we are pleased to have both of you
here today, and Dr. McClellan, the Administrator of CMS, I will
recognize you for 5 minutes for your remarks.
STATEMENTS OF MARK B. McCLELLAN, ADMINISTRATOR, CENTERS FOR
MEDICARE AND MEDICAID SERVICES; AND DOUGLAS HOLTZ-EAKIN,
DIRECTOR, CONGRESSIONAL BUDGET OFFICE
Mr. McClellan. Thank you, Chairman Deal, Congressman Brown.
It is a privilege to be here this morning to talk about
long-term care and the need for transformation of the Medicaid
program. Medicaid is the largest source of public funding for
long-term care in the country. It is and must remain an
essential lifeline for the most vulnerable Americans, but that
lifeline is threatened, and it is falling behind today.
We must ensure that those who need Medicaid assistance with
long-term care services are protected by benefits that reflect
the best and latest evidence on how to get quality results in
long-term care. At the same time, we must also encourage and
support those who are capable of paying for their own care to
plan ahead, so they can maintain control without requiring
substantial public funding.
And I would like to say a little bit more about both of
these goals. As you all have pointed out, State and Federal
financing of long-term care is growing rapidly, and it is a
significant challenge as our population ages. At the same time,
long-term care has been changing, but Medicaid has not kept up.
As you all have said, Medicaid needs to keep pace with the
growing long-term care needs of the aging population that wants
to remain as active and engaged as possible, and increasingly
can do so. Institutional care remains an essential part of
long-term care today, and it can be the best approach for
people with a disability who can't be cared for safely and
effectively in other settings. Indeed, we have seen important
innovations in nursing home care, and improvements in quality
in recent years, as part of our Nursing Home Quality
Initiative, which involves collaboration with States and
consumer advocates in the nursing home industry.
But Medicaid was designed at a time when long-term care was
very different than it is or should be today. When Medicaid
started in 1965, long-term care generally meant institutional
care, and so a nursing home benefit was, and continues to be, a
mandatory benefit under Medicaid. But thanks to progress and
the support of technology, and good ideas on how to support
people with a disability, long-term care has changed
substantially, so that many types of services can be provided
as effectively or more effectively, and at the same or lower
cost in a beneficiary's home or community.
You can think about it this way: If Congress were to create
the Medicaid program in 2005, you would have to get a waiver
and go through extensive regulatory hurdles if a State wanted
to provide a benefit with institutional care only. It is time
to update the Medicaid program to reflect this reality. It is
time to end the institutional bias in the Medicaid statute by
giving beneficiaries the control they deserve, and to enable
Medicaid to serve more people without spending more money.
Because Medicaid has not kept up with the progress in long-
term care, most Medicaid beneficiaries today don't have the
opportunity to choose how and where they want to receive long-
term care services. We can't afford to do this any more, either
from the standpoint of quality long-term care or from the
standpoint of cost. Beneficiary control means better quality
and more people served for the same or lower cost.
In its current form, though, the Medicaid program doesn't
allow such flexibility. States have the option to provide home
and community-based services through waivers, but they are not
required to do so, and in fact, they have to go through a
process to provide these services. As a result, there is an
institutional bias that many Medicaid programs have that often
keeps Medicaid beneficiaries from choosing how to get their
support. We have made progress to address this with the
President's New Freedom Initiative, and it is time to take
further steps.
The administration's budget includes a package of six New
Freedom Initiative proposals, including the centerpiece of our
community-based proposals, Money Follows the Person. That is
our Medicaid strategy. We want more money going to where it can
make the most difference, redirecting it. That is what our
budget proposals are all about, not about cuts. It is about
putting the money where it can make the most difference. The
Money Follows the Person initiative authorizes $350 million in
each of 5 years for a total of $1.75 billion.
Several States have already implemented similar programs.
We have heard from members in Texas. We heard about the program
in Arizona, mentioned by Congressman Shadegg. These programs
save money. They increase quality. They get more people into
the community. We also need to improve the financing of long-
term care and encourage Americans to plan for their future. To
make sure Medicaid remains secure and sustainable, we need to
take steps to help individuals who can contribute to their
long-term care costs to do so, and then, we need to concentrate
our Medicaid funds on people who have no alternatives.
Our budget proposal to reform transfer of asset
requirements is one part of this process. At the same time, we
also need to help individuals take more control of their long-
term care needs when they have the means to do so, through
options like long-term care insurance and reverse mortgages.
The Partnership for Long-Term Care, which is available in four
States, is a joint venture between Medicaid and long-term care
insurers to create affordable products that encourage people to
self-insure and protect a substantial portion of their assets
at the same time. It gives individuals full control over how
they receive long-term care services, and that reduces costs
for the Medicaid program.
This program works. In the partnership States, people who
purchase long-term care insurance almost never end up needing
Medicaid assistance for long-term care costs. We also need to
encourage people to learn about reverse mortgages, which will
allow homeowners to convert a portion of their equity in their
home into financial support for long-term care services where
they want them, including in their home. We need to encourage
them to learn about it. That is not the same thing as a
requirement.
Medicaid's current system of covering long-term care is out
of date, yet it is one of the largest and fastest-growing
sources of funding for long-term care for the elderly and
people with a disability. That is not a sustainable
combination. We are at a crossroads. To improve quality in
Medicaid, to help Medicaid dollars go further, we need to give
people with a disability control of their long-term care
services, in Medicaid and through private sources of financial
support.
Mr. Chairman, we look forward to working with you to
strengthen Medicaid and enable the program to provide better
support for the millions of Americans who count on it, and I
want to apologize for the statement getting to you late last
night. I would like that written statement read into the
record, along with my remarks. This is an especially important
issue, about which we have been talking to you and your staffs,
and I was especially encouraged by the statements from both
Republicans and Democrats this morning, that there is a real
opportunity to get an agreement on improving Medicaid and the
way it supports long-term care. So we absolutely want to be
closely engaged with you on this critical issue this year.
[The prepared statement of Mark B. McClellan follows:]
Prepared Statement of Mark B. McClellan, Administrator, Centers for
Medicare and Medicaid Services
INTRODUCTION
Chairman Deal, Congressman Brown, distinguished members of the
subcommittee, thank you for inviting me here today to discuss long-term
care and the need for transformation in the Medicaid program. There are
a number of public programs that play a role in our long-term care
system. Medicare plays a major role, but Medicaid is the largest public
source of funding for long-term care in the United States. It is, and
must remain, an essential lifeline for the most vulnerable Americans.
In 2000, Medicaid paid for 45 percent of the total amount spent on
long-term care services in the United States. State and federal
financing of long-term care costs is a significant issue both for state
and federal budgets. In FY 2004, total federal and state Medicaid
expenditures on all long-term care reached $100.5 billion and accounted
for 35.7 percent of all Medicaid spending.
Spending by the federal government and states for long-term care
services through Medicaid has been growing rapidly. This growth in
long-term care expenditures will continue to increase as our population
ages. At the same time, Medicaid needs to keep pace with the long-term
care needs of an aging population that wants to remain as active and
engaged as possible. Medicaid should ensure that people with a
disability are able to contribute to society to the greatest extent
possible. With the growing demands on Medicaid, we cannot afford to
wait to take steps that contribute both toward improved quality of life
for more people with a disability and toward the long-term viability of
the program. It is critical for us to respond to these challenges by
ensuring that those who cannot afford to pay for long-term care
services are protected by benefits that reflect the best and latest
evidence on how to get quality results in long-term care, while
encouraging and supporting those who are capable of paying for their
own care to plan for their future in a manner that gives them control
and does not require substantial public funding.
For all of these reasons, it is critical to give Medicaid
beneficiaries and their family members and caregivers more control over
how they get their care. As I will describe in more detail, properly
done, beneficiary control means better quality and more people served
for the same or lower cost. In its current form, however, the Medicaid
program does not generally allow such flexibility. Reflecting the
delivery of long-term care in institutions when the Medicaid statute
was enacted in the 1960s, the Medicaid program does not rely on the
community-based long-term care that best meets beneficiaries' needs.
Long-term care in 1965 was centered on institutions, while today it
should be focused more on the person and the supports and services the
person needs. Care in a nursing home is the best option and the
preferred option for many Medicaid beneficiaries, especially with
recent quality improvement initiatives undertaken by many nursing
homes. But progress over the last several decades in supportive
technologies and ideas for supportive care means that the decision
about how to receive long-term care services should be a personalized
decision for the beneficiary. Because the Medicaid program has not kept
up with progress in long-term care, thousands of Medicaid beneficiaries
today do not have the opportunity to choose the most appropriate place
for receiving long-term care services. It is time to give beneficiaries
the control they deserve to enable Medicaid to get much better value
for its money.
Medicaid is Currently the Primary Public Program for Financing Long-
Term Care
For beneficiaries in the Medicaid program, most of their long-term
care services, including medical and non-medical care, are provided by
Medicaid. Most long-term care is intended to assist individuals with
activities of daily living, such as getting in and out of bed, eating,
bathing, dressing, and using the bathroom. It may also include care
that most people do themselves, such as using eye drops or oxygen, and
taking care of colostomy or bladder catheters. These services may be
provided in either institutional or community-based settings.
Unlike Medicaid, Medicare does not cover most long-term care
services. Medicare pays only for medically necessary skilled care in a
nursing facility or home that is needed to treat, manage, observe, and
evaluate care. Generally, under Medicare, post-acute skilled care is
available only for a short time after a hospitalization and
beneficiaries must meet certain conditions for Medicare to pay.
Examples of skilled care include intravenous injections and physical
therapy. Medicare skilled nursing care and home health aide services
are only covered on a part-time or ``intermittent'' basis as part of
the home-health benefit.
Eligibility for Medicaid Long-Term Care Varies by State
States have considerable discretion in determining who their
Medicaid programs cover and the financial criteria for Medicaid
eligibility. As a result, income and asset eligibility tests vary by
state. However, to be eligible for matching federal funds, states are
required to provide Medicaid coverage for most individuals who receive
federally assisted income maintenance payments, as well as for certain
related groups not receiving cash payments. States also have the option
of providing Medicaid coverage for other ``categorically needy'' and
``medically needy'' individuals. The medically needy option allows
States to extend Medicaid eligibility to additional qualified persons
who may have too much income to qualify under the mandatory or optional
categorically needy groups, but have significant medical expenses. The
medically needy option allows individuals to ``spend down'' to Medicaid
eligibility by incurring medical and/or remedial care expenses to
offset their excess income, thereby reducing it to a level below the
maximum allowed by that State's Medicaid plan.
Medicaid Coverage of Long-Term Care is Out of Date
When Medicaid started in 1965, institutional care was the norm for
long-term care services; thus, a nursing home benefit was and continues
to be a mandatory benefit that states must provide. States have the
option to provide home- and community-based services through waivers,
but they must develop and submit a waiver, and obtain support in the
state for the waiver implementation, in order to provide these
services. As a result, there is an institutional bias in many Medicaid
programs that often keeps Medicaid beneficiaries from choosing where
they receive long-term care support and services. Institutional care
remains an essential part of long-term care today and may be the best
approach for a portion of the elderly and individuals with disabilities
who cannot safely be cared for in other settings, especially with the
improvements in quality and capability that have occurred in recent
years in many nursing homes. Those individuals who need the specific
types of medically intensive, skilled services nursing homes provide,
and an even larger number of their family members, friends, and
relatives, must be able to count on nursing homes to provide such care
reliably and with consistently high quality. For this reason, to help
beneficiaries who need nursing home services get better care CMS has
undertaken some major quality reporting and quality improvement
initiatives, which are discussed later in this testimony.
Today, however, institutional care is only one part of a range of
long-term care options that should be available to Medicaid
beneficiaries. This is especially urgent because so many Medicaid
beneficiaries would prefer to receive their long-term care supports and
services in home-or community-based settings. Not all individuals
currently cared for in nursing homes need or want that type of
institutional care. In spite of the bias in the Medicaid statute, we
have worked hard with advocacy groups, states, and our other partners
to expand consumer options with regard to home- and community-based
services. The key concepts here are consumer choice and control. By
working to give individuals choice and control over supportive services
in the community, the home- and community-based waivers that we have
implemented in some states have simultaneously increased personal
autonomy while promoting better decision-making about supports and
services. These programs have shown that, often, the most cost-
effective place to provide care is where most people would prefer to
receive their care: living in their homes, connected to their
communities, surrounded by friends and family. And that means better
outcomes without higher costs in Medicaid--a result that we cannot
afford to pass up any longer.
Medicaid's Long-Term Care System Must Change
Mr. Chairman, to ensure Medicaid can serve more beneficiaries at a
lower cost, the institutional bias in Medicaid long-term benefits
resulting from lack of beneficiary control must be addressed. CMS has
been working hard to promote consumer choice and home- and community-
based services over institutional care when it is appropriate for
beneficiaries. Both consumers and states are very receptive to this
approach, and the evidence from the programs developed so far is that
it is a win-win effort.
The progress we have made with the President's New Freedom
Initiative (NFI) points us in the right direction. We have undertaken a
number of efforts to rethink, redesign, and re-balance a program that
has traditionally been institutionally biased. The President's FY 2006
Budget includes NFI legislative proposals to make this happen. The
President's Budget requests $385 million in budget authority for FY
2006 and $2.2 billion in budget authority for the five-year budget
window. We made inroads with this legislation in Congress last year,
and this year we want to work with Congress to go further and enact the
proposed legislation.
Medicaid Proposals in the President's Budget Would Improve Long-term
Care Services
CMS plays a unique role in identifying and supporting effective,
innovative state Medicaid reforms that save money and maintain and, in
some cases, substantially improve quality of care and quality of life.
The President's FY 2006 budget includes several policies to promote
home- and community-based care options. These policies, including the
Money Follows the Person Demonstration, build on the President's New
Freedom Initiative, which is part of a nationwide effort to integrate
the elderly and people with disabilities more fully into society.
The New Freedom Initiative Promotes Independence and Choice
The President's New Freedom Initiative represents an important
commitment toward ensuring that all Americans have the opportunity to
develop skills, engage in productive work, choose where to live, and
participate in community life. The President's Initiative, which we are
working to implement throughout the government, is about the promise of
freedom for every elder and person with a disability. It is a promise
of independence, choice, and dignity. Our goal with our long-term care
initiatives is to work with states to get to the point where consumer
choice is the norm in our long-term care system--including in Medicaid.
The budget includes a package of six New Freedom Initiative legislative
proposals, including the centerpiece of our community-based proposals,
Money Follows the Person, which promote home- and community-based care
options for elders and people with disabilities.
Money Follows the Person Promotes Community-Based Living
As part of the New Freedom Initiative legislative package, the
President's FY 2006 budget authorizes $350 million in each of five
years, a total of $1.75 billion over five years, for the Money Follows
the Person demonstration. In the initiative, the federal government
will pay the full first-year cost, with no state match required, for a
package of home- and community-based services for eligible individuals
who move from institutions into the community and after the first year
costs will be shared with the states at the existing Federal Medical
Assistance Percentage (FMAP) rate. This will assist states in their
efforts to reorganize and rebalance their long-term care service and
support programs and integrate this demonstration into the Medicaid
program. We believe individuals and families make better decisions for
themselves than the current institutional-based, provider-driven
systems.
While states are making efforts to develop infrastructures designed
to support community-based services, progress in reducing dependence on
institutional care has been difficult to achieve due to the fiscal
challenges states are facing. The initiative will help states achieve a
more effective balance between the proportion of total Medicaid
spending on institutional services and the proportion of funds used for
community-based support in their state plans and waivers. States will
be encouraged to develop and adopt a coherent strategy for reducing
reliance on institutional-care. The initiative also will help states
design flexible financing systems for long-term services and supports
that allow funds to move with the individual beneficiary's preferences
to the most appropriate and preferred setting as the individual's needs
and preferences change.
Earlier we said the 100 percent FMAP assists states. Again, for
individuals who move voluntarily from a Medicaid-certified institution
to the community, in this five-year demonstration project, the Federal
government will fully reimburse states for one year of home- and
community-based Medicaid services for such individuals. At a minimum,
the package of services available in the community must be equivalent
to the services that a state could provide under a Medicaid waiver.
After the initial year, a state will be reimbursed by the Federal
government for services provided at FMAP rates. States must commit to
serve Medicaid eligible demonstration participants for as long as they
need home- and community-based services.
CMS is one of five sponsors for the HCBS clearinghouse website for
the Community Living Exchange Collaborative. The clearinghouse is
intended to facilitate sharing information, tools, and practical
resources across states and local entities based on information from
grantees, states, academic institutions and others. For example,
Medstat, a contributor to HCBS.org, highlighted several promising
practices in the Money Follows the Person initiative, including those
discussed below. As a result of the Real Choice Systems Change grants,
states have made steps in making home- and community-based services
available to individuals, and the following state examples illustrate
the progress we have made.
Texas--The Texas legislature added Rider 37 to the two-year state
appropriations act that took effect in September, 2001. This rider
allows the Texas Department of Human Services (TDHS) to move Medicaid
funding from its nursing facility budget to its budget for state and
Medicaid-funded home and community-based services (HCBS) when a
Medicaid participant transitions from a nursing facility into a
community-based residence. Any Medicaid nursing facility resident may
apply for transition into the community and immediately use community
supports, rather than be placed on a waiting list as was required
before the rider. Each month TDHS identifies people who left nursing
homes using the rider and estimates the cost of their community
services for the rest of the fiscal year. TDHS moves the cost of the
community services from the nursing home budget to the community
supports budget. Over 1,900 Medicaid participants in Texas have
transitioned from nursing facilities into the community under Rider 37.
The Texas legislature extended the rider for a second biennial budget
(until August, 2005).
Maine--To ensure people know about their options before entering a
nursing home, Maine required pre-admission screening and periodic
reassessment for all nursing home residents, regardless of the payment
source. Maine also implemented a case-mix payment system for Medicaid
nursing facilities and tighter Certificate of Need controls on nursing
home growth. The state rapidly expanded HCBS options and encouraged
development of more community residential care. Between 1995 and 2002,
the number of Medicaid nursing home residents in Maine decreased 18
percent while the number of people receiving Medicaid and state-funded
home and community-based services increased 78 percent. The proportion
of state and Medicaid long-term support spent on HCBS increased from 16
to 39 percent. Total long-term care expenditures increased by only 17
percent over the seven-year period.
Indiana--In 2002, Indiana began an initiative to provide HCBS to
people at imminent risk of nursing facility admission. Area Agency on
Aging case managers work with hospital discharge planners to identify
hospital patients who may be admitted to a nursing facility from the
hospital. The case managers offer these people home and community-based
services options. Some people use community supports immediately after
their hospital discharge, while others use the services after a short
nursing facility stay. Since 2002, Indiana has diverted 1,400 persons
from institutional care.
Oregon, Washington, and Wisconsin--Oregon, Washington, and
Wisconsin have taken a systems approach to rebalancing their long-term
care systems and allowing the Medicaid funding to follow the person's
preferences. These systems approaches to rebalancing combine
legislative action, market-based approaches, and linkages. For example,
Oregon and Washington established a single long-term care budget and
Wisconsin passed legislation to create an entitlement to home- and
community-based services in counties with the Family Care services
benefit. In addition, these states made market-based changes (such as
the institution of single point of entry and preadmission screening) to
ensure that persons in need of long-term care are quickly identified,
assessed, and informed of long-term options. In Oregon and Washington
linkages were formed to merge administrative and regulatory
responsibilities at the state and local level. In Wisconsin over half
of the membership of state and local governing councils and boards is
held by program participants. As a result of these systemic changes,
over half (57 percent) of Oregon's Medicaid long-term care spending for
seniors and adults with physical disabilities is devoted to home- and
community-based care. And in state fiscal year 2002, Washington served
almost two and a half times as many participants in the community as
they served in nursing facilities.
Home- and Community-Based Care Demonstrations Provide More Options
The FY 2006 budget includes proposals to encourage home- and
community-based care for children and adults with disabilities, such as
demonstrations to provide respite care for caregivers of adults and
children. Another demonstration will evaluate the effectiveness of
providing home- and community-based alternatives to psychiatric
residential treatment for children enrolled in Medicaid.
Presumptive Eligibility will Help Beneficiaries in Transition
To reduce the prevalence of individuals entering nursing facilities
from hospitals due to the length of time required to determine Medicaid
eligibility for home- and community-based services, the President has
proposed to offer states the option of providing those individuals who
need Medicaid home- and community-based care with services for up to 90
days while Medicaid eligibility is being determined. Under this
proposal, the Federal government will pay its share of the first 90
days of home- and community-based services whether or not the
individual is ultimately deemed eligible for Medicaid.
Existing Initiatives Demonstrate Success of Home- and Community-based
Long-Term Care
CMS is putting a lot of effort into identifying and supporting
effective, innovative state Medicaid reforms that improve quality of
care and quality of life for the same or lower Medicaid costs. It is
the most effective way not only to make Medicaid sustainable, but also
to improve the quality of life of our beneficiaries. There are several
existing initiatives underway, which are helping the elderly and people
with disabilities live meaningful, productive lives in the community,
including the Real Choice System Change grants, Independence Plus
Initiative, and home- and community-based waivers, all of which are
discussed below.
Real Choice System Change Grants Foster Choice
While Real Choice System Change grants have provided much evidence
of the success of home- and community-based services, it is time to
shift resources and move ahead with more systematic, large-scale
reforms such as the multibillion dollar Money Follows the Person
initiatives in the FY 2006 Budget. We have learned much from the 238
grants in the Real Choice Systems Change grants program, totaling $188
million, to help states and others develop programs that allow the
elderly and individuals with disabilities to live meaningful,
productive lives in the community. These grants are intended to foster
the systemic changes necessary to allow elders and those with
disabilities to access quality services from their choice of providers
in accordance with their living preferences and priorities. Including
the states we highlighted earlier as good examples for progress in
Money Follows the Person activities, CMS has partnered with every state
in the nation, the District of Columbia, and the U.S. territories to
provide these grants from which we have developed new innovative ways
to rebalance the Medicaid system. As shown in the state examples
earlier, with this support, states are continuing to address issues
such as personal assistance services, direct service worker shortages,
transitions from institutions to the community, respite service for
caregivers and family members, and better transportation options. CMS
has also implemented an ambitious national technical assistance
strategy, including the Community Living Exchange Collaborative
mentioned earlier, to share information and support states' efforts to
improve community-based service systems and enhance employment
supports.
Independence Plus Initiative Increases Choice and Control
In 2002, CMS launched the Independence Plus Initiative to afford
Medicaid participants increased choice and control that results in
greater access to community living. Independence Plus is based on the
experiences and lessons learned from states that have pioneered the
philosophy of consumer directed care. The Initiative expedites the
process for states to request waiver or demonstration projects that
give individuals and their families' greater control over their own
services and supports. Independence Plus programs not only deliver
service in the community setting, but also allow a growing number of
individuals and their families to decide how best to plan, obtain, and
sustain the services that are best for them, giving beneficiaries the
opportunity to control how they should receive the services they need.
The Independence Plus programs allow participants to design a package
of individualized supports, identify and attain personal goals, and
supervise and pay their caregivers. CMS has approved eleven
Independence Plus waivers, including eight 1915 (c) IP waivers (New
Hampshire, Louisiana, South Carolina, North Carolina (2), Maryland,
Delaware, and Connecticut) and three ``1115'' IP waivers (California,
and two others that are extensions of the original ``cash and
counseling'' demonstration waivers in Florida and New Jersey).
Independence Plus programs have built on the very successful ``Cash
and Counseling'' demonstrations. The Cash & Counseling Demonstration
and Evaluation Program is a three-state experiment to determine the
feasibility of offering a cash payment option in lieu of traditional
agency services to recipients of personal assistance services. The
demonstration enables people to hire whomever they want to provide
their care by redirecting personal assistance funds to the consumers
themselves (instead of to agencies). There are three original Cash and
Counseling section 1115 demonstration programs (Arkansas, New Jersey,
and Florida), two other states with section 1115 self-direction
demonstrations similar to Cash and Counseling (Oregon and Colorado),
and a multitude of states that offer self-directed program options
under their section 1915(c) home and community based waivers.
Home- and Community-Based Waivers offer Alternatives to Institutional
Care
Home- and community-based service (HCBS) waivers show that Medicaid
can be an effective source of support for community living. Using HCBS
waivers, states can provide alternatives to institutional care by
allowing beneficiaries to live at home, where they can enjoy family,
neighbors, and the comfort of familiar surroundings. States can only do
this as long as the waiver remains budget neutral, meaning that the
costs of providing services under the waiver do not exceed the costs
that would be incurred if the services were provided in an institution.
Vermont and New Hampshire illustrate how institutional and home-
and community-based care can lead to different results. Vermont has a
highly developed home- and community based health care system. New
Hampshire continues to rely on institutional care. In Vermont, 85
percent of the Medicaid population over age 65 still lives at home. In
New Hampshire, only half can live at home. As a result, Vermont spends
less than half as much per elderly person on Medicaid as New Hampshire,
permitting more people to get the better results.
The trend towards home- and community-based care is rapidly
increasing. The numbers tell the story very clearly: state and federal
expenditures on long-term care have increased from $13.9 billion in FY
2001 to an estimated $20.7 billion in FY 2004. And over that period
from 2001 to 2004, a total of $68.7 billion has been spent to support
home- and community-based waivers generally. More money has been spent
in those four years than was spent during the previous eight years
combined [$56.6 billion]. Taking further steps to incorporate HCBS-
based approaches into the Medicaid program will provide further
momentum for this important trend.
Transition/Diversion Grants Awarded
When individuals try to move out of an institution for a more
independent life, they may need assistance with certain one-time
expenses, such as security deposits and essential household
furnishings. In May 2002, CMS announced a clarification in policy to
allow home- and community-based waivers to cover transition costs. In
addition, CMS granted funds to states in support of these transition/
diversion activities. To date, approximately 2,300 individuals have
been transitioned from, or diverted from, nursing homes into the
community with this grant assistance from CMS.
Resources and Support for Obtaining Effective Long-Term Care Services
CMS and the Administration on Aging (AoA) launched the Aging and
Disability Resource Center (ADRC) Program in 2003. The Program provides
competitive grants to states to assist them in developing and
implementing ``one stop shop'' access to information and individualized
advice on long-term support options, as well as streamlined eligibility
determinations for all publicly funded programs. The long-range goal is
to have ADRCs serve as ``visible and trusted'' places at the community
level nationwide where people of any age, disability, or income can get
information on all available long-term support options. The program
also reduces government fragmentation, duplication, and inefficiencies.
To date, 24 states have received grants to begin implementing ADRC
pilots; another 18 to 20 states will receive grants in FY 2005.
Promoting Personal Responsibility and Planning for Long-Term Care
Expenses
In addition to making more home- and community-based long-term care
options available, we need to improve the financing of long-term care
and encourage Americans to plan for their future. For Medicaid to
remain sustainable for those who truly need it, we must ensure that
Medicaid does not become an inheritance protection plan for those who
can pay for their own long-term care. The CMS budget proposal to reform
transfer of asset requirements is one part of this process.
Furthermore, we also need to help individuals take advantage of private
financing options to help pay for their long-term care, including long-
term care insurance and reverse mortgages. Finally, support for
education and planning about long-term care is needed, and CMS is
working in conjunction with other components of HHS and other
organizations to conduct outreach and to educate people about their
long-term care options. CMS continues to work to identify ways to help
people take more control of their future long-term care service and
support needs, when they have the means to do so.
Reforming Transfer of Asset Requirements will Preserve Program Dollars
for those in Need
The budget proposes to strengthen existing requirements for asset
transfers as one element of a broader approach to promote personal
responsibility and planning to meet long-term care expenses. To qualify
for Medicaid long-term care services, an individual may only retain
nominal assets. Current law requires individuals applying for Medicaid
long-term care services to spend all but a minimum level of assets
before becoming eligible. However, creative estate planning often
allows individuals to become eligible for Medicaid legally, without
spending their own available assets for needed care first. Several
states are developing initiatives to curb this practice.
To help Medicaid funds go further for the beneficiaries who have no
alternative source of support, the Administration's proposal would
enable states to require more individuals to pay for some period of
long-term care before Medicaid would pay the bill. This would be
accomplished by changing the asset transfer penalty period. Currently,
when an individual who applies for Medicaid has transferred assets at
less than the fair market value within the three year look-back period,
the amount of those assets are used to determine a period of
ineligibility for long-term care services under Medicaid. However, the
penalty period for such asset transfers currently begins on the date of
the asset transfer. The result is that even for assets transferred
within the look-back period, the penalty period is over before the
individual requires long-term care services or applies for Medicaid.
This proposal would change the penalty period to the date when an
individual is enrolled in Medicaid and is receiving long-term care
services either in an institution or, in certain circumstances, in the
community. This would make it less likely that individuals could plan
ahead and transfer their assets, so that the penalty period expires
prior to their needing long-term care.
Partnerships Instead of Asset Transfers for Sustainable Use of Long-
Term Care
In effect, Medicaid today acts as a long-term care insurance policy
for most people, not just those who lack the means to provide for their
own long-term care needs. This is perhaps one reason that Medicaid
coverage is often limited in quality and in scope: by providing access
only to certain kinds of institutional care, for example, Medicaid may
be used more as coverage of last resort. Although the specific coverage
varies by state, Medicaid programs generally do not cover assisted
living, and only some programs cover adult day care, both of which are
coverage options in long-term care insurance policies. And as I have
already discussed, many Medicaid programs limit coverage in the
community. Supporting alternatives to Medicaid funding like long-term
care insurance may consequently promote the availability of more
community-based services in Medicaid. At a minimum, such steps would
help make sure that more beneficiaries who really need Medicaid help
would be able to obtain it. Long-term care insurance can help pay for a
broad array of long-term medical and non-medical care, such as help
with activities of daily living, that people with a disability often
prefer to the limited Medicaid benefits.
The Partnership for Long-term Care is a very promising approach to
this policy challenge, formulated to explore alternatives to current
long-term care financing by blending public and private insurance. This
blend provides an alternative to individuals either spending down all
their assets or transferring all of their assets in order to qualify
for Medicaid. The partnership between Medicaid and long-term care
insurers is currently permitted to operate in only four states.
The four Partnership States--California, Connecticut, Indiana and
New York--have focused on creating affordable products that encourage
people to insure themselves for at least some of the long-term care
costs they might incur, and that enable purchasers to obtain better
protection against impoverishment, and that reduce long-term care costs
for the Medicaid program. In these states, private insurance is used to
cover the initial cost of long-term care. Consumers who purchase
Partnership-approved insurance policies can become eligible for
Medicaid services after their private insurance is utilized, without
divesting all their assets as is typically required to meet Medicaid
eligibility criteria.
Although people in these states who buy long-term care insurance
policies almost never have significant Medicaid spending, Congress has
prohibited such Partnerships. The President's budget proposes to
eliminate the current legislative prohibition on developing more
Partnership programs.
Reverse Mortgages can Help Individuals Pay for Long-Term Care
Expenditures
A reverse mortgage is a special type of home loan that lets an
elderly homeowner convert a portion of the equity in his or her home
into cash. The equity built up over years of home mortgage payments can
be paid to the elderly homeowner. But unlike a traditional home equity
loan or second mortgage, no repayment is required until the
mortgagor(s) no longer uses the home as their principal residence.
Funds obtained from reverse mortgages can be used by elderly home
owners to pay for long-term care services and supports as well as other
needs. It is estimated that forty-five percent of households at
financial risk for ``spending-down'' to Medicaid could take advantage
of a reverse mortgage to help them pay for long-term support. On
average, these households could expect to get $62,800 from a reverse
mortgage. More widespread use of this financial option for long-term
support services could potentially result in Medicaid savings.
The US Department of Housing and Urban Development's (HUD) Home
Equity Conversion Program (HECM) of reverse mortgages provides these
benefits. It is federally-insured by FHA and funded by lending
institutions such as mortgage lenders, banks, credit unions, and
savings and loan associations. To obtain a HECM reverse mortgage, an
individual must be 62 years of age or older, own their home outright or
have a low mortgage balance that can be paid off at the closing with
proceeds from the reverse loan, and the home must be the individual's
principal residence. The HECM reverse mortgage loan becomes due when
the mortgagor dies (and there is no surviving mortgagor), the mortgagor
sells the property, or the mortgagor no longer occupies the home as the
principal residence.
Alternatively, an individual can obtain a reverse mortgage from the
private reverse mortgage market. At the same time, such an individual
can use the proceeds of the private reverse mortgage to buy a reverse
annuity. This has the same requirements as a reverse mortgage. In such
cases, when the individual sells his home, no longer lives in the home
permanently, or dies, the individual or estate will have to repay the
money received through the reverse mortgage (whether it was in the form
of an annuity or otherwise), plus applicable interest and fees, from
the proceeds of the home's sale.
CMS Is Expanding Efforts to Educate Americans About Long-Term Care
Planning
Better understanding and support for long-term care planning can
help lead to more private support and thus more Medicaid sustainability
and personal control. To help provide this support, the Own Your Future
Campaign was launched in 2004 to encourage more people to plan ahead
for their long-term support needs. The project is a joint effort of
CMS, AoA, the Assistant Secretary for Planning and Evaluation, the
National Governors Association, and the National Conference of State
Legislatures. It has been piloted in five states (Arkansas, Idaho,
Nevada, New Jersey, and Virginia) and involves the use of various
outreach techniques, including the targeted mailing of HHS materials
and a letter from the Governor of each state to every household headed
by an individual between the ages of 50 and 70. The letter includes a
toll free number people can call to request a Long-Term Care Planning
Tool Kit that covers a wide range of topics. Over 2 million letters
have been mailed, and preliminary results within 3 months of the
mailings showed about a 10 percent response rate--significantly higher
than the 1 to 2 percent rate which is the norm for commercial marketing
campaigns. We are encouraged by the early results of this campaign and
will be conducting an evaluation of it to learn more about how best to
provide this information.
Quality Improvements will Reduce Costs and Improve Outcomes
Providing better support for high quality, efficient providers is
the best way--in fact, I think its the only way--to enable our
beneficiaries to have access to modern medicine, to continue to get
improvements in medical care and how it's provided, while ensuring
continued Medicaid coverage of long-term care whether these services
are provided in the home or community or in an institutional setting.
Quality Care must be the Standard in HCBS Programs
The Administration has consistently worked to ensure that HCBS
waiver programs allow people the independence to stay in their own
homes while receiving quality care and support in a community setting.
In the last three years, CMS has implemented a standard quality review
protocol for regional office use in monitoring state programs; begun
the first complete inventory of state HCBS quality assurance and
improvement techniques; and begun developing a uniform national format
describing key components of any quality assurance and improvement
program for HCBS waivers.
CMS is working with the major state associations, including
representatives of state agencies for developmental disabilities, head
injuries, Medicaid, and aging, to assure all our forms and applications
reflect our focus on quality in HCBS waivers. CMS developed a draft
revised waiver application for all HCBS waivers, incorporating our
quality expectations, and is also developing a new state annual report
form to capture better information about states' quality management
activities.
The Administration is committed to providing quality services in
the home- and community-based setting and continues to engage in
improving its role to ensure quality outcomes through federal and state
monitoring.
Improving Quality in Nursing Homes is an Essential Part of Effective
Long-Term Care Policies
Quality improvement also needs to extend to nursing facilities. We
are working to improve quality while avoiding unnecessary costs and
expensive, preventable complications for patients in nursing homes
through the Nursing Home Quality Initiative (NHQI) and the parallel
initiative known as the ``Quality First'' initiative. Though the NHQI,
the Quality First Initiative, CMS has published public reporting of
nursing home and home health quality measures. These initiatives have
been very successful in measurably improving the quality of care in the
nation's 18,000 nursing homes in every state and territory. For
example, data from NHQI indicates that the long-term care prevalence of
pain has improved every quarter over the last two years in 100 percent
of states. On average, the prevalence of pain in long-term care
patients has declined 38 percent over the last two years.
Another measure of quality in nursing homes is the daily use of
physical restraints, which has declined in 92 percent of states. On
average, the daily use of physical restraints has declined by 23
percent over the last two years. Another measure, the short stay (post-
acute) prevalence of pain has improved in 96 percent of states. On
average, the prevalence of pain in short stay residents has declined by
11 percent.
Quality improved even more dramatically in those nursing homes
around the country that partnered more intensively with their state
quality improvement organizations (QIOs). We strongly encourage nursing
homes who wish to join in this effort to contact their state QIO to
learn more about quality improvement programs and to obtain resources
to help in their quality improvement efforts.
Although our initial efforts have yielded great results, we still
have a long way to go. Some quality measures are proving more
challenging to improve. For example, the pressure ulcer measure has
remained essentially unchanged nationally over the last two years,
although a few states now seem to be making some progress on this
measure.
And it is important to remember that quality improvement is not a
static process--for example, we are constantly working to enhance our
measures and broaden from clinical to patient experience of care and
systems of care measures. Our goal should be to create an environment
of continuous quality improvement, of sharing and cooperation among the
QIOs, State Survey Agencies, nursing homes and professional
organizations, and even our beneficiaries and their families together
we create an ``environment of quality.''
In order to achieve this goal, CMS believes that we will have to
keep re-examining the way we accomplish our work, and even to re-invent
the nature of the public-private partnership. The ``Quality First''
initiative and the National Commission for Quality Long-Term Care are
examples of reinvigorated new partnerships that can propel the quality
agenda forward at an ever-increasing pace. To make the participation of
our partners easier, in December we created the CMS Long-Term Care Task
Force of the Quality Council. The Long-Term Care Task Force (LTCTF) was
created to coordinate the long-term care (LTC) program within CMS and
to serve as an internal advisory panel for the Administrator.
Helping Beneficiaries Make Informed Choices
Through NHQI, CMS has expanded its efforts to inform consumers
about the care available in the nation's nursing homes through the
Nursing Home Compare Web site at www.medicare.gov. Nursing Home Compare
web allows consumers to search by state, county, city, zip code, or by
facility name for information on any of the 18,000 Medicare- and
Medicaid-certified nursing homes. The web site includes data on the
facility's care record for regular and complaint surveys, staffing
levels, number and types of residents, facility ownership, and quality
measure scores in comparison to state and national averages. Over the
last two years the number of clinical topics covered by the publicly
reported quality measures has increased from eight to fifteen. Nursing
Home Compare is one of the most popular sites on www.medicare.gov,
receiving an average of 13 million page views in 2004.
Conclusion
Mr. Chairman, Medicaid's current system of covering long-term care
is outdated, yet it remains one of largest sources of funding for long-
term care for the elderly and persons with disabilities. We are at a
crossroads. Today, most Medicaid funds for long-term care goes to
institutional services that are relatively costly on a per-person basis
and even though beneficiary-controlled services can clearly lead to
substantial improvements in the quality of life of beneficiaries, and
even though many elders and people with disabilities who are now in
institutional care have expressed their clear preference and desire is
to remain in their own home. To improve quality in Medicaid, to help
Medicaid dollars go further, and most importantly to give people with a
disability control of their long-term care services, we need to address
the institutional bias in Medicaid. We look forward to working with you
to strengthen Medicaid and enable the program to provide better support
for the millions of Americans who count on it.
We know that community-based services are not for everyone and for
this reason we will continue to ensure quality services are offered in
institutional settings. However, today we have the opportunity to
continue the work the President has begun and forward the cause of
community living for those who prefer it to institutional care. If we
believe that every American--young and old--has the right to live in
the community, if we have really learned that this can be achieved, the
time is now to go farther down the ``road to independence.'' It is time
for action by Congress to give individuals the choice and control over
their future that they deserve.
If Congress were to create the Medicaid program in 2005, extensive
regulatory hurdles to get a waiver would almost certainly be required
for a state to provide an institution-only benefit. When we know how to
make Medicaid better, when we know we can get better results and serve
more people without spending more money, it is time to change the law
along the lines of the proposals in the President's FY 2006 budget.
Thank you, Mr. Chairman, for the opportunity to speak to you today
about the impact of long-term care on Medicaid costs and the need to
eliminate the institutional bias in the Medicaid program. I look
forward to working with you as we move forward with Medicaid reform. I
would be happy to answer any questions you may have.
Mr. Deal. Thank you, Dr. McClellan, and Dr. Holtz-Eakin,
the Director of the Congressional Budget Office. We are pleased
to recognize you for an opening statement for 5 minutes.
STATEMENT OF DOUGLAS HOLTZ-EAKIN
Mr. Holtz-Eakin. Thank you, Mr. Chairman, Congressman
Brown, members of the committee.
The CBO is pleased to have the chance to appear here today.
We wrote a report on this topic last year, and have submitted a
written testimony for the record. I will make only a few brief
points, most of which have already been touched upon and
expressed probably more eloquently by members in their opening
statements.
Point one is that with the demographic change in the United
States, and the aging of the baby boom generation, it is quite
likely that we will face a rising demand for long-term care
services, and along with that will be a rising demand in
resources to fund these long-term care services from what are
already substantial levels. We estimate about $200 billion in
2004 including the value of donated care, this is about $25,000
per senior with impairments.
Distributing the burden of those costs is a key aspect of
both policy design and the long-term budget outlook, and at the
moment, current financing is heavily influenced by rules that
do not provide incentives for individuals to make their own
financial preparations, and if left unchanged, those incentives
will add to the financial demands on programs in the Federal
budget at a time when there will be increasing budgetary
stress.
So let me walk you through some of the nuts and bolts
underneath that. First, the costs, if we could go to the first
slide. The demography, I think, is now familiar to members of
the committee. We anticipate that in the baseline, the rising
share of the population that is either 65 and older at the top,
or 85 and older, the high demanders of long-term care services,
the bottom line, that rising share of the population in those
age groups will cause the fraction of our national dollar
devoted to long-term care to rise from 2 percent now to 2.3
percent, a rise of about 15 percent, and that is driven by the
tripling in the share of the population that is 85 years of age
or older.
As with most of these long-term projections in the
healthcare area, this one comes with some uncertainty. A key
piece of uncertainty here is the rate at which impairment will
be present in this population. This projection assumes that
impairment continues to decline at the pace we have seen, about
6 percent per decade. If that were not to be the case, the
costs would grow even more rapidly. They would rise by about 65
percent, something that looks closer to the rise in Social
Security outlays.
Step two is to ask how will these costs be financed, and at
the moment, go to the second slide, we have a distribution of
these costs in a variety of forms. The dominant form of these
costs is donated care. Informal care by family members has been
mentioned by many members of the committee. This is the largest
form of care. It is very difficult to value. Estimates range
from $50 to $200 billion. But even for seniors with severe
impairments, it is the majority of time the case that this is
their only source of care, so it is an important part of both
the provision and financing. And the demography may work
against this in the future. Families are expected to be
smaller. Patterns of marriage and divorce have made it less
likely that caregivers may be in the home, and so on both
fronts, the demography is affecting this piece of the
financing.
The second biggest chunk is out-of-pocket self-insurance,
and there, the key issue will be how many Americans will have
adequate financial resources to take that as their means of
meeting the financing burden. A very small private source at
the moment is private long-term care insurance, as has been
mentioned in some of the opening statements. This is currently
about $750 out of the $25,000 per senior, and one of the
striking features at the moment is the small take-up in private
long-term care insurance, about 10 percent of folks taking that
up. And then, the dominant public programs, Medicare at $4,000
out of the $25,000, and Medicaid, at about $5,500, of which 56
percent is the Federal Government's share.
So what issues does this present the committee and the
Congress going forward? Well, first it is important to remember
that this will take place in the context of larger budgetary
demands. In a report that the CBO did in 2003, we documented
the long-term budget outlook in the health area. If things go
better than they have for the past three decades, it will be
the case that Medicare and Medicaid will triple in size. They
will rise from 4 percent of our national income to 12 percent.
It is in the context of a great many demands on the Federal
budget that this problem should be addressed.
That suggests that one should use dollars wisely, that one
should balance both within programs, between institutionalized
care and home-based care for Medicaid, balance between
programs, who will carry it, between Medicaid and Medicare, and
it may be the case that it will provide incentives to limit the
size of the Federal programs, for example, by limiting middle
income families' eligibility, through spend-down rules or other
changes.
It may also be desirable to encourage either greater self-
insurance, personal saving to cover out-of-pocket costs for the
private long-term care market. There, there has been some
research that has tried to understand the relatively low take-
up of private long-term care insurance, and has focused on the
degree to which factors such as administrative costs can
explain that, whether it is premium instability or the
difficulty of insuring the services when the prices are quite
hard to forecast. There has been some focus on whether it is
just adverse selection, only those folks who really know they
are going to use this insurance buy it, or the degree to which
the presence of alternative sources of insurance, the public
programs, Medicaid, or the perceived long-term care benefits in
Medicare, are the source of crowding out the private long-term
care insurance market.
All these are important issues. They will determine the mix
of financing for what appears to be a rising demand for long-
term care services in the future, and I thank the committee for
the chance to be here today, and look forward to answering your
questions.
[The prepared statement of Douglas Holtz-Eakin follows:]
Prepared Statement of Douglas Holtz-Eakin, Director, Congressional
Budget Office
Mr. Chairman and Members of the Subcommittee, thank you for the
opportunity to be here today to discuss the cost and financing of long-
term care (LTC) services. A Congressional Budget Office (CBO) report
from April 2004, Financing Long-Term Care for the Elderly, examines
these issues in greater detail. Long-term care is the personal
assistance that enables people with impairments to perform daily
routines such as eating, bathing, and dressing. Such services may be
provided at home by family members and friends; through home and
community-based services such as home health care, personal care, and
adult day care; or in institutional settings such as nursing or
residential care facilities.
In my statement today I want to make the following points:
With the aging of the baby-boom generation, the United States'
elderly population is expected to grow rapidly over the next
several decades. The surge in the number of seniors will
increase the number of people with impairments and, in turn,
the demand for long-term care services.
The resources devoted to long-term care services are already
substantial. CBO estimates that spending on such care for the
elderly (including the value of donated care) totaled over $200
billion in 2004--or approximately $24,000 per senior with
impairments. In reporting estimates of LTC spending, CBO chose
to include the value of donated care because it is an integral
part of long-term care, even though measuring it accurately is
difficult.
Currently, donated care is the largest source of financing for long-
term care costs, followed by the combined public programs--
Medicaid and Medicare--and out-of-pocket expenditures. Private
long-term care insurance is a small portion of the current
financing.
Financing patterns for long-term care are heavily influenced by the
rules governing public LTC programs. Those rules create
incentives that discourage people from making their own
financial preparations and encourage them to rely on government
assistance. If left unchanged, those incentives will add to the
financial demands that government programs for retirees are
already facing as a result of demographic changes and rising
health care costs.
DEMOGRAPHIC TRENDS
The oldest members of the baby-boom generation become eligible for
early retirement under Social Security in 2008. According to estimates
by the Bureau of the Census, the number of elderly people (those age 65
and older) in the United States will increase by two and a half times
between 2000 and 2050. The share of the population claimed by the
oldest seniors, those age 85 and older--and those most likely to use
long-term care--will reach about 5 percent by 2050, more than triple
the 1.5 percent share they had in 2000 (see Figure 1). By comparison,
the proportion of the population accounted for by working-age people
(ages 20 to 64) will grow by only about 35 percent by 2050.
Although the number of the oldest seniors will rise, declines in
the prevalence of functional impairment could offset some of the
effects of that increase. Impairment among seniors appears to have
waned significantly during the 20th century. From 1910 to the early
1990s, the overall prevalence fell by about 6 percent per decade. From
the early 1980s to the present, the prevalence of impairment may have
fallen even faster, according to research findings from the National
Long-Term Care Survey. In contrast, some types of impairment, such as
those requiring the use of a cane to walk, have been increasing.
Impairment among people under age 65 may also be increasing, which
could eventually lead to higher future rates of impairment among
seniors. In fact, one recent study projects that the currently
declining trend in the prevalence of impairment among seniors will
reverse in the future, leading to greater rates of institutionalization
than those that exist today.1 As those conflicting trends
suggest, projecting the prevalence of impairment in future years and
basing estimates of spending on those projections are both difficult
and subject to a high degree of uncertainty.
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\1\ Darius Lakdawalla and others, ``Forecasting the Nursing Home
Population,'' Medical Care, vol. 41, no. 1 (2003), pp. 8-20.
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Demographic changes may affect the composition of LTC financing in
the future as well. Smaller families, lower fertility rates, and
increasing divorce rates may make donated LTC services less common in
the future. The size of the average family has declined, reducing the
number of adult children available to care for their elderly parents.
Family size fell from 3.8 members in 1940 to 3.1 members in 2000; if
current trends continue, it will decline to 2.8 people by 2040. At the
same time, the rate at which women participate in the labor force will
probably continue to grow, at least until 2010, further reducing the
availability of donated care. Those family-related trends, in sum,
could further stimulate the demand for formal, or paid, services.
SOURCES OF LONG-TERM CARE FINANCING
Long-term care is financed with both private resources and public
programs (see Figure 2). Private resources include donated care, out-
of-pocket spending, and private insurance. Public programs include
primarily Medicaid and Medicare, although the Department of Veterans
Affairs and the Social Services Block Grant program also fund long-term
care.
Private Sources
Most seniors with impairments who reside in the community,
including those with severe impairments (unable to perform at least
four activities of daily living, or ADLs), rely largely on donated care
from friends and family. And many people who pay for care in their home
also rely on some donated services.
The economic value of donated care is significant, although
estimates of it are highly uncertain. In 1998, the Department of Health
and Human Services estimated that replacing donated LTC services for
seniors with professional care would cost between $50 billion and $103
billion (in 2004 dollars). Another analysis, in 1997, estimated the
value of donated care for people of all ages who had impairments--
measuring it as the forgone wages of caregivers--at $218
billion.2
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\2\ Peter S. Arno, Carol Levine, and Margaret M. Memmott, ``The
Economic Value of Informal Caregiving,'' Health Affairs, vol. 18, no. 2
(1999), pp. 182-188. CBO converted their estimate of $196 billion in
1997 dollars to $218 billion in 2004 dollars.
---------------------------------------------------------------------------
Out-of-pocket spending in 2004 accounted for about one-fifth of
total LTC expenditures, or roughly $5,000 per senior with impairments
(see Table 1). The federal government subsidizes a portion of out-of-
pocket spending through the tax code. Taxpayers with impairments (or
taxpayers who have dependents with impairments) may deduct LTC expenses
from taxable income along with other medical and dental costs, but only
the portion of total medical costs (LTC, medical, and dental expenses)
that exceeds 7.5 percent of adjusted gross income.
Private insurance for long-term care is a relatively recent
development and pays for only a small amount of care at present. Few
elderly people currently have private coverage--no more than 10
percent.3 However, that source of financing is growing--
although the precise extent of the growth is difficult to measure
accurately. The data on private LTC insurance generally capture
payments that insurers make directly to providers but do not always
pick up insurers' reimbursements to policyholders for covered services
that policyholders initially pay for out of pocket. Thus, estimates of
LTC insurance payments--and of out-of-pocket spending--should be
interpreted with caution because the former may be underestimated and
the latter overestimated.
---------------------------------------------------------------------------
\3\ Jeffrey R. Brown and Amy Finkelstein, The Interaction of Public
and Private Insurance: Medicaid and the Long-Term Care Insurance
Market, Working Paper No. 10989 (Cambridge, Mass.: National Bureau of
Economic Research, December 2004).
---------------------------------------------------------------------------
In 1995, private insurance paid about $700 million for LTC services
for seniors, or 0.8 percent of all such expenditures. In 2004, such
spending totaled about $6 billion, CBO estimates, or about 3 percent of
total expenditures. According to America's Health Insurance Plans, the
number of policies written yearly increased from about 300,000 in 1988
to more than 900,000 in 2002 (see Figure 3). About 9.2 million policies
were sold from 1987 through 2002; roughly 72 percent of them are still
in force.
A typical LTC insurance policy pays the cost of nursing home care
and home and community-based care but specifies a maximum daily benefit
(such as $100 or $150) and may impose other limits. Policies with so-
called inflation protection increase the dollar value of their benefits
by a contractually specified percentage each year, usually 5 percent.
Although some policies offer coverage for an unlimited period, most
commonly cover services for a shorter time, such as four years, or
until benefit payments for a policyholder reach a preestablished
maximum lifetime amount. Policyholders typically become eligible to
collect benefits when they reach a specific minimum level of
impairment, usually defined as being unable to perform two or three
ADLs or having a cognitive impairment significant enough to warrant
substantial supervision.
Premiums for LTC insurance reflect the cost of services and the
risk that policyholders will require long-term care as they age. In
2002, the average annual premium for a typical policy with no inflation
protection or nonforfeiture benefit was $1,337 if the policy was
purchased at age 65; with those two added features, the premium rose to
$2,862. Premiums were three to four times higher if the policy was
purchased at age 79 (see Table 2). The lower premiums offered to
younger people reflect the lower risk of their requiring LTC services
at younger ages and the expectation that younger policyholders will pay
premiums over a longer period than will people who purchase coverage
when they are older. Thus, the average annual premium for the same
policy with inflation protection and a nonforfeiture benefit purchased
by a 40-year-old would be only $1,117 and by a 50-year-old, $1,474.
In fact, fixed premiums are a key feature of LTC insurance
policies--that is, the premiums do not increase as the policyholder
grows older or as his or her health deteriorates, even though the risk
of requiring services rises. Instead, insurers calculate premiums to
ensure that the premiums' total, paid over the life of a policy, plus
the interest that accrues from investing them will be sufficient to
cover both the claims of the policyholder and insurers' profits and
overhead costs. However, insurers reserve the right to increase
premiums for a specific group, or rating class, of policyholders--such
as all policyholders in a state--if new data indicate that expected
claims will exceed the class's accumulated premiums and their
associated investment returns.
Government Programs
Medicaid is the biggest government source of payment for long-term
care. Jointly funded by the federal and state governments, Medicaid is
a means-tested program that pays for medical care for certain groups of
people, including seniors with impairments who have low income or whose
medical and long-term care expenses are high enough that they allow
those seniors to meet Medicaid's criteria for financial eligibility.
Within broad federal guidelines, the states establish eligibility
standards; determine the type, amount, duration, and scope of services;
set the rate of payment; and administer their own programs. The share
of each state's Medicaid expenditures that is paid by the federal
government is determined by a statutory formula; nationwide, the
federal share of the long-term care portion of Medicaid spending is
about 56 percent.
Medicaid generally pays for services provided both in nursing
facilities and in the home, although the specific benefits that the
program provides differ from state to state, as do patterns of
practice, the needs and preferences of beneficiaries, and the prices of
services. In total, Medicaid's expenditures for long-term care for
elderly people since 1992 have grown at an average annual rate of about
5 percent (see Figure 4). CBO estimates that in 2004, Medicaid's
payments for institutional care for seniors, including both state and
federal expenditures, totaled about $36.5 billion. Accounting for about
40 percent of total expenditures on nursing facilities, Medicaid's
payments cover the care of more than half of all elderly nursing home
residents.4
---------------------------------------------------------------------------
\4\ See Celia S. Gabrel, Characteristics of Elderly Nursing Home
Current Residents and Discharges: Data from the 1997 National Nursing
Home Survey, Advance Data no. 312 (Centers for Disease Control and
Prevention, National Center for Health Statistics, April 25, 2000). The
disparity between Medicaid's share of total spending on nursing
facilities (40 percent) and the proportion of patients covered by
Medicaid (56 percent) may result from one or more factors: Medicaid's
low average reimbursement rates; differences between the severity of
Medicaid enrollees' conditions and the conditions of patients using
other sources of payment; and enrollees' cost sharing, which counts as
out-of-pocket spending.
---------------------------------------------------------------------------
Medicaid's expenditures for home and community-based services
(HCBS), which include home health care, personal care services, and
spending under HCBS waiver programs, are much smaller than its spending
for nursing homes--HCBS expenditures constitute only about 23 percent
of total Medicaid LTC spending. (Under the waiver programs, states have
the option of providing people with impairments with enhanced community
support services not otherwise authorized by the federal statutes.)
Since 1992, Medicaid spending for home-based care for seniors has grown
faster than spending for institutional care, rising by about 11 percent
annually, on average, compared with about 3 percent growth for care in
nursing facilities.
Many people who are not eligible for Medicaid while they live in
the community become so immediately or shortly after being admitted to
a nursing facility because of the high cost of institutional care.
(Nursing home costs in 2004 averaged about $70,000 annually for a
private room.) According to a 1996 study, about one-third of discharged
nursing home patients who had been admitted as private-pay residents
became eligible for Medicaid after exhausting their personal finances;
nearly one-half of current residents had similarly qualified for
coverage.5 Medicaid coverage is especially common among
nursing home patients who have been institutionalized for long periods.
---------------------------------------------------------------------------
\5\ Joshua M. Wiener, Catherine M. Sullivan, and Jason Skaggs,
Spending Down to Medicaid: New Data on the Role of Medicaid in Paying
for Nursing Home Care (Washington, D.C.: AARP Public Policy Institute,
June 1996). Those proportions differ because discharged residents
include people who were institutionalized for only a short time, and
the sample of current residents includes more people who stay for
extended periods.
---------------------------------------------------------------------------
Medicare, the nation's health insurance program for the elderly,
covers care provided in skilled nursing facilities (SNFs) and at home,
but its benefits are designed primarily to help beneficiaries recover
from acute episodes of illness rather than to provide care for long-
term impairment.6 Medicare covers up to 100 days per spell
of illness for SNF care, and the stay must be preceded by a
hospitalization lasting at least three days. In contrast, Medicare's
home health benefit, while originally conceived to finance short-term
rehabilitation, has evolved into what some observers have described as
a de facto LTC benefit. To be eligible for reimbursement under the home
health benefit, the beneficiary must be homebound and require
intermittent care provided by a licensed professional, such as a
registered nurse or physical therapist. If those conditions are met,
Medicare will cover services provided by a home health aide, in
addition to skilled care; aide services are the assistive services that
typify long-term care.
---------------------------------------------------------------------------
\6\ Medicaid's nursing facility benefit (institutional care), in
addition to covering skilled care provided in a SNF, also covers
nonskilled care that may be provided in a SNF or nursing home.
Medicare's SNF benefit, however, covers only skilled care provided in
skilled nursing facilities.
---------------------------------------------------------------------------
By CBO's estimate, Medicare's LTC spending for seniors in 2004
totaled about $16 billion for care in skilled nursing facilities and
$18 billion for home health care (see Figure 5). Although the program's
outlays for those categories grew rapidly from the late 1980s to the
mid-1990s, expenditures actually declined near the end of the past
decade. A combination of factors was responsible, including changes to
reimbursement methods imposed by the Balanced Budget Act of 1997,
increased federal activities to counter providers' fraud and abuse of
the program's payment systems, and delays in processing claims. CBO
projects steady growth in spending for SNF and home health care over
the 2006-2015 period, averaging approximately 5 percent annually.
ISSUES IN CONTROLLING FEDERAL LONG-TERM CARE SPENDING
CBO has projected that total LTC expenditures for seniors
(including the value of donated care) will rise from about $195 billion
in 2000 (2.0 percent of gross domestic product, or GDP) to $540 billion
(in 2000 dollars) by 2040, or 2.3 percent of GDP.7 That
estimate of a relatively modest increase in use of long-term care
services incorporated the assumption that the prevalence of impairment
would decline at a rate of about 1.1 percent per year. If impairment
levels instead remain about the same as they are today, use of services
will rise faster, to $760 billion by 2040, or about 3.3 percent of GDP.
Demand for care could be even higher if, as some researchers believe,
the prevalence of impairment actually increases in the future.
---------------------------------------------------------------------------
\7\ Congressional Budget Office, Projections of Expenditures for
Long-Term Care Services for the Elderly (March 1999).
---------------------------------------------------------------------------
The current mix of financing for long-term care, in which a
significant share of financing comes from government programs, adds to
the pressures that the federal budget will experience with the aging of
the baby-boom generation. Contributing to the strains that government
LTC programs will face are incentives created by those programs that
diminish the attractiveness of using private resources--especially
private insurance--as a means for seniors to finance their care.
Changes in those incentives might encourage more people to make their
own preparations for financing their care rather than rely on
governmental assistance.
Direct Approaches to Limiting Federal Spending for Long-Term Care
One approach to relieving the pressures on federal finances would
be to directly reduce the role of Medicaid and Medicare, the programs
responsible for the bulk of government-financed care. The most commonly
discussed options are tightening the financial qualifications for
people applying for Medicaid coverage and reducing Medicare's coverage
of home health care.
Medicaid's spending for long-term care could be constrained by
making it more difficult for middle-income people to qualify for
coverage by spending down their resources. The intent of Medicaid's
current rules is to restrict applicants to those who are destitute. Yet
despite that intention, many applicants manage to protect a significant
portion of their personal wealth and still qualify for Medicaid
coverage by taking advantage of certain rules regarding the disposition
of assets, a practice known as Medicaid estate planning. Strengthening
the rules to reduce the use of such strategies would delay the point at
which some people became eligible for benefits and would prevent others
from qualifying. It could also discourage some people from going
through the application process. However, it is unlikely that imposing
those additional restrictions would have more than a modest impact on
Medicaid's expenditures.8
---------------------------------------------------------------------------
\8\ Congressional Budget Office, An Analysis of the President's
Budgetary Proposals for Fiscal Year 2006 (March 2005). CBO estimated
that the President's proposal to change the penalty period for illegal
asset transfers would save $3 billion over 10 years.
---------------------------------------------------------------------------
Medicare's home health care benefit is relatively generous. Once a
person meets the physical qualifications for coverage, there are no
copayments or other coinsurance requirements. A modest cost-sharing
requirement for beneficiaries could decrease the program's LTC
expenditures because beneficiaries would probably reduce the amount of
care they used in response to that kind of financial incentive.
Challenges in Encouraging Private Financing of Long-Term Care
Future federal spending on long-term care could be lessened by
encouraging people to rely more on private resources for their LTC
needs. Out-of-pocket spending and donated care already account for a
very substantial share of LTC services, but private long-term care
insurance currently finances very little such care. CBO estimates that
the proportion of LTC spending that private insurance pays will rise to
about 17 percent in 2020; that share would be less than the shares of
either Medicaid or Medicare. Several factors underlie the limited rise
that CBO projects for the use of private insurance. Some factors affect
the availability and quality of insurance: they include issues related
to administrative costs, the instability of premiums, adverse
selection, and the inability to insure against certain risks unique to
long-term care. A final factor--the interaction of private insurance
and Medicaid--is critical in the way it affects demand for private
insurance.
Administrative Costs. Administrative costs contribute a substantial
amount to LTC insurance premiums because most policies are sold
individually rather than as group (employer-sponsored)
policies.9 The costs of marketing to and enrolling
individuals are about double those for groups, for which fixed
administrative costs may be spread over more people.
---------------------------------------------------------------------------
\9\ America's Health Insurance Plans, Research Findings: Long-Term
Care Insurance in 2002 (Washington, D.C.: AHIP, June 2004), p. 11.
---------------------------------------------------------------------------
On average, administrative costs as a percentage of premiums are
likely to fall in the future as group policies make up a larger share
of the private LTC insurance market. In 2002, group policies
constituted nearly one-third of new LTC policy sales.10 (By
comparison, nearly 90 percent of people with private health care
insurance hold group coverage.11) But group policies are
accounting for an increasing share of the LTC insurance market, a trend
that is likely to continue if more employers offer LTC coverage as an
employee benefit. If employers offer such a benefit, any part of the
premiums for their employees' LTC coverage that they pay for, like
their contributions for regular health insurance, is not included in
employees' taxable income.
---------------------------------------------------------------------------
\10\ America's Health Insurance Plans, Long-Term Care Insurance in
2002.
\11\ Carmen DeNavas-Walt, Bernadette D. Proctor, and Robert J.
Mills, Income, Poverty, and Health Insurance Coverage in the United
States: 2003, Current Population Reports, Series P60-226 (Bureau of the
Census, August 2004).
---------------------------------------------------------------------------
Instability of Premiums. Although LTC insurers typically offer
premiums that do not automatically increase as the policyholder grows
older or experiences deteriorating health, state insurance regulators
allow insurers to increase premiums for all holders of a given type of
policy in a state (known as a rating class) if they find that they have
miscalculated the expected cost of their claims. Some insurers have
boosted premiums several times for that reason, leading many
policyholders to cancel their coverage and in all likelihood deterring
some potential purchasers from acquiring LTC coverage.12
However, premiums may be stabilizing: a survey of top-selling LTC
insurance carriers by the Health Insurance Association of America
observed fairly steady premium levels from 1997 to 2001 after a
sustained decline in average premiums from 1990 to 1996.13
---------------------------------------------------------------------------
\12\ Ann Davis, ``Shaky Policy: Unexpected Rate Rises Jolt Elders
Insured for Long-Term Care,'' Wall Street Journal, June 22, 2000, p.
A1.
\13\ Susan A. Coronel, Long-Term Care Insurance in 2000-2001
(Washington, D.C.: Health Insurance Association of America, January
2003).
---------------------------------------------------------------------------
Policyholders can obtain some protection against large jumps in
premiums by purchasing nonforfeiture benefits with their policy. That
feature enables policyholders who cancel their coverage to recoup from
the insurer at least some of the premiums they have paid. Nevertheless,
although policyholders might get a proportion of their premiums back,
they do not receive the associated returns on the investment of that
money.
Adverse Selection. The relative newness of the market for LTC
insurance and the still fairly small number of policies being sold
suggest that the market may be affected by adverse selection. People
who purchase LTC insurance have greater expectations than nonpurchasers
of using services in the future, and those greater expectations are not
captured in the information that insurers collect as they enroll
purchasers of their policies. If insurers believed that adverse
selection was occurring, it might lead them to set premiums higher than
a policyholder's health status would suggest so as to incorporate the
greater likelihood that that policyholder would use the insurance. In
turn, the higher premiums might deter people who would purchase
coverage if the premiums reflected their relatively lower expectations
of using LTC services.
One recent study suggests, however, that although adverse selection
does exist in the LTC insurance market, it may not be producing higher
overall claims costs.14 According to that study, the higher
costs of policyholders with greater-than-average expectations of using
services in the future are offset by the lower costs of policyholders
who are averse to risk and whose probability of using services in the
future is actually lower than the average for the population at large.
Because of the market's youth, there are no clear data to resolve the
question of adverse selection.
---------------------------------------------------------------------------
\14\ Amy Finkelstein and Kathleen McGarry, Private Information and
its Effect on Market Equilibrium, Working Paper No. 9957 (Cambridge,
Mass.: National Bureau of Economic Research, September 2003).
---------------------------------------------------------------------------
The Inability to Insure Against Certain Risks. Private LTC
insurance may be unattractive to some consumers because it does not, in
general, insure against the risk of significant price increases for
long-term care. Most policies promise to provide contractually
specified cash benefits in the event that a policyholder becomes
impaired. To protect themselves against LTC price inflation, consumers
can purchase a rider to their policy under which the policy's benefits
grow at a specified rate each year (usually 5 percent); however, such
riders offer no protection against additional costs if prices rise at a
faster pace. Concerns about price increases of that kind are not
unjustified: Medicaid's average reimbursement rates for nursing
facilities grew at an average annual rate of 6.7 percent from 1979 to
2001.15 Over a 20-year period, a nursing facility benefit of
$100 per day in today's dollars would grow to $265 per day with an
annual inflation protection rider of 5 percent. But the benefit would
need to grow to $366 per day to keep up with a 6.7 percent annual
growth rate, should costs continue to grow that fast in the future.
---------------------------------------------------------------------------
\15\ Congressional Budget Office, Financing Long-Term Care for the
Elderly (April 2004), p. 19.
---------------------------------------------------------------------------
An additional risk is that a policy could become obsolete at some
point in the future. LTC services, and the private insurance policies
that cover such care, are steadily evolving as the LTC insurance market
matures. That fluidity may give some consumers pause, and indeed, one
prominent rating agency recommended in 2000 that people purchase LTC
coverage no earlier than age 60 to avoid the problem of obsolescent
coverage.16 Some consumers might also be reluctant to
purchase LTC insurance if they believed that changes in public policy
at some point could render their coverage obsolete.
---------------------------------------------------------------------------
\16\ See Weiss Ratings, Inc., Long-Term Care Policies Vary
Drastically in Cost to Consumers (Palm Beach Gardens, Fla.: Weiss
Ratings, Inc., April 5, 2000). Weiss Ratings evaluates the financial
condition of insurers (including companies that sell life, health,
property and casualty, and LTC insurance) as well as banks and savings
and loan institutions.
---------------------------------------------------------------------------
The Availability of Medicaid. The availability of Medicaid poses a
substantial disincentive for people considering the purchase of private
long-term care insurance. Although Medicaid in general serves people
with very low income and assets, it also provides assistance to people
with impairments who exhaust all of their private sources of financing
for their long-term care. Even people who have set aside significant
savings may eventually become eligible for Medicaid assistance. In that
way, Medicaid serves as an alternative form of insurance for people who
do not have private coverage and who are impaired for a significant
period. Indeed, Medicaid's impoverishment requirement may discourage
people from saving because the less they have, the more quickly they
will qualify for coverage. It also creates an incentive for people to
give away or hide their assets so that they can qualify for Medicaid.
There are substantial drawbacks to Medicaid coverage for long-term
care. As a means-tested program, Medicaid requires eligible applicants
to rely on out-of-pocket spending until they use up all of their
savings. In addition, because Medicaid generally pays lower fees for
services than those paid by private payers, beneficiaries may not
receive the same quality of care that private policyholders receive. In
some states, moreover, Medicaid might not be as flexible in the types
of services it covers as private insurance would be; a person who has
private coverage would probably have a broader choice of providers and
types of care than a Medicaid beneficiary would have.
Those drawbacks to Medicaid's coverage are balanced by features
that some people might consider advantageous. Medicaid is free from the
perspective of the beneficiary. In addition, Medicaid has a defined-
benefit structure--that is, it covers a specified set of services.
Private insurance, by contrast, only ensures that a policyholder will
have a specified monetary benefit to pay for care. It does not
guarantee that the money will be sufficient to pay for desired
services.
Although Medicaid's coverage differs in some respects from that of
private insurance, it may nevertheless reduce the demand for private
policies. Indeed, one recent study found that the availability of
Medicaid constitutes a substantial deterrent to the purchase of private
insurance, even for people at relatively high income
levels.17 Medicaid's rules for financial eligibility affect
people's decisions to purchase private LTC insurance as well as how
much insurance they buy because the rules offer a low-cost alternative
(by allowing people to qualify for the program's benefits) to making
personal financial preparations for possible future impairment. People
who buy private insurance or accumulate savings substantially reduce
the probability that they will ever qualify for Medicaid's benefits,
thereby forgoing the value of the government-provided benefits that
they might otherwise have obtained. Thus, the availability of Medicaid
raises the perceived cost of purchasing private insurance or of saving.
That increase is small for relatively wealthy people who have little
likelihood of ever qualifying for Medicaid coverage, but it can be
substantial for others.
---------------------------------------------------------------------------
\17\ Brown and Finkelstein, The Interaction of Public and Private
Insurance.
---------------------------------------------------------------------------
CONCLUSION
Currently, elderly people finance LTC services from various
sources, including both private resources and government programs.
Incentives inherent in the current financing structure have led to
increased reliance on and spending by government programs and may have
discouraged people from relying on private resources (savings, private
LTC insurance, and donated care) to prepare for potential future
impairment. The demographic changes projected for the coming decades
will bring increased demand for long-term care and heightened budgetary
strains.
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Mr. Deal. I thank you, gentlemen. The Chair will recognize
himself to begin the questioning.
We, of course, hear a lot of political rhetoric in the
environment of the President's proposed budget and the
Congressional Budget Resolution with regard to so-called cuts
in Medicaid. Dr. McClellan, would you address that issue? Is it
really cuts, or is it simply reducing the rate of growth?
Mr. McClellan. First of all, it is simply reducing the rate
of growth. The projected rate of growth in Federal Medicaid
spending over the next 10 years is about 7.4 percent per year,
and the administration's proposals for savings would take that
all the way down to 7.2 percent per year. So it is really only
a very small part of overall Medicaid spending, and what the
proposals are about is getting more for the dollars that we do
spend.
For example, our proposal for reducing the overpayments in
our regulated prices for prescription drugs in Medicaid saves
money for the States, and enables States that are facing a
fixed and tight budget to put more dollars into things that
really do make a difference in people's lives. Instead of
overpayments for the drugs, there would be more care in
Medicaid, more support for education programs, making the
dollars go further.
Mr. Deal. One of the things that I have heard repeatedly as
I have talked with various Governors around the country is that
they are almost unanimous in their urging us to do something by
way of reform. Governor of Virginia, Governor Warner, puts it
in terms of we are experiencing a meltdown. In talking with
Governor Haley Barbour of Mississippi a couple of weeks ago, he
says that he appreciates the largesse of the Federal
Government. I think his State maybe has the highest rate of
participation in terms of Federal dollars versus State dollars,
but he said even with that, he can't afford the program, and
that he is bankrupt, in terms of Medicaid expenditures, and is
going to have to cut somewhere I think in the neighborhood of
$500 million a year.
So it would seem to me that this is a problem that is
fairly common at the State level, in terms of what they are
experiencing. Is this, Dr. McClellan, is this the kind of
response you are having as well?
Mr. McClellan. Yes, it is, Mr. Chairman. My experience, in
talking with Governors, is that the States just don't have any
more money to spend on this program, and when they say it is
unsustainable, and they uniformly do, what they mean is not
that Medicaid reforms won't take place. They are taking place
in the States now. But if we don't give them better tools to
use to get more for the money in Medicaid, the kinds of reforms
you are going to see are reductions in benefits and cuts in
payment rates to providers. So even if you have a benefit on
the book, people don't actually have access to quality care,
and cutbacks in so-called optional programs, like the home and
community-based waivers that I think are such an important part
of making Medicaid work better for the future, are likely to be
made.
So we need to move away from that system. That system is
not sustainable, and the question is whether we are going to
implement reforms that help the States get more for their
money, and serve people with quality care better, or whether,
the track we are on now, of reducing benefits, or cutting
services, or cutting access to care, is going to continue.
Mr. Deal. Well, we have heard comments in the opening
statements from members such as Mr. Shadegg, who outlined what
has gone on with Arizona. Apparently, they have had a long-term
waiver that has been in place for a very long time. I know
that, and Mr. Bilirakis alluded to a request that Governor Bush
from Florida is making for a rather substantial waiver.
Do you have any idea how many waivers have actually been
requested over the last several years, and how many are in
place?
Mr. McClellan. I don't have a specific number, Mr.
Chairman. We will get that for you. But there have been waivers
from virtually every State. Again, the statutory Medicaid
benefits were designed in the 1960's, and that is just not the
way that either acute health care or long-term care ought to be
delivered today. And the States know that, and that is why they
come in with these proposals that try to get more for the
dollars that they are spending than what the Medicaid statute
tells them they need to do, and that is true for the home and
community-based waiver in Arizona. Florida has taken similar
steps to try to give more control to people with a disability,
and the parents of kids with a disability concerning how they
get their long-term services. But this is not the way the
program is designed, and we need to take steps to make it more
automatic when we have clear evidence that there are better
ways to spend the money. That ought to be where Medicaid
starts. You shouldn't have to go through a lot of hoops to get
there.
Mr. Deal. And would you agree that if we are at a point in
time where we can look at the program as a whole, we ought to
go ahead and make those changes that give that flexibility. For
example, one of the complaints I have heard is, from Governors,
is that if you cross the threshold of financial eligibility,
you then are entitled to the full range of Medicaid services.
They would like the opportunity to tailor those services in a
better fashion, but absent a waiver or some consent from the
Federal Government, they are not able to do that.
Would you agree, then, that rather than continuing this
rather hopscotch quilt type approach of waivers, that we really
ought to look at the program as a whole, and make the kind of
changes that would not only encompass the changes that the
Governors want, to give them the opportunity to serve their
citizens, but would perhaps also make this program more
workable at the Federal level. Would you agree that is what we
ought to do?
Mr. McClellan. We absolutely need to be looking at those
steps right now. When it comes to benefit packages for some of
these so-called optional populations, we have a lot of
experience from the SCHIP program, where there is more ability
for States to get people in the mainstream coverage, and modify
the packages, and they work. The States have expanded coverage
in SCHIP, and again, getting back to the long-term care focus
of this hearing, consider the home- and community-based
services waivers or Money Follows the Person initiative, or our
Independence Plus initiatives; the evidence is very clear that
we can get better results, meaning higher beneficiary
satisfaction, more people in the community, more people served,
better results for the dollars that we spend. That needs to be
put more centrally into the Medicaid program.
Mr. Deal. Thank you. The Chair recognizes Mr. Brown.
Mr. Brown. I thank you, Mr. Chairman. Dr. McClellan, give
me a yes or no answer to this, because I have a couple other
questions I want--you talked about the overpayment for drugs
and the Medicaid, as you were talking about Medicaid costs. Do
you go along with outgoing Secretary of HHS Thompson on his
recommendation to repeal the prohibition in Medicare, for a
moment, the prohibition on Medicare of negotiating drug prices?
Mr. McClellan. No, when Secretary Thompson was involved in
all of those discussions, and people looked at what the
independent CMS actuaries, and what the CBO analysts had to
say, we went for the approach that was going to get the best
costs for up to date access to medications, and that is what we
are implementing right now.
The recent letter from my actuary, which we can get you a
copy of, reiterated that that kind of negotiating authority
would not do anything to get significant savings beyond what we
are already getting in lowering drug costs----
Mr. Brown. Except for what has happened in Canada, what has
happened with Cipro, what--I don't want to debate that.
I hear you talk about--that--this Medicaid is not a cut. It
is only--it is not a decrease, it is only a cut in the rate of
growth. And I have heard that from people who want to cut
Medicaid and other government programs that have worked for
Americans for the last 10 years. Discounting, of course, that
is serving a growing population, and discounting that Medicaid
increase per capita is smaller than Medicare, it is smaller
than private insurance. In fact, the Medicaid per capita
increase is only about half of private insurance increase. But
I just wanted to set the record straight there.
Dr. Holtz-Eakin, I would like to ask--you had said in your
written testimony Medicaid is free from the perspective of the
beneficiary. I want to make sure I understand what you mean by
that. Under Federal Medicaid statute and regulations, a
beneficiary who resides in a nursing home or other institution
is required to apply most of her income toward the cost of
care. The purpose of this requirement is to reduce the cost of
the individual's care to Federal and State governments,
obviously.
Take an elderly woman who lives in a nursing home, combined
income from her Social Security, and say, her husband has a
defined pension benefit of $1,500 a month. All of--under
current rules, all of the $1,500 but a sort of a set aside
personal needs allowance must be applied to the cost of her
nursing home care. The personal needs allowance is for
expenses, as we know, not covered by Medicaid, such as laundry,
hair care. It must, at a minimum, be $30 a month. States have
the flexibility to make it higher. So if a Medicaid
beneficiary, say, lives in a nursing home, with her $1,500
Social Security and pension payment monthly, with a personal
needs allowance of $50, she is paying $1,450 toward her care in
that nursing home. If she had a spouse living in the community,
an additional amount would be protected for the spouse, so that
he won't be impoverished. The amount protected depends, in
part, on the amount of income the community--the spouse in the
community has otherwise.
My question is, after looking at all of that, given the
requirement that much of a Medicaid beneficiary's income, in
this case, of this lady, $1,450 a month, be applied to the cost
of the care, cost of care, why would a, you know, a fair-minded
government official say that--I understand people saying that
for political reasons, that Medicaid is a giveaway, it is
welfare, it is a bunch of people that are poor, whatever. But I
don't understand why a government official with the stature and
reputation of you would say that Medicaid is free from the
perspective of the beneficiary.
Mr. Holtz-Eakin. The point of the observation in the paper
was simply to, in thinking about alternative insurance policies
in the public sector and the private sector, make the point
that there was no explicit linkage between a premium payment at
the front end, and then, insurance benefit coming out at the
back end. Those aren't explicitly linked to Medicaid. The
eligibility rules clearly are what they are, and you are very
conversant with them, but really, it was about premiums versus
payouts in an insurance----
Mr. Brown. I appreciate that answer. I--that sounds like
economist talk, but not--but it also lends itself, it lends
itself to demagoguery on the part of people that just
ideologically don't much like Medicaid, that this is a free
program, when in fact, it is not free to beneficiaries.
Give us, if you would, following up on that, can you
estimate the amount of out of pocket resources individuals on
Medicaid contribute to the cost of their care? Do you have some
numbers you could give us on that?
Mr. Holtz-Eakin. We have some rough guesses, on out-of-
pocket spending in general for those on Medicaid only. Out-of-
pocket as a fraction of total services is about 21 percent, and
if you include the value of donated care as out-of-pocket, it
is about 57 percent. So it depends on which metric you use,
just those in the market, or those that include the donated
care.
Mr. Brown. That being said, can we count on you to never
again say that Medicaid is free to beneficiaries?
Mr. Holtz-Eakin. I don't think I am that reliable, but I
take your point and will be careful about how we describe it.
Mr. Brown. So you can't quite make that promise, though.
Mr. Holtz-Eakin. The number of times I have guaranteed
something for the rest of life and been able to----
Mr. Brown. Well, I mean, you probably----
Mr. Holtz-Eakin. I take your point, I am just----
Mr. Brown. Okay, well, I understand. I mean, you seem like
a person that tells the truth, so understanding the truth is
that is Medicaid is not free to the beneficiary, you get the
point. Okay. Thank you, Mr. Chairman.
Mr. Deal. The Chair recognizes Mr. Barton.
Chairman Barton. Well, thank you. And I would love to pass
a no demagoguery clause for debate, members of this committee.
If I could get unanimous consent on the minority side, I think
I can make that stick on the majority side. But somehow, we
would have to set the fine high enough, the penalty high
enough, so that we could actually enforce it. So it is a
serious debate, and obviously, this is a big, big issue. It is
an intergenerational issue.
My first question to you, Dr. McClellan. Given what has
happened in the Senate, with Senator Smith's amendment on the
Commission, and what happened on the House floor last night
with the Motion to Instruct, what is your position or the
President's position about continuing to go forward to really
try to find some Medicaid reforms this year. If you were me and
chairman of this committee that has got jurisdiction, would you
recommend that we continue to seek for solutions, or would you
recommend that I say to heck with it, and let us look at
telecom?
Mr. McClellan. Mr. Chairman, we really hope you will keep
after it, with all due respect to telecom.
We stand by our budget proposals. As I have said before,
there are ways to spend the dollars a lot better in Medicaid.
Some of that can lead to savings for us and for the States, and
some of it can lead to better quality care for more
beneficiaries who really need help from Medicaid today. This is
an urgent problem. We have a tremendous amount of evidence
about good ways to go forward that achieve this goal of making
Medicaid more up to date and more sustainable, and helping it
serve more people who really need it more effectively, and I
sure hope you will keep at it.
Chairman Barton. Well, I am committed to the process, and I
know Chairman Deal is. Ultimately, we have to make sure that we
have the votes, and that what we want to do makes sense, from
the perspective of the population we are trying to help, which
is our Medicaid-eligible population.
On a policy question, if we do reform this year, should
harmonization between Medicare and Medicaid be a part of that?
Because some of these services can be covered either way. You
know, Medicare has its own set of issues, separately, but if we
are going to start this process, should we look at the best way
to provide the benefit, whether it should be a Medicaid benefit
or a Medicare benefit?
Mr. McClellan. I think that can be part of the whole
discussion, and I can tell you that there is a lot of interest
in doing that from the States. I just got back from a meeting
that we held that was sponsored by the National Governors
Association yesterday, and is going on today in Chicago, where
we talked about how we can implement the new Medicare law
effectively. And while a lot of the attention has appropriately
been focused on the drug benefit, one of the things that people
haven't paid as much attention to, but should, is the fact that
the law is really about providing more coordinated care, more
continuity of care, and more prevention of complications for
Medicare beneficiaries. And there are few Medicare
beneficiaries who have more to gain from the new benefit than
our dual eligibles, who are often getting very fragmented care.
Currently, part of it is dealt with in one part of a State
agency, another part is dealt with somewhere else. Some of it
is dealt with in Medicare, and it is not put together very
well. We are trying really hard to make available health plans
and other support that do a better job of coordinating care. I
mean, working with the States, bringing up the topics in this
committee can be a big help in that process.
Chairman Barton. I want to ask our Director of the CBO, as
we do this, is your agency committed, and I am serious about
this, I am not interested in going through this process, and
getting CBO scores that bear no reality to what the project is
that we are looking at--can you convince or commit to this
committee, and I don't know how to define fair, but you and I
have had discussions on other programs, where we are
diametrically opposed to what the score was, can we set the
ground rules so that if we are looking at a particular program,
what it costs, and what it is projected to cost, that we can at
least agree to how to do the scoring?
Mr. Holtz-Eakin. We can set the ground rules in the way
that I hope that they have always been set, which is we will
examine the legislative proposals in their completeness. We
will look at all the impacts that they may have on the economy,
and thus feed back to the budget, and show the impact for
spending, or revenues, in the case of the Joint Committee, and
in places where you have better information than we have, we
welcome it. In places where you have questions about it, or
disagree with the analysis, and have insights that you want to
share, I welcome that as well.
Chairman Barton. Is it possible to have a system where your
staff and the committee staff, on a bipartisan basis, meet to
say here is the program, here is what we are looking at, at
least to agree, without committing to how you are--what the
specific score is going to be. I am not interested in that. I
just want a protocol that we both agree that that does cost, or
that would save, so that we, you know, we do--we have done
things in the Energy Bill where we were trying to limit
spending, and they were scored by CBO as increasing spending.
And I am not interested in that kind of a process. I want an
interactive dialog with the staffs, and in some cases, maybe
principals, members, again, on a bipartisan basis, so that we
at least understand what the system is, without being--not
trying to commit you to a specific dollar score, just how do we
do it, the formula, so to speak?
Mr. Holtz-Eakin. I can commit to what I believe is business
as usual, and that would involve all of the elements you
mentioned, although I can't guarantee agreement on all the
details at the end. I am happy to meet with you, the staff is
happy to meet on a bipartisan basis, with staff of the
committee on a regular basis. We stand ready to explain and
accept the information. I believe that is business as usual.
Chairman Barton. Yes, I have got one more question to Dr.
McClellan. Home care, home-based care or community-based care,
lots of problems, lots of restrictions. That should be a part
of any reform package that we make it possible for
individuals--in your testimony, you are very strong on that,
that they give them the choice to--they are not prevented from
home-based care or community-based care, and set up the ground
rules on how to pay for that.
Mr. McClellan. That is right. We are past the stage where
we should be gathering evidence and talking about these kinds
of reforms. If you look in my testimony, look at the testimony
of some of the other witnesses here today, and go to
www.hcbs.org, where we have worked with other groups to compile
a lot of this evidence, what you see is that these programs
that increase personal control, that give people support to get
care how they prefer it, that address issues like one time
transition costs, you will see that they save money. They are
based on the fact that the most cost-effective place to provide
care for many people on Medicaid is where they would prefer to
receive it. There is no place like home.
Chairman Barton. Thank you. Thank you, Mr. Chairman.
Mr. Deal. I thank the chairman. Ms. Capps is recognized for
questions.
Ms. Capps. Thank you, Mr. Chairman. Mr. Holtz-Eakin came
before the Budget Committee earlier this year, that I sit on,
and I want to go down a series of questions for you about what
the effect of the proposal in placing additional restrictions
to asset transfers will mean for eligibility for nursing home
care.
In March, CBO re-estimated the President's fiscal year 2006
budget, and you estimated that the President's proposal to
tighten the current penalty for asset transfers would reduce
Federal Medicaid spending by $1.4 billion over the next 5
years. And since Federal Medicaid long-term care spending is 56
percent of all Medicaid long-term care spending, the Federal
part, this implies a total Federal and State savings of over $2
billion, $2.5, $2.6 billion. These savings represent amounts
that the Federal and State governments will not be spending on
nursing home care while the penalty, delay in Medicaid
coverage, is being applied.
During the penalty period, the nursing home will presumably
continue to care for the beneficiary. That is--this is the
piece that I am trying to get at, in terms of the budgets of
the nursing homes. Any payment for this care, then, will have
to come from either the beneficiary, or the beneficiary's
family, it would seem to me. And my question, first question
is, what is your estimate, assume, about how many beneficiaries
will be affected by this tightened penalty? Is there a way to
sort of look at how this cost will be translated into community
care?
Mr. Holtz-Eakin. I don't have the exact number of
beneficiaries, but the estimate was built off information that
came, actually, from some of the waiver programs, in
particular, Connecticut----
Ms. Capps. Right.
Mr. Holtz-Eakin. [continuing] which reported that on the
order of 30 percent of their beneficiaries had undertaken some
sort of asset transfer, and that struck us as a bit high, since
Connecticut is not your average State, a little bit higher
income, so we estimated it was something on the order of 20
percent of beneficiaries would be in the mix for those affected
by the change in the penalty period.
Ms. Capps. Okay. About how much, on average, does your
estimate assume that would be transferred?
Mr. Holtz-Eakin. About 1 to 2 months worth of nursing home
care. The two key pieces in the estimate are 20 percent of the
people involved, and the impact is 1 to 2 months of additional
care that would be picked up by the beneficiary or their
family, in this case, and not on the Medicaid rolls.
Ms. Capps. Well, so then, how long--you have kind of said
it, but I want to hear it clearly, how long, on average, would
this estimate assume that these individuals would be denied
Medicaid coverage due to their transfer?
Mr. Holtz-Eakin. This would change their time on Medicaid
by 1 to 2 months, about 1\1/2\.
Ms. Capps. Okay. I guess I am concerned about that 1 or 2
months. And you--the beneficiaries are those--the actual
beneficiary would be the one responsible for the $2.6 billion
in the big picture, but in their own case, those 1 to 2 months
worth of care. Is that----
Mr. Holtz-Eakin. It is either the beneficiary and the
family, and the----
Ms. Capps. Well, some--not all beneficiaries have family. I
mean, we can assume, but actually, the burden then is on them.
Mr. Holtz-Eakin. The burden would be on the beneficiary,
but remember, the notion is that these are assets that they
have in hand at the time, and that by changing the penalty
period, we simply are estimating they would draw down their
assets, instead of being on the Medicaid program.
Ms. Capps. And if they can't pay, then the burden would go
to the nursing home, or they would be turned out, or I mean,
because it is a temporary--how do you see this playing out?
Mr. Holtz-Eakin. Can I get--if I could get slide numbers--
--
Ms. Capps. And then, while you are doing that, I want to
ask you about how much would this cost? What is 1 or 2 months
worth of care per individual, average, or for Connecticut, or--
--
Mr. Holtz-Eakin. A ballpark average for private-pay nursing
home care is about $60,000 to $70,000 annually. If Medicaid for
the nursing home carethe Federal cost would be about $35,000 on
average per year.
Ms. Capps. For 1 to 2 months of care?
Mr. Holtz-Eakin. Per year, and then--so you would be
looking at $5,000 to $6,000 for private-pay, or $3,000 for the
Federal share of Medicaid costs.
Ms. Capps. Okay.
Mr. Holtz-Eakin. [continuing] for 1 month.
Ms. Capps. Okay.
Mr. Holtz-Eakin. If we look at slide 9, I don't know if
that is possible.
Ms. Capps. I am not in the best place.
Mr. Holtz-Eakin. And I won't take--if I----
Ms. Capps. Just tell me what it says.
Mr. Holtz-Eakin. Well, it shows you diagrammatically the
strategy typically used in sheltering the assets.
Ms. Capps. Okay.
Mr. Holtz-Eakin. And the point is that there are assets
there.
Ms. Capps. But if they have transferred the assets, do they
have them?
Mr. Holtz-Eakin. By changing the penalty period, you change
the incentives to transfer the assets, and they presumably
would not have done so. At the moment, if they have got the
assets, in a strategy known as half-a-loaf, they can give away
half, voluntarily incur the penalty, and so with certainty,
they have got the assets, and they are just incurring the
penalty, and then going on to Medicaid more quickly than they
would if you changed the penalty period.
Ms. Capps. So if they are not transferring a lot of money,
what are their assets?
Mr. Holtz-Eakin. We don't have a particular estimate of the
total assets involved, but we--if that is something you would
like to go to, we would be happy to work with you. This is an
area in which--firm estimates of asset transfers for Medicaid
purpose are very difficult to pin down. I mean, we have seen
estimates for total transfers from this group that are as high
as $40 billion. What a fraction of that might be induced by
Medicaid incentives is hard to say. We have seen an estimate of
$2 billion for the transfers from Medicaid incentives alone. It
is an area of great imprecision, and one that is worth more
study.
Ms. Capps. So you are saying it is worth more study. I
mean, if we go from this hearing to legislation, there is a lot
more information that we need as to the way this is going to
affect individual lives.
Mr. Holtz-Eakin. Well, we would certainly be happy to
document the information we have, and to the extent that more
information is available, we would be eager to see it.
Mr. Deal. The gentlelady's time has----
Ms. Capps. Thank you.
Mr. Deal. [continuing] expired. Dr. Norwood is recognized
for questions.
Mr. Norwood. Thank you, Mr. Chairman. Dr. McClellan, it
really is good to see you again, and we are glad you are here.
I want to mention this to you for fear I might forget it.
I sent you a letter last week on dental health aid
therapists, whatever that is. But I really--it is very
interesting to me, and very important to me, and I really would
appreciate you instructing staff to get me an answer to that as
soon as you can.
Mr. McClellan. You will get it promptly. Thank you.
Mr. Norwood. Thank you, sir. My questions are sort of
basic. I am trying to understand how in the world would you
reform Medicaid. Some people think the answer is oh, gosh,
don't spend less money. That isn't a reform, necessarily, but
see if you can answer some basic questions.
How many patients in the country are on Medicaid that are
receiving benefits for long-term care? Do we know that for
2004?
Mr. McClellan. We do. I am not sure I have the total number
right now. There are about, at any given time, there are about
1.6 million beneficiaries in nursing homes.
[The following was received for the record:]
We do not have the 2004 data available. The most recent numbers we
have right now are for 2002. In 2002, there were about 1.6 million
beneficiaries who received care in institutional settings, and about
3.8 million individuals receiving home- and community-based long-term
care services.
Mr. Norwood. All right. Nursing homes, but it is different
for those accumulated in long-term care.
Mr. McClellan. That is right, but most people in nursing
homes are on Medicaid. With the increase in the number of home-
and community-based waivers, we have now, we estimate, over a
million people getting services through one or another kind of
these waivers that I have been talking about, at a much lower
cost per person, I might add. And so, there are several million
people altogether.
Mr. Norwood. Let us talk about the 1.6, and we will figure
out what the larger number is. Do we know how much we are
spending on the 1.6 million people on nursing home care? Do we
have an annual figure per person?
Mr. McClellan. For the 1.6 million, remember, that is the
total, and about three quarters of the individuals are getting
financing from Medicaid. In institutions, Medicaid spends, on
average, over $30,000 a year, probably around $33,000 a year,
for institutional care, per person.
Mr. Norwood. So it is about 33. Do we know, if we look at
all the money the Federal Government spends, pretty good, huh?
Mr. McClellan. Yes.
Mr. Norwood. Of all the money the Federal Government spends
in 2004 on Medicaid, what percent of that money is for long-
term care? Or--well, I want to say long-term care, rather than
just nursing home.
Mr. McClellan. It is about a third that goes to----
Mr. Norwood. Thirty, I have heard 30 to 40 percent.
Mr. McClellan. Yes. That is right. That is right.
Mr. Norwood. That is a large amount, isn't it?
Mr. McClellan. It is, and it is an amount that is growing.
Mr. Norwood. Off the subject a wee bit, but this is about
reform. This is about dollars in Medicaid. Do you know how much
money we spend in Medicaid on illegal aliens a year?
Mr. McClellan. I don't think we have a specific estimate of
that. It is not as large as the spending on long-term care.
There are----
Mr. Norwood. I should hope. That is a third.
Mr. McClellan. Right. There are a lot of steps in place
that we try to take to make sure that the Medicaid spending is
going to people who are legally intended to be covered under
the program. If there is a question----
Mr. Norwood. Of course, those people are accepted at the
State level, so it is sort of out of your hands to some degree,
as to whether they are illegally in the country or not.
Mr. McClellan. But we do work with the States to make sure
that they are spending the money appropriately. So, it is the
States that are on the frontline for making eligibility
determinations, but we do monitor State practices.
Mr. Norwood. You do that real well?
Mr. McClellan. Well, we are always trying to do it better.
Mr. Norwood. I could get you up a few that aren't doing it
real well.
Mr. McClellan. There is no question that the problems that
many States, especially border States, are facing, with
undocumented immigrants, are putting some strains on----
Mr. Norwood. Well, it is not just border States.
Mr. McClellan. [continuing] care and hospital care.
Mr. Norwood. My home State of Georgia is not a border
State, and there is a problem there. Well, I am--time is
running out. I got to move quickly. Let me make the point,
first, that Mr. Chairman, I have a long-term healthcare policy.
Even I do. It is a great policy. It pays about $5,000 a month.
I think it costs me somewhere $3,000, $3,600 a year. I can't
understand why in the world it wouldn't be a better plan to
have Medicaid patients have long-term care policies, even if we
paid the policy. I mean, it has got to be cheaper for the
government, and in my personal opinion, it is highly likely
that it would be better care.
Last, I want to--okay. Well, I am going to get CBO in just
a second, if I have the time. Maybe you could answer the
question to that, Mr. Holtz-Eakin, but you are probably pretty
qualified to tell us, this committee, if it is a feasible
strategy to move a significant number of long-term care
recipients or potential recipients to private insurance, like I
am talking about, if we continue to have Medicaid just exactly
like it exists today. Is it possible to move to long-term care
private insurance?
Mr. Holtz-Eakin. The issue is how many people will have the
wherewithal to buy a private insurance policy, and the desire
to protect their assets to some extent, and given that, what
incentives do they have to purchase a private insurance policy,
versus rely on a government----
Mr. Norwood. They don't have any other way, or we will pay
for it. If they can't afford the policy, we will pay for it.
Mr. Chairman, last, I want to point out for the record that
earlier, it was mentioned that Medicaid pays for long-term
care. I think it is pretty important for us to realize Medicaid
doesn't pay for a thing. The American people pay for Medicaid.
The taxpayer pays for Medicaid, and they are insisting on some
reforms in this program, particularly in long-term care. I
thank you for your indulgence, Mr. Chairman.
Mr. Deal. Ms. Baldwin is recognized.
Ms. Baldwin. Thank you, Mr. Chairman. Dr. McClellan, I read
that you were recently quoted at White House Conference on
Aging as saying that you planned on eliminating the
institutional bias in Medicaid by December of this year. And as
you know, in most instances, it is more difficult to obtain
Medicaid coverage of needed care in the home, and thus many
people with disabilities are living in institutions, even
though they would rather have the freedom of living at home.
So I applaud your statement and its intent, because I, too,
support helping individuals with disabilities live in the least
restrictive setting of their choice. I would really like to
know more specifics on what sort of policies you plan to adopt
at CMS in order to accomplish this goal in this very short
timeframe.
Mr. McClellan. I think there is a little bit of a
mistranslation. We didn't say we planned to do it. This is
something that it is going to take changes in legislation. The
way that the Medicaid statute is set up, as you know, is that
under the Medicaid statute, you are entitled to a nursing home
benefit. That is the entitlement, because that is what long-
term care meant in the 1960's.
What we have seen, through the waiver programs that we have
supported and through the Independence Plus demonstration
programs, is that we can serve more people in the home or in
other settings that they prefer. We can do it at a lower cost.
We can do it with better healthcare outcomes, and we can do it
with better satisfaction for our beneficiaries when we move
away from that statute toward the kinds of approaches that
States have adopted when they jump through all of these hoops,
and go through all the regulatory hurdles to get one of these
waivers approved. What we would like to see is that approach
being built more directly into the Medicaid program, and that
gets back to the comment from Chairman Barton earlier----
Ms. Baldwin. Right.
Mr. McClellan. [continuing] that we need to have a
discussion with you about how we can do that, about how we can
serve more people in a setting that they prefer. I am confident
we can do it in a way that gets assistance to more individuals
who need help, and at a lower cost per person, and help reduce
the strains on the Medicaid programs that we have been talking
about this morning.
Ms. Baldwin. Would you like us to consider making home and
community-based care a mandatory service under Medicaid?
Mr. McClellan. What I would like us to do together is look
at the experience we have, where we know that when States adopt
these reforms, these waivers, which they have to go through a
lot of work to do today, it is not the default today----
Ms. Baldwin. Right.
Mr. McClellan. It by no means happens automatically. As you
said, most people on Medicaid who need long-term care services
cannot choose how to get them. We need to look at the
experiences we have, and find a way to build that into the
program more automatically. That is something that is going to
take a dialog between you and us, and I was very encouraged, as
I said earlier, by the opening statements, where there seemed
to be pretty strong support on both sides of the aisle that we
could find a way to get to an agreement on making Medicaid more
rebalanced toward personal control and spending the dollars the
way that people want them spent in the program.
Ms. Baldwin. Well, again, in terms of the discussion that
we will be having in order to meet this goal, do you see
recommendation of lifting the caps on the current Medicaid home
and community-based care waivers, or suspending budget
neutrality policy, so that again, to accomplish that goal, all
that wish to live in the community are able to access community
care?
Mr. McClellan. Well, I think we need to deal with the
reality, that as you have heard, and as I have heard from all
the Governors I have talked to, that States don't have more
money to spend, so we need to find ways to implement these
programs that make the dollars in Medicaid go further, that
serve more people at the same or lower costs. And a lot of
these waivers give us some directions in how to do that. Many
of the States are prioritizing how the long-term care services
are used, and who they can, and want to serve first. One
approach is to consider what the top priorities are for
spending this money better. Another approach is to bring in
some of the other ideas that have been discussed this morning,
on bringing in more private funding for long-term care needs.
I think one of the reasons that this bias in the Medicaid
program has persisted for so long is that it acts as a kind of
rationing. There are a lot of people who don't want to be in an
institution, and if you don't have a better design in the
Medicaid program, a fallback is to say that is all we are going
to cover. And that is a good way to keep costs down. It is not
the most effective way to spend Medicaid dollars, but it is one
that we ought to try to. And by bringing in ideas like the
Long-Term Care Partnership, and seeing what we can do to
promote and help people understand about the benefits of
approaches like reverse mortgages, I think we have got a lot
better chance to help more people in a community where they
need it while they are dealing with the fiscal realities that
States are facing today. That is the discussion that we ought
to be having this year.
Mr. Deal. Dr. Burgess.
Mr. Burgess. Thank you, Mr. Chairman. Dr. McClellan, I hope
that if we were sitting here in this committee today, and were
trying to devise the Medicaid system, that it wouldn't look
like what we are talking about. But have you thought about what
the Medicaid system should look like. If we were to start the
year 2005, and make the Medicaid system, what would it look
like? What would it be?
Mr. McClellan. Well, it is a very good question, Dr.
Burgess. We have done a lot of thinking about that, in
preparation for this hearing, and in reviewing all the results
that we have seen from waivers, one way that it would be
different, as I have been talking about, is that it would focus
on the needs of individuals that it is intended to serve.
Medicaid needs to first and foremost focus on people who are
truly medically needy. That is where the taxpayers want us to
spend the dollars. That is why the Medicaid program is such an
essential lifeline. It would give them, when it comes to long-
term care services, much more control over how they get their
services, and the support they need to use those Medicaid
dollars effectively.
And the reason I can say that with a lot of confidence is
that we have many cases from all of these home- and community-
based service waivers, and our Independence Plus
demonstrations, and some of these other approaches to provide
care in the community, that give these results, that show that
you can serve people more effectively, meaning they are
happier, and you can do it at a lower cost per person. You can
expand the amount, the number of people who are served with
these approaches, and that ought to be our focus in the
Medicaid program. Let us look at what is actually working to
get better care to the people who need it the most, and let us
build that into the Medicaid program.
Mr. Burgess. And Dr. Holtz-Eakin, along those same lines,
have you thought about what the Medicaid system should cost?
Mr. Holtz-Eakin. We don't have a branding as a target
estimate. I think the important thing for the committee to keep
in mind is that while it may be the case that as we get older
and as a Nation become better off, we will spend more on
healthcare. It is simultaneously the case that the projections
under current law of healthcare spending are a key part of a
long-term budget outlook which threatens to be numerically
unsustainable, and we have documented this in our 2003 report.
It is the most pressing domestic policy matter that we see out
there, and looking at long-term care in conjunction with all
the other demands in the health area simultaneously is an
imperative. We are thinking about the budgetary future of the
United States, but also its economic policies.
Mr. Burgess. So just for the record, say that again. It is
the most pressing domestic policy issue that we face?
Mr. Holtz-Eakin. Yes, it is.
Mr. Burgess. Okay. Thank you for your candor. Well, again,
I, too, have a long-term care policy. I bought it in the year
2000, because my mother told me to, and it was a good idea, and
I am glad I did. One of the things that, when I looked into it,
one of the things I wanted to be sure of was that I did have
the ability for home care or community care, and then the other
thing that I looked into is if I was--if I did the spend down
and went on Medicaid, that instead of being in Denton, Texas, I
would probably be in Paris, Texas, because all of our nursing
homes in Denton have been closed down because of liability
problems, or they are just empty shells of what they used to
be. So it is hard enough to get your kids to come visit you
anyway, but if you move 400 or 500 miles away, that was going
to be another problem. So it was a pretty easy decision for me
to buy my own policy, and just like Dr. Norwood, I have a
policy that covers myself and my wife, and it is $2,000 a year,
and it is not a tremendous financial burden. Sure, there is
other things I could do with that money, but it seems like we
have anesthetized the American public about the need for long-
term care insurance, or even to consider long-term care
insurance, to even weigh it in the equation of your household
basket of expenses. Most people, and in fact, before my mother
told me to do it, I would have never considered long-term care
insurance.
What are some of the things that we can do as we go through
this process to un-anesthetize the American public about the
necessity of the purchase of long-term care insurance, or at
least to look into the possibility of purchasing long-term care
insurance. And I guess we will start with you, Dr. McClellan,
but I do want to hear, Dr. Holtz-Eakin, your comments as well.
Mr. McClellan. Well, that is a very good question. We have
undertaken some steps in recent months to provide more
education and support tools for people. You can see them when
you visit our website. We have also been working in partnership
with the administration on Aging to develop resources that
people who are thinking about long-term care planning can use,
and we helped fund a study that you are going to hear about a
little bit later in this hearing, conducted by the NCOA, which
has looked at the potential for reverse mortgages, and what
people's opinions are about them right now. And I think despite
all of that work, there clearly is a knowledge gap, and many
people aren't thinking ahead.
As you heard from Congresswoman Wilson, a lot of people
think that Medicare is somehow going to take care of this, and
that is just not the case. People do need to be planning for
their long-term care needs if they really want to have the kind
of support in the setting that they would prefer. So I think
educational activities are really important, and they ought to
be part of our efforts this year to try to get to a more
sustainable long-term care system.
Mr. Holtz-Eakin. I guess I would offer three observations.
The first is that to the extent that there is awareness, it
also may be useful to have policies that are more standardized
and easier for people to compare, so that they can actually do
the shopping and know what they are paying for when they get
it.
And it would probably be useful, as well, to remember that
incentives to purchase the long-term care policy are the same
incentives that basically say I would like to preserve my
assets somehow, rather than have to pay them out for my long-
term care. So looking at this simultaneously with the broad
awareness of transfers of assets as a potential way to
preserve, or having things in the home, which is not a counted
asset, as a way to preserve, thinking comprehensively, and not
just focusing on the long-term care market in isolation I think
would be a second thing to worry about.
Mr. Burgess. But Representative Wilson from New Mexico
already pointed out that the greatest marketing effort right
now that is going on is with the portion of asset protection
attorneys who are encouraging people to go the other way, and
protect assets, and then rely on the Medicaid system for long-
term care insurance. I don't know if we can get any of these
quotes up that I was given. Slide 4, I don't know if that will
project for us, it was just rather enlightening, as I was
glancing through these. If not, I will ask unanimous consent
that we put that in the record.
``So if you want to confuse, completely confuse the
Medicaid authorities, they may just approve you on the basis
that they haven't got a clue of what is going on, and it looks
so fancy it must be right. Just don't mention my name when you
do it. This is Alex Bove, Advanced Medicaid Planning and
Related Issues, National Academy of Elder Law.''
So that is kind of what we are up against on the other
side, and it seems to be very difficult to get that message
out. Well, I just want to ask Dr. Holtz-Eakin one other thing.
Along the lines of Chairman Barton, when he talked about
honesty or ground rules for CBO scoring, one of the examples
that came to mind, Dr. Zerhouni, I don't remember whether it
was in this committee or in a private briefing, talked about a
strategy for Alzheimer's. If they can get to the point where
they can delay the onset of Alzheimer's disease by 5 years, the
cost of taking care of an Alzheimer's patient could be reduced
by 50 percent. Do you have any way of working that type of
knowledge into your scoring as you go through and look at the
cost of taking care of an Alzheimer's patient, for example?
Mr. Holtz-Eakin. Certainly, that is how we build our
estimates. We look to the research literature, and
particularly, the peer reviewed research literature to give us
consensus estimates of, in this case, medical impacts, other
areas that would be different impacts, look at the cost
implications that would come from changes in those medical
treatments that are necessary. And then, build that into
estimates of legislation to the extent that the legislation
would actually deliver them, and often, there are tough calls
about how it would be implemented, and the kinds of
administrative procedures that would put the legislation into
place. That would be Mr. McClellan's domain. Then there are
also some things that people often forget, which is to the
extent that these are ongoing medical improvements that would
happen anyway, they are usually in our baseline, and as a
result, people don't get credit twice for having them in the
baseline, and then proposing legislation.
And particularly in these areas, the time horizons often
work against proposals. Spending is usually up front, medical
improvements are often well down the line, outside five or even
10 year budget windows, and as a result, there is a mismatch.
But the process----
Mr. Burgess. So the short answer is no.
Mr. Deal. The gentleman's time has expired.
Mr. Holtz-Eakin. But the information goes into it, and I
want to emphasize that that is standard business.
Mr. Burgess. All right. Thank you.
Mr. Deal. We have got a vote going on that is going to be
for several votes, probably four or more. Mr. Allen, would you
like to proceed with your questions?
Mr. Allen. I would, Mr. Chairman.
Mr. Waxman. Are you going to bring them all back, so we
can----
Mr. Deal. Well, I was hoping we could finish with this
panel and dismiss them, but we still have a couple of others
that have questions. You both have questions?
Mr. Allen. Mr. Chairman.
Mr. Deal. I guess we are going to--we will have to bring
them back. Would you like to go ahead and start?
Mr. Allen. I would. Well, Mr. Waxman, will you be able to
come back or not?
Mr. Waxman. Well, my problem is that I have to be at
another committee, and I think that the chairman probably wants
to dismiss this panel, and you and I are the only ones left for
a 5-minute period, so let us----
Mr. Deal. I think we are going to have to have them back--
--
Mr. Waxman. [continuing] be brief.
Mr. Deal. [continuing] unfortunately Mr. Waxman. What is
that?
Mr. Deal. We are going to have to----
Mr. Allen. Well, I would defer first to Mr. Waxman, and
then do my questions after his, if that is----
Mr. Deal. Well, we recognize Mr. Waxman then.
Mr. Waxman. Thank you very much. Unfortunate timing. Dr.
McClellan, you said you wanted to eliminate the institutional
bias in the Medicaid program, and you have a New Freedoms
Initiative, which is intended to move individuals with
disabilities from institutions to the community. Is this
proposal a demonstration or a broad program for which all
individuals with disability would be eligible?
Mr. McClellan. This is a program that would provide funding
at the level of $1.75 billion over 5 years, with $350 million
available for each year. It would be enough funding for a
number of States to do it. As always, when you have new
reforms, if you can give them a boost at the beginning, it is
more likely that you will be able to get other States to come
along later. We have seen the----
Mr. Waxman. Well, is this going to cost, as I understand
it, $2.9 billion over the next 10 years?
Mr. McClellan. We are authorizing $350 million a year for
the next 5 years, and I think the projections that the
actuaries have done suggest that some of that spending may
occur a little bit later, but if it occurs sooner, we are fully
supportive of that, too. We would authorize----
Mr. Waxman. Now, this is also going to be in the context of
a proposal to cut $60 billion from Medicaid. According to your
budget, you propose to cut $6 billion out of Medicaid by block
granting administrative costs. Is that right?
Mr. McClellan. We propose reforms in administrative costs,
which as you know, have been one of the most rapidly growing
components of the Medicaid program.
Mr. Waxman. But this--you are going to get $6 billion out
of that.
Mr. McClellan. I think it could be. There are other
versions of administrative cost reform proposals. CBO has
scored some that would limit the administrative costs increases
to 5 percent per person over----
Mr. Waxman. But isn't it true that part of Medicaid
administrative cost goes to survey and certification of nursing
homes in which individuals with disabilities reside?
Mr. McClellan. Some of it goes to survey and certification.
There also, as you know, is Federal funding that we provide for
some of the nursing home survey and certification activities.
Mr. Waxman. In your budget, you propose to cut more than
$11.7 billion from targeted case management. Is that correct?
Mr. McClellan. The fiscal year 2006 budget reduces spending
on targeted case management by $8.2 billion over 10 years.
Mr. Waxman. And isn't it true that individuals with
physical impairments and limitations, like blindness and spinal
cord injury, severe mental or emotional conditions, including
mental illness, and other disabling conditions, such as
cerebral palsy, cystic fibrosis, Down's syndrome, and mental
retardation, muscular dystrophy, autism, spina bifida, HIV/
AIDS, rely on targeted case management for their care?
Mr. McClellan. There are other programs that provide care
coordination and support. For example, in our Money Follows the
Person demonstration----
Mr. Waxman. Well, there may be other programs, but doesn't
a lot of that money that is targeted case management go for
those people?
Mr. McClellan. It also goes for services provided in
prisons, in schools, in areas that are outside of the primary
responsibility of the Medicaid program, where there are other
Federal financing sources that are clearly more appropriate.
Mr. Waxman. I want to point out my colleague, Dr. Burgess,
I just went through people with a lot of disabilities. Those
people can't get long-term care insurance. If people have MS,
even it is not active, they can't get--long-term care insurance
provides underwriting to exclude people from being able to buy
it. I just think we have to keep that----
Mr. Burgess. Will the gentleman yield?
Mr. Waxman. I won't, because of the time pressure. But I
just want to point that out. It is a problem when we look to
private insurance, but by my calculation, Dr. McClellan, while
you propose increasing spending for individuals with
disabilities through a few demonstration projects to the tune
of $1.4 billion over 5 years, you then actually cut $17.7
billion out of areas in Medicaid that they have--that will have
a particularly negative impact on individuals with
disabilities.
I find it hard to believe we can make improvement in the
lives of individuals while cutting such a significant amount of
funding for the program that serves so many people with
disabilities. Does the administration favor requiring a person
to take out a reverse mortgage on their home before they can
receive long-term care under Medicaid?
Mr. McClellan. We do not propose any such requirements.
What we have proposed is making sure people know about the
options that reverse mortgages can provide, since there is a
lot of potential for helping people get care where they want it
and how they want it through mortgages.
Mr. Waxman. So, you wouldn't mandate it. Does the
administration favor a requirement that a person have a long-
term care insurance policy as a condition for eligibility to
receive long-term care benefits from Medicaid?
Mr. McClellan. We haven't proposed a requirement. We have
proposed the Long-term Care Partnership program be reinstated
by Congress, because that allows people to use a long-term care
insurance policy to protect their assets, and also keeps
Medicaid funding reserved for people who truly can't afford to
pay.
Mr. Waxman. As a man familiar with Medicare, Medicaid,
economics, and human nature, do you think people refuse to go
out and buy private insurance because they are calculating on
the fact that Medicaid is going to be available to them when
they have long-term care insurance, or do you think it is more
likely that they don't anticipate ever having those needs, they
think Medicare maybe already covers it, they have other
pressing economic demands on them, and they are not well-
informed about these policies, and these policies exclude
people who have underwriting problems, and there are no uniform
standards in terms of inflation and coverage and all of that?
Do you think that Medicaid is a reason why people aren't buying
these policies?
Mr. McClellan. I think that there are a number of reasons
like the ones that you have described, but all that leads to
the conclusion that we need to change the current system. Right
now, three quarters of the----
Mr. Waxman. Change the current system of Medicaid?
Mr. McClellan. Change the current system in Medicaid,
change the current system in providing support and education
for people to use these alternatives to Medicaid to finance the
long-term care that they want in the way that they want it. As
you said, a lot of people don't know about it. If we did a
better job of informing people and making these options
available, and showing how they can help, then that can reduce
the pressure on the Medicaid program. When three quarters of
the people in nursing homes are getting----
Mr. Waxman. I don't disagree with you, but----
Mr. Deal. Gentleman, your time has expired. We can----
Mr. Waxman. My time has expired. Well, he didn't----
Mr. Deal. [continuing] speculate on what people's motives
are----
Mr. Waxman. [continuing] answer my question.
Mr. Deal. Well, you asked him----
Mr. McClellan. Well, I tried, but----
Mr. Deal. [continuing] to speculate on the human mind, and
their motivations. That would be great speculation as to what
people's motivations are. We are going to unfortunately have to
adjourn for another series of votes. Gentlemen, I had hoped
that we were going to be at the point we could dismiss you, but
I do have a couple of other members who have already gone to
vote, and asked if you would stay for their questions when we
return. Hopefully, we can wind your portion up very quickly
when we get back.
Thank you. We stand in recess.
[Brief recess.]
Mr. Bilirakis. [continuing] a reform of the system. I don't
know what would be. But let me ask you, Dr. McClellan. If we
don't enact real reforms, do you expect these trends to
continue? I guess I am asking the questions, and I suppose I
know the answer has to be yes, but maybe you could explain that
a little bit.
Mr. McClellan. I think the answer is yes, and that is
something we are hearing, as you said, uniformly from Governors
in both parties, from all over the country. Their view, and the
view of many is that the current program just isn't
sustainable. And there will be reforms taking place, whether
this committee acts or not. If you don't act, you are going to
see more of the same, more benefits being reduced, optional
populations being dropped, innovative approaches like home- and
community-based services being limited, and payment rates being
cut to the point that people don't have access----
Mr. Bilirakis. So we are talking about reform is necessary
to keep this from becoming a trend all over the country. Is
that correct?
Mr. McClellan. We need to give the Governors and the
Medicaid program better tools to get high quality care to
patients without spending more money. And I think the good news
is that there is some clear evidence of ways in which we can do
that, and some of the best examples are these home- and
community-based programs that ought to be a more integral part
of the Medicaid program, and I hope we will find a way to all
work together to use these proven approaches, these evidence-
based approaches----
Mr. Bilirakis. Now, you have indicated, Doctor, and we have
worked together on healthcare for many, many years, and you are
a medical doctor, and I know that you care about patients. And
additionally, you have shown a real caring over the years. So I
would like to think that whatever it is we are going to be
addressing here, it is always keeping the beneficiaries in
mind. You know, we don't want to degrade them in any way, and
force people out of the system, and somebody made the comment
that these--they are being forced to take reverse mortgages, I
am not sure whether that came out the way it was intended to
come out, and as far as I know, they are not being forced to do
that. If they are, I would like to know about it.
Mr. McClellan. That is correct, and you know, I appreciate
your comment, and the reason that I feel pretty passionately
about this is because I have seen not only my own patients, but
in this job, I get a chance to meet with groups like the
National Center for Independent Living, ADAPT, and others who
have firsthand patient and person-based organizations for the
people who actually want to get better care in the Medicaid
program, and they feel very passionately about that. That is
the main reason that we ought to be here taking action on this
issue----
Mr. Bilirakis. Well--I mean--I think I have made it clear
over the years, I won't be a party to hurting people who are
deserving, as far as cuts are concerned and whatnot. I mean, I
think the word cut is an inappropriate word. It is savings,
but----
Mr. McClellan. Right.
Mr. Bilirakis. [continuing] the fact of the matter is that
hopefully, those savings will result in more people, or less
people being dropped and more people maybe even coming aboard.
Dr. Holtz-Eakin, why--you know, we are slaves here
legislatively to CBO, to your scoring. That was set up, I
guess, by the Congress, so it is what we did to ourselves, and
yet, I know there has got to be, well, I know I am running out
of time here. I guess basically my question is very quickly, is
why is there such a difficulty in reconciling what you all
think regarding scoring versus what we think regarding scoring?
Now, I realize that maybe you are more the experts, and we are
in an ivory tower, and that sort of thing, but you know, we--a
long time ago, we thought that there should be dynamic scoring,
and we have taken over the Congress, and still, we don't have
dynamic scoring.
The Democrats had the same problems with scoring as we
have. A lot of things that we talk here about some of the
things that can be done here on long-term care and whatnot,
chances are CBO would probably not give us any credit for any
savings, if you will, in that regard.
Very quick answer, because I know my time has expired.
Mr. Holtz-Eakin. Well, some quick points in no particular
order. First, on dynamic scoring. In--three years ago, CBO put
out a full scale analysis of the President's budget proposals,
that included all the feedbacks, including macroeconomic
feedbacks, that was in the context of the dividend proposal. We
have continued to do that every year. That--we have worked with
the Budget Committees to make sure that that is useful to the
Congress, and we are working with them to see if there are
other areas where they would like more information of that
type.
On general issues, and why reasonable people don't see eye
to eye on budget scoring, I think there are a couple of things
that often come up. No. 1, differential information. That is
one that can be fixed. Any time a member or staff has
information that they think is superior to what we have, we
encourage them to bring it to us to help us improve the scoring
process.
Second would be the degree to which we are providing a
consensus estimate versus one which might be a deeply held but
non-consensus estimate on the part of a member. I think that is
often a source of disagreement, and I think it is a legitimate
source of disagreement.
And then the final is the degree to which we are capturing
things that are in the legislation. And in the end, we score
legislation. Often, members, in their heads, score their
intent, and there are cases where the legislation doesn't match
their intent, either because it requires implementation, it
doesn't show up in the budget window, or it--there are just
drafting problems. In any of those circumstances, I think the
No. 1 thing is to make sure that neither side sits in isolation
and stews about it. We need to have a good dialog and open
communication to make sure we improve.
Mr. Deal. The gentleman's time has expired.
Mr. Bilirakis. Thank you, Mr. Chairman. I am sorry it
took----
Mr. Deal. Sure. Mr. Allen is recognized for 5 minutes.
Mr. Allen. Thank you, Mr. Chairman, and thank you both for
being here. Comments and a couple of questions.
You know, I noticed the language in your testimony, Dr.
McClellan. I am not going to attribute to you. I am sure
someone else is paid to come up with this. The New Freedoms
Initiative. The Money Follows the Person Initiative. The Real
Choice Systems Change Grants. I mean, then you apply it to
Maine, and I do appreciate the recognition of what Maine has
done, but you began by saying to ensure people know about their
options before entering a nursing home, this is your testimony,
Maine required preadmission screening and periodic reassessment
for all nursing home residents.
We did that. It isn't about choice, really. It is not
really about choice. It is about two things. No. 1, we
constricted the number of nursing home beds over a period of
time. We tightened up the certificate of need process, and
there was a lot of pain in the nursing home industry in Maine
over those years. It certainly wasn't a choice on their part.
But beyond that, it was designed to move out of nursing homes
those people who could be served either in a community-based
setting or in their own homes. It was--and so, when I said
earlier that people in nursing homes in Maine today belong in
nursing homes for sure, I really meant that.
We have done a lot between 1995 and 2002. This is just
reading from your prepared testimony. The number of Medicaid
nursing home residents in Maine decreased 18 percent, while the
number of people receiving Medicaid and State-funded home and
community-based services increased by 78 percent. We have made
the transition that I think you are urging all of us to make.
But when I look at the President's budget, and what is
proposed, we are already, Maine is already facing a State
Medicaid shortfall of $70 million for the next 2 year cycle,
due to the FMAP going down 2 percentage points.
One projection is, under the President's proposal, we would
lose $307 million in Federal funding over the next 10 years,
and you were saying, no, we need to find better tools without
spending more money. This is healthcare, and my view is we are
going to spend more money, because we have an aging population,
and that just goes with the territory.
But my first question is, given States that have already
made the effort to move people out of nursing home care
wherever it is possible, into home or community-based care, is
that going to affect, in any way, the amount of reductions that
we are expected to take compared to other States, with respect
to the President's proposals?
Mr. McClellan. Just first let me say that I appreciate your
pointing out Maine's experience, where you have seen, as you
pointed out, a 17 percent increase over 7 years, while more
people are being served with long-term care assistance, and
they are getting better results.
If that were the rule and not the exception in Medicaid, we
would be in a lot better shape, in terms of the overall
sustainability of the program. So, that is what we would like
to see happen in a lot of other States, and it is not happening
right now around the country. Most Medicaid beneficiaries do
not have a choice and are not asked these questions regularly
about how they want to get their care.
With respect to what the President's budget proposals mean
for Maine----
Mr. Allen. Would we catch a break?
Mr. McClellan. Well, you are going to get some savings, you
know. Some of the proposals that we have made for addressing
the overpayments in prescription drugs and the asset transfer
proposals are actually savings for States as well, and with
respect to the intergovernmental transfers, we do want to make
sure that we are implementing them in a way that doesn't have
adverse impacts on populations that are intended to be served.
And once again, there is good experience from which to
learn. We have been working with lots of States to address and
eliminate improper intergovernmental transfers, when we have
the authority to do so under current law, and we have been able
to do that successfully with most States. So we need to keep
moving in that direction to spend the dollars effectively, and
do it within the law.
Mr. Allen. But if I can go back, improper intergovernmental
transfers is one way, what you call improper, is one way that
we have been able to care for as many people as we can, and I
come back to what Mr. Bilirakis said. You know, it feels
sometimes as if the administration has, you know, is fixed on
the cost number, but isn't fixed on the beneficiaries. You
know, we have got a healthcare system in this country, and that
is the problem. I mean, the wheels are coming off this
employer-based system, I think, and so we are struggling with
Medicaid, particularly in a down economy with people losing
their jobs, you know, and yet, there is no recognition that in
the best of worlds, it won't be long-term care insurance or
reverse mortgages. Something much more fundamental needs to
happen here, which I think is a combination of efficiency and
more revenue, but you don't get there without more revenue, but
you have to have the efficiency as well, and that is--well, my
time is up, but if you maybe have a quick comment.
Mr. McClellan. I would agree with you. The first priority
has to be what is best for beneficiaries, and again, that is
what motivates our proposals on these reforms in Medicaid long-
term care systems.
They help more beneficiaries live a better life, and that
ought to be the first thing that we care about. It just so
happens you can do these things in a way that doesn't increase
Medicaid spending. We have overwhelming evidence, including
evidence from Maine, that these approaches lead to better
results for more people, without increasing funds. If every
State had only seen their Medicaid spending on long-term care
go up by 17 percent over the last 7 years, we would be in much
better shape than we are today.
Mr. Allen. But Medicaid spending is still rising in Maine.
Mr. McClellan. Well, right, and it is projected to rise
under our budget, too----
Mr. Allen. Yeah.
Mr. McClellan. [continuing] by over 7 percent per year. We
just need to make sure that money goes as far as possible in
helping as many people who really need it as possible.
Mr. Allen. Thank you.
Mr. Deal. The gentleman's time has expired. Ms. Myrick is
recognized for 5 minutes.
Ms. Myrick. Thank you, Mr. Chairman. Thank you both for
being here. And Dr. Holtz-Eakin, I have a question for you
regarding the cost of long-term care. We all know it is going
to go up. I think we are kidding ourselves if we say it is not.
And what appears to be a declining availability of donated
care. I happen to be one that thinks that is going to continue
to happen, because of societal changes that have taken place
from the way it used to be years ago, when everybody helped one
another.
My concern, and I would like you to, just to expand a
little bit on some of the implications to that on our tax
burden on the citizens and on the States, as were talking about
before. If we don't shift to other utilizations, like greater
utilization of long-term care insurance, private long-term care
insurance.
Mr. Holtz-Eakin. Well, I think that the outer bounds, you
could pull out of the numbers we presented, and--doing
arithmetic in my head is a dangerous thing, but the value of
the donated care is hard to pin down. It has ranged from $50 to
$200 billion in recent years. But suppose we picked $100
billion as the value of that, and suppose that by whatever
mechanism, it was translated to public sector budgets.
That would be spending. Once it was spent, it would have to
be financed somehow, and in the long run, that will mean higher
taxes. If it is in Medicaid, $56 billion of that would be the
Feds. The remainder would be at State and local governments,
and you know, probably not 100 percent of it would show up on
the government, but you could imagine a third, maybe a half,
and that is a substantial additional need for resources, and it
would show up in taxes in the long run.
Ms. Myrick. Well, it just to me proves the need that we
have got to do something. We can't go down the same road we
have been going down, and expect to get a different result.
Appreciate it.
I yield back my time, Mr. Chairman.
Mr. Deal. I thank the gentlelady. Mr. Green, do you have
questions?
Mr. Green. Thank you, Mr. Chairman. And Dr. McClellan and I
agree that many individuals in need of long-term care would
rather be at home, and we have that example in Texas, are in
their communities and institutional setting. Your testimony
reference our State of Texas, which has taken measures to allow
individuals to move from institutions to the community, and
yet, in our last Texas legislative session in 2003, they set
limits on the individual costs of care for individuals. It is
generally recognized that the cost of long-term care exceeds
Medicaid reimbursements to the tune of $4.5 billion annually,
and if you are in an institutional setting, and there is a cap
on it, these costs are absorbed by the provider, you know,
that. However, in the home and community setting, the low
income families are left holding the bag. Because they don't
have that ability, they don't have $4.5 billion. They are
typically--they are taking their mom or their father in, or
their aunt and uncle, and I worry that the only choice they
really have will be between limiting either the scope or the
quality of the care in an effort to make the ends meet.
Does the President's plan to expand home and community-
based services safeguard Medicaid beneficiaries from that
situation, and ensure that States will provide our community-
based Medicaid patients with quality care?
Mr. McClellan. Absolutely. We have requirements now in
place that we have strengthened in the past year for monitoring
the quality and the safety of services provided in home- and
community-based waiver programs. States are required to give us
an update on those waivers on an ongoing basis, and every
waiver that we get now incorporates these kinds of quality
assurance and quality improvement steps into the actual waiver
application, and to the actual waiver template, and I do think
that it is important to look at how these systems actually
perform. We need to keep a close eye on how satisfied
beneficiaries are and whether they are really getting a better
quality of life, which is absolutely our intent, and can be
achieved.
In fact, we have recently reorganized our Center for
Medicaid and State Operations to have one whole office that
focuses on the performance of the Medicaid program, and
specifically, the performance of these kinds of waivers. So we
are monitoring that more closely than ever before. It is an
important part of a successful home- and community-based waiver
program, and we will keep a close eye on it going forward.
Mr. Green. Okay. And this is a question for either you or
Dr. Holtz-Eakin, and I would like to talk about the Medicaid's
Long-Term Care Insurance Partnership, as an incentive to folks
who purchase long-term care insurance. If the panel could shed
some light on whether the partnership has actually created
overall savings in Medicaid, and if so, how much, and to what
extent has this program encouraged specifically low and middle
income individuals, and those most likely to become Medicaid
long-term beneficiaries, to purchase that long-term insurance.
Also, is there any Federal mandate that these long-term
policies under these partnerships contain some type of minimum
standard coverage, so people will know what they are buying?
It is for both of you really.
Mr. McClellan. Just a few comments. There are four States
that adopted this before the Congressional moratorium was
imposed, and I think one important bottom line is that for
people who use these approaches to purchase long-term care
policies, it does work. They don't end up going on Medicaid. It
would obviously be more helpful if we could expand this program
more widely. I think ideas like you are talking about for
giving people advice and support about how to use these long-
term care insurance policies to protect their assets, and get
more control over how they get long-term care services, should
be an important part of the expansion as well. It is a very
important way to help protect people's assets and shift the
burden from Medicaid to the private sector.
Mr. Green. Dr. Holtz-Eakin, can you--I understood there was
a concern that these partnerships actually cost Medicaid more
money.
Mr. Holtz-Eakin. When we priced the President's budgetary
proposals in this area, we came out with what was a $45 million
cost, a modest cost at best, but the key analytic issue is the
degree to which the partnership policies draw their
participants from those who would otherwise have simply bought
a private long-term care insurance policy. And there is lots of
survey evidence from, for example, participants in Indiana,
that that is, in fact, how they looked at it. I could have
bought my own long-term care insurance policy, and I chose this
partnership one instead. If so, you won't get savings from that
avenue. That, in fact, puts people on Medicaid more quickly.
The other possibility is they come from a population that would
otherwise not have any insurance whatsoever, in which case
there would be savings.
So the key issue is, where is the partnership policy
drawing its participants, from those who would buy insurance on
their own, or those who would be uninsured? Our estimate, based
on what we know about the current participants, and those who
were likely to be eligible, was that on balance, it would break
so that it transferred people from the private insurance market
to the partnership.
Mr. Green. To the partnership. And that is a concern,
because again, low income and middle income people have finite
resources, but it needs to be reasonable enough that they can
do it, and yet, still know what they are buying, so they don't
pay for 5 years, and then, you know, 5 years later, they say I
can't afford it, and so they drop it, and so, they've got
nothing. But that is why there needs to be some kind of minimum
standard, like we do for supplemental policies for Medicare.
Mr. Holtz-Eakin. And if I could just add, I think this is
part of the long-term goal of getting more people into long-
term care insurance if they have got the means to do so. You
know, people who are already in their seventies or eighties,
and who are really on the edge of going--of needing these kinds
of services aren't the main target for this program. It is
people who are baby boomers, who may be coming into needing
long-term care services over the next five or 10 years, so you
are not going to see the short-term impact as much as you can
make the Medicaid program more sustainable for the long term.
If we have got the middle class buying and providing for their
long-term care services more on their own, and this is one of a
number of strategies to do that.
Mr. Green. Okay. Thank you, Mr. Chairman.
Mr. Deal. Mr. Shimkus is recognized.
Mr. Shimkus. Excuse me. Thank you, and I appreciate you all
coming in, and your patience, and I also thank the patience of
the second panel, who we will eventually get to. But I wanted,
since I had this time, I wanted to address--this is an
important issue, these are important questions, and you know,
actually, I am really proud of the Congress to start stepping
into generational challenges, and grab a hold of some of these
contentious issues, and they will be politicized, and they will
be challenged, but I mean, that is what we are here for, to
take on these hard choices. So I applaud the debate and the
concerns.
I have been involved for quite a few years now with the
disability community, and am the cosponsor, along with my
colleague, Danny Davis, on My House or MiCASSA, which is very
similar, but more expansive of the--than the President's New
Freedom Initiative. And I--so I really applaud the President.
And I know the disability community is very excited about it,
because it is going to give us a chance to prove the merits,
and then, hopefully, we can roll it out to a bigger--one of the
concerns the committee has, as we try to address this, is they
use the terminology woodworking, and from my understanding, it
addresses people who do not seek institutional care, but are
using their own dollars to stay home, that then might, if the--
as we would like, if the money follows the individual, there
may be more demand on the dollars. Are you familiar--I mean, am
I reading this analysis correctly? And why don't we--Dr.
McClellan first, and Dr. Holtz-Eakin.
Mr. McClellan. Well, there certainly have been concerns
raised about woodworking, but that is why, I think, as you
said, the committee and the Congress need to take this on in a
more comprehensive way. You know, I think we are just not doing
justice to long-term care policy in this country, when one of
the best justifications we have for keeping in place a system
that doesn't give individuals on Medicaid with a disability
control is that gosh, this is the only kind of benefit we can
provide that won't attract more people.
I mean, it is the wrong justification and the wrong way to
be providing long-term care. Certainly, the woodwork effect is
something that we should be concerned about, but as we have
seen, from many of the waivers that have been implemented,
including experience in Arizona, there are ways to implement
these programs that serve more people, that give people a
choice, and that are manageable from a State budget standpoint.
I mean, you are absolutely right that we are not going to
make a difference in this problem if we come up with some
approach that is going to cost States a lot more money. They
don't have more money right now, but we have got enough
evidence that these kinds of reforms can be done in a way that
works, and that serves more people more effectively. And using
the woodwork excuse is just not good policy.
Mr. Holtz-Eakin. I think the recent evidence is this is an
important part of policy design. I forget the exact numbers,
but within Medicaid, home and community-based care in recent
years has grown about 11 percent. Nursing home growth has been
much lower, and that has largely to do with the numbers of
bodies involved. So in designing a policy, you have to worry
about those who are desirous of being in their homes, and who
might now be in donated care moving on to a program like that.
Mr. Shimkus. And Dr. Holtz-Eakin, when, in your formulary,
in your statistical analysis, are you taking into consideration
the return on the investment, and the ability of the disabled
community to work and be productive, because they are staying
at home, versus institutional care.
Mr. Holtz-Eakin. In terms of direct feedback, so I am----
Mr. Shimkus. Obviously, they could be in essence, then,
working. They could be earning income, other issues there.
Mr. Holtz-Eakin. It depends on the context. We could look
at particulars, but we do try to trace through comprehensive,
the impacts of any bill, and if that were to allow the disabled
to work more, at some cost, but with some other implications
for the budget, we would try to track those as well.
Mr. Shimkus. Because there may be a revenue generator that
might offset expenses. I am not sure. I am not a mathematician,
or a----
Mr. Holtz-Eakin. But the details, we would be happy to
work----
Mr. Shimkus. Thank you. Mr. Chairman, the last thing. That
long-term care insurance, if offered, would it offer for long-
term institutional care and for home care?
Mr. McClellan. Yes, the policies that are around today give
people a lot of flexibility about how they spend the money, and
that is one of the nice features of it. Unlike Medicaid, which
by statute, says institutional care, you can have more control
over how you get long-term services. That is why it should be
such an important part of financial planning for baby boomers
and people who are approaching older ages.
Mr. Shimkus. Well, and that is why I have--in support of
the MiCASSA legislation, or the New Freedom, it does provide
individuals more freedom to make the choices on their own. You
are saying long-term care insurance would do the same thing.
Thank you, Mr. Chairman. I yield back my time.
Mr. Deal. I thank the gentleman. Mr. Strickland, do you
have questions?
Mr. Strickland. Thank you, Mr. Chairman. Dr. McClellan,
following up on your interaction with Representative Allen
regarding intergovernmental transfers, it would be helpful to
us, and I am asking if you would be willing to provide us in
writing the specifics of your policy regarding
intergovernmental transfer. Would you be willing to do that,
sir?
Mr. McClellan. Well, we have, I know, provided some
specifics already in the context of the budget, and that is
what was estimated by our actuaries, and that is what the
Congressional Budget Office used in their scoring. So we can
certainly provide that level of detail, and I know we want to
continue to have discussions with you and your staffs about
exactly how these policies can be implemented. So, we will
continue that, too.
Mr. Strickland. Great. It would be also helpful if you
could include in anything you provided to us what assumptions
you are using in the development of your policy. That would be
very helpful to us.
Mr. McClellan. Okay. I can tell you as a general matter,
that our actuaries don't do State-specific analyses. It is more
of a calculation burden with 50 States, and all kinds of
different programs and they do all they are able to do. They
typically try to do as sophisticated models as they can with
the resources we have, but that means, you know, looking at the
different types of States and different categories, so I will
try to get some of those assumptions to you.
Mr. Strickland. I mean, if there could be some clarity, so
that there, you know, are some specific understandings as to--
--
Mr. McClellan. Well, I appreciate that----
Mr. Strickland. [continuing] as to what policies----
Mr. McClellan. [continuing] is important. We need to get
actual legislation.
Mr. Strickland. Thank you, sir. And I have one question,
but it is a little long, and the answer may be able to be
short. But I wanted to ask you about the Family Opportunity
Act, a bill that would allow families with disabled children,
that may have incomes that are slightly above the Medicaid
level, to buy into Medicaid coverage, so that their children
would have access to the needed services that may not be
readily available to them through any kind of affordable
insurance coverage, and that being the case, then Medicaid
becomes pretty much of a lifeline to these families. The
administration did not include, I think I am right in saying,
the administration did not include any funding for the Family
Opportunity Act in its fiscal year 2006 budget, in spite of the
fact that last year, the administration supported combining the
Money Follows the Person with the Family Opportunity Act as a
legislative initiative. Now, the chairman and the Ranking
Members of the Energy and Commerce Committee, and I believe the
Finance Committees worked together to draft the proposal.
Instead, it seems, you know, from my vantage point, that the
Medicaid program is going to be cut by $60 billion or so, and
the administration has proposed cutting some of the very
services that individuals with disabilities would need,
targeted care case management, for example, which would help
coordinate the care of a special needs child with multiple
needs.
Now, this legislation, as you know, has very strong
bipartisan support, and has had for many years. Some of us were
disappointed, given that, to see that the administration seems
not to be willing to continue its support for this positive
legislation. So, my question to you, after that long
introduction, is does the administration continue to support
the Family Opportunity Act? If it does, can you explain the
lack of funding in the administration's budget for this
purpose?
Mr. McClellan. Well, Congressman, you are right. We didn't
include new funding for the Family Opportunity Act in our
budget. We have worked with States and made clear to States
that they can use Medicaid waivers or SCHIP funds to provide
the kinds of benefits that are included in FOA, but what we did
last year was the same thing. We didn't have funding in our
budget for the Family Opportunity Act. We did have support for
a version of Money Follows the Person, and as you said, we all
started working together, and we came up with an overall
package that included these two important legislative
proposals, that did have, as you said, considerable bipartisan
support. We looked for ways to fund those recognizing that
States don't have new money to contribute to Medicaid and that
we have a tight Federal budget situation as well, and we made a
lot of progress. We are open to that kind of bipartisan process
again, where all of us work on the initiatives that are
important to us, and we make progress together in getting it
done. So I hope we can use the progress that we made last year
as a model, and keep building on it this time around.
Mr. Strickland. Okay. My time is up. I would like to follow
up, but maybe we can do that at some other time.
Mr. McClellan. Yes, and I would be glad to follow up with
you and your staff on this issue.
Mr. Strickland. Thank you, sir.
Mr. McClellan. It is an important one.
Mr. Strickland. Thank you, Mr. Chairman.
Mr. Deal. Well, thank you gentlemen again for your
patience, and for being with us today. We do appreciate it. We
regret that it dragged on too long, but you are very kind to
give your answers. We have some members who will be submitting
written questions to you, if you could respond to those in
writing as well.
Thank you very much.
Mr. McClellan. Thank you very much.
Mr. Holtz-Eakin. Thank you.
Mr. Deal. We will now call up the second panel. We are
having a double header here today. Thank you for waiting
around. I will introduce the panel, and then, we will begin
immediately with your comments. Mr. Lee Page, who is the
Associate Advocacy Director with the Paralyzed Veterans of
America. Ms. Kathryn Allen, the Director of Health Care,
Medicaid, and Private Health Insurance Issues of the U.S.
Government Accountability Office. Ms. O'Shaughnessy, who is
Specialist in Social Legislation, Domestic Social Policy
Division of the Congressional Research Service. Ms. Karen
Ignagni, is that right? Okay. It is pretty close, anyway. It is
good for a Southern drawl it. It helps. President and CEO of
America's Health Insurance Plans. Mr. Stephen Moses, who is
President of the Center for Long-Term Care Financing. Mr.
Bernard Krooks, who is an attorney with Littman Krooks. And
Ms.--Dr. Barbara Stucki, who is Project Manager of the National
Council for the Aging. And Ms. Jennie Chin Hansen, who is the
Board of Directors of the AARP. And Dr. Feder, who is the Dean
of the Public Policy Institute at Georgetown University.
Ladies and gentlemen, we are pleased to have you with us,
and thank you, once again, for your patience, and Mr. Page, we
will begin with you.
STATEMENTS OF LEE PAGE, ASSOCIATE ADVOCACY DIRECTOR, PARALYZED
VETERANS OF AMERICA; KATHRYN G. ALLEN, DIRECTOR, HEALTH CARE,
MEDICAID AND PRIVATE HEALTH INSURANCE ISSUES, U.S. GOVERNMENT
ACCOUNTABILITY OFFICE; CAROL V. O'SHAUGHNESSY, SPECIALIST IN
SOCIAL LEGISLATION, DOMESTIC SOCIAL POLICY DIVISION,
CONGRESSIONAL RESEARCH SERVICE; KAREN IGNAGNI, PRESIDENT AND
CEO, AMERICA'S HEALTH INSURANCE PLANS; STEPHEN MOSES,
PRESIDENT, CENTER FOR LONG-TERM CARE FINANCING; BERNARD A.
KROOKS, LITTMAN KROOKS LLP; BARBARA STUCKI, PROJECT MANAGER,
THE NATIONAL COUNCIL OF THE AGING; JENNIE CHIN HANSEN, BOARD OF
DIRECTORS, CLASS OF 2008, AARP; AND JUDITH FEDER, DEAN, PUBLIC
POLICY INSTITUTE, GEORGETOWN UNIVERSITY
Mr. Page. Okay. Thank you, Mr. Chairman, and thank you,
other members of the committee. I really appreciate the
opportunity to be here today to talk about this very important
subject. Again, my name is Lee Page, and I am an Associate
Advocacy Director for PVA, which is Paralyzed Veterans of
America. It is a national Veterans Service Organization
dedicated to meeting the needs of its members, which are all
veterans of military service with spinal cord injury or
disease. I also serve as a co-chair of the Long-Term Services
and Supports Taskforce of the Consortium of Citizens with
Disabilities, CCD, and then also work very closely with a
number of consumer-led grassroots organizations whose mission
is to work for long-term services and supports.
We have had a very interesting morning this morning,
listening to a lot of different comments, and it is--all sounds
very enlightening and good news to me, in reference to the way
everyone is engaged on this topic and subject. But what I will
focus on in my comments is mainly people with disabilities and
how they interact with the Medicaid system. That means non-
elderly people that are 65 and younger people with
disabilities, and those who are non-veterans also.
The first thing I would like to say is that, to echo, which
I have heard a lot of today already, is that I believe we need
to improve and expand access to community-based long-term
services and supports. Currently, Medicaid has a spending bias
based on a 1965 medical model that refers 70 percent of funding
toward the institutional settings, and institutional care,
which only allows 30 percent for community or home-based long-
term care services. And here we are at the dawn of the 21st
century, and 15 years after the ADA was passed, and people with
disabilities are being integrated into all aspects of society,
and yet, we have certain policies that were being debated and
possibly implemented that will actually send people back into
isolation.
In order to reverse this, I believe the real and lasting
progress in this regard will be made only if Congress protects
the fundamental structure of this program, Medicaid. Critical
features of Medicaid that must be protected include an
enforceable individual entitlement to coverage, a strong
Federal State partnership, a Federal--which guarantees--which
the Federal Government guarantees that will match State
spending, no matter how many people are in the program, or how
many it serves, or how costly the care is to those individuals.
Critical consumer protections that ensure that with, that
ensure that all Medicaid beneficiaries have the right to be
treated equally, and have the right to receive Medicaid covered
services when they are medically necessary. Recently, we have
heard a lot of talk about references of flexibility to be
granted to the States, and that is a very interesting subject,
because the way that disability interprets the word
flexibility, unfortunately in the long run, ends up being a
little bit discriminatory toward those people with
disabilities. What I mean by that is saying that the
flexibility this proposed would permit States to make arbitrary
distinctions between Medicaid beneficiaries on the basis of
whether they fall into a mandatory or an optional category.
This has nothing to do whatsoever with the level of disability,
the need for services, or any other factor that justifies
desperate treatment.
Furthermore, this also calls, this flexibility would permit
States to ignore current Medicaid rules that ensure that
services can be delivered fairly, such as requirements that
benefits must be compared across beneficiary groups, and since
Medicaid service is provided only when they have been
prescribed by a qualified health professional. So basically,
the flexibility could, in some instances, take away care that
has been prescribed.
Furthermore, the majority of Medicaid spending for people
with disabilities falls into the optional services. What we
consider optional, what, you know, what the States may consider
optional services, Medicaid administrators may--might consider
them optional services. People with disabilities basically
depend on those services to be independent and fully
participate in the mainstream of societies.
Example is, say you have got a 35 year old man who has
schizophrenia and basically has to have prescription drugs
three or four times a day to maintain his recurrence of
symptoms, or he would be--end up--be put back in the
institution. Or a 25 year old woman who has CP or muscular
dystrophy, or some other degenerative disease that she would
need a wheelchair or power wheelchair in order to get from
point A to point B, which would include going back to work
part-time. Or a man who is 30 years old who has sustained a
spinal cord injury, result in quadriplegia, would need
attendant care services, such as bathing, getting dressed in
the morning, and transferring in and out of his wheelchair or
transportation in order to get him to go back to school, or to
participate in the mainstream of society. That is just some of
the issues.
I would like to turn, also, toward, you know, Medicaid as
its role in providing long-term services. Let us see. We know
that Medicaid is the largest source of funding for long-term
care. The--and unfortunately, the private insurance market
generally does not provide long-term services. Medicare's
coverage for long-term care services is very limited. People
with disabilities often end up in Medicaid because it is the
only place they can turn to to receive the array of services
and supports that they need to survive.
Mr. Deal. Mr. Page, your time has expired. Would you
summarize for us, please, sir?
Mr. Page. Certainly. I am--I didn't realize time was
slipping away that quick.
Summarize. I guess overall, what I would like to say is we
have--I am encouraged by the fact that Dr. McClellan was here,
and was talking about different options on ways to implement
avenues that will affect people with disabilities, his Money
Follows the Person, we are all behind that, in reference to
that, there is also the Family Opportunity Act, which he--was
mentioned by some of the other members.
And MiCASSA was mentioned by Mr. Shimkus. All these are
legislative avenues that can work to increase home and
community-based services. They have also all been before this
committee for a number of years, and it is a matter of a little
bit of political will, also. And what the disability community
has found is that we are willing to come here and work with you
to get this job done, as a matter of urgency and a point of
time, which is now, because if it is not done today, when is it
going to be done, and if it is not you, who will it be? Thank
you.
[The prepared statement of Lee Page follows:]
Prepared Statement of Lee Page, Associate Advocacy Director, Paralyzed
Veterans of America
Mr. Chairman, members of the Committee, my name is Lee Page. I am
an Associate Advocacy Director for the Paralyzed Veterans of America
(PVA). PVA is a non-profit national Veterans Service Organization
chartered by the Congress of the United States and dedicated to meeting
the needs of its members--veterans of military service who are
paralyzed as a result of spinal cord injury or disease. While almost
all PVA members rely on the Department of Veterans Affairs for health
care and support services, potential changes to the VA system may have
ramifications for other federal programs such as Medicaid. I also serve
as a Co-Chair of the Long-Term Services and Supports Task Force of the
Consortium for Citizens with Disabilities (CCD), a Washington-based
coalition of a more than 100 national disability consumer, provider,
and advocacy organizations. I work very closely with a range of
national consumer-led disability organizations. As the Congress
considers a range of policy options with regard to restructuring of
Medicaid long-term services, I am here to offer a perspective from
people with disabilities. I will focus my comments on issues affecting
non-elderly people with disabilities. For non-veteran people with
disabilities, Medicaid is perhaps the most critical program essential
to their well-being. Let me also add the observation that cuts of the
magnitude contemplated in the budget resolution will preclude any
positive reforms that will be meaningful to the many people with
disabilities who rely on Medicaid.
The first point that I would like to make is that more must be done
to improve and expand access to community-based long-term services and
supports. Currently, Medicaid has a spending bias based on a 1965
medical model that refers 705% of funding towards institutional
settings and allows only 3025% for community and home based long term
supports and services.\1\ At the dawn of the 21st century and 15 years
after the passage of the Americans with Disabilities Act (ADA), people
with disabilities are being integrated into all aspects of society. And
yet, for the many people with disabilities that rely on Medicaid
services, policies are being implemented or contemplated that will
drive them back into isolation.
I believe that real and lasting progress in this regard will be
made only if Congress protects the fundamental structure of the program
that has enabled Medicaid to be a source of progress for the past four
decades. Critical features of Medicaid that must be protected include
an enforceable individual entitlement to coverage; the strong federal-
state partnership, in which the federal government guarantees that it
will matches state spending, no matter how many people the program
serves or how costly the critical Medicaid services that are provided;
and critical consumer protections that ensure that, with limited
exceptions, all Medicaid beneficiaries have a right to be treated
equally and have a right to receive Medicaid covered services when they
are medically necessary.
Recently, HHS Secretary Leavitt has made statements that he
believes that states should be given greater ``flexibility'' with
regard to Medicaid's so-called optional populations and optional
services.\2\ From the disability community's perspective, this so-
called flexibility is more appropriately characterized as
discrimination. The flexibility that is proposed would permit states to
make arbitrary distinctions between Medicaid beneficiaries on the basis
of whether they fall into mandatory or optional categories. This has
nothing whatsoever to do with the level of disability, the need for
services, or any factor that could justify disparate treatment.
Furthermore, this so-called flexibility would permit states to ignore
current Medicaid rules that ensure that services are delivered fairly--
such as the requirement that benefits must be comparable across
beneficiary groups. Since Medicaid services are provided only when they
have been prescribed by qualified health professionals, this so-called
flexibility could only lead to some Medicaid services being denied to
people who need them. It is important to note that a significant
proportion of people with disabilities qualify for Medicaid through
optional eligibility categories. Further, the majority of Medicaid
spending on people with disabilities is on optional services.\3\
Optional services are mainly disability focused. What may be considered
optional by states and Medicaid administrators in some cases may be
essential to a person's efforts to remain independent and fully
participate in the mainstream of society.
For Medicaid beneficiaries with disabilities, optional services are
not optional. A 35 year old man with schizophrenia may have to take
three prescriptions daily to avoid recurrence of symptoms that would
place him in an institution. A 25 year old woman with cerebral palsy
needs her wheelchair to continue to work part time. A 30 year old man
who sustained a spinal cord injury resulting in quadriplegia needs
attendant care in bathing, getting dressed, eating and transferring in
order to go back to school.
I would like to turn to the important role of Medicaid in providing
long-term services and supports to people with disabilities. In
addition to Medicaid's role in providing a range of acute care services
to people with disabilities, many people with serious and long-lasting
disabilities end up on Medicaid because they require long-term services
and supports. Medicaid is the largest source of funding for long-term
care. The private insurance market generally does not provide long-term
services, and Medicare's coverage for long-term services is very
limited. People with disabilities often end up on Medicaid because it
is the only place that they can turn to receive the array of services
and supports that they need to survive. For people who are less
familiar with these issues, long-term services and supports are
generally non-medical services that provide assistance with core
activities of everyday life such as eating and preparing meals,
dressing and toileting, and managing a home or personal finances. These
services are a critical part of the Medicaid program and were defined
in the program's statutory purpose: ``and (2) rehabilitation and other
services to help such families and individuals attain or retain
capability for independence or self care . . .''
I know that some proponents have advocated for a greater reliance
on private long-term care insurance as a policy response to growing
Medicaid costs for long-term care. I am skeptical that, without
fundamental restructuring and greater regulation of the long-term care
market, private long-term care insurance can ever develop into a viable
tool for retirement planning or for helping individuals and families to
plan for long-term care needs later in life. However, it is clear that
private long-term care insurance is not a policy solution for financing
the long-term care needs of non-elderly people with disabilities. These
policies were not developed for children, young adults and younger
working people--and in the current market, such coverage would be
unavailable or unaffordable to people with disabilities.
While Medicaid plays an essential role in providing long-term
services, this is also an area where the program must do better. People
with disabilities are looking to the Congress to urgently address
barriers that prevent millions of Medicaid beneficiaries with
disabilities from receiving community-based long-term services.
Medicaid law requires states to provide nursing home care, without
requiring states to provide the same level and types of services in the
community. This is the ``institutional bias.'' Hundreds of thousands of
people with disabilities would like to and could live in their own home
and community, if they received long-term services and supports that
enable them to do so. According to CMS' Minimum Data Set--Nationally,
there are 1,404,406 persons (by definition they are disabled) residing
in nursing homes of whom 19.5% (273,859 disabled persons) have stated
they want to live in the community. But these individuals are forced to
be segregated in an institution as their only option for receiving this
assistance.
Virtually all policy makers agree with the disability community
that we need to rebalance the Medicaid long-term care system so that
all Medicaid beneficiaries have the option of receiving long-term
services in their homes and communities. This issue was given momentum
five years ago when the United States Supreme Court held in its
Olmstead \4\ decision that the unjustified institutional isolation of
people with disabilities is discriminatory and unlawful under the
Americans with Disabilities Act. While this decision has enormous
implications for Medicaid, it did not change the Medicaid law or
require an end to the institutional bias. The disability community's
preferred solution is for the Congress to swiftly enact the Medicaid
Community Attendant Services and Supports Act (MiCASSA), H.R. 910 and
S. 401 and HR 910. This legislation would mandate that states offer
home and community based services for those individuals with
disabilities who are in or are eligible for institutional settings.
Some policy makers have misgivings with the MiCASSA model out of
concern for the potential cost. While we believe that the only
meaningful solution to the challenge of providing expanded access to
community-based services will require new resources, the disability
community is also supportive of several other initiatives that would
make incremental progress toward enacting achieving MiCASSA's goals.
This includes strongly supporting the Money Follows the Person Act,
S. 528, an important first step that would provide competitive
demonstration projects to enable Medicaid-eligible individuals to
receive long-term services in the setting of their choice. States would
receive expanded funding for one year for each person that a state
moves out of a nursing home or other institution into the community
with appropriate services. We have worked closely with Dr. McClellan
and the Bush Administration on this initiative which is a central
element of the President's New Freedom Initiative of 2001. However,
after 5 years, the Bush administration has failed to put forth
comprehensive legislation addressing the goals of the New Freedom
Initiative, including any proposal to assist states' compliance with
the Supreme Court's Olmstead decision.
Please note we also support companion legislation, the Family
Opportunity Act, that would provide states with the option to provide
critical support for families with children with serious disabilities.
At the end of the 108th Congress, this Committee linked the two pieces
of legislation (FOA and Money Follows the Person) in hopes of moving
them together for passage. Unfortunately, that did not happen. We had
hoped that the legislation would be introduced as a package in the
109th Congress, sending a strong message that Congress and the
Administration are ready to move this issue. Unfortunately, this has
not yet happened.
Additionally, we believe there are other incremental steps that the
Congress can take to expand access to community-based long-term
services. Twenty-nine 29states provide community long-term services
through use of the personal care option and 44 states rely on the
rehabilitation services option. These are critical optional services
that states have relied upon to develop innovative models for providing
community-based long-term services.\5\ We believe that the federal
government could assist states in rebalancing their long-term care
programs through providing an enhanced match for personal care and
rehabilitation services. These approaches could be phased in over time.
It is seductive to think that easy solutions are out there for
improving Medicaid. Some claim that reverse mortgages are a policy
innovation that will assist Medicaid beneficiaries in financing the
cost of long-term services and supports--in a way that lowers federal
costs. Similarly, several Members of Congress and the Bush
Administration have proposed new restrictions on the transfer of assets
before individuals qualify for Medicaid coverage. Easy solutions do not
exist and the potential benefits of reverse mortgages or asset transfer
restrictions are being oversold. More importantly, however, these
policies are largely irrelevant to non-elderly people with
disabilities. Non-elderly people with disabilities have lower incomes
and fewer resources than many seniors. Many people with disabilities
have not had the opportunity to accumulate assets. They have not built
up significant equity in their homes with which to take a reverse
mortgage and that assumes they can afford to own a home. Moreover, as
with other non-elderly individuals, policy makers should be encouraging
people with disabilities to accumulate assets for use in their later
years, making reverse mortgages particularly inappropriate for these
individuals.
In conclusion, as has happened several times in the past, Medicaid
is at a critical juncture. The actions of this Congress will determine
whether or not Medicaid continues to evolve and adapt to improve the
lives of people with disabilities and other Medicaid beneficiaries. It
is hard to imagine, however, how positive progress can be made if the
Congress enacts large Medicaid cuts--such as the $10 billion in savings
that are being contemplated per the budget resolution. Our perspective
is that Medicaid is an effective model of a flexible, adaptable, and
working public program that should be expanded and not cut. By
protecting the core features of Medicaid, it will continue to serve as
a mechanism for achieving an important national goal--and necessity--to
assist people with disabilities to live full and meaningful lives,
integrated fully in their communities. I urge Congress to look beyond
the short-term budget debate and enact forward-looking policies that
people with disabilities and all Americans can applaud.
Mr. Deal. Thank you. Ms. Allen.
STATEMENT OF KATHRYN G. ALLEN
Ms. Allen. Mr. Chairman, Mr. Brown, and members of the
subcommittee, thank you for inviting me to be part of this very
important hearing today.
Earlier this year, GAO issued a report to coincide with the
convening of this Congress, a report entitled ``21st Century
Challenges: Reexamining the Base of the Federal Government.''
That report provides a very comprehensive compendium of areas
throughout government that may warrant reconsideration in
today's fiscal climate. One question posed in that report, and
which is very germane to today's hearing, is the question, what
options are there for rethinking the Federal, State, and
private insurance roles in financing long-term care?
In general, the aging of this baby boom generation, of
which I am a member, will lead to a very sharp growth in
Federal entitlement spending that, without meaningful reforms,
will represent an unsustainable burden on future generations.
If you look at the chart that we have displayed, we see that
Federal spending for three major entitlement programs which
serve persons needing long-term care, Medicaid, Medicare, and
Social Security, will nearly double as a share of the economy
by the year 2035, and will triple by the year 2080. This
represents a growth from 8.5 percent of GDP to about 25 percent
just for these three programs. And Federal spending for
Medicaid alone, exclusive of State spending, could increase to
as much as 5 percent. Now, recently, much attention has been
focused on the need for Social Security and Medicare reform, in
order to maintain their viability and ability to meet future
commitments, but a broader focus would also look at Medicaid.
As we have heard today already, about two-thirds of the entire
Medicaid program is dedicated to services for persons who are
aged and disabled, although they represent only one-fourth of
the beneficiaries.
Medicaid also accounts for one of the largest components of
most States' budgets. As we can see in the next graphic, it is
a pie chart, that two thirds of all spending now for long-term
care, regardless of the age of the beneficiary, is paid for by
the public sector. Medicaid alone accounts for almost half of
this care, about 48 percent. I would note, though, that this
chart differs from the one that Dr. Holtz-Eakin presented,
because we did not factor in the cost of informal or donated
care.
In coming decades, the sheer number of aging baby boomers
is going to swell the numbers of elderly with disabilities and
the need for long-term care. We have heard about this already,
but this new demand is going to exacerbate the problems we
already see. The problems we see today include an inability to
obtain the care that is needed at home or in the community, and
we see long-term care costs that could be financially
catastrophic for families. We see the continuing geographic
dispersion of families, which reduces the number of informal,
unpaid family caregivers who help elderly persons stay in their
homes and live independently as long as possible.
And considering the options and the hard choices that we
need to confront for long-term care financing, we have to keep
in mind that long-term care is not just about healthcare. It
comprises a variety of services that persons who are aged or
disabled need beyond medical care to maintain their quality of
life. These additional services include housing,
transportation, nutrition, and social support to help them
continue to live independently. With this in mind, there are
several issues that I would like to put on the table that
people need to consider in exploring long-term care financing
alternatives.
I am going to highlight just three, and there are others in
my written statement. The first consideration is determining
societal versus personal responsibilities. A fundamental
question we need to address is how much the choices of how
long-term care needs are met should depend on an individual's
own resources, or the extent to which society should supplement
those resources to broaden their range of choices. Now, this is
particularly true for persons with severe disabilities, who
have a limited capacity to produce income. A related question
is the extent to which societal responsibility includes
providing a minimum safety net, or some form of social
insurance, that is consistent for all individuals in similar
circumstances regardless of where they live within a State or
across the country.
A second consideration is personal preparedness. The public
sector has a very important role in this regard, including
educating people about the current division between personal
and societal responsibilities. Only if the limits of public
support are clear will individuals be likely to take steps
needed to prepare for any possible disability. Currently, one
of the factors contributing to the lack of preparation for
long-term care is a widespread misunderstanding about what
services Medicare or their own private health insurance will
cover. Another public role may be to encourage the availability
of sound private long-term care insurance policies. We are
hopeful that the Federal Government's own experience in
offering long-term care insurance, began just two or 3 years
ago, will be instructive in this regard.
Mr. Chairman, the last consideration that I will mention
concerns the need to recognize the benefits, the burdens, and
the cost of informal care giving. As you well know, as you have
pointed out today, family members and other informal caregivers
play a critical role in supplying the needs of these
individuals. Effective policy may address incentives and
supports that enable informal caregivers and family members to
continue providing assistance, while taking care to also avoid
creating incentives that would supplant that informal care with
paid or public services. And as already mentioned today, it is
also important to note the physical, emotional, and social
burdens that providing care imposes on the caregiver, and its
economic cost to the caregiver and society.
Mr. Chairman, these and other considerations will require
some very difficult policy choices, and the GAO stands ready to
support you and the rest of the Congress in looking at the
facts, and analyzing the facts, to help make those choices.
Thank you.
[The prepared statement of Kathryn G. Allen follows:]
Prepared Statement of Kathryn G. Allen, Director, Health Care--Medicaid
and Private Health Insurance Issues, United States Government
Accountability Office
Mr. Chairman and Members of the Subcommittee: I am pleased to be
here today as you discuss the anticipated growing demand and associated
costs for long-term care services, which will be driven largely by the
aging baby boom generation, and the challenges that increased demand
will bring for federal and state budgets. Earlier this year, we issued
a report entitled 21st Century Challenges: Reexamining the Base of the
Federal Government to provide policymakers with a comprehensive
compendium of those areas throughout government that could be
considered ripe for reexamination and review based on our past work and
institutional knowledge.1 In that report, we presented
illustrative questions for policymakers to consider as they carry out
their responsibilities. These questions examined major areas of the
budget and federal operations including discretionary and mandatory
spending, and tax policies and programs. One prominent question that we
raised in that report and that will be the focus of my comments today
is ``What options are there for rethinking the federal, state, and
private insurance roles in financing long-term care?''
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\1\ GAO, 21st Century Challenges: Reexamining the Base of the
Federal Government, GAO05325SP (Washington, D.C.: February 2005).
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In general, the aging of the baby boom generation will lead to a
sharp growth in federal entitlement spending that, absent meaningful
reforms, will represent an unsustainable burden on future generations.
As the estimated 76 million baby boomers born between 1946 and 1964
become elderly, Medicare, Medicaid, and Social Security will nearly
double as a share of the economy by 2035. We have been able to sustain
these entitlements in the past with low depression-era birth rates and
a large postwar workforce. However, absent substantive reform of
entitlement programs, a rapid escalation of federal spending for Social
Security, Medicare, and Medicaid is virtually certain to overwhelm the
rest of the federal budget.
Most attention has been focused on the need for Social Security and
Medicare reform in order to maintain their viability and ability to
meet programmatic commitments. By 2017, Social Security's cash income
(tax revenue) is projected to fall below program expenses. At that
time, Social Security will join Medicare's Hospital Insurance Trust
Fund, whose outlays exceeded cash revenues in 2004, as having a cash
flow deficit. While these are important issues, a broader focus should
also include Medicaid, particularly as it involves financing long-term
care. Long-term care includes an array of health, personal care, and
supportive services provided to persons with physical or mental
disabilities. It relies heavily on financing by public payers,
especially Medicaid, and has significant implications for state budgets
as well as the federal budget.
My remarks today will focus on (1) the pressure that entitlement
spending for Medicare, Medicaid, and Social Security is expected to
exert on the federal budget in coming decades; (2) how the aging of the
baby boomers will increase the demand for long-term care services; and
(3) how these trends will affect the current and future financing of
long-term care services, particularly in federal and state budgets. I
will also highlight several considerations for any possible reforms of
long-term care financing. My comments are based on prior GAO work,
particularly a 2002 testimony by the Comptroller General.2
We updated prior GAO work by including more recent data from GAO's
budget simulation model, the Centers for Medicare & Medicaid Services,
and the U.S. Census Bureau as well as the literature. We conducted our
work to update this earlier testimony from February through April 2005
in accordance with generally accepted government auditing standards.
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\2\ GAO, Long-Term Care: Aging Baby Boom Generation Will Increase
Demand and Burden on Federal and State Budgets, GAO02544T (Washington,
D.C.: March 21, 2002).
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In summary, it is clear that, taken together, Medicare, Medicaid,
and Social Security represent an unsustainable burden on future
generations. Increased demand for long-term care, which will be driven
in part by the aging baby boom generation, will contribute further to
federal and state budget burdens. Estimates suggest the number of
disabled elderly who cannot perform basic activities of daily living
without assistance may as much as double from 2000 through 2040.
Current problems with the provision and financing of long-term care
could be exacerbated by the swelling numbers of the baby-boom
generation needing care. These problems include whether individuals
with disabilities receive adequate services, the potential for families
to face financially catastrophic long-term care costs, and the burdens
and social costs that heavy reliance on unpaid care from family members
and other informal caregivers create coupled with possibly fewer
caregivers available in coming generations. Long-term care spending
from all public and private sources, which was about $183 billion for
persons of all ages in 2003, will increase dramatically in the coming
decades as the baby boom generation ages. Spending on long-term care
services just for the elderly is estimated to increase from 2000 by
more than two-and-a-half times by 2040 and could nearly quadruple in
constant dollars to $379 billion by 2050, according to some estimates.
Without fundamental financing changes, Medicaid--which pays over one-
third of long-term care expenditures for the elderly--can be expected
to remain one of the largest funding sources, straining both federal
and state governments.
In considering options for reforming long-term care financing in
light of these anticipated demands for assistance and budgeting
stresses, it is important to keep in mind that long-term care is not
just about health care. It also comprises a variety of services an aged
and/or disabled person requires to maintain quality of life--including
housing, transportation, nutrition, and social support to help maintain
independent living. Given the challenges in providing and paying for
these myriad and growing needs, several considerations for shaping
reform proposals include:
determining societal responsibilities;
considering the potential role of social insurance in financing;
encouraging personal preparedness;
recognizing the benefits, burdens, and costs of informal caregiving;
assessing the balance of state and federal responsibilities to ensure
adequate and equitable satisfaction of needs;
adopting effective and efficient implementation and administration of
reforms; and
developing financially sustainable public commitments.
BACKGROUND
Long-term care includes many types of services needed when a person
has a physical or mental disability. Individuals needing long-term care
have varying degrees of difficulty in performing some activities of
daily living without assistance, such as bathing, dressing, toileting,
eating, and moving from one location to another. They may also have
trouble with instrumental activities of daily living, which include
such tasks as preparing food, housekeeping, and handling finances. They
may have a mental impairment, such as Alzheimer's disease, that
necessitates assistance with tasks such as taking medications or
supervision to avoid harming themselves or others. Although a chronic
physical or mental disability may occur at any age, the older an
individual becomes, the more likely a disability will develop or
worsen.
According to the 1999 National Long-Term Care Survey, approximately
7 million elderly had some sort of disability in 1999, including about
1 million needing assistance with at least five activities of daily
living.3 Assistance takes place in many forms and settings,
including institutional care in nursing homes or assisted living
facilities, and home care services. Further, many disabled individuals
rely exclusively on unpaid care from family members or other informal
caregivers.
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\3\ See Kenneth G. Manton and XiLiang Gu, ``Changes in the
Prevalence of Chronic Disability in the United States Black and
NonBlack Population Above Age 65 from 1982 to 1999,'' Proceedings of
the National Academy of Sciences of the United States of America, vol.
98, no. 11, (2001). The National Long-Term Care Survey was conducted in
1982, 1984, 1989, 1994, 1999, and 2004, but the 2004 results are not
yet available.
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Nationally, spending from all public and private sources for long-
term care for all ages totaled about $183 billion in 2003, accounting
for about 13 percent of all health care expenditures.4 About
69 percent of expenditures for long-term care services were paid for by
public programs, primarily Medicaid and Medicare. Individuals financed
about 20 percent of these expenditures out of pocket and, less often,
private insurers paid for long-term care. Moreover, these expenditures
did not include the extensive reliance on unpaid long-term care
provided by family members and other informal caregivers. Figure 1
shows the major sources financing these expenditures.
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\4\ Based on our analysis of data from the Office of the Actuary of
the Centers for Medicare & Medicaid Services and The MEDSTAT Group.
These figures include long-term care for all people, regardless of age.
---------------------------------------------------------------------------
Medicaid, the joint federal-state health-financing program for low-
income individuals, continues to be the largest funding source for
long-term care. Medicaid provides coverage for poor persons and for
many individuals who have become nearly impoverished by ``spending
down'' their assets to cover the high costs of their long-term care.
For example, many elderly persons become eligible for Medicaid as a
result of depleting their assets to pay for nursing home care that
Medicare does not cover. In 2003, Medicaid paid 48 percent (about $87
billion) of total long-term care expenditures. States share
responsibility with the federal government for Medicaid, paying on
average approximately 43 percent of total Medicaid costs in fiscal year
2002.5 Eligibility for Medicaid-covered long-term care
services varies widely among states. Spending also varies across
states--for example, in fiscal year 2000, Medicaid per capita long-term
care expenditures ranged from $73 per year in Nevada to $680 per year
in New York. For the national average, about 57 percent of Medicaid
long-term care spending in 2002 was for the elderly. In 2003, nursing
home expenditures dominated Medicaid long-term care expenditures,
accounting for about 47 percent of its long-term care spending. Home
care expenditures make up a growing share of Medicaid long-term care
spending as many states use the flexibility available within the
Medicaid program to provide long-term care services in home- and
community-based settings.6 From 2000 through 2003, home and
personal care expenditures grew at an average annual rate of 15.9
percent compared with 4.0 percent for nursing facility spending.
Expenditures for Medicaid home- and community-based services for long-
term care almost doubled from 1998 to 2003--from about $10 billion to
about $19 billion.
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\5\ The federal share of Medicaid funding varies by state and is
based on a state's per capita income in relation to the national per
capita income. By statute, the federal share of Medicaid expenditures
across individual states may range from 50 to 83 percent. 42 U.S.C.
1396 d (b) (2000).
\6\ Through Medicaid home- and community-based services, states
cover a wide variety of nonmedical and social services and supports
that allow people to remain in the community. These services include
personal care, personal call devices, homemakers' assistance, chore
assistance, adult day health care, and other services that are
demonstrated as cost-effective and necessary to avoid
institutionalization. In their home- and community-based services
programs, however, states often limit eligibility or the scope of
services in order to control costs.
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Other significant long-term care financing sources include:
Individuals' out-of-pocket payments, the second largest source of
long-term care expenditures, accounted for 20 percent (about
$38 billion) of total expenditures in 2003. The vast majority
(82 percent) of these payments were used for nursing home care.
Medicare spending accounted for 18 percent (about $33 billion) of
total long-term care expenditures in 2003. While Medicare
primarily covers acute care, it also pays for limited stays in
post-acute skilled nursing care facilities and home health
care.
Private insurance, which includes both traditional health insurance
and long-term care insurance, 7 accounted for 9
percent (about $16 billion) of long-term care expenditures in
2003.
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\7\ Private long-term care insurance commonly includes policies
that provide coverage for at least 12 months of necessary services--as
demonstrated by an inability to perform a certain number of activities
of daily living--provided in settings other than acute-care hospital
units.
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ABSENT REFORM, SPENDING FOR MEDICAID, MEDICARE, AND SOCIAL SECURITY
WILL PUT UNSUSTAINABLE PRESSURE ON THE FEDERAL BUDGET
Before focusing on the increased burden that long-term care will
place on federal and state budgets, it is important to look at the
broader budgetary context. As we look ahead we face an unprecedented
demographic challenge with the aging of the baby boom generation. As
the share of the population 65 and over climbs, federal spending on the
elderly will absorb a larger and ultimately unsustainable share of the
federal budget and economic resources. Federal spending for Medicaid,
Medicare, and Social Security is expected to surge--nearly doubling by
2035--as people live longer and spend more time in retirement. In
addition, advances in medical technology are likely to keep pushing up
the cost of health care. Moreover, the baby boomers will be followed by
relatively fewer workers to support them in retirement, prompting a
relatively smaller employment base from which to finance these higher
costs. Based on CBO's long-term Medicaid estimates, the federal share
of Medicaid as a percent of GDP will grow from today's 1.5 percent to
2.6 percent in 2035 and reach 4.8 percent in 2080. Under the 2005
Medicare trustees' intermediate estimates, Medicare will almost triple
as a share of gross domestic product (GDP) between now and 2035 (from
2.7 percent to 7.5 percent) and reach 13.8 percent of GDP in 2080.
Under the Social Security trustees' intermediate estimates, Social
Security spending will grow as a share of GDP from 4.3 percent today to
6.3 percent in 2035, reaching 6.4 percent in 2080. (See fig. 2.)
Combined, in 2080 almost one-quarter of GDP will be devoted to federal
spending for these three programs alone.
To move into the future with no changes in federal health and
retirement programs is to envision a very different role for the
federal government. Our long-term budget simulations serve to
illustrate the increasing constraints on federal budgetary flexibility
that will be driven by entitlement spending growth. Assume, for
example, that all expiring tax provisions are extended, revenue remains
constant thereafter as a share of GDP, and discretionary spending keeps
pace with the economy. Under these conditions, by 2040 federal revenues
may be adequate to pay little more than interest on the federal
debt.8 (See fig. 3.)
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\8\ For additional discussion of our budget simulations, see GAO,
Our Nation's Fiscal Outlook: The Federal Government's Long-Term Budget
Imbalance, at http://www.gao.gov/special.pubs/longterm/longterm.html.
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Beginning about 2010, the share of the population that is age 65 or
older will begin to climb, with profound implications for our society,
our economy, and the financial condition of these entitlement programs.
In particular, both Social Security and the Hospital Insurance portion
of Medicare are largely financed as pay-as-you-go systems in which
current workers' payroll taxes pay current retirees' benefits.
Therefore, these programs are directly affected by the relative size of
populations of covered workers and beneficiaries. Historically, this
relationship has been favorable. In the near future, however, the
overall worker-to-retiree ratio will change in ways that threaten the
financial solvency and sustainability of these entitlement programs. In
2000, there were 4.8 working-age persons (20 to 64 years) per elderly
person, but by 2030, this ratio is projected to decline to
2.9.9 This decline in the overall worker-to-retiree ratio
will be due to both the surge in retirees brought about by the aging
baby boom generation as well as falling fertility rates, which
translate into relatively fewer workers in the near future.
---------------------------------------------------------------------------
\9\ The specific ratios for the programs differ because of
differences in the respective covered populations. Specifically, for
Social Security, the ratio of covered workers to beneficiaries in 2005
is estimated to be 3.3. Under the 2005 Trustees' intermediate
estimates, this ratio is projected to decline to 2.1 by 2035. For
Medicare Hospital Insurance, the ratio was estimated to be 3.9 for 2005
and was projected to decline to 2.3 by 2035 under the 2005 Trustees'
intermediate estimates.
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Social Security's projected cost increases are due predominantly to
the burgeoning retiree population. Even with the increase in the Social
Security eligibility age to 67, these entitlement costs are anticipated
to increase dramatically in the coming decades as a larger share of the
population becomes eligible for Social Security, and if, as expected,
average longevity increases.
As the baby boom generation retires and the Medicare-eligible
population swells, the imbalance between outlays and revenues will
increase dramatically. Medicare growth rates reflect not only a rapidly
increasing beneficiary population, but also the escalation of health
care costs at rates well exceeding general rates of inflation. While
advances in science and technology have greatly expanded the
capabilities of medical science, disproportionate increases in the use
of health services have been fueled by the lack of effective means to
channel patients into consuming, and providers into offering, only
appropriate services. In fiscal year 2004, Medicare spending grew by
8.5 percent and is up 9.9 percent for the first 6 months of fiscal year
2005.10 The implementation of the Medicare outpatient drug
benefit in January 2006 will further increase Medicare spending in
future years.
---------------------------------------------------------------------------
\10\ See CBO, Monthly Budget Review for November 4, 2004, and April
6, 2005.
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To obtain a more complete picture of the future health care
entitlement burden, especially as it relates to long-term care, we must
also acknowledge and discuss the important role of Medicaid. In 2003,
approximately 69 percent of all Medicaid dollars was dedicated to
services for the elderly and people with disabilities. Medicaid is the
second largest and fastest growing item in overall state spending. At
the February 2005 National Governors Association meeting, governors
reported that states are faced with proposing cuts in their Medicaid
programs. Over the longer term, the increase in the number of elderly
will add considerably to the strain on federal and state budgets as
governments struggle to finance increased Medicaid spending. In
addition, this strain on state Medicaid budgets may be exacerbated by
fluctuations in the business cycle. State revenues decline during
economic downturns, while the needs of the disabled for assistance
remain constant.
BABY BOOM GENERATION WILL GREATLY EXPAND DEMAND FOR LONG-TERM CARE
In coming decades, the sheer number of aging baby boomers will
swell the number of elderly with disabilities and the need for
services. These overwhelming numbers offset the slight reductions in
the prevalence of disability among the elderly reported in recent
years. In 2000, individuals aged 65 or older numbered 35.1 million
people--12.4 percent of our nation's total population. By 2020, that
percentage will increase by nearly one-third to 16.3 percent--one in
six Americans--and will represent nearly 20 million more elderly than
there were in 2000. By 2040, the number of elderly aged 85 years and
older--the age group most likely to need long-term care services--is
projected to increase more than 250 percent from 4.3 million in 2000 to
15.4 million (see fig. 4).
It is difficult to precisely predict the future increase in the
number of the elderly with disabilities, given the counterbalancing
trends of an increase in the total number of elderly and a possible
continued decrease in the prevalence of disability. The number of
elderly with disabilities remained fairly constant from 1982 through
1999 while the percentage of those with disabilities fell between 1 and
2 percent a year from 1984 through 1999. Possible factors contributing
to this decreased prevalence of disability include improved health
care, improved socioeconomic status, and better health behaviors. The
positive benefits of the decreased prevalence of disability, however,
will be overwhelmed by the sheer numbers of aged baby boomers. The
total number of disabled elderly is projected to increase, with
estimates varying from an increase of one-third to twice the current
level, or as high as 12.1 million by 2040.
The increased number of disabled elderly will exacerbate current
problems in the provision and financing of long-term care services. For
example, in 2000 it was reported that approximately one in five adults
with long-term care needs and living in the community reported an
inability to receive needed care, such as assistance in toileting or
eating, often with adverse consequences.11 In addition,
disabled elderly may lack family support or the financial means to
purchase medical services. Long-term care costs can be financially
catastrophic for families. Services, such as nursing home care, are
very expensive; while costs can vary widely, a year in a nursing home
typically costs more than $50,000, and in some locations can be
considerably more. Because of financial constraints, many elderly rely
heavily on unpaid caregivers, usually family members and friends;
overall, the majority of care received in the community is unpaid.
However, in coming decades, fewer elderly may have the option of unpaid
care because a smaller proportion may have a spouse, adult child, or
sibling to provide it. By 2020, the number of elderly who will be
living alone with no living children or siblings is estimated to reach
1.2 million, almost twice the number without family support in
1990.12 In addition, geographic dispersion of families may
further reduce the number of unpaid caregivers available to elderly
baby boomers.
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\11\ Judith Feder et al., ``Long-Term Care in the United States: An
Overview,'' Health Affairs, May/June 2000, pp. 40-56.
\12\ ``Aging into the 21st Century,'' prepared by Jacob Siegel for
the Administration on Aging, U.S. Department of Health and Human
Services, May 1996.
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SPENDING FOR LONG-TERM CARE FOR ELDERLY ANTICIPATED TO INCREASE SHARPLY
Public and private spending on long-term care was about $183
billion for persons of all ages in 2003. CBO projected in 1999 that
long-term care spending for the elderly could increase by more than
two-and-a-half times from 2000 to 2040. A 2001 study projected that
these expenditures could quadruple from 2000 through 2050, reaching
$379 billion in 2050.13 (See fig. 5.) Estimates of future
spending are imprecise, however, due to the uncertain effect of several
important factors, including how many elderly will need assistance, the
types of care they will use, and the availability of public and private
sources of payment for care. Absent significant changes in the
availability of public and private payment sources, however, future
spending is expected to continue to rely heavily on public payers,
particularly Medicaid, which estimates indicate paid about 35 percent
of long-term care expenditures for the elderly in 2004.
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\13\ Assistant Secretary for Planning and Evaluation (ASPE) of the
U.S. Department of Health and Human Services, who contracted with The
Lewin Group, as published in Urban Institute, ``Long-Term Care:
Consumers, Providers, and Financing, A Chart Book'' (Washington, D.C.:
March 2001).
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One factor that will affect spending is how many elderly will need
assistance. As noted earlier, even with continued decreases in the
prevalence of disability, aging baby boomers are expected to have a
disproportionate effect on the demand for long-term care. Another
factor influencing projected long-term care spending is the type of
care that the baby boom generation will use. Per capita expenditures
for nursing home care greatly exceed those for care provided in other
settings. Since the 1990s, there have been increases in the use of paid
home care as well as in assisted living facilities, a relatively newer
and developing type of housing. It is unclear what effect continued
growth in paid home care, assisted living facilities, or other care
alternatives may have on future expenditures. Any increase in the
availability of home care may reduce the average cost per disabled
person, but the effect could be offset if there is an increase in the
use of paid home care by persons currently not receiving these
services.
Changes in the availability of public and private sources to pay
for care will also affect expenditures. Private long-term care
insurance has been viewed as a possible means of reducing catastrophic
financial risk for the elderly needing long-term care and relieving
some of the financial burden currently falling on public long-term care
programs. Increases in private insurance may lower public expenditures
but raise spending overall because insurance increases individuals'
financial resources when they become disabled and allows the purchase
of additional services. The number of policies in force remains
relatively small despite improvements in policy offerings and the tax
deductibility of premiums. However, as we have previously testified,
questions about the affordability of long-term care policies and the
value of the coverage relative to the premiums charged have posed
barriers to more widespread purchase of these policies.14
Further, many baby boomers continue to assume they will never need such
coverage or mistakenly believe that Medicare or their own private
health insurance will provide comprehensive coverage for the services
they need. If private long-term care insurance is expected to play a
larger role in financing future generations' long-term care needs,
consumers need to be better informed about the costs of long-term care,
the likelihood that they may need these services, and the limits of
coverage through public programs and private health insurance.
---------------------------------------------------------------------------
\14\ GAO, Long-Term Care: Baby Boom Generation Increases Challenge
of Financing Needed Services, GAO01563T (Washington, D.C.: Mar. 27,
2001) and Long-Term Care Insurance: Better Information Critical to
Prospective Purchasers, GAO/THEHS00196 (Washington, D.C.: Sept. 13,
2000).
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With or without increases in the availability of private insurance,
Medicaid and Medicare are expected to continue to pay for the majority
of long-term care services for the elderly in the future. Without
fundamental financing changes, Medicaid can be expected to remain one
of the largest funding sources for long-term care services for aging
baby boomers, with Medicaid expenditures for long-term care for the
elderly reaching as high as $132 billion by 2050. As noted earlier,
this increasing burden will strain both federal and state governments.
CONSIDERATIONS FOR REFORMING LONG-TERM CARE FINANCING
Given the anticipated increase in demand for long-term care
services resulting from the aging of the baby boom generation, the
concerns about the availability of services, and the expected further
stress on federal and state budgets and individuals' financial
resources, some policymakers and advocates have called for long-term
care financing reforms. Indeed, we identified options for rethinking
the federal, state, and private insurance roles in financing long-term
care as one of the key questions that our nation needs to face as it
addresses 21st century challenges.15 The Comptroller General
previously testified in 2002 on several considerations for policymakers
to keep in mind when considering reforms for long-term care financing,
and these considerations remain relevant today.
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\15\ GAO, 21st Century Challenges: Reexamining the Base of the
Federal Government.
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At the outset, it is important to recognize that long-term care
services are not just another set of traditional health care services.
Meeting acute and chronic health care needs is an important element of
caring for aging and disabled individuals. Long-term care, however,
encompasses services related to maintaining quality of life, preserving
individual dignity, and satisfying preferences in lifestyle for someone
with a disability severe enough to require the assistance of others in
everyday activities. Some long-term care services are akin to other
health care services, such as personal assistance with activities of
daily living or monitoring or supervision to cope with the effect of
dementia. Other aspects of long-term care, such as housing, nutrition,
and transportation are services that all of us consume daily but become
an integral part of long-term care for a person with a disability.
Disabilities can affect housing needs, nutritional needs, or
transportation needs. But, what is more important is that where one
wants to live or what activities one wants to pursue also affects how
needed services can be provided. Providing personal assistance in a
congregate setting such as a nursing home or assisted living facility
may satisfy more of an individual's needs, be more efficient, and
involve more direct supervision to ensure better quality than when
caregivers travel to individuals' homes to serve them one on one. Yet,
those options may conflict with a person's preference to live at home
and maintain autonomy in determining his or her daily activities.
Keeping in mind that policies need to take account of the
differences involved in long-term care, there are several issues that
policymakers may wish to consider as they address long-term care
financing reforms. These include:
Determining societal responsibilities. A fundamental question is how
much the choices of how long-term care needs are met should
depend upon an individual's own resources or whether society
should supplement those resources to broaden the range of
choices. For a person without a disability requiring long-term
care, where to live and what activities to pursue are lifestyle
choices based on individual preferences and resources. However,
for someone with a disability, those lifestyle choices affect
the costs of long-term care services. The individual's own
resources--including financial resources and the availability
of family or other informal supports--may not be sufficient to
preserve some of their choices and also obtain needed long-term
care services.
Societal responsibilities may include maintaining a safety net to
meet individual needs for assistance. However, the safety net
may not provide a full range of choices in how those needs are
met. Persons who require assistance multiple times a day and
lack family members to provide some share of this assistance
may not be able to have their needs met in their own homes. The
costs of meeting such extensive needs may mean that sufficient
public support is available only in settings such as assisted
living facilities or nursing homes. More extensive public
support may be extended, but decisions to do so should
carefully consider affordability in the context of competing
demands for our nation's resources.
Considering the potential role of social insurance in financing.
Government's role in many situations has extended beyond
providing a safety net. Sometimes this extended government role
has been a result of efficiencies in having government
undertake a function, or in other cases this role has been a
policy choice. Some proposals have recommended either voluntary
or mandatory social insurance to provide long-term care
assistance to broad groups of beneficiaries. In evaluating such
proposals, careful attention needs to be paid to the
limitations and conditions under which services will be
provided. In addition, who will be eligible and how such a
program will be financed are critical choices. As in
establishing a safety net, it is imperative that any option
under consideration be thoroughly assessed for its
affordability over the longer term.
Encouraging personal preparedness. Becoming disabled is a risk. Not
everyone will experience disability during his or her lifetime
and even fewer persons will experience a severe disability
requiring extensive assistance. This is the classic situation
in which having insurance to provide additional resources to
deal with a possible disability may be better than relying on
personally saving for an event that may never occur. Insurance
allows both persons who eventually will become disabled and
those who will not to use more of their economic resources
during their lifetime and to avoid having to put those
resources aside for the possibility that they may become
disabled.
The public sector has at least two important potential roles in
encouraging personal preparedness. One is to adequately educate
people about the current divisions between personal and
societal responsibilities. Only if the limits of public support
are clear will individuals be likely to take steps to prepare
for a possible disability. Currently, one of the factors
contributing to the lack of preparation for long-term care
among the elderly is a widespread misunderstanding about what
services Medicare will cover. Another public sector role may be
to assure the availability of sound private long-term care
insurance policies and possibly to create incentives for their
purchase. Progress has been made in improving the value of
insurance policies through state insurance regulation and
through strengthening the requirements for policies qualifying
for favorable tax treatment enacted by the Health Insurance
Portability and Accountability Act of 1996.16
Furthermore, since 2002 the federal government has offered
long-term care insurance to federal employees, military
personnel, retirees, and their families, providing the largest
offering of long-term care insurance. While the federal
government's program is still very new, other employers and
policymakers will likely be carefully watching the federal
government's experience in offering long-term care insurance.
Long-term care insurance remains an evolving product, and given
the flux in how long-term care services are delivered, it is
important to monitor whether long-term care insurance
regulations need adjustments to ensure that consumers receive
fair value for their premium dollars.
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\16\ Pub. L. No. 104-191, 321-327, 110 Stat. 1936, 2054-2067.
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Recognizing the benefits, burdens, and costs of informal caregiving.
Family and other informal caregivers play a critical role in
supplying the bulk of long-term care to disabled persons.
Effective policy must create incentives and supports for
enabling informal caregivers to continue providing assistance.
Further, care should be taken to avoid creating incentives that
result in informal care being inappropriately supplanted by
formal paid services. At the same time, it is important to
recognize the physical, emotional, and social burdens that
providing care impose on the caregiver and its economic costs
to the caregiver and to society. Caregiving may create needs in
caregivers themselves that require respite or other relief
services. In addition, caregiving can conflict with caregivers'
employment, creating economic losses for caregivers and
society. Such losses in productivity will become even more
important in the coming decades as the proportion of the
population that is working-age declines.
Assessing the balance of federal and state responsibilities to ensure
adequate and equitable satisfaction of needs. Reforms in long-
term care financing may require reevaluating the traditional
federal and state financing roles to better ensure an equitable
distribution of public support for individuals with
disabilities. The variation across states in Medicaid spending
per capita on long-term care is in part reflective of
differences among states in generosity of services as well as
their fiscal capacity. Given these differences, having states
assume primary responsibility for financing long-term care
subjects individuals to different levels of support depending
on where they live. In addition, because state revenues are
sensitive to the business cycle and states generally must have
balanced budgets, their services become vulnerable during
economic downturns.
Adopting effective and efficient implementation and administration of
reforms. Proposed reforms to better meet the increasing demand
for long-term care within budget constraints will be successful
only if they are administratively feasible, effectively reach
targeted populations and unmet needs, and efficiently provide
needed services at minimum cost while complementing already
available services and financing sources.
Developing financially sustainable public commitments. Finally, as
noted earlier, absent reform, existing federal entitlement
commitments for Medicaid, Medicare, and Social Security will
represent an increasing and potentially unsustainable share of
the economy. States, too, are concerned about their budgetary
commitments for long-term care through their share of the
Medicaid program. Before committing to any additional public
role in financing long-term care, it is imperative to provide
reasonable assurance that revenues will be available to fund
its future costs.
Mr. Chairman, this completes my prepared statement. I would be
happy to respond to any questions you or other members of the
subcommittee may have at this time.
CONTACT AND ACKNOWLEDGMENTS
For future contacts regarding this testimony, please call Kathryn
G. Allen at (202) 512-7118. Other individuals who made key
contributions include John Dicken, Linda F. Baker, Laura Sutton
Elsberg, James R. McTigue, and Joseph Petko.
[GRAPHIC] [TIFF OMITTED] T0749.005
[GRAPHIC] [TIFF OMITTED] T0749.006
[GRAPHIC] [TIFF OMITTED] T0749.007
Mr. Deal. Thank you. Ms. O'Shaughnessy.
STATEMENT OF CAROL O'SHAUGHNESSY
Ms. O'Shaughnessy. Thank you, Mr. Chairman and Mr. Brown,
for the opportunity to testify today. I would like to summarize
my written comments, which contain information about the
characteristics of the long-term care population, and public
and private spending.
The first point I would like to make is that the need for
long-term care affects people of all ages, children who are
born with disabling conditions, such as mental retardation or
cerebral palsy, working age adults with inherited or acquired
disabling conditions, and the elderly, who have chronic
conditions. About 56 percent of all people receiving care are
elderly, and the remainder are people who are younger. But 6 to
8 million persons have significant disabilities. That is, they
have at least one limitation in an activity of daily living.
There are many more who have other, less serious limitations.
The vast majority of adults, regardless of age, over 80
percent, receive care in home and community-based settings.
People enter a nursing home only as a last resort, due to
significant disabilities, or they need 24 hour supervision
for--due to a cognitive disability, such as Alzheimer's
disease, and they have fragile or non-existing family support
systems. I would just like to point out that about half of
people who are living in the community with long-term care
needs have very significant disabilities with three or more
limitations in activities of daily living.
As we talked about today, in terms of public and private
spending, the amount was $182 billion in 2003, despite the
significant spending, the Nation lacks a comprehensive policy
on long-term care. Of total public spending, that is $123
billion, 68 percent is from public sources, yet most care
received by persons with disabilities comes from informal,
unpaid supports. Assisting families to prepare for the
potentially catastrophic costs of long-term care is viewed by
many, as we have heard today, as an important component of
family financial security.
Coverage of institutional care, largely under Medicaid, has
defined Federal policy for decades. However, in 1999, Supreme
Court decision Olmstead has sharpened Federal and State policy
attention on home and community-based services. The Court held
that institutionalization of persons who could live in
community settings violates the Americans with Disabilities
Act, and many States are faced with many Olmstead suits in
their jurisdictions.
The last time Congress made a systemic change in Federal
long-term care policy was in 1981, with the creation of the
Medicaid home and community-based waiver program that we have
heard a lot about today. The last time Congress comprehensively
reviewed long-term care was in 1990, with the Pepper
Commission. Despite enormous Federal and--research and
demonstration activities to inform Federal policy, Congress has
not reached consensus about where to go.
As we have heard today, Medicaid by default is the Nation's
primary source of public financing. One-third of all Medicaid
funding goes to long-term care. About 67 percent of this was
for institutional care, and 33 percent for home and community-
based services. I would just like to point out with the 67
percent, we have, of that proportion, we have about $44 million
going to nursing homes, but $11 billion going to intermediate
care facilities for the mentally retarded.
From 1990 to 2003, Medicaid long-term care expenditures
grew at an annual rate of about 8 percent, compared to an
average rate of growth for all Medicaid spending of 10 percent.
Over the last 15 years, Medicaid spending on long-term care has
changed in composition, with a greater proportion going to home
and community-based services, and a lower proportion for
institutions. In 1990, 87 percent of Medicaid spending was on
institutional care. In 2003, as I said, it is at 67 percent.
These home and community-based service waiver programs have
grown significantly, and States have made financial commitments
to them in order to respond to consumer preferences. However,
despite this growth, many States have waiting lists for home
and community-based services programs, and I would also like to
point out that of the $18 or so billion, $18 to $20 billion for
the home and community-based waivers, three quarters of that
money goes for persons with mental retardation. About one-third
of the recipients, we heard about a million recipients, we can
figure that about one third of the recipients for home and
community-based services, based on a somewhat smaller number,
are aged persons.
For the past two decades, the principle debate in reform
has been on the respective roles of the public and private
sectors. On the one hand, proposals have been advanced for new
social insurance programs, in order to provide individuals a
minimum floor protection against the catastrophic costs.
Alternatively, we have heard a lot about private sector
financing, such as insurance, based on the rationale that the
Nation can't afford an additional tax burden. While some
policymakers are concerned about new social insurance programs,
others are concerned about the affordability of private, long-
term care solutions, or insurance by moderate and low income
individuals. Because of the diverse socioeconomic and
disability characteristics of the population in need, one
approach to financing reform may not fit all people. Defining
the public and private roles for the diverse groups may need to
account for their varying abilities and financial capabilities.
Other subsidiary issues we have heard a lot about today
would be how to create more incentives for home and community-
based services and assist family caregivers, and encourage
individuals and families to prepare for the potentially
catastrophic costs. CRS is currently working on a report that
would explore many of these options, and we would be glad to
talk to you about that later.
Thank you.
[The prepared statement of Carol O'Shaughnessy follows:]
Prepared Statement of Carol O'Shaughnessy,1 Specialist in
Social Legislation, Congressional Research Service
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\1\ This testimony includes key contributions from Bob Lyke,
Specialist in Social Legislation, Diane Justice, Specialist in
Gerontology, Laura Shrestha, Specialist in Demography, Specialist in
Social Legislation, and Julie Stone and Karen Tritz, Analysts in Social
Legislation. Technical support was provided by Barbara Sanders and
Charles Dibble, CRS.
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Good morning, Mr. Chairman and Members of the Committee. My name is
Carol O'Shaughnessy. I am a Specialist in Social Legislation at the
Congressional Research Service. I am pleased to present testimony this
morning. My testimony summarizes key characteristics about people who
receive long-term care services, services they receive, and the role of
public programs in financing these services.
Summary
Long-term care support refers to a range of health and social
services needed by persons who lack the capacity for self-care due to
physical, cognitive, or mental illnesses that result in functional
impairment and dependence on others for an extended period of time.
Long-term care services include care in nursing homes and other
institutions, as well as in home and community settings. The need for
long-term care is measured by a person's inability to carry out basic
human functions, or activities of daily living (ADLs), such as bathing,
dressing, eating, toileting, transferring from a bed to a chair, and
getting around inside the home. 22 It is also measured in
terms of people needing supervision with performing ADLs when they have
cognitive impairments, such as dementia. The extent of care needed
varies depending upon a person's degree of impairment.
---------------------------------------------------------------------------
\2\ Other measures include a person's need for assistance with meal
preparation, and light housework, among other things, known as
instrumental activities of daily living (IADLs).
---------------------------------------------------------------------------
The need for long-term care affects persons of all ages--children
who are born with disabling conditions, such as mental retardation, or
cerebral palsy; working age adults with inherited or acquired disabling
conditions; and the elderly who have chronic conditions or illnesses.
While the likelihood of needing long-term care assistance occurs more
frequently in older ages, advances in medical care are enabling persons
of all ages with disabilities to live longer. Of all persons receiving
assistance with at least one ADL and who reside at home or in nursing
homes, about 56% are persons over age 65, and 44% are under age 65.
In 2003, total public and private spending on long-term care was
$182 billion. Despite this significant spending, the nation lacks a
comprehensive policy on long-term care. While multiple public programs
provide assistance, no one program is designed to support the full
range of long-term care services and supports.
Of total pubic and private spending, $123 billion, or 68%, is
from public sources. Yet, most care received by people with
disabilities is provided by unpaid, informal sources--family and
friends. The aging of society will exacerbate demand on family
caregivers. Assisting families to prepare for potentially catastrophic
costs of long-term care is viewed by many as an important component of
family financial security.
Coverage of institutional care, largely under Medicaid, has
defined federal long-term care policy for decades. However, a 1999
Supreme Court decision--Olmstead v. L.C.--has sharpened federal and
state policy attention on home and community-based services. The Court
held that, under certain circumstances, institutionalization of persons
who could live in community settings, violates the Americans with
Disabilities Act (ADA).
Despite enormous federal research and demonstration activities
designed to inform federal long-term care policy over the last several
decades, Congress has not reached consensus on what road to take. The
complexity of financing and delivering long-term care to diverse groups
of persons with disabilities in a variety of settings through multiple
federal programs has been a challenge to federal and state governments.
The last time Congress made a systemic change in federal long-
term care policy was in 1981 when it created the Medicaid Section
1915(c) home and community-based services waiver program for persons
who would otherwise require care in institutions. The last time
Congress comprehensively reviewed policy options for long-term care
reform was in 1990 under the U.S. Bipartisan Commission on
Comprehensive Health Care (known as the Pepper Commission). Other
changes have included changes in Medicaid eligibility rules for long-
term care services when, in 1988, Congress provided financial
protections for spouses of persons needing nursing home care and other
Medicaid services, and again in 1993, when Congress tightened rules on
transfer of assets. In 2000, Congress recognized the needs of
caregivers by authorizing a caregiver support program under the Older
Americans Act.
At the center of the debate on long-term care financing is the
Medicaid program. Medicaid, by default, has become the nation's primary
source of public financing for people who need long-term care support.
One-third of total Medicaid spending in FY2003 was devoted to long-term
care--$84 billion with about 67% for institutional care and 33% for
home and community-based services. From 1990 through 2003, Medicaid
long-term care expenditures grew at an annual average rate of 8% per
year. Over the last 15 years, Medicaid long-term care spending has
experienced a change in composition with a greater proportion of
spending devoted to home and community-based services and a lower
proportion for institutional care for persons with mental retardation
and developmental disabilities.
A number of themes of reform have been advanced over the last
several decades. The principal debate in financing long-term care has
focused on the respective roles of the public and private sectors.
Because of the diverse socio-economic and disability characteristics of
the population in need, one approach to financing reform may not fit
all people. Defining the public and private sector roles in financing
long-term care for these diverse groups may need to account for their
varying needs and financial abilities.
A broad spectrum of proposals have been advanced over the years to
change the way long-term care services are financed, ranging from
social insurance programs to private sector approaches. While some
policymakers are concerned about the cost of new social insurance
programs, others are concerned about the affordability of certain
private sector solutions, such as long-term care insurance, by moderate
and low income persons.
Other subsidiary issues in the reform debate have included
proposals to address the costs and quality of care; create more
incentives for home and community-based care; assist family caregivers;
and encourage individuals and families to plan for the potentially
catastrophic costs of care. CRS is currently preparing a report
summarizing a broad range of options that Congress might consider in
revising the nation's long-term care system.
LONG-TERM CARE: CONSUMERS, PROVIDERS, AND SPENDING
The Long-Term Care Population
Long-term care support refers to a range of health and social
services needed by persons who lack the capacity for self-care due to
physical, cognitive, or mental illnesses that result in functional
impairment and dependence on others for an extended period of time.
Long-term care services include care in nursing homes and other
institutions, as well as in home and community settings. The need for
long-term care is measured by a person's inability to carry out basic
human functions, or activities of daily living (ADLs), such as bathing,
dressing, eating, toileting, transferring from a bed to a chair, and
getting around inside the home. Other measures include a person's need
for assistance to live independently in the community, such as
shopping, meal preparation, and light housework, known as instrumental
activities of daily living (IADLs). It is also measured in terms of
people needing supervision with performing ADLs or IADLs when they have
cognitive impairments, such as dementia. The amount of care needed
varies depending upon a person's degree of impairment.
The need for long-term care affects persons with disabilities of
all ages--children who are born with disabling conditions, such as
mental retardation, or cerebral palsy, and remain disabled the rest of
their lives; working age adults with inherited or acquired disabling
conditions; and finally, persons aged 65 and older who have chronic
conditions or illnesses. While the likelihood of needing long-term care
assistance occurs more frequently in older ages, advances in medical
care are enabling persons of all ages with disabilities to live longer.
Estimates of the number of persons of all ages who receive long-
term care, need assistance with one or more ADLs, and reside at home or
in facilities, range from 6.2 million to 8.0 million
persons.3 Estimates would be higher if persons who receive
assistance with IADLs only are included.4 Of all persons
receiving assistance with at least one ADL and who reside at home or in
nursing homes, about 56% are persons over age 65, and 44% are under age
65.5
---------------------------------------------------------------------------
\3\ This range is drawn from a variety of sources: the National
Nursing Home Survey (1999); the Survey of Income and Program
Participation (1997); the National Long-Term Care Survey (1999); the
National Health Interview Survey (2002); and the National Medical
Expenditure Survey (1996).
\4\ Estimates of the number of persons who receive long-term care
vary depending upon the numbers and types of ADL and IADL limitations,
whether the person receives human assistance, standby help from another
person, and other factors used for measurement.
\5\ CRS estimates based on data from the National Health Interview
Survey (NHIS) 2002, and the National Nursing Home Survey (NNHS), 1999.
---------------------------------------------------------------------------
The vast majority of adults, regardless of age--over 80%--receive
care in home and community settings, not in nursing homes or other
institutions. About 1.8 million adults--less than 20% of all adults
receiving assistance--reside in institutions. Only the very old--
persons aged 95 and older--have about an equal chance of being cared
for in an institution or in the community (Table 1).
Table 1. Persons Aged 65 and Older Receiving Long-Term Care Services, 1999
(population in thousands)
----------------------------------------------------------------------------------------------------------------
Percent % Receiving
Persons aged receiving long-term % Receiving long-
Age range 65 or older long-term care in the term care in
care \1\ community \2\ institutions \3\
----------------------------------------------------------------------------------------------------------------
Total, persons age 65 or older..................... 34,459 5,479 3,824 1,654
15.9% 11.1% 4.8%
Age
65-69.............................................. 9,443 5.7% 5.0% 0.7%
70-74.............................................. 8,785 8.8% 7.2% 1.7%
75-79.............................................. 7,305 13.6% 10.1% 3.5%
80-84.............................................. 4,797 24.8% 17.3% 7.4%
85-89.............................................. 2,601 39.8% 24.8% 15.0%
90-94.............................................. 1,133 59.8% 33.7% 26.1%
95 years and older................................. 0,396 72.1% 35.7% 36.4%
----------------------------------------------------------------------------------------------------------------
Source: Unpublished tabulations of the 1999 National Long-Term Care Survey by Brenda C. Spillman. The Urban
Institute, 2003.
\1\ Receipt of long-term care is defined as receiving human assistance or standby help with at least one of six
ADLs or being unable to perform at least one of eight IADLs without help.
\2\ This does not include about 1.3 million persons with disabilities who use special equipment to manage their
disabilities, but do not receive human assistance.
\3\ This includes about 1.5 million persons in nursing homes and slightly more than 150,000 persons in other
care facilities.
People residing in institutions have more limitations than people
residing at home. However, people receiving long-term care services at
home are also highly impaired. Of the 1.6 million people residing in
nursing homes with at least one ADL, about 91% were severely impaired
with three or more limitations in ADLs (1999). Of 4.2 million persons
receiving assistance at home, about 53% had limitations in three or
more ADLs (2002). (Figures 1 and 2.)
Providers of Long-Term Care
The primary source of long-term care assistance is informal
caregivers--families and friends of people with disabilities who
provide assistance without compensation. Two-thirds of the functionally
impaired elderly receiving care for impairments with ADLs or IADLs, and
about 71% of such persons age 18-64, rely exclusively on informal,
unpaid assistance (Table 2).
Table 2. Type of Care Received by Persons Aged 18 and Over Living in the
Community
------------------------------------------------------------------------
Persons receiving long-term care Persons age 65 Persons age 18-
assistance in the community and older 64
------------------------------------------------------------------------
Total............................... 3.7 million 3.4 million
Percent receiving care from unpaid 66% 71%
providers only.....................
Percent receiving paid care only.... 9% 6%
Percent receiving unpaid and paid 26% 6%
care...............................
Unknown............................. Not applicable 18%
------------------------------------------------------------------------
Source: For persons aged 65 and older. National Long-Term Care Survey,
1999; estimates prepared by Brenda Spillman of the Urban Institute
cited in Older Americans 2004, Key Indicators of Well-Being, Federal
Interagency Forum on Aging Related Statistics, 2004. For persons 18-
64, 1994 National Health Interview Survey, Disability Supplement.
William Spector, et al., Characteristics of Long-Term Care Users,
Prepared for the Institute of Medicine, 1998. Note: These estimates
include persons with limitations in IADLs.
Estimates of the number of caregivers can range from 10-13 million
people caring for people with moderate or severe disabilities, and can
be many millions more, depending upon the characteristics of the
population served and the amount and intensity of care provided.
Research has shown that while adults of all ages provide long-term care
assistance, people in middle to late middle age are most likely to be
caregivers. While women are most likely to be caregivers, both men and
women provide care. In addition, caregivers often have competing
demands--about one-half are employed and one-third have minor children
in the home.66
---------------------------------------------------------------------------
\6\ Administration on Aging, National Family Caregiver Resource
Guide, Prepared by The Lewin Group, Inc., Washington, D.C., Aug. 2002.
---------------------------------------------------------------------------
The aging of society will exacerbate demands on family caregivers
for people with disabilities of all ages, not only for the elderly.
Family caregivers are also vital for people with developmental
disabilities. About 60% of the 4.6 million people with mental
retardation or developmental disabilities receive care from family
caregivers; of these people, more than one in six were living with
caregivers over the age of 60. Many people with developmental
disabilities are living longer with medical advances and supportive
care. Some observers have pointed to a likelihood that people with
developmental disabilities could live into their own retirement and
outlive their family caregivers.7
---------------------------------------------------------------------------
\7\ David Braddock, Richard Hemp and Mary Rizzolo, State of the
States in Developmental Disabilities: 2004. Mental Retardation, vol.
42, no. 5, pp. 356-370 and Mary C. Rizzolo, et al., The State of the
State in Developmental Disabilities, 2004. In the 1970s, the mean age
of death for people with mental retardation was 56 years; in 1993, it
was 66 years.
---------------------------------------------------------------------------
In addition to the enormous amount of informal care provided by
families and friends, the long-term care services system includes
thousands of formal care providers. They range from institutional
providers, including nursing homes and residential care facilities for
people with mental retardation and developmental disabilities, to a
variety of agencies and programs that provide a wide array of home and
community-based services. These services include home health care,
personal care, homemaker and chore assistance, adult day care services,
home-delivered meals, transportation, and many others. In addition,
assisted living facilities, adult foster care homes and other group
homes provide both room and board as well as personal care and other
assistance to people who have lost the capacity to live independently
in their own homes.
Utilization and supply of the various formal care providers is of
concern to policymakers because these factors affect both cost and
quality of care. The supply of nursing home beds varies widely among
states as do the numbers and types of home and community-based
providers. The average number of nursing home beds in the U.S. is 49
beds per 1,000 people aged 65 and older; but the number of beds per
state ranges from 73 beds per 1,000 elderly people in Louisiana to 21
beds in Nevada. Similarly, the range in supply of personal and home
care aides varies widely, from 45 aides per 1,000 elderly people in
Texas to three aides per 1,000 elderly people in Mississippi, with a
national average of 14 aides per 1,000 elderly people. 8
---------------------------------------------------------------------------
\8\ Mary Jo Gibson et al., AARP, Across the States, Profiles of
Long-Term Care, 2004.
---------------------------------------------------------------------------
Researchers predict that the increased numbers of people reaching
age 65 as well as their increasing longevity will affect future demand
for formal providers. One study predicts that 44% of those people who
turned age 65 in 2000, will enter a nursing home during their remaining
lifetimes. Almost one-third will have nursing home stays of three
months or longer, and almost one-fourth will have stays of one year or
longer. This same study predicts that the number of people age 65 years
old who will have any nursing home use will more than double from 2000
to 2020 (from 891,000 to 1.8 million people) (Table 3). Policymakers
may want to assess the utilization and supply issues affecting nursing
facilities to determine whether other care modalities, such as greater
supply of home care, assisted living and other residential care
settings, may substitute for nursing home care for some people.
Table 3. Probability of Nursing Home Use at Age 65 for Various Years
----------------------------------------------------------------------------------------------------------------
Persons turning Persons turning Persons turning
age 65 in 2000 age 65 in 2010 age 65 in 2020
Category of nursing home use -----------------------------------------------------------
Number Number Number
(thousands) % (thousands) % (thousands) %
----------------------------------------------------------------------------------------------------------------
Category of use..................................... 2,013 2,625 3,922
Any use............................................. 891 44 1,185 45 1,807 46
Three months or longer.............................. 651 32 873 33 1,344 34
One year or longer.................................. 469 23 632 24 977 25
Five years or longer................................ 169 8 232 9 363 9
Timing of use
Use in last year of life............................ 793 39 1,057 40 1,618 41
Use only prior to last year of life................. 98 5 127 5 190 5
----------------------------------------------------------------------------------------------------------------
Source: Brenda C. Spillway and James Lubitz, ``New Estimates of Lifetime Nursing Home Use: Have Patterns
Changed?'' Medical Care, vol. 40, no. 10, 2002.
Cost of Care. The cost of long-term care is related to the type,
intensity, and duration of services needed by individuals, as well as
the availability of informal assistance from family and friends. At one
end of the spectrum, costs for 24-hour care in nursing homes can range
from $60,000-$70,000 per year,9 and even higher in
institutions for persons with developmental disabilities where costs
can exceed $100,000 per person. At the other end, the cost of providing
home-delivered meals to a frail older person living at home may be
quite modest.
---------------------------------------------------------------------------
\9\ The MetLife Market Survey of Nursing Home and Home Care Costs,
Sept. 2004. The average yearly rate for a private room in a nursing
home was $70,080 and for a semi-private room was $61,685.
---------------------------------------------------------------------------
Researchers and policymakers have long debated whether expanded
access to home and community-based care for the nation's long-term care
population is less costly than institutional care. This question is
very complex and many factors must be considered, including how best to
target home and community-based services and serve only those who would
have entered a nursing home without the availability of expanded home
care; what is the most effective mix of services to divert persons from
institutional care; and how to assist informal caregivers who often
make a difference in keeping their family members from entering an
institution.
Long-Term Care Spending
A variety of public and private sources finance long-term care.
Many federal programs assist persons needing long-term care services,
either directly or indirectly through a range of health and social
services, through cash assistance, and through tax benefits. While
Medicaid is the primary source of public financing for long-term care,
other programs, including Medicare, and social service programs, such
as the Older Americans Act, provide assistance to persons who need
long-term supports. No one program, however, is designed to support the
full range of long-term care services needed by people with
disabilities of all ages. Eligibility requirements, benefits, and
reimbursement policies differ among major programs.
Of the $1.44 trillion spent on all U.S. personal health care
services in 2003, $181.9 billion, or about 12.6%, was spent on long-
term care (Figure 3). This amount includes spending on services in
institutions (nursing homes and intermediate care facilities for
individuals with mental retardation (ICFs/MR)), and a wide range of
home and community-based services, such as home health care services,
personal care services, and adult day care, among others. Figure 3
(below) does not take into account the economic value of care provided
to individuals with long-term care needs by uncompensated informal care
providers.
Most public long-term care spending comes from the Medicaid program
(a means-tested program jointly funded by federal and state
governments). In CY2003, Medicaid spending accounted for 47.4% of all
long-term care spending, or $86.3 billion. After Medicaid, private out-
of-pocket spending is the next highest source of financing for long-
term care, accounting for 20.6% of all long-term care spending, or
$37.5 billion. Medicare plays a somewhat smaller role accounting for
17.8%, or $32.4 billion, of the total. Private insurance accounts for
about 8.7% of spending, or $15.7 billion.
medicaid's role in long-term care
At the center of the debate on long-term care financing is the
Medicaid program. Medicaid, by default, has become the nation's primary
source of public financing for persons who need long-term care support.
Medicaid coverage of long-term care is intended to serve as a safety
net for persons who cannot afford the cost of institutional care or
home and community-based services. People turn to Medicaid when they
have no more than $2,000 in countable assets (excluding the person's
home and certain other exempted assets). Generally, if they are not
eligible for cash assistance under the Supplemental Security Income
(SSI) program, they must apply most of their income to the cost of
their care.
Financing of institutional care has dominated Medicaid long-term
care spending for decades. However, in recent years, state Medicaid
programs have played an increasingly larger role in financing home and
community-based services.
Nursing Homes. In 1965, with the enactment of Medicaid, Congress
created an entitlement to skilled nursing facility care. The Social
Security Amendments of 1965 that created Medicaid required states to
cover skilled nursing facility services and gave nursing home care the
same level of priority as hospital and physician and other services.
These early legislative developments were the basis for the
beginnings of the modern day nursing home industry. Significant growth
in the number of nursing homes occurred during the 1960s--from 1960 to
1970 the number of homes more than doubled, from 9,582 to almost
23,000, and the number of beds more than tripled, from 331,000 to more
than one million.10 (In 2004, there were about 16,000
nursing homes with 1.6 million beds.11)
---------------------------------------------------------------------------
\10\ U.S. Congress, Senate Special Committee on Aging, Developments
in Aging, 1970, S.Rept. 92-46, Feb. 16, 1970, Washington, D.C. Cited
from the American Nursing Home Association Fact Book, 1969-1970.
\11\ Centers for Medicare and Medicaid Services (CMS), OSCAR, cited
by American Health Care Association. [http://www.acha.org/research].
Data are for Dec. 2004.
---------------------------------------------------------------------------
Intermediate Care Facilities for Persons with Mental Retardation.
The early history of services to persons with mental retardation and
developmental disabilities is characterized by the development of large
state-financed institutions some of which were established during the
latter part of the 19th century and continuing through the first part
of the 20th century. In 1967, the number of residents in institutions
peaked to almost 200,000 nationwide in 165 state-operated
facilities.12
---------------------------------------------------------------------------
\12\ David Braddock, et al., The State of the States in
Developmental Disabilities, University of Illinois at Chicago, American
Association of Mental Retardation, Washington, 1998.
---------------------------------------------------------------------------
In 1971, federal financing for intermediate care facilities for the
mentally retarded (ICFs/MR) was authorized under the Medicaid program;
states that were able to meet the federal requirements governing care
for persons with mental retardation in ICFs/MR shifted their state-
financed facilities to the Medicaid program. Although care in ICFs/MR
facilities is not a required service under state Medicaid plans, all
states cover this care. Today, although some states are still faced
with the legacy of large institutions, a major change has occurred
toward care for persons with developmental disabilities in smaller,
community-based residences as well as home-based services financed by
Medicaid.
Home and Community-Based Services. Medicaid supports a range of
home and community-based long-term care services, including home health
care, personal care services, and a range of supportive services under
the Medicaid Section 1915(c) waiver program. The latter program has
become the centerpiece of home and community-based services policies
for certain persons with disabilities, especially persons with mental
retardation and developmental disabilities, in most states. About
840,000 persons were served under this program in 2001. Under Section
1915(c) waivers, the most frequently provided services are personal
care assistance and other home care services,
habilitation,13 adult day care, case management, and respite
services for caregivers.
---------------------------------------------------------------------------
\13\ Habilitation refers to services to assist individuals in
developing skills necessary to reside successfully in home and
community-based settings. It includes such activities as prevocational,
educational, and supported employment.
---------------------------------------------------------------------------
Section 1915(c) allows the Secretary of the Department of Health
and Human Services (DHHS) to waive certain statutory requirements to
assist states in financing care at home and in other community-based
settings for persons who, without these services, would be in an
institution. States may waive the following Medicaid requirements: (1)
statewideness--states may cover services in only a portion of the
state, rather than in all geographic jurisdictions; and (2)
comparability of services--states may cover state-selected groups of
persons, rather than all persons otherwise eligible. In addition to
waiving these requirements, states may use more liberal income
requirements than would ordinarily apply to persons living in the
community.
Federal law requires that persons eligible for home and community-
based waiver services meet the level of care requirements (as defined
by each state) provided in a hospital, nursing facility or ICF/ME.
Level of care requirements describe the level and/or severity of
functional limitations that individuals must have in order to be
admitted to an institutional setting.
In implementing home and community-based waiver programs, States
are constrained by a budget neutrality test in defining services they
wish to cover. The law requires that the Secretary may not approve a
waiver unless the average per capita expenditures for individuals
provided waiver services do not exceed the average per capita
expenditures that would have been paid if individuals had received
Medicaid-supported institutional care. The Section 1915(c) waiver
program has been particularly attractive to states because they have
been able to control costs by limiting the number of waiver recipients
and employing a variety of cost-management techniques, including fixed
budgets, care management, and cost caps.
Medicaid Long-Term Care Spending
Medicaid is the dominant payer of long-term care services in this
country paying for nearly one-half of all long-term care expenditures.
Of total Medicaid spending--$269 billion in FY2003--more than one-third
was spent on long-term care.
Of total Medicaid long-term care spending--$83.8 billion in FY2003:
67% was spent on institutional care (nursing homes and ICFs/MR); and
33% was spent on home and community-based services (home health,
personal care and home and community-based waiver services).
From 1990 through 2003,14 Medicaid long-term care
expenditures grew at an annual average rate of 8% per year.
Institutional spending grew at an annual average rate of growth of 6%.
States' efforts to focus on home and community-based services has
resulted in a higher rate of growth for these services, growing at an
average of 17% per year. Expenditures for the Section 1915(c) waiver
program in particular grew at an average annual rate of 25%, and
reached almost $18 billion in FY2003. This increase has been a result
of states' effort to contain the rate of growth in their nursing home
expenditures and to provide expanded access to home and community-based
services to persons with disabilities in order to respond to their
preferences for this modality of care.
---------------------------------------------------------------------------
\14\ Growth rates shown have been calculated on a calendar year
basis.
---------------------------------------------------------------------------
For many years, spending for institutional care has dominated
Medicaid long-term care spending. However, over the last 15 years,
Medicaid spending for long-term care has experienced a change in
composition. In FY1990, 87% of long-term care spending was devoted to
institutional care, declining to 67% by FY2003. In FY1990, about 13% of
Medicaid long-term care spending was for home and community-based care,
increasing to about 33% by FY2003, primarily as a result of increased
spending under the Section 1915(c) waiver program. (Figure 4). This
waiver program has been a significant source of support to care for
persons with mental retardation and developmental disabilities. In
FY2003, about three-quarters of waiver spending was for this
population; the balance was spent on diverse groups of persons with
disabilities, including the elderly and persons with physical
disabilities. Despite the growth in home and community-based waiver
services, many of these home and community-based waiver programs have
been unable to meet the demand for services and maintain waiting lists.
LONG-TERM CARE: THEMES OF REFORM
Despite enormous spending on long-term care services, the nation
lacks a comprehensive policy on financing of long-term care. Options to
change the way long-term care is financed and delivered have been
considered by Congress for over 35 years. The complexity of financing
and delivering these services to diverse groups of persons with
disabilities in a variety of care settings through multiple federal
programs has been a challenge to federal and state governments.
Even after significant federal policy review on ways to improve the
long-term care financing and delivery over the last two decades,
Congress has not reached consensus of what road to take. The last time
Congress made a systemic change in federal long-term care policy was in
1981 when it created the Medicaid Section 1915(c) home and community-
based waiver program for persons with disabilities. In 1996, Congress
clarified the tax treatment of long-term care insurance and allowed
taxpayers who itemize a limited deduction for premiums. Other changes
have included changes in Medicaid eligibility rules for long-term care
services when in 1988, Congress provided financial protections for
spouses of persons needing nursing home care and other Medicaid
services, and again in 1993 when Congress tightened rules on transfer
of assets. In 2000, Congress recognized the needs of caregivers by
authorizing a caregiver support program under the Older Americans Act.
That same year, Congress established a voluntary long-term care
insurance program for federal employees, retirees, and family members.
The last time that Congress comprehensively reviewed policy options for
long-term care reform was in 1990 under the U.S. Bipartisan Commission
on Comprehensive Health Care (known as the Pepper Commission).
Literally dozens of proposals have been considered and debated. For
the past two decades, the principal debate in financing long-term care
reform has focused on the respective roles of the public and private
sectors. Proposals that have been debated are arrayed on a spectrum. On
one end, are proposals for new social insurance programs that would
expand or replace current programs, perhaps relying on payments from
individuals through cost-sharing, premiums and deductibles, rather than
means-testing and spend-down requirements under Medicaid. At the other,
are proposals that rely on private sector financing, such as long-term
care insurance, with the rationale that the nation cannot afford the
additional tax burden of another entitlement program.
Other subsidiary issues in the reform debate have included
proposals to address the costs and quality of care; create more
incentives for home and community-based care; assist family caregivers;
and encourage individuals and families to plan for the potentially
catastrophic costs of care.
The following presents broad themes of proposals that have been
advanced.
Insurance Options. Many believe that the need for long-term care is
an insurable event where risk of needing services is not effectively
spread across the population through pooled risk. Proposals for
expanding insurance for long-term care, either on a mandatory or
voluntary basis, have been considered in the past. For example, the
Pepper Commission took the stand that long-term care should be treated
as an insurance event whose risk can be spread through both public and
private coverage.15 In 2001, Citizens for Long-Term Care, a
coalition of over 60 national organizations representing major national
associations of long-term care providers, insurers, and advocacy groups
also came to this conclusion.16
---------------------------------------------------------------------------
\15\ U.S. Bipartisan Commission on Comprehensive Health Care, The
Pepper Commission, A Call to Action. Final Report, 1990, Washington,
D.C., p. 119.
\16\ Citizens for Long Term Care, Defining Common Ground, Long Term
Care Financing Reform in 2001, Feb. 2001, Washington. D.C., p. 3.
---------------------------------------------------------------------------
Some people believe that a social insurance approach is necessary
to assure universal coverage (at least for a defined target population)
since may persons with disabilities will not be able to afford private
coverage. Such a program would have to be designed to assure
affordability for both the public sector as well as individual
participants. Others believe that costs of a new or expanded social
insurance program would be prohibitive. Some proposals have suggested
government-sponsored voluntary insurance programs. Such approaches
could be designed to attract persons in middle ages or younger who want
to plan for future long-term care costs, but may not attract sufficient
numbers of persons to create an insurance pool. Also, voluntary
programs may have to be designed to encourage participation by persons
at the lowest economic scale.
Options to create incentives for individuals to purchase private
long-term care insurance have been proposed frequently. The number of
polices sold has increased in recent years with over 9 million polices
sold from the inception of the market through the end of
2002.17 The market grew at an average of 18% each year from
1987 to 2002.18 For some people, insurance is a viable
option and can assist them in paying for catastrophic long-term care
expenses. However, policies can be expensive for purchase by low and
moderate income persons.
---------------------------------------------------------------------------
\17\ This number does not include the number of policies dropped,
canceled, or lapsed.
\18\ American Health Insurance Plans, Long-Term Care Insurance in
2002, June 2004., Washington, D.C.
---------------------------------------------------------------------------
Another possible means of providing access through an insurance
approach might be to extend Medicaid coverage for people who have
higher income or more assets than current Medicaid tests allow, and
then requiring them to pay premiums and cost-sharing (as is the case in
certain Medicaid state optional programs, such as for working disabled
under the Ticket To Work program). Depending upon how it is structured,
such an approach could assist persons with catastrophic costs according
to their ability to pay. However, policymakers may be more concerned
about containing, rather than expanding, long-term care benefits.
Shared Public and Private Options. Some observers argue that the
complexity of long-term care financing for diverse groups of
individuals with disabilities--children and working age persons with
disabilities, as well as the elderly, with differing types and severity
of impairments--necessitates a multi-pronged strategy of financing and
delivery reform. Because of the diverse socio-economic and disability
characteristics of the population in need, one approach to financing
reform may not fit all people. Defining the public and private sector
roles in financing long-term care for these groups would need to
account for their varying needs and financial abilities.
Approaches might combine some aspects of incentives for private
financing as well as public financing. Strategies that would promote
both private insurance for those who could afford premiums, as well
those that would preserve safety net programs for those who cannot
afford catastrophic expenses or private financing solutions, might be
sought.
Policymakers will have to evaluate the proposals in light of a
number of dimensions. This would include their potential budgetary
impact, including their potential to increase total costs, to decrease
an otherwise expected rate of increase in costs in one sector of care
(for example, by substituting less costly per beneficiary services for
more costly services), or across multiple programs, or within an
individual program. Other dimensions might include the proposals'
potential effect on aspects of service delivery goals, such as
assisting persons to reside in community settings rather than in
institutions, and assisting informal caregivers to continue their
support for family members.
Rebalancing Institutional and Home and Community-Based Services
Options. Over the last three decades, a constellation of proposals has
been made to level the playing field so that home and community-based
services receive the same priority as institutional services under
Medicaid. A factor sharpening recent federal and state policy attention
on home and community-based care are legal actions that have taken
place in states as a result of the 1999 Supreme Court decision,
Olmstead v. L.C. (528 U.S. 581). In this decision, the Court stipulated
that, under certain circumstances, institutionalization of persons who
could live in community settings, and desire to do so, violates the
Americans with Disabilities Act (ADA).
Many people refer to Medicaid as having an ``institutional bias''
since nursing home care is an entitlement for persons who can meet
eligibility tests, but the Section 1915(c) waiver program, the primary
source of financing home and community-based services, is not. Numerous
proposals have been made to reformulate the Section 1915(c) home and
community-based services waiver program (e.g., by eliminating its
``wavier'' nature and changing certain eligibility features) and to
expand personal care services. Some believe that such approaches would
give this type of care the same priority as institutional care. Others
are concerned that if such programs were expanded without controls on
numbers of persons to be served, costs would increase.
Such approaches would have to evaluated in terms of total cost.
Nevertheless, some state administrators have maintained that it is
possible to control the rate of increase in long-term care costs that
would have occurred by instituting systemic reform that includes (1)
controlling access to institutional care and limiting its supply; (2)
expanding home and community-based care for those who otherwise need
institutional care; (3) and balancing consumer choice with appropriate
cost controls.
Policy Questions
The answers to a number of policy questions will influence the
future direction of federal policy:
Given expected demographic changes as a result of population aging,
and expected escalating public spending for long-term care,
what should be the respective roles for the public and private
sector?
Should any revised public long-term care strategy be universally
available to a specific group of people, or should it be
targeted on the basis of income and/or disability? If it is
available on the basis of income, how should income and assets
should be considered?
What is the best way to provide individuals with incentives to save
personal funds for long-term care and/or purchase insurance to
protect themselves from high out of pocket expenses for long-
term care?
How can individuals and families be encouraged to plan for long-term
care expenses as part of planning for a secure retirement?
Can federal policies be changed to better best assist family members
and other informal caregivers who already provide most long-
term care support?
Can federal policies be changed to address access issues for services
for those who do not have family caregivers?
To what extent do public programs need to be balanced to support
increased home and community-based services? How can we assure
that all modalities of care meet quality measures?
As it considers these questions, Congress might continue making
incremental policy changes like those of the past two decades. On the
other hand, many believe that incremental changes may not be sufficient
to prepare for future needs and that larger scale reform may be
necessary.
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Mr. Deal. Thank you. Ms. Ignagni.
STATEMENT OF KAREN IGNAGNI
Ms. Ignagni. Thank you, Mr. Chairman and Mr. Brown. We
appreciate the opportunity to testify this afternoon, and very
much appreciate the focus that the committee is placing on the
issue of long-term care.
As we prepared for today's testimony, and as you grapple
with the issue, we wanted to leave you with the proposition
that has been stated over and over today, and most recently by
Mr. Page, that it is time to enlarge the healthcare discussion,
to broaden it and to have a paradigm shift to recognize that we
can't think in silos about healthcare any more. We need to
break down the barriers between acute care and long-term care,
and begin to think about a continuum of care.
And when you look at the data, almost half of the
population over 65 will need nursing home care as they go
through their lives, and the average stay is roughly 2.4 years.
We also know that Medicaid has been in silos. The focus has
been, in reaching out to the private sector for tools and
techniques, has been primarily, until recently, on the acute
care side. We think we have not only a great deal to contribute
on that side, but also, something significant to contribute to
shore up the Medicaid program on the long-term care side.
Finally, in our view, tax policy has held the Nation back,
because it hasn't really kept up with supporting families who
want to protect themselves, who are able to and would like the
opportunity. So recognizing that the committee is seeking the
balance point between public and private sector strategies, as
my colleagues have observed, we have tried to provide you
information about three things.
First, what tools our members have brought to the Medicaid
program, not only to contain costs, but to preserve benefits to
avoid cutbacks and to preserve value, and to increase value. We
have provided a lot of data. We would be delighted to provide
more. There is a real opportunity, a positive story to tell. We
think we can do more in the area of long-term care, and we are
pleased that States are turning to our members to use their
tools and techniques in that arena.
Second, we have provided information. There has been a
great deal of discussion today about how the long-term care
market works. We have also, third, tried to provide information
and specific strategies that could be considered to encourage
families who would like to purchase private long-term care
insurance.
The point we would like to leave you with is by not having
affirmative policy, you have created a policy. It has been we
have backed into it. It is not organized, but there is a policy
here, where families who want to save and protect themselves in
the future aren't supported. For example, we have had some
discussions about the above the line deduction. There is also
the issue of flexible benefit plans not being able to be used
for long-term case purchase, 125 cafeteria plans. Those issues,
we think, could be considered.
We know that is not necessarily in the province of this
committee, but as you grapple with the issues of what to do,
and where to put that balance point, we thought it was
important to raise. We also think that it is unfortunate that
States have to get exceptions to move in the area of home and
community-based care, rather than being allowed to do that as a
matter of course, and there was certainly a great deal of
discussion about that with Dr. McClellan.
In our view, the Nation can do better. We think that there
can be strategies that could be tangibly undertaken very
quickly. We have tried to provide information on the cost of
private insurance policies. We have provided and anticipated
questions about lapse rates, and how long people keep long-term
care policies. I would like to affirmatively discuss consumer
protections. Our members strongly support the HIPAA
requirements. We have supported the model requirements, and we
have worked hand in hand with the NAIC in developing those
model requirements.
So in summary, Mr. Chairman, Mr. Brown, we have suggested
three categories of tangible strategies. First, to preserve
benefits in the Medicaid program, we have talked about the
kinds of cost effectiveness--I apologize for the voice--I have
asthma, and these allergy days are particularly difficult for
people in that condition. We have talked about cost
effectiveness, and higher quality services that we can bring to
Medicaid. We have also talked about the tax incentives to
expand access to families who want to save for long-term care.
And we have talked about expanding partnerships and hopefully
have given you some information that you can use on the
partnerships to consider a direction for expanding those, and
expanding access, and making it possible to put the balance
point in the right place between public and private sector
strategies.
Thank you, Mr. Chairman, and I apologize about the voice.
[The prepared statement of Karen Ignagni follows:]
Prepared Statement of Karen Ignagni, President and CEO, America's
Health Insurance Plans
Good morning, Mr. Chairman and members of the subcommittee. I am
Karen Ignagni, President and CEO of America's Health Insurance Plans
(AHIP), which is the national trade association representing nearly
1,300 private sector companies providing health insurance coverage to
more than 200 million Americans. Our members offer a broad range of
health insurance products in the commercial marketplace and also have
demonstrated a strong commitment to participation in public programs.
We appreciate this opportunity to testify about long-term care and
the Medicaid program. We share your commitment to meeting the long-term
care needs of our nation's aging population and, at the same time,
ensuring that Medicaid's financial stability is not threatened by the
high costs associated with long-term care.
In our view, it is time for a paradigm shift in the health care
discussion. Our current health care system focuses primarily on
treating episodes of acute illness, rather than managing chronic
conditions. This is true despite the fact that 20 percent of all
Medicare beneficiaries--chronically ill patients with five or more
medical conditions--accounted for more than two-thirds of the Medicare
program's costs in 2004. Likewise, long-term chronic care management is
a key cost issue for Medicaid. Our tax system has followed a similar
pattern by orienting incentives toward the coverage of acute care
benefits. To meet these challenges, the nation needs to broaden the
health care discussion to focus on the continuum of health care
services that people need throughout their lives.
In the next 30 years, more than half the U.S. population will be
living with at least one chronic condition. Chronic illnesses such as
cancer, diabetes, Alzheimer's disease and hypertension complicate age-
related health problems and increase the likelihood of needing long-
term care. Currently, nearly half of all nursing home residents have
Alzheimer's disease. By 2050, the Alzheimer's Association estimates
that 14 million baby boomers, nearly one in five, will find themselves
living with the disease. We need to make major adjustments to address
21st-century realities and our aging population. At the same time, we
need to explore a range of public-private partnerships that could make
long-term care costs more predictable and expand service options for
consumers.
This should be a particularly important priority considering that
Medicaid currently covers about 45 percent of all long-term care
expenditures. Even though fewer than 10 percent of Medicaid
beneficiaries use long-term care services, more than one-third of total
Medicaid spending is devoted to long-term care.
My testimony today will focus on three areas:
(1) What our members are doing to contain costs and improve quality in
Medicaid by working in partnership with the states;
(2) An overview of the long-term care insurance market and the role
that long-term care insurance can play in relieving financial
pressure on Medicaid; and
(3) Tangible policy changes that could be pursued to assist families
interested in saving for long-term care.
The activity in these areas will show that AHIP's members are
actively engaged in providing consumers with both private and public
options for meeting the challenges raised by long-term care and chronic
conditions.
THE SUCCESS OF PRIVATE SECTOR STRATEGIES IN MEDICAID
Health insurance plans have made an important contribution toward
making it possible for Medicaid programs to use their limited resources
to expand access, improve quality, provide transportation services, and
take other steps to better serve beneficiaries.
In a number of states, our members are participating in initiatives
to improve the quality of long-term care while stretching Medicaid
dollars. Most of these programs--including initiatives in Texas,
Arizona, Massachusetts, Wisconsin, New York, Florida and Minnesota--
seek to decrease the need for nursing home care, reduce
hospitalizations, and increase the number of elderly and disabled who
can be better served in home and community settings. For beneficiaries,
this means improved health outcomes and the opportunity to receive care
in a familiar setting of their own choice.
These programs not only save money and improve the quality of care,
but also deliver extremely high patient satisfaction. In Texas, the
STAR+PLUS program saved the state $17 million dollars in the first two
years in just one county, and reduced emergency room use by 40 percent
and inpatient admissions by 28 percent. In Minnesota Senior Health
Options--which combines health care and support services into a
seamless package--Medicaid enrollees report a 94 percent satisfaction
rate with their care coordinators.
Further successes are documented in an July 2004 report
1, conducted by the Lewin Group, which provides a synthesis
of 14 separate research studies that demonstrate the cost savings to
states and the high quality health care offered by Medicaid managed
care programs. These savings have been particularly important as states
confront Medicaid funding shortfalls that have challenged their ability
to deliver services without cutting benefits or eligibility.
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\1\ The Lewin Group, Medicaid Managed Care Cost Savings--A
Synthesis of Fourteen Studies, July 2004
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The studies examined by this report attribute significant cost
savings to Medicaid managed care. One study, for example, found that
Michigan's Medicaid managed care program yielded cost savings of 14
percent in FY 2002, 16 percent in FY 2003, and 19 percent in FY 2004.
Another study, focusing on Wisconsin, measured savings of 7.9 percent
in 2001 and 10.2 percent in 2002.
A number of other studies focus more narrowly on specific services
or population subgroups. One study found that Arizona's managed care
program, which fully capitates prescription drug costs, delivered
pharmaceuticals to the aged, blind and disabled at a per-member, per-
month cost of $112.21 in 2002, the lowest figure in the nation and 38
percent below the national average. Another study found that cost
savings of approximately 10 percent were achieved by moving adult women
in Hennepin County, Minnesota from fee-for-service coverage to Medicaid
managed care coverage.
The report notes that these cost savings are largely attributable
to decreases in utilization of inpatient hospital services. For
example, preventable hospitalizations in California were found to be 38
percent lower in managed care than in fee-for-service for mothers and
children enrolled in Medicaid--and 25 percent lower in managed care
than in fee-for-service for Supplemental Security Income (SSI)
recipients.
The report further states that in addition to achieving cost
savings on behalf of beneficiaries, Medicaid managed care programs have
improved access to care for Medicaid beneficiaries in most cases. It
also indicates that both state programs and individual managed care
organizations have earned high satisfaction ratings from enrollees.
Another report 2, released by AHIP in March 2005,
outlines numerous examples of how health insurance plans serving
Medicaid beneficiaries have implemented programs that are improving the
health care of beneficiaries and providing value to state governments
through innovative and cost-effective programs. The progress achieved
by these pioneering programs is evidenced by this sample of the
report's findings:
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\2\ AHIP, Innovations in Medicaid Managed Care, March 2005
Access to Care: Medicaid beneficiaries served by health plans in New
York City report that they have better access to care than
patients in the fee-for-service program, and are more likely to
have a regular source of care and to seek care at a doctor's
office rather than in emergency rooms. As a result, these
beneficiaries are more likely to receive the appropriate
primary care and preventive services than their counterparts in
the fee-for-service program.
Prenatal Care: Infant mortality rates in Rhode Island have dropped
dramatically--from 4.5 deaths per 1,000 births to 1.9 per
1,000--since health insurance plans began providing care for
pregnant women enrolled in the state Medicaid program.
Asthma: Children with asthma enrolled in Medicaid health insurance
plans in Wisconsin are significantly less likely to require
hospitalization than asthmatic children in the state's fee-for-
service programs. The lower hospitalization rate for these
children means that they are enjoying better health and are
likely to have fewer absences from school.
Diabetes: Among Medicaid participants with diabetes in North
Carolina, those served by health insurance plans are three
times more likely to properly monitor and control their blood
glucose levels. This translates into better health status for
diabetes patients--with fewer complications that otherwise
would increase the threat of blindness, amputations, and other
health problems.
Our members have designed programs that work for Medicaid
beneficiaries and also for the states. The successful programs
implemented by health insurance plans demonstrate quality improvement
and cost containment through innovative outreach programs that meet
budgetary needs and provide access to more coordinated and effective
health care.
THE ROLE OF PRIVATE LONG-TERM CARE INSURANCE
The number of individuals purchasing long-term care insurance has
grown dramatically in recent years. Since 1996, the number of policies
purchased has more than doubled, increasing from 4.9 million to about
10 million policies sold.
Policies contain a wide range of benefit options at moderately
priced premiums. For example:
Long-term care insurance plans offer coverage of nursing home,
assisted living facility, home health care, hospice care,
respite care, and certain alternate care services not listed in
the policy.
Other common benefits include: care coordination or case management
services, support with activities of daily living, medical
equipment coverage, home-delivered meals, spousal discounts,
survivorship benefits, and caregiver training.
Plans contain provisions that guarantee their renewability, have a
30-day ``free look'' period, cover Alzheimer's disease, provide
for a waiver of premiums once a claim is processed, and give
policyholders the option of covering nursing home stays without
limits or caps.
Age limits for purchasing coverage also are expanding. Our members
now offer individual policies to people as young as 18 and as
old as 99. In addition, recognizing that consumers want to plan
ahead for their long-term care needs, plans offer inflation
protection for the dollar value of a purchased benefit at an
annual 5 percent compounded rate, funded with a level premium
that stays the same from one year to the next. Companies also
offer plans that have a non-forfeiture benefit that allows
beneficiaries to retain some benefits if they lapse their
policy.
The growth in employer-sponsored plans is especially encouraging,
since individuals with employer coverage will not be forced primarily
to depend on their states for assistance in meeting their long-term
care expenses. The average age of the employee electing this coverage
is 45--compared to an average age of 60 for persons who buy long-term
care insurance outside of the employer-sponsored market. To date, close
to 2 million policies had been sold through more than 5,600 employers,
and accounted for one-third of the sales in 2002.
Premiums for long-term care insurance policies depend on multiple
factors, including the entry-age of the policyholder and
comprehensiveness of the benefit package selected. At the same time,
the committee should be aware that average premiums have remained
stable over time. AHIP estimates that a vast majority of long-term care
policies currently in effect today have never experienced a rate
increase. In addition, within the past few years there have been
significant enhancements to long-term care insurance (for example,
prior hospitalization requirements have been eliminated and benefits
have been expanded to include coverage in assisted living facilities,
adult day care and home health care, in addition to nursing home care),
and therefore that give buyers more benefits for their premium dollars.
Table 1 illustrates the average cost of long-term care premiums,
depending on when the policy is purchased.
Table 1: Average Annual Premiums for Leading LTC Insurance Sellers in
2002
------------------------------------------------------------------------
With 5%
Comp.
Age of Purchaser Base Inflation
Protection
(IP)
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40.............................................. $422 $890
50.............................................. $564 $1,134
65.............................................. $1,337 $2,346
79.............................................. $5,330 $7,572
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NOTE: Premiums are generally for a $150 daily benefit amount, four years
of coverage, and a 90-day elimination period.
Consumer Protections--Strengthening the Market
A vital component of this effort to strengthen the market for long-
term care insurance is the adoption of robust standards for consumer
protection. Because we recognize that consumer protections are critical
toward engendering confidence in the market, AHIP and our member
companies are committed to providing quality products, transparency in
our products, and consumer choice. We view these protections as key to
giving consumers confidence, expanding the market, and providing viable
solutions to work hand in hand with Medicaid coverage for the poor.
In the past, there have been questions about post-claims
underwriting. Our position is that this is never justifiable. On the
other hand, efforts to detect and prevent fraud should not be viewed as
post-claims underwriting. AHIP supports the strong stand taken on this
issue by the National Association of Insurance Commissioners (NAIC). We
also support the NAIC's most recent Long-Term Care Insurance Model Act
and Regulations and the Health Insurance Portability and Accountability
Act's (HIPAA) consumer protections for long-term care insurance.
To give the committee a broad picture of the value of the HIPAA
provisions, below are some of the key requirements:
requiring policies to guarantee renewability;
specifying the only circumstances when coverage could be canceled or
rescinded, such as when the applicant committed fraud to obtain
coverage;
requiring ``free-look'' periods immediately after issue and grace
periods for premium payments;
limiting the circumstances where benefits need not be provided, such
as in the case of alcoholism or drug addiction;
requiring numerous disclosures, including an outline of coverage, and
building in notice and other safeguards to prevent unintended
lapses of policies; and
establishing minimum standards for home health benefits; and
requiring that policies be offered with inflation protection
and non-forfeiture of benefits provisions.
In addition, federal legislation enhancing the tax treatment of
long-term care insurance contracts should include components of the
2000 NAIC Models. As an example, AHIP recommends that the Model
provisions relating to the benefits consumers are to receive if they
choose not to continue their policy and required disclosure to
consumers relating to rate stability be added as new standards for tax-
enhanced long-term care insurance contracts.
how to support families that want to save for long-term care
A. Federal Tax Incentives
AHIP supports federal legislation to enact both an above-the-line
tax deduction for long-term care insurance premiums--which means that
they would be deducted directly from a taxpayer's adjusted gross income
(the ``line'')--and a tax credit of up to $3,000 for those with long-
term care needs or their caregivers. This legislation has been
introduced in every legislative cycle since 1999-2000 and the current
level of support reflects growing congressional interest in this issue.
The proposal for an above-the-line tax deduction would allow
taxpayers to claim a tax deduction regardless of whether they itemize
their deductions and regardless of whether they have other medical
expenses. For example, a person who pays $1,500 in premiums for long-
term care insurance could reduce his or her taxable income by the full
$1,500 under this proposal.
By contrast, current law allows taxpayers to deduct premiums for
long-care term insurance only if they itemize deductions and only to
the extent that their medical expenses exceed 7.5 percent of their
adjusted gross income. In other words, a person with an adjusted gross
income of $40,000 must have $3,000 in medical expenses before he or she
can claim any tax deduction for long-term care insurance premiums or
any other medical expenses. Because this threshold is so high under
current law, fewer than five percent of all tax returns report medical
expenses as itemized deductions. An above-the-line tax deduction would
eliminate this 7.5 percent threshold and allow all long-term care
insurance policyholders to claim a tax deduction.
AHIP also supports legislative provisions that would enable
employers to offer long-term care insurance as an option under
cafeteria plans, which allow employees to customize their benefits
packages, and under flexible spending arrangements, which allow
employees to use pre-tax dollars to pay for medical expenses not
covered by health insurance.
Allowing employees to purchase long-term care insurance on a pre-
tax basis through these popular employee benefit arrangements would
allow more families to purchase coverage. Moreover, this would put
long-term care insurance on a level playing field with other employer-
sponsored benefits--such as 401(k) contributions--that are not taxed.
As Congress considers federal tax incentives, we urge lawmakers to
recognize that more than 20 states have enacted enhanced tax incentives
for the purchase of long-term care insurance. These states are:
Alabama, California, Colorado, Hawaii, Idaho, Indiana, Iowa, Kansas,
Kentucky, Maine, Maryland, Minnesota, Missouri, Montana, New York,
North Carolina, North Dakota, Ohio, Oregon, Utah, Virginia, West
Virginia, and Wisconsin. These state laws have taken an important first
step to enhance the affordability of long-term care insurance. By
enacting an above-the-line tax deduction at the federal level, Congress
can create a more powerful incentive--with the states working in
partnership--for all Americans to protect themselves against the
financial risk of long-term care needs.
B. Partnerships
AHIP also supports the expansion of public-private long-term care
``partnerships'' similar to those that currently operate in New York,
California, Connecticut, and Indiana into a nationwide program. These
partnerships allow consumers in these states to purchase long-term care
insurance with the understanding that if their policy benefits are
exhausted, the government will cover the costs of their continuing care
through Medicaid without first requiring them to ``spend down'' their
life savings and become impoverished. There are two partnership models:
The ``dollar-for dollar'' model allows beneficiaries to protect a
specified level of assets equal to the amount of long-term care
insurance they purchase. If a beneficiary purchases $100,000 of
coverage, he or she is assured that $100,000 of his or her
assets will be exempt from any Medicaid ``spend down''
requirements that otherwise would apply.
The ``total asset protection'' model allows beneficiaries to protect
all of their assets, provided that they purchase a long-term
care policy for a minimum number of years, typically three or
four years.
AHIP envisions that a partnership model implemented on a national
basis would encourage the growth of the long-term care insurance
marketplace in a more effective and cost-efficient manner. This
national or federal model should mirror HIPAA long-term care tax-
qualified requirements and would allow Medicaid protection in all
states, regardless of where one purchases a long-term care policy.
Among more than 180,000 partnership policies that have been sold in
these states since 1992, only 89 individuals have exhausted their
private benefits and accessed Medicaid benefits, and almost 30 percent
of policyholders surveyed said they would not have purchased a long-
term care policy in the absence of the partnership program.
C. Other Strategies
To meet the challenges presented by long-term care, policymakers
should focus broadly on as many bold and creative ideas as possible. In
addition to the proposals already discussed, a number of other
innovative approaches may be worth pursuing as part of a multi-faceted
strategy for financing the growing costs associated with long-term
care:
State-based and national education campaigns could play an important
role in making consumers aware of their options for protecting
themselves from the risks associated with long-term care costs.
The existing CMS Long-Term Care Awareness Campaign, developed
for five states, could be expanded to other states using
resources jointly provided by CMS, state Medicaid programs,
long-term care insurers, long-term care providers, and other
stakeholders.
Any number of innovative new partnerships between long-term care
insurers and Medicaid programs could be explored. One
possibility would be a partnership in which long-term care
insurers would manage a state's Medicaid long-term care
population. Another option would be to expand state Medicaid
managed care programs to cover the entire continuum of health
care services including acute care and long-term care.
State-based CMS demonstration programs could be expanded to help
states meet their long-term care costs in Medicaid. This
approach would allow states to test innovative partnerships as
part of an incremental approach to developing broad-based
solutions.
Consumer Education and Transparency
As the market grows and adapts to consumer needs and expectations,
the private sector and government at all levels should encourage a
broad consumer education campaign. The NAIC Models could also serve to
enhance the ability of consumers to compare products and make more
informed decisions about need and suitability. In fact, the NAIC models
provide guidance on suitability to help consumers select appropriate
products and to ensure that agents are in turn selling products
compatible with a consumer's particular needs.
Finally, I would like to mention that AHIP actively works with
federal and state long-term care education campaigns, and we produce
and regularly update a ``Guide to Long-Term Care Insurance.'' The Guide
includes advice on how families should evaluate their long-term care
needs, what the costs are, and how to choose long-term care insurance
coverage. To date, we have distributed over 1 million copies of the
Guide.
We have also partnered with the General Services Administration's
Federal Consumer Information Center (FCIC), which has identified this
publication as its ``guide of choice'' on long-term care insurance. The
Guide is available to consumers, at no charge, through the FCIC by
phone [1-888-8 PUEBLO], on the web at www.pueblo.gsa.gov/cic--text/
health/ltc/guide.htm.
conclusion
We hope this information about the long-term care market, what our
members already are doing to partner with states under Medicaid, and
policy solutions for providing expanded access to coverage are useful
to the committee. If these recommendations are implemented, there will
be tangible benefits 3 for consumers and for Medicaid and
Medicare:
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\3\ LifePlans, Inc., Benefits of Long-Term Care Insurance,
September 2002
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Potential Benefits to Consumers
Having long-term care insurance allows those with chronic illnesses
and the disabled to remain in their homes. Approximately half of
patients and family caregivers interviewed by trained nurses and social
workers said that in the absence of their long-term care insurance
benefits, the patients would not be able to remain in their homes and
would have to seek institutional alternatives.
We know that consumers with private long-term care insurance
receive an average of 14 more hours of personal care per week than
similarly disabled non-privately insured elders. Consumers with long-
term care insurance are 66 percent less likely to become impoverished
to pay the costs of long-term care, and long-term care insurance
reduces the out-of-pocket expenses of disabled elders. The average
reduction in out-of-pocket nursing home costs is between $60,000 and
$75,000 and can total more than $100,000.
Potential Benefits to Medicaid and Medicare
Long-term care insurance can reduce state and federal Medicaid
expenditures and federal Medicare home health expenditures. Medicaid
savings are projected to total about $5,000 for each policyholder with
long-term care insurance and Medicare savings are estimated to exceed
$1,600 per policyholder.
Aggregate savings to Medicare and Medicaid for the current number
of policyholders are estimated at about $30 billion. These savings will
grow as more people acquire policies and the average age of purchasers
continues to decline.
AHIP and our member companies look forward to working with the
subcommittee to address the challenges associated with long-term care
and Medicaid. We are eager to share our ideas and contribute to a
constructive debate on this issue. We also support efforts to establish
a Bipartisan Commission on Medicaid. If Congress provides for such a
commission, we will be pleased to work with this body to contribute to
the discussion about steps that can be taken to strengthen Medicaid to
better meet the health care needs of beneficiaries.
We appreciate the opportunity to testify on these important issues
and look forward to your questions.
Mr. Deal. Thank you very much. Mr. Moses.
Mr. Moses. Thank you, Mr. Chairman, Mr. Brown, members.
Mr. Deal. Turn your microphone on, please. I believe--or
get closer. One or the other.
STATEMENT OF STEPHEN A. MOSES
Mr. Moses. Thank you for this privilege of addressing you
on an issue that has been my personal and professional passion
for 22 years, starting with, as a career, U.S. Government
employee with the Health Care Financing Administration, later
with the Office of the Inspector General of the Department of
Health and Human Services, and then in the private sector, and
now, in the nonprofit sector.
I wanted to focus today on a couple of questions. Really,
what are we talking about here in the area of asset transfers,
and why is there so little empirical evidence of how widespread
this practice is? Really, asset transfer is an
oversimplification. What we are talking about here is Medicaid
estate planning, which is all of the techniques that are used
to help people qualify for Medicaid without spending down, by
either sheltering or divesting assets. It may involve asset
transfers. As you know, you can give away any amount of assets,
as long as you do it 3 years in advance, or put assets into
trusts within 5 years. You can give away half the assets and
qualify in--with half the penalty. It is called the half a loaf
strategy. One can give away double the cost of a nursing home
in many States, at least the cost of a nursing home in all
States without incurring a penalty beyond the current month,
and of course, assets can be transferred in unlimited
quantities between spouses, and that is a technique often used
to avoid estate recovery.
But Medicaid planning is much more than asset transfers. It
is purchase of exempt assets. You can retain a home and all
contiguous property, regardless of value. You can have a
business, including the capital and cash-flow, of unlimited
value. You can purchase prepaid burials, not only for the
Medicaid recipient, but for the entire family. You can have a
car, a business, term life insurance in unlimited value. A
common technique is to pay children for their help, transfer
assets, transfer a home while retaining a life estate, get a
Medicaid-friendly annuity, use a life care contract. I have
even seen many times the recommendation of a divorce.
Now, why is it that, since we all know this is going on,
there is so little empirical evidence? I think there are
basically two reasons. First of all, it is kind of a dirty
little secret. Adult children who take early inheritances and
put their parents in nursing homes on welfare are a little bit
ashamed, so they don't talk about it. Seniors whose assets are
taken are usually cognitively impaired, or somewhat
intimidated, because they would like to give something to their
children. They don't talk.
Medicaid planners can easily hide from scrutiny, because of
the attorney-client privilege. And the other primary source we
might have for information is nursing home staff or State
Medicaid staff, and they can't talk. They are silenced by
confidentiality. But despite these obstacles, it is quite
possible to get the truth, and I have done many studies at both
the national and State level which document that. We have
provided a statement, and a list. Medicaid eligibility workers
have told me in numerous States that upwards of 80 percent of
everyone in long-term care paid for by Medicaid has done some
form of asset divestiture or asset sheltering.
So why don't we have more solid empirical evidence? I would
submit to you that this is almost a conspiracy of ignorance.
There is a distinct ideological bias among academics,
foundations, and think tanks. The research money is controlled
by people who promote public financing, but pooh pooh all of
the private financing alternatives, and I would give as
examples Georgetown, Kaiser, Robert Wood Johnson, Brookings,
the Urban Institute. The conservative and libertarian think
tanks, on the other hand, have mostly ignored Medicaid and
long-term care to focus on Social Security and Medicare. And I
see a real irony in this, because it seems to me that the left
end of the political spectrum should be even more concerned
about the abuse of Medicaid, for the simple reason that why
would we use our scarce public welfare resources to indemnify
the upper middle class heirs of affluent seniors, when they are
all probably a bunch of Republicans anyway?
What is the real problem here, because I just see Medicaid
planning as the tip of the iceberg. The fundamental problem
here is that--is not prosperous seniors taking advantage of
Medicaid, or millionaires on Medicaid, as it is popular to
portray in the media? The real problem is just regular folks
are qualifying for Medicaid under the eligibility, which I will
talk about in a minute, but I thought I would give you
information on what was described to me as the average Medicaid
planning client, in a study I did recently in Seattle.
The average client has a home worth $250,000 to $400,000
that they owned free and clear. They have got $150,000 to
$200,000 in additional liquid assets, and $2,000 to $2,500 a
month in income. Now, I don't think any of us would call that
rich or wealthy, but it is the straw that can break the camel's
back of Medicaid when we expand the social safety net to
include folks at that level. But the fundamental problem with
Medicaid is that the average person, in terms of income and
assets, walks right on. There is no limit on how much income
you can have, as long as your medical expenses, including
nursing home care, are high enough. All you really need is a
cash-flow problem, and that is critical, because there is no
limit on how much you can have in assets, as long as you hold
them in the exempt form, such as a home and all contiguous
property, a business, including the capital and cash-flow, home
furnishings, exempt cars, prepaid burials, you could go on and
on, and I have in many number of reports.
I would like to change now over to who gets hurt by the
current system? Well, most of all, it is poor people. They
don't have the key money that Medicaid planners advise their
well-to-do clients to retain in order to get into the nicest
facilities. Poor people don't have key money, so they are the
ones that end up in the less attractive Medicaid facilities,
and they don't get the home and community-based services that
Medicaid has such difficulty providing.
The general public gets hurt, because they have
anesthetized to the risk of long-term care, as Dr. Burgess
said. Nursing homes and other long-term care providers get the
short end of the stick here, because of the notoriously low
long-term care reimbursements through Medicaid. I don't have to
tell you legislators are getting caught in the vise. Insurers
and reverse mortgage lenders have no market for their product
because people can ignore the risk, avoid the premiums, wait
until they get sick, and the government will pay.
Mr. Deal. Mr. Moses, would you summarize for us.
Mr. Moses. I certainly shall.
Mr. Deal. Okay.
Mr. Moses. I just wanted to finish by saying what needs to
be done. We have to stop using Medicaid as inheritance
insurance for the baby boom generation. We have been pumping
that anesthesia into the system for 40 years, and it has been
very successful in putting people to sleep about this risk. We
need to target Medicaid to the genuinely needy, and encourage
everyone else with positive and negative incentives to either--
to plan early and save, invest, or insure. This isn't
complicated. Our problems with Medicaid and long-term are
caused by well-intentioned but perversely counterproductive
public policy. If we stop doing what we have always done, we
will get a different result, and that is very definition of
sanity.
Thank you.
[The prepared statement of Stephen A. Moses follows:]
Prepared Statement of Stephen A. Moses, President, Center for Long-Term
Care Financing
Mr. Chairman and members of the Committee: thank you for inviting
me to speak with you about the critical subjects of Medicaid and long-
term care financing.
My brief remarks today are fully developed and documented in
reports published on our website at www.centerltc.org .
If the question is ``Who should pay for long-term care?,'' the
average person will answer ``Anybody but me.'' Denial is commonplace.
Next best, people say ``Everyone should pay.'' Hence, we see a
tendency to pass the financing burden on to government.
Finally, if nothing else works, most people will prepare to pay
their own way. That's when they turn to private savings, investments,
home equity or insurance.
Winston Churchill said ``You can trust the Americans to do the
right thing, but only after they've tried everything else first.''
So, let's ask: What have we tried already in long-term care
financing? That is, who does pay for long-term care and what have been
the consequences?
Answer: the vast majority of all formal long-term care services are
financed by government.
Although Medicaid pays only half the dollars for nursing home care,
it covers two-thirds of nursing home residents and touches nearly 80
percent of all patient days with its notoriously low reimbursement
rates.
Even the so-called ``out-of-pocket'' expenditures for nursing home
care--which are down from 39 percent to 25 percent in the past 15
years--come mostly from Social Security benefits that Medicaid
recipients have to contribute toward their cost of care.
At 13 percent, Medicare is a much larger payer for nursing home
care than most people realize.
For home care, only 18 percent of the costs are paid by patients.
The rest comes primarily from Medicare and Medicaid.
Now, what has this heavy dependency on public financing of long-
term care achieved?
We have a severely dysfunctional, welfare-financed, nursing-home-
based long-term care system that serves no one well, least of all the
poor.
Long-term care today is plagued by institutional bias, too little
home and community-based care, bankruptcies, inadequate revenue, a
dearth of capital, staff shortages, access and quality problems, huge
tort liability, unaffordable liability insurance, too few full-pay
private payers and too many low-pay Medicaid recipients.
How in the world did we get into such a mess?
In 1965, Medicaid came along and started paying for nursing home
care.
The nursing home industry saw a huge new source of revenue and
naturally built more facilities as fast as they could raise the walls.
The public figured nursing home care was free, so why pay out of
pocket for home care or insurance?
That's how institutional bias began and that's why a market for
home care, assisted living and long-term care insurance did not begin
to develop until decades later.
Before long, of course, Medicaid nursing home costs exploded.
Figuring, ``they can't charge us for a bed that doesn't exist,''
government capped the supply of nursing home beds by requiring
certificates of need (CONs).
But capping supply only drove up the price as nursing homes raised
their rates to compensate. So Medicaid capped what it would pay for
nursing home care.
In turn, nursing homes raised rates for private payers to make up
the difference. That was the origin of ``cost shifting'' from Medicaid
to private payers.
Over time, Medicaid nursing home census grew and private pay census
declined, as fewer people could afford the higher private pay rates and
Medicaid eligibility became easier and easier to obtain.
A new practice of law--Medicaid estate planning--evolved to
impoverish people artificially so they could qualify for Medicaid
without spending down.
But the average person in terms of income and assets could qualify
for Medicaid even without such legal machinations because of the
program's generous eligibility criteria.
With supply and price capped and eligibility easier and easier to
obtain, nursing homes could fill their beds by accepting Medicaid's low
rates almost without regard to the quality of care they offered.
Thus arose the access and quality problems that led to heavy
government regulation of nursing facilities.
Today, nursing homes are caught between the rock of inadequate
reimbursement and the hard place of quality regulation.
Or, as I've heard industry executives express it: ``the government
expects Ritz Carlton care for Motel 6 rates while imposing a regulatory
Jihad.''
In the meantime, both Medicaid and Medicare have played a growing
role in financing home care, which most people prefer, but which those
programs cannot afford.
The result is that the public has been anesthetized to the risk of
long-term care even as state and federal coffers have been emptied by
government's efforts to help.
It's the same old story: good intentions led to unforeseen
consequences.
That brings us to the most important question to ask: who WILL pay
for long-term care in the future?
Certainly not government. That well is dry. No one is so naive
anymore as to expect a new publicly financed long-term care system to
come along.
More and more, the hard reality is true: if you want access to
quality long-term care at home or in the community, you must be able to
pay privately for it.
As publicly financed long-term care continues to deteriorate, more
and more people will turn to their home equity as the only way to pay
for acceptable care.
Eighty percent of seniors own their homes and 73 percent of those
own them free and clear. Nearly $2 trillion is available and easily
accessible through home equity conversion, while still allowing
borrowers to retain the use of their homes.
When the only choice becomes ``inadequate welfare-financed long-
term care or spend down your home equity to get quality care,'' more
people will turn sooner to private insurance as a viable alternative.
With more people insured and paying privately at market rates, care
choices and quality will improve for everyone, rich and poor alike.
With fewer people dependent on Medicaid, the welfare program will
be better able to provide a wider range of higher quality care to the
genuinely needy.
We will get to that point by default simply by staying on the
current course, but many people will be hurt.
Or, we can remove the perverse incentives in public policy that
currently trap people on Medicaid.
The single most important step to take is to stop using Medicaid as
inheritance insurance for the baby boom generation.
We need to tighten eligibility, require spend down of illiquid home
equity as a condition of eligibility, and enforce estate recovery
requirements.
When the choice is ``pay me now or pay me later,'' as in the old
Fram oil filter commercial, most people will save, invest or insure for
long-term care and everyone will be better off.
Thank you for your attention. I'll try to answer any questions you
may have.
Mr. Deal. Thank you. Well, we made it a little over halfway
through the panel before we had to go vote again. If you will
excuse us again, we are going to go vote, but we will be back
shortly. We will stand in recess, pending these votes.
[Brief recess.]
Mr. Deal. We have been given permission to go ahead without
anyone else. They will be here. They will be coming in. I
apologize to you. Mr. Krooks pointed out to me that you don't
have a timer down there. We normally have a timer that lets you
know when you have a minute left. I apologize for that. And I
know it would be rude to turn over your shoulder and look at
the clock, which I am looking at, which is behind you there. So
I will try to maybe give you the high sign when you are close
to the time limit. Mr. Krooks, we will start with you.
STATEMENT OF BERNARD A. KROOKS
Mr. Krooks. Thank you, Mr. Chairman. I just want to point
out that in addition to being here as a practicing attorney
with the firm Littman Krooks, I am also here as a past
President of the National Academy of Elder Law Attorneys, which
is a national not for profit association, which provides
information, education, networking, and assistance to lawyers,
bar associations, and others, who deal with legal services to
the elderly and people with special needs. And I want to thank
you for the opportunity to testify before you today.
Let me just start out by saying that the problem is the
United States does not have a comprehensive system for long-
term care. We discriminate in our delivery of healthcare based
on the type of illness one has. If you have an illness like
heart disease or cancer, the United States provides
comprehensive care through Medicare. If you have a chronic
illness, like Parkinson's disease, ALS, otherwise known as Lou
Gehrig's disease, Alzheimer's disease, or multiple sclerosis,
the government doesn't help you unless you impoverish yourself
and then first qualify for Medicaid.
Most families needing long-term care feel defeated by
having to apply for a welfare program after years of working
and saving. Many are children of the Great Depression, and are
World War II veterans. Many are women, who after losing their
husbands to the devastation of a chronic illness have to suffer
the indignity of impoverishment and financial dependence on
family or government. The bottom line is that our healthcare
system penalizes people who have pursued the American dream,
who have saved for retirement, and then get the wrong disease.
Clients don't come to me seeking Medicaid. That is a myth.
Medicaid is the payer of last resort. People want the best
quality of care for a loved one. They want to receive care at
home, as we have heard numerous times today. They want to avoid
impoverishing the community spouse. They want to avoid losing
the family home. Providing a legacy for children or
grandchildren is low on the list. Seniors engage in long-term
care planning mainly because they find themselves in a lose-
lose situation. First, they lose their health and need long-
term care, and then, they come face to face with nursing home
costs that average over $70,000 annually. Second, they learn
that they will have to lose virtually their entire estate to
pay for this long-term care.
Another myth is that millionaires are going on Medicaid.
The fact is millionaires cannot and are not on Medicaid. They
cannot go on Medicaid. They don't need Medicaid. Most can
afford the much-preferred home care, even on a 24 hour basis.
In fact, many would face potentially large capital gains and
gift taxes if they were to transfer their assets. Moreover,
seniors are just not comfortable giving up control of their
assets. Transferring assets and impoverishing themselves is not
something they want to do. When a client comes to see me, and
the client has significant assets, I suggest they consider
seeing a professional who is able to provide information
regarding their long-term care insurance options.
Proposals have been put on the table that will make
Medicaid asset transfer penalties more punitive, and will
mainly hurt seniors who act in good faith, yet fall innocently
into the budget cutting process. One proposal to make penalties
harsher calls for changing the start of the penalty period from
the date of transfer to the date one applies for Medicaid. This
has the practical effect of extending the penalty period for
years beyond what it is now.
A few of the likely victims of such measures include a
grandparent caring for a grandchild who provides savings to
help pay for the grandchild's education, a devoted church
supporter who devotes substantial time to his church and
donates personal assets to the church, the widow who lacks
records of her now-deceased husband's spending, the caring
sister who uses savings to help a needy sister remain at home.
Under the proposals to tighten transfer of asset rules, each of
these individuals would be cutoff Medicaid if they subsequently
get sick and need long-term care.
I would like to give you a couple of examples of how the
new proposals would work if enacted. There are many more
examples contained in my written testimony. Let us take the
case of Mr. Banks. Mr. Banks is living independently, and has a
pretty active life, although he does suffer from diabetes and
heart disease. He sold his house, his only asset, for $135,000,
and he donated 10 percent of the proceeds to his local charity.
Mr. Banks moved to assisted living, and thereafter, his
condition deteriorated, and he had to go to a nursing home. Two
years later, Mr. Banks had spent his entire savings on the cost
of his care, did not make any transfers, and he would otherwise
be eligible for Medicaid, but for this $13,500 gift, the 10
percent of the $135,000 house that he sold, that he made 2
years ago. Under the new proposal, the penalty period
attributable to that gift would not start until he applied for
Medicaid 2 years later. Under current law, the penalty would
have long expired.
Let me give you another example, again, so you can see how
these new rules work, if they were enacted. Let us take the
case of a mother who helps her two children. Her daughter has
medical problems, and does not have insurance, and her son's
daughter, her grandchild, is in college with expensive tuition.
So she helps her daughter by paying $30,000 for healthcare. She
is uninsured. And she helps her granddaughter by paying $50,000
in tuition. These are significant amounts paid almost 5 years
before she was forced to go into a nursing home. With a 5-year
lookback, which is proposed under the administration's budget,
and a penalty period starting on the day of application, she
will be ineligible for nursing home care for more than 17
months. Now, that number fluctuates depending upon the State
regional divisor, but seniors will not be able to help out
family members, because they will not be able to predict their
future. This is a case where 5 years earlier, she helped out a
grandchild with college education expenses and with healthcare
expenses for a daughter, and then she is penalized for a year
and a half when she goes into a nursing home 5 years later.
These are just a couple of the many examples, and the types of
people who will be hurt under these proposals.
Mr. Chairman, I thank you for the opportunity to present
testimony to this distinguished panel that has done so much for
the elderly and individuals with disabilities over the years.
As you can see from my remarks, one's life can truly end up on
a Wheel of Fortune or misfortune. You spin the wheel, and if it
lands on heart disease or cancer, your costs are covered. If it
lands on Lou Gehrig's disease, multiple sclerosis, or
Alzheimer's disease, you are on your own. If you get the right
illness, the government will pay. If you get the wrong illness,
they will not. Unfortunately, none of us has any control over
which illnesses we contract.
I would be happy to respond to any questions you may have.
Thank you.
[The prepared statement of Bernard A. Krooks follows:]
Prepared Statement of Bernard A. Krooks, Past President, National
Academy of Elder Law Attorneys
Good morning. Chairman Deal and Ranking Minority Member Brown, I
congratulate you on calling this hearing. I appreciate the opportunity
to testify as a professional serving the elderly and individuals with
disabilities and as a past president of the National Academy of Elder
Law Attorneys (NAELA). Thank you for your openness to our experiences
and ideas as you consider the complex issues of long-term care and
Medicaid.
The National Academy of Elder Law Attorneys is a national, non-
profit association composed of more than 4800 attorneys. NAELA provides
information, education, networking, and assistance to lawyers, bar
organizations, and others who deal with the many specialized issues
involved with legal services to the elderly and people with special
needs.
Elder Law
My professional practice is devoted to assisting seniors and others
with disabilities. Elder law is a specialized area of law that involves
representing, counseling, and assisting elderly and individuals with
disabilities and their families in connection with a variety of legal
issues. It is a holistic approach to the practice of law that focuses
on the individual rather than a particular area of law. I have included
at the end of my statement a list of the areas in which elder law
attorneys provide support to older and disabled persons. I hope that it
gives you a good picture of the range of concerns we help our clients
work through, such as wills, advance directives, trusts, guardianships,
government benefits, and long-term care insurance.
The Long-Term Care System
Mr. Chairman, as I am sure you know, unpaid caregivers provide the
majority of long-term care in the United States. Researchers estimate
the value of this unpaid caregiving at well over $196 billion per
year.1 By contrast, paid caregiving costs the public and
private sectors about $173 billion,2 more than a quarter of
which is paid out-of-pocket by individuals and their families. Nursing
home care costs approximately $70,000 per year on average, with 36% of
that paid out-of-pocket by individuals and their families. It is in
this context that families needing long-term care services engage in
financial planning to pay for those services.
---------------------------------------------------------------------------
\1\ Peter S. Arno et al., ``The Economic Value of Informal
Caregiving,'' 18 Health Affairs 182 (March/April 1999) (estimates for
1997).;
\2\ Health Policy Institute, Georgetown University, Long-Term Care
Financing Project, Fact Sheet: Who Pays for Long-Term Care? (May 2003),
available at: http://ltc.georgetown.edu/pdfs/whopays.pdf, accessed July
31, 2003.
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The United States does not have a national health insurance program
and it does not have a comprehensive long-term care system. Based on
the experiences of NAELA's members with thousands of older clients and
clients with disabilities, we support a national long-term care system
that would provide comprehensive services, including home and
community-based and institutional services, to people with serious
physical and cognitive impairments. However, until a comprehensive
long-term care system for all Americans is in place, it is essential
for Medicaid to continue its role as a federal-state program and
continue to help pay for the long-term care needs of low and middle-
income older individuals and individuals with disabilities.
When the Medicare bill was signed into law, President Johnson was
clear about our commitment to protect older Americans. He said:
No longer will older Americans be denied the healing miracle
of modern medicine. No longer will illness crush and destroy
the savings that they have so carefully put away over a
lifetime, so that they might enjoy dignity in their later
years. No longer will young families see their own incomes and
their own hopes, eaten way simply because they are carrying out
their deep moral obligations to their parents.
Unfortunately, this goal of Medicare remains unfulfilled for many
Americans with chronic illnesses. If someone is acutely ill, there is a
chance that he or she could get better. For example, someone with heart
disease could have bypass surgery and be fully recovered. However, if
someone has a chronic illness, there is no reasonable expectation of
recovery. For example, someone who has Alzheimer's disease can never
fully recover. As we know, Alzheimer's disease can be a long journey
for the victim as well as the caregivers and other family members. A
person can survive a decade or more before ultimately succumbing to the
ravages of this disease.
We discriminate in our delivery of health care based on the type of
illness one has. If you have an illness like heart disease or cancer,
the United States provides comprehensive care through Medicare. If you
have a chronic illness like Alzheimer's disease, Parkinson's, ALS (Lou
Gehrig's disease), or Multiple Sclerosis, the government doesn't help
unless you impoverish yourself first and qualify for Medicaid.
Most families needing long-term care feel defeated by having to
apply for a ``welfare'' program after years of working and saving. A
colleague of mine from Illinois recently stated that most middle-income
seniors who turn to Medicaid for nursing home care are ``people who are
up against a wall because of a serious illness, who have never depended
on a government handout in their lives.'' Many are children of the
Great Depression and are World War II veterans, our so-called
``greatest generation.'' Most of them are women, who, after losing
their husbands to the devastation of chronic illness, have to suffer
the indignity of impoverishment and financial dependence on family or
the government.
The bottom line is that our health care system penalizes people who
have pursued the American dream, saved for retirement, and then get the
wrong disease.
What I Do--Who Comes to Me and Why
When I do long-term care planning it is a part of a larger planning
process that:
Examines the full range of long-term care options, issues and costs
relevant to the client's circumstances;
Pursues the goals of preserving and promoting the individual's
dignity, self determination, and quality of life; and
Respects the individual's fundamental values and preferences as
defined by the client.
It is a rare day when I spend most of my time counseling clients
well in advance of the long-term care crisis. Most often, the lawyer's
help is sought when the need for long-term care has already arrived. It
usually involves spouses and children of persons needing nursing home
care who have already been heavily invested in providing care to the
person for an extended period.
My clients' goals, in order of priority, typically consist of:
Finding the best quality of health care for their loved one
Supplementing the Medicaid personal needs allowance (typically $30 to
$50 per month in most states);
Paying for non-covered Medicaid services and needs (e.g., dental
care, hearing aides, eyeglasses, private duty nurse, clothing,
books, flowers, etc.);
If a couple, ensuring the financial security of the community spouse
(CS);
Avoiding burdening the family;
Avoiding losing one's home (Medicaid liens and recover); and
Providing a modest legacy for the children (while the estate tax is
being eliminated for well-off families, states are ramping up
Medicaid estate recovery--the estate tax on the disabled).
Mr. Chairman, please keep in mind that when people do become
eligible for Medicaid, regardless of whether they have engaged in long-
term care planning, they must pay all but a small portion of their
income each month for their care. Medicaid then pays whatever the
difference is between that amount and the Medicaid rate. Thus, costs to
Medicaid are always mitigated by the Medicaid recipient's monthly
income.
In some cases, married couples are faced with having to consider
divorce when one spouse requires long-term care in a nursing home, or
else face financial ruin. Clients are emotionally devastated by the
necessity to make the decision to go this route at a time when they are
most vulnerable. For a society that professes to support the
institution of marriage, this is a sad and desperate situation.
Who Doesn't Come to Me for Help with Medicaid and Why
Millionaires do not go on Medicaid. They don't need Medicaid. Most
can afford the much-preferred home care, even on a 24-hour basis. Most
would face potentially large capital gains taxes, loss of step-up
basis, and gift taxes if they engaged in transfer strategies. Those
with retirement plans often face significant taxes if they liquidate
the plan prior to death. Tax planning is usually antithetical to
Medicaid planning.
Rather, millionaires have other options available to them--
including long-term care insurance and tax planning. They have no need
to rely on Medicaid, nor would they want to. Medicaid is a valuable
program, but there are many disadvantages to relying on Medicaid--such
as limitations in access to health care providers, limitations in
coverage, exposure to recovery against one's estate after death, and
state-by-state variations in eligibility and coverage.
No one yearns to be on a program like Medicaid. It is rare for a
senior to come in to my office and say ``I want to give away my money
so I can go on Medicaid.'' Seniors engage in long-term care planning
mainly because they find themselves in a ``lose-lose'' situation.
First, they lose their health and need long-term care and come face to
face with nursing home costs now averaging approximately $70,000 per
year. Second, they learn that they will have to lose virtually their
entire estate to pay for long-term care --paying 100% out-of-pocket
until they reach Medicaid's definition of impoverishment.
Medicaid Proposed Changes--Punitive or Positive?
Over the years, the Congress has enacted provisions to balance the
welfare entitlement focus of the Medicaid program with the reality that
middle-income Americans have few other options for long-term care. The
transfer of asset rules are well designed for accomplishing a balance
between the needs of individuals and families with that of fiscal
responsibility. The transfer of asset rules include such provisions as:
Individuals must postpone Medicaid eligibility if they give away
assets;
Only gifts from the recent past (3 years) are looked at, because they
are the most likely to have been done with any thought of
Medicaid eligibility;
The penalty starts when the individual gave the money away because
that is when the individual would have had it and could have
used it for his or her care;
Transfers of certain assets and transfers to certain individuals are
protected from penalties because public policy should not
promote or foster homelessness or financial dependency on the
government by those whose loved ones need Medicaid; and
Estate recovery exists so that states can be reimbursed for the
monies they have spent to care for the individual on Medicaid
in a nursing home.
This debate should also acknowledge the significant financial
crisis faced by a couple when one requires long-term care. For example,
by enacting the Medicare Catastrophic Coverage Act of 1988, amended in
1989, we have adopted a national public policy to provide a modest
degree of financial security to the spouse of an individual who
requires long-term care. Through this policy, we have enabled the
spouses of individuals who require long-term care services to continue
their relationship rather than be forced to choose between poverty and
divorce. This will change with the proposals Congress is presently
considering.
Making asset transfer penalties more punitive will mainly hurt
seniors who act in good faith yet fall innocently into the State budget
cutting process. One proposal to make penalties harsher calls for
changing the start of the penalty period from the date of transfers to
the date one applies for Medicaid. This has the practical effect of
extending the penalty period for years beyond what it is now. A few of
the likely victims of such measures are: the grandparent caring for a
grandchild who provides savings to help pay for the grandchild's
education; the devoted church supporter who donates personal assets to
the church; the widow who lacks records of her now deceased husband's
spending; the caring sister who uses savings to help a needy sister
remain in her home. Under the proposals to close transfer of asset
rules, each of these individuals will be cut off Medicaid if they
subsequently get sick and need long-term care.
What Will Happen if You Change the Start Date of the Penalty Period?
Medicaid: Penalty Rule Computation
I. Current Law Concerning Penalty for Asset Transfers of Less than Fair
Market Value:
The penalty period commences on the first day of the month
following the month in which the transfer was made or the first day of
the month in which the transfer is made, at the state's option.
II. Proposed Legislation:
Under the President's Proposed Budget, the penalty period would
commence on the date of the transfer or the first day of the month
during or after which a Medicaid application has been made, whichever
is later.
III. Analysis and Issues
1. Under this proposal, seniors and people with disabilities denied
Medicaid would, at the time of the denial, be impoverished,
have physical and/or mental impairments so severe they could no
longer care for themselves, be in need of nursing home or home
care, and have no other means (private insurance or Medicare)
of paying for care.
2. The denial of long-term care will trigger adverse medical
consequences. The absence of skilled nursing, physical,
occupational and speech therapy and necessary assistance with
medical care and activities of daily living will adversely
affect seniors and people with disabilities who will be denied
home care and nursing home admission under this proposal.
3. The harsh penalty that would be created by this proposal would be
applied to all those who are unable to immediately recover the
funds or the value of property alleged to have been improperly
transferred prior to the Medicaid application. Most transferees
will have no legal obligation to refund the transfer. In other
cases, transferees will be financially unable to make any
refund or there will be no transferee from whom to recover. For
example, a senior with Alzheimer's who made a $3,000 withdrawal
from her savings account thirty six (36) months prior to the
Medicaid application would be ineligible for Medicaid long term
care benefits for a portion of the month in which she applies.
The nursing home or hospital will not be paid for care
provided.
4. This proposal would discourage donations to charities, religious and
political organizations and candidates for government office.
Only those who can predict with absolute certainty that they
will not need Medicaid for at least three years could safely
make donations.
5. This proposal will harm families by inhibiting older members from
providing financial assistance to younger members--with such
things as down payments on homes and college tuition--out of
fear that they may not qualify for Medicaid nursing home care
if unforeseen events leave them unable to care for themselves.
6. In addition to the harm to seniors and those with disabilities,
there would be considerable financial harm to health care
providers. Hospitals and nursing homes are prohibited from
discharging patients unless suitable alternative arrangements
can be made, even if it means providing extended uncompensated
care.
7. In cases where the nursing home admission has already occurred and
the penalty is applied, nursing homes will be required to
provide uncompensated care for the duration of the penalty
period or until hospitalization. Nursing homes would become
financially strapped--influencing staffing levels and the
quality of care for all residents.
8. Those in hospitals at the time of the denial would be unable to
leave since nursing homes and home care agencies will deny
admission if there is no source of payment. Hospitals will
become the default providers of care as access to nursing homes
is barred during the penalty period. The cost of hospital care
to the government will be far higher than it would have been in
long-term care.
9. This proposal will most likely not harm those who set out to ``game
the system'' because they most likely will be able to learn how
to circumvent it, while those who have no such intent will
likely learn of the policy long after it is too late. In fact,
this proposal may encourage more and earlier transfers, while
it is unclear how this proposal encourages the purchase of long
term care insurance, especially because some of those people
are uninsurable.
10. Most long-term care is provided by informal caregivers (e.g. family
members). This change could also have far-reaching economic
effects if a family member has to leave his or her job to try
to take care of a severely incapacitated elder.
What Will Happen if You Extend the Lookback Period?
Medicaid: Lookback Period
I. Current Law Concerning the Medicaid Lookback Period
Federal law (42U.S.C 1396p(c)) requires states to withhold payment
for various long-term care services for individuals who dispose of
assets for less than fair market value. The term assets includes both
resources and income. The lookback period for both institutional care
and home and community based waiver services is 36 months, except the
lookback period for trust-related transfers is currently 60 months.
II. Proposed Legislation to Extend the Medicaid Lookback Period to Five
Years
The budget bill may include a proposal to change the lookback
period to 60 months for institutional care and home care, regardless of
whether there have been trust-related transfers.
III. Analysis and Issues
1. The proposal will create unacceptable new obstacles for vulnerable,
frail elderly individuals and persons with disabilities to get
care, because the proposal will require record keeping and
documentation that is far beyond the normal practices of the
elderly, especially poor and chronically ill elders. Therefore,
low-income elders would be denied admission to a nursing home
because of inadequate record keeping.
2. Medicaid recipients who already receive home care services under the
current law could lose eligibility under the proposed changes
if they had made transfers within the past five years. Services
could be abruptly terminated; thereby placing the elderly
individual at risk of serious harm and inadequate or
inappropriate care in the community.
3. The harshest impact of this proposal will be on those applicants
with dementia, who will not be able to provide documentation or
recollection for transfers, regardless of how small.
4. The extension of the lookback period is arbitrary and without sound
reasoning, other than to look for transfers in order to keep
seniors from accessing Medicaid for nursing home care (while
increasing administrative costs). The current federal law uses
three years, which is a sufficient and reasonable time period
to assume that any transfers made were not in contemplation of
a future event. The average stay in a nursing home is less than
three years. Hence, under current law, most seniors with more
significant assets who transfer assets at the onset of needing
long-term care in a nursing home will not receive Medicaid
reimbursed nursing home care.
5. Any increase in the lookback period will have a significant impact
on administrative overhead and be more burdensome on frail
elderly, who must search and obtain records of proof for older
transactions. How will the frail elderly (especially those with
dementia) do this from a nursing home bed?
6. The proposal suggests that the elderly can predict their medical and
financial circumstances five years into the future. An extended
lookback coupled with a change in the transfer rules will
punish unwitting elders who have helped their families with
commonly made gifts and then experience medical events such as
a stroke, hip fracture or Alzheimer's disease.
7. There is no reliable data to support the proposition that a longer
lookback period will reduce the Medicaid program's share of
nursing home care costs.
Examples of How the Proposed Legislation Will Affect the Elderly
Mr. Chairman, I have provided for the Subcommittee's consideration
``typical examples'' of how these proposals will hurt real Americans
and their families.
1. A church supporter
Mr. Banks was living independently and actively in Florida though
he suffered from diabetes and heart disease. He sold his home for
$135,000 and donated 10% of the proceeds, or $13,500, to his local
church. Mr. Banks moved to assisted living and thereafter to a skilled
nursing facility. Two years later, Mr. Banks had exhausted his funds
and would otherwise be eligible for Medicaid but for this $13,500 gift
to his church. Instead, Mr. Banks is ineligible for assistance for four
months and has no resources to pay for his care during that period.
Under existing law, Mr. Banks would have been penalized when he made
the $13,500 gift and that penalty period would have elapsed long before
his need for public assistance arose.
2. A grandparent caregiver
Mr. and Mrs. Brown are the primary caregivers for their 16-year-old
grandchild. Over the last three years they have paid $20,000 for
support of their grandchild. Mr. Brown suffers a stroke and needs long
term care. Mrs. Brown has total liquid assets of $50,000. Mr. Brown is
otherwise eligible but will not be approved for Medicaid because of the
$20,000 expenditure for his grandchild. Instead, Mrs. Brown will be
placed in the precarious position of paying privately for six months
that will, at today's costs, totally exhaust her $50,000 nest egg.
3. A family emergency
Mrs. Jones' daughter loses her job due to chronic fatigue syndrome.
The daughter is a single parent with two underage children. Mrs. Jones
helps her daughter financially in amounts totaling $30,000. Six months
later, Mrs. Jones suffers a heart attack and a debilitating stroke
requiring long-term care. Two years later an impoverished Mrs. Jones
applies for Medicaid and is denied because of the $30,000 gift made
several years earlier.
4. Cash-based couple
Mr. and Mrs. Smith live in their own home and pay most of their
day-to-day expenses with cash. Mr. Smith generally withdraws about $500
per month for food, gas, newspapers, house wares, car repairs, etc.
Generally, he does not keep receipts, at least not in any organized
way. Mrs. Smith has never handled their financial affairs and suffers
from mild dementia. Unexpectedly, Mr. Smith suffers a stroke and now
needs nursing home care. Their current assets and income would make him
eligible for Medicaid coverage without difficulty under current law.
His withdrawals of $500 per month will result in a penalty period,
unless they are accounted for. His withdrawals add up to $6000 per year
in potentially disqualifying transfers, or $18,000 for the three-year
lookback. Since Mrs. Smith cannot document the use of the withdrawn
money, Mr. Smith will face a penalty period of approximately 4 months.
($18,000 $4,500/mo (average regional nursing home rate) = 4 month).
7. A helper through hard times
Mr. T, age 80, has been ill for several years since a stroke. His
wife, age 75, has been caring for him at home. He became more seriously
impaired this past summer when he contracted pneumonia. He was walking
with assistance before the pneumonia, but increasing weakness has left
him unable to walk. She is continuing to care for him at home, but
nursing home placement looks imminent.
Mrs. T has a son from a previous marriage who lives in another
state and is not well off. During the last half of 2001, Mrs. T paid
his mortgage for him, at $850 per month ($5,100 total). In May of 2002,
she gave him $2,200 to help him purchase an automobile so he could
commute to and from a new job.
Thus, her total transfers were $7,300. Their own savings are now
dwindling. Her husband will be otherwise eligible for Medicaid, but
under the waiver proposal, he will face a penalty period of one month
and some days. Mrs. T will have to find a way to pay this out of
pocket.
8. A caring sister
Two sisters, both in their 80s, have lived with each other in an
apartment for several years. Both have reasonably sufficient assets to
cover their anticipated needs. However, one sister has considerably
more assets (about $250,000). She is concerned that if she were to
become ill and leave the apartment to move into a nursing home, the
sister with fewer assts would not be able to afford to remain in the
apartment.
The sister with greater assets wishes to take steps to ensure that
her sister will be able to continue living in the apartment, if
possible, and so she funds an irrevocable trust with $48,000, intended
to supplement the poorer sister's costs of living if the need arises.
Under current law and a regional monthly transfer rate of $4500,
this transfer will result in a disqualifying period of a little over
ten months ($48,000 $4500/mo = 10.67 months) from the date of
transfer. But under the proposal, the caring sister, after spending
down all her assets on nursing home care, would then face a penalty
period of more than ten months before receiving Medicaid nursing home
coverage. Alternatively, if she is aware of the penalty rules, she may
be reluctant to help her less fortunate sister in the first place.
9. Helping family
A mother helps her two children--her daughter has medical problems
and does not have insurance and her son's daughter (her grandchild) is
in a college with expensive tuition. So she helps her daughter by
paying $30,000 for health care and she helps her granddaughter by
paying $50,000 in tuition. These are significant amounts paid almost
five years before she was forced to go into a nursing home. With a five
year lookback and a penalty period starting on the day of application,
she will be ineligible for nursing home care for more than 17 months
(depending upon the state's regional monthly transfer rate). Seniors
will not be able to help family members because they will not be able
to predict their circumstances.
10. A widow lacking records
Mrs. Waters was married for fifty years. Prior to his death, Mr.
Waters handled all financial transactions. Mrs. Waters suffers from
dementia and upon Mr. Waters' death is placed in a skilled nursing
facility. Her resources are expended and she is applying for Medicaid.
She has no knowledge or ability to explain the cash withdrawals
totaling $50,000 during the five years preceding her husband's death.
Nonetheless, Mrs. Waters is ineligible for Medicaid due to these
inexplicable transfers.
11. A mother helping her daughter
Mr. and Mrs. G are in their late seventies and retired. Two and a
half years ago, they were living independently and relatively healthy.
At that point, one of their daughter's marriage ended and the daughter
moved closer to her parents to be near them. She was unemployed at the
time and needed to work. Her parents bought her a modest car for
$18,000 so that she had transportation to get back and forth to work.
The daughter then started working in a series of part-time jobs, which
provided her just enough to meet her living expenses.
Two years after giving their daughter the car, Mr. G suffered a
major stroke. He lost his ability to speak, walk and use his left arm.
He received rehabilitation following the stroke but did not recover all
of his abilities. Despite medical advice, his wife insisted on bringing
him home. She cared for him herself and paid for services privately for
one year. At that point, Mr. G's needs had increased and Mrs. G had
become considerably weakened due to the demands of being the primary
caregiver. They reluctantly decided that he would be best cared for in
a skilled care facility. Mrs. G paid privately for this care for one
year. By then, her assets were depleted and she had no more than the
amount that would be protected for her as a community spouse. She
applied for Medicaid benefits on behalf of her husband and was denied
benefits due to the purchase of the car for their daughter.
Long-Term Care Insurance
Mr. Chairman, when a client comes to see me with significant
resources, I suggest that they consider seeing a professional who is
able to provide information on their long-term care insurance options.
Congress and the Administration have for a number of years considered
modifying the current laws regarding long-term care insurance. NAELA
has consistently supported legislation that couples tax credits for
long-term care caregivers with tax deductions for the premiums paid on
the purchase of long-term care insurance. We believe this would be a
positive way to assist caregivers and those that are willing, able, and
qualify to purchase insurance.
I frequently advise clients with sufficient assets to consider
long-term care insurance. Elder law attorneys may be the single largest
supporter of long-term care insurance as a serious option, with the
exception of the insurance industry itself. In many cases, however, our
clients cannot afford the products or do not meet the underwriting
criteria and will not be able to buy it. Nonetheless, I refer many
clients to long-term care insurance agents if they have the resources
and might be approved for coverage.
Some have wrongly claimed that the proposed changes to the asset
rules will expand the use of long-term care insurance. NAELA does not
believe this is true. However, NAELA strongly believes that long-term
care insurance has a vital and appropriate role in helping to provide
long-term care to some Americans and that we should continue to explore
ways to make it a useful tool for more of us.
NAELA and I also support the expansion of the Long-Term Care
Insurance Partnership Program. I am aware that a number of Members of
Congress and consumer groups have reservations about doing this, but I
believe it is time to look carefully at this program and make any
changes that are needed to make it a viable alternative in all states.
The President has included this in his budget proposal and we believe
your committee should help move this forward this year.
Other Medicaid Budget Cuts
Some believe that the solution to Medicaid's increasing costs lies
in methods either to limit federal funding and/or offer states greater
flexibility in the administration of the program. I do not believe
either will succeed. Capped funding or a block grant approach may offer
states short-term fiscal relief but result in long term financial
disaster for them. Modification on a state-by-state basis of
fundamental eligibility rules will destroy what uniformity the program
does have and shred the safety net that we need so desperately for all
of Medicaid's beneficiaries.
Neither a limitation of federal funding nor a restriction in
Medicaid's fundamental eligibility rules will change the fact that
seniors and individuals with disabilities, their spouses and their
families will continue to require basic health care. I hope this
Congress does not allow a frail and vulnerable senior to suffer at home
without treatment because we have restricted services or rewritten
categorical eligibility rules that eliminate the senior from
participation. Further, the Administration proposed that changing the
Medicaid asset rules would save $4.5 billion. There is no research that
supports this assumption. In fact, the limited research data available
reveals that there is little to be gained by changing these rules and
much harm to be done to the elderly and individuals with disabilities.
Assuming that we have not become a society that turns its back on
those in need, then these proposals accomplish nothing more than a
shift of costs for the care that we should provide to those who are at
risk. If federal funding for such services is limited, and the services
continue, who will pay? At some level, whether by state, county,
hospital, nursing home or private individual, the level of
uncompensated care will increase. When that burden is borne by each
state, hospital or nursing home, then the financial viability of each
payer will be weakened further and the integrity of our health care
system will be compromised.
NAELA supports the efforts of Senators Smith and Bingaman and
Representative Heather Wilson and many others who have worked to create
a bipartisan Medicaid Commission that would take a thoughtful look at
this critically important program and work to find innovative solutions
to its problems. Please let good policy drive your actions, not the
budget.
Conclusion
Mr. Chairman, I thank you for the opportunity to present testimony
to this distinguished panel that has done so much for the elderly and
individuals with disabilities over the years. As you can see from my
remarks, one's life can truly end up on a Wheel of Fortune or
misfortune. You spin the wheel and if it lands on heart disease or
cancer, your costs are covered; if it lands on Lou Gehrig's disease,
Multiple Sclerosis or Alzheimer's disease, you are on your own. If you
get the right disease, the government will pay; if you get the wrong
disease, they will not. Unfortunately, none of us has control over
which illnesses we contract.
I ask that even in these times of tight budgets that you continue
the commitment that you have made to care for millions of Americans
through the Medicaid program.
Mr. Chairman and Members of the Subcommittee, I would be happy to
respond to any questions you may have. Thank you.
NAELA Members as Resources: Issue List
The National Academy of Elder Law Attorneys' (NAELA) has members
that are valuable public policy and substantive law resources. Within
the membership we have expertise in almost all federal, state and local
programs serving or affecting the elderly. Many are willing to be
supportive of the work of legislators and regulators, and will provide
expert opinions, testimony, articles, and other written materials upon
request. Issue areas include, but are not limited to: Alternative
Dispute Resolution; Disability Law; Estate Planning; Health Care
Decision Making and End of Life Issues; Health Care Advanced
Directives; Long-Term Care Planning; Long-Term Care Insurance; Managed
Care; Medicare; Medicare Appeals; Medicaid; Mental Capacity Issues;
Nursing Home Care, Law, and Litigation; Public Interest Representation
(including Legal Services Corporation and Older Americans Act delivery
systems); Retirement Housing; Retirement Planning; Guardianships,
Conservatorships and other Surrogate Decision Making processes; Social
Security; Supplemental Security Income; Tax Planning; and Trusts and
Wills.
Mr. Deal. Thank you. Dr. Stucki.
STATEMENT OF BARBARA R. STUCKI
Ms. Stucki. Good afternoon. My name is Barbara Stucki. Over
the past 12 years, I have been conducting research on private
sector financing for long-term care. I currently manage the Use
Your Home to Stay at Home Initiative for the National Council
on the Aging. Thank you for the opportunity to testify about
the potential of using home equity to help balance public and
private funding for long-term care, and to respond to seniors'
preference to age in place in their own homes.
NCOA recently completed a study, funded by CMS and the
Robert Wood Johnson Foundation, which provides compelling
evidence that reverse mortgages could significantly increase
the funds available to pay for home and community-based long-
term care. We found that 82 percent of current seniors own
their own homes and have more than $2 trillion in untapped
housing wealth.
Policy discussions on long-term care financing have largely
ignored home equity as a source of private financing for in-
home services and supports. This, in part, is because many
retirees cannot get a conventional mortgage or home equity
loan, because they lack sufficient income to make monthly loan
payments. The recent development of reverse mortgages offers a
new way for them to use their home to stay at home.
Reverse mortgages are a special type of loan that allows
people aged 62 and older to convert home equity into cash while
they continue to live at home. The money borrowers receive is
tax-free. Unlike conventional mortgages, there are no income
requirements. Reverse mortgages, I should say borrowers, do not
need to make any loan payments for as long as they live in
their home. An important protection is that borrowers or their
heirs will never owe more than the value of the home at the
time they sell it or repay the loan.
NCOA estimates that almost half of households aged 62 and
older, that is 13.2 million households, are candidates for
using a reverse mortgage to pay for long-term care at home. Our
analysis shows that these loans could increase private sector
funding for in-home services and supports by $953 billion.
Reverse mortgages can also reduce dependence on Medicaid by
lowering the risk of spend-down, saving Medicaid $3.3 to $5
billion annually in 2010, depending on market penetration
rates. These savings are based on our estimates that about 5
million older households are at financial risk for needing
Medicaid, and could obtain up to $308 billion from reverse
mortgages. The funds available from these loans could be a
powerful mechanism for allowing seniors to maintain their
dignity and independence. Tapping home equity can also give
seniors who have not been able to plan ahead through
conventional means new options to pay for help at home.
Greater awareness of the potential of reverse mortgages
will help make this product a mainstream option for long-term
care financing. Government, nonprofit organizations, and
industry should work together to develop educational campaigns
targeting consumers, service providers in the community, and
senior advisors.
There are a number of things Congress can do to promote the
use of reverse mortgages. For example, a provision in the
American Home Ownership and Economic Opportunity Act of 2000
waives the upfront mortgage insurance premium for a reverse
mortgage, but only when this loan is used entirely and
exclusively to purchase private long-term care insurance. This
limitation makes the provision unworkable. It should be changed
to waive the premium for borrowers who use a reverse mortgage
primarily to pay directly for long-term services and supports.
Congress is also likely this year to consider making Medicaid
long-term care public-private partnership programs more
available in many States. A similar approach should be used to
promote the use of reverse mortgages. States should also
develop incentives to help frail seniors who cannot get help
under Medicaid home and community-based waivers, because they
have not yet met the nursing home level of care criteria.
Reverse mortgages could pay for earlier interventions to reduce
nursing home placement.
Our written statement summarizes eight other policy
proposals not related directly to reverse mortgages, for giving
States more flexibility and improving access to Medicaid home
and community services. I want to point out that NCOA opposes
mandatory use of reverse mortgages. We believe that government
incentives will increase demand for these types of loans while
still preserving consumer choices and autonomy.
In conclusion, policymakers should provide incentives for
leveraging the literally hundreds of billions of dollars in
untapped housing assets by promoting reverse mortgages as part
of a public-private effort to help fund services for aging in
place. With additional education, policy changes, and consumer
protections, this strategy can open new possibilities for a
more balanced approach to long-term care financing. This
approach can reduce the risk of institutionalization, save
Medicaid dollars, and enhance the quality of life for older
Americans.
Thank you.
[The prepared statement of Barbara R. Stucki follows:]
Prepared Statement of Barbara R. Stucki, Project Manager, Use Your Home
to Stay at Home Initiative, National Council on the Aging
Good morning, Mr. Chairman and Members of the Subcommittee. My name
is Barbara Stucki. Over the past 12 years, I have been conducting
research on private sector financing for long-term care. I currently
manage the Use Your Home to Stay at Home Initiative for the National
Council on the Aging (NCOA). I would like to thank you for providing
the NCOA the opportunity to testify about the potential of using home
equity to help better balance public and private funding for long-term
care and to respond more rapidly to consumer preferences for ``aging in
place.''
As the population ages and the pressure on state Medicaid budgets
rises, it becomes increasingly important to find effective ways to
improve our long-term care financing system. Funding the growing demand
for long-term care is a--major national challenge. The NCOA has
recently completed a new study, funded by CMS and the Robert Wood
Johnson Foundation, that provides compelling evidence that reverse
mortgages could significantly increase the funds available to pay for
home and community-based long-term care.
With appropriate incentives, additional educational efforts and
strong consumer protections, we believe that millions of older
homeowners could benefit from using these loans to continue to live at
home. Voluntary use of reverse mortgages could pay for many years of
home and community services, and help postpone the need for assistance
from Medicaid.
REVERSE MORTGAGES--A NEW FINANCING OPTION FOR AGING IN PLACE
Most older Americans would prefer to ``age in place'' in their own
homes. The high proportion of long-term care paid by government,
however, suggests that few seniors can afford to pay these costs for
very long. One of the paradoxes of our current long-term care system is
that impaired older Americans are struggling to live at home at a time
when they own more than $2 trillion in untapped housing wealth. Home
ownership is high among seniors (82%), even among the those at advanced
ages (75 and older--78%). Many have accumulated substantial amounts of
home equity, including families whose other retirement resources may be
very modest. Over half the net worth of seniors is currently illiquid
in their homes and other real estate.
Policy discussions on long-term care financing have largely ignored
home equity as a potential source of private financing for in-home
services and supports. This situation arose, in part, because older
homeowners have had few options to liquidate housing wealth. Many
retirees cannot get a conventional mortgage or home equity loan because
they do not have enough income to make monthly loan payments. The
development of reverse mortgages in the last 15 years offers a new way
for older Americans to ``use their home to stay at home'' by tapping a
portion of their home equity.
In the United States, reverse mortgages are the principal financial
instruments available to seniors who want to convert some of their home
equity into cash. Reverse mortgages can give older homeowners the funds
they need to pay for long-term care and other expenses, while allowing
them to continue living in their own homes. These types of loans are
called ``reverse'' mortgages because the lender makes payments to the
homeowner. Since the loan is based on the equity in the home, lenders
do not consider the borrower's income, or credit and medical history in
determining eligibility for a reverse mortgage. The Department of
Housing and Urban Development (HUD) Home Equity Conversion Mortgage
(HECM) program is the oldest and most popular reverse mortgage product.
Currently, HECMs represent about 90 percent of all the reverse
mortgages in the market.
The amount that a homeowner can borrow is based primarily on the
age of the youngest homeowner, the value of the home, and the current
interest rate. Older owners (because of their limited life expectancy)
and those with more expensive homes are able to get higher loan
amounts. Borrowers can select to receive payments as a lump sum, line
of credit, fixed monthly payment (for up to life), or a combination of
payment options. Proceeds from a reverse mortgage are tax-free, and
borrowers can use these funds for any purpose. Reverse mortgage
borrowers do not need to make any payments for as long as they (or in
the case of couples, the last living borrower) continue to live in the
home as their primary residence. When the last borrower permanently
moves or dies, the loan becomes due.
There are several key protections in place for people who decide to
take out a reverse mortgage. All reverse mortgages are non-recourse
loans, which mean that the borrower or heirs never owe more that the
value of the home at the time of sale or repayment of the loan. All
borrowers who apply for any reverse mortgage must first receive
independent counseling before they complete the loan application. In
addition, Federal Truth-in-Lending law requires that reverse mortgage
lenders disclose the projected average annual cost of the loan.
Borrowers can cancel the loan for any reason within three business days
after closing. To protect impaired older homeowners, additional
standards may be required. Since these loans can be used for any
purpose, there are currently no formal standards used by the mortgage
industry when marketing this product.
By using a reverse mortgage to liquidate a portion of their housing
wealth, seniors do not have to move or relinquish control over their
most important asset. Since reverse mortgages only allow borrowers to
tap a portion of their home equity, there may be funds left over after
paying off the loan to support the spouse or cover assisted living or
other facility care. Borrowers or their heirs can also benefit from any
appreciation in the value of the home over time. Spouses are protected
since they will never owe more than the value of their home.
EXPANDING FINANCING FOR AGING IN PLACE
Greater focus on home equity can add an important new element to
the long-term care financing debate. Based on our analysis of the 2000
Health and Retirement Study, NCOA estimates that almost half of
households age 62 and older--13.2 million--are candidates for using a
reverse mortgage to pay for long-term care at home (defined as being
able to receive a minimum of $20,000 from this loan). The amount of
funds that could become available if these older homeowners liquidated
a portion of their home equity is substantial. By calculating the
amount of funds that could be available from reverse mortgages for
individual households, we estimate that these loans could increase
private sector funding for in-home services and supports in total by
$953 billion.
Target populations--Reverse mortgages could play an important role
in reducing the likelihood that older Americans will deplete their
financial resources paying for long-term care. This could be especially
important to older households with moderate incomes whose resources,
while adequate for daily needs, are inadequate to handle more than a
few years of home care payments (averaging about $27,000 per year in
2000). This group is often referred to as ``tweeners.''
The NCOA study estimates that among candidate households for a
reverse mortgage, there are about 3.3 million households who are at
financial risk for spending-down if they need home care (Table 1--
Spend-down risk). These moderate-income elders could tap almost $63,000
on average with a reverse mortgage. Most of these households (66
percent) consist of unmarried homeowners.
Table 1. Distribution of home ownership by market segment
----------------------------------------------------------------------------------------------------------------
Candidate
Total Total owner % total households % total % owner
households households households for using a households households
age 62+ RM for LTC
----------------------------------------------------------------------------------------------------------------
Medicaid beneficiary................ 2,537,000 1,058,000 41.7% 437,000 17.2% 41.3%
High risk Medicaid.................. 4,444,000 2,927,000 65.9% 1,403,000 31.6% 47.9%
Spend-down risk..................... 7,331,000 5,449,000 74.3% 3,321,000 45.3% 60.9%
Low Medicaid risk................... 13,083,000 11,642,000 89.0% 8,034,000 61.4% 69.0%
Total............................. 27,397,000 21,077,000 13,196,000
----------------------------------------------------------------------------------------------------------------
Source: NCOA calculations based on data from the 2000 Health and Retirement Study.
About 0.4 million candidate households are Medicaid beneficiaries.
On average, these homeowners who live in the community could receive a
HECM loan worth $51,229. At current interest rates, these funds would
enable them to make monthly withdrawals of $1,465 from a HECM
creditline for about three years, or monthly withdrawals of about $470
for ten years (Table 2). Only about one in three of these candidate
households are married. Though Medicaid beneficiaries may be receiving
home and community services, additional cash from reverse mortgages can
help cover unmet needs while providing greater choice and control over
services.
High Medicaid risk households have very limited income and assets.
These financially vulnerable elders could access a lump sum or line of
credit worth on average $55,085 from a HECM loan (Table 2). With
limited financial resources, they would quickly qualify for public
assistance if they needed long-term care. Since the home is a protected
asset under Medicaid eligibility rules, the motivation to access home
equity among this group is likely to be small. However, a reverse
mortgage could be very important to support family caregiving, since
most (69 percent) homeowners in this group are married. These loans
could also help this group of elders avoid institutionalization. These
older homeowners may not be able to afford an assisted living facility,
and there are long waiting lists for HCBS waivers and subsidized
housing.
Table 2. Amount of potential HECM funds, by Medicaid risk level
----------------------------------------------------------------------------------------------------------------
Average potential Monthly withdrawals by estimated
cash or duration of funds
creditline from a -----------------------------------
HECM loan 3 years 5 years 10 years
----------------------------------------------------------------------------------------------------------------
Medicaid beneficiary..................................... $51,229 $1,465 $895 $470
High risk Medicaid....................................... $55,085 $1,575 $964 $506
Spend-down risk.......................................... $62,800 $1,798 $1,100 $577
Low Medicaid risk........................................ $80,130 $2,290 $1,403 $737
Total.................................................. $72,128
----------------------------------------------------------------------------------------------------------------
NCOA calculation using the AARP reverse mortgage calculator and a creditline interest rate of 4.35%.
Low Medicaid risk households include homeowners who can afford to
pay for daily home care for at least two years (single households) or
four years (married households). The average reverse mortgage loan
value among this group is $80,130. With greater access to liquid
assets, more affluent elders might be reluctant to tap home equity to
pay directly for in-home services and supports. Demand for reverse
mortgages among this group may instead emerge from a desire to protect
their wealth and leverage their resources through private long-term
insurance. About half (53 percent) of Low Medicaid risk households
consist of couples.
Potential savings to Medicaid--For many middle-income seniors on
fixed incomes, a reverse mortgage can be a critical resource to help
avoid a financial crisis. This loan could pay for over three years of
daily home care visits or eight years of adult day care for a homeowner
age 85 with a median priced home (Figure 1).
[GRAPHIC] [TIFF OMITTED] T0749.010
Payments from a reverse mortgage can help reduce dependence on
Medicaid and reduce the risk of institutionalization. Increased use of
this financial option for long-term care could result in savings to
Medicaid ranging from about $3.3 to almost $5 billion annually in 2010,
depending on market penetration rates increasing from 4 percent to 25
percent of older homeowners. This represents 6 to 9 percent of the
total projected annual Medicaid expenditures, including nursing home
care. These reductions result from the additional income available to
borrowers that would delay eligibility for Medicaid. When contrasted
with the amount Medicaid is expected to spend on seniors for long-term
care services at home in 2010 ($14.9 billion, based on estimates by the
Congressional Budget Office), $3.3 to $5 billion in reverse mortgage
funds could be a substantial additional resource for people who need
assistance to age in place.
Rebalancing the System
Many states and communities are developing creative ways to support
older people who want to age in place. The impetus for these efforts
reflects the convergence of two important goals: meeting consumers'
desire to stay at home while controlling the rising cost of long-term
care. Despite local and national efforts to promote aging in place,
however, the pace of change has been slow. Reverse mortgages could
provide an immediate source of funds to stimulate and enhance
government efforts to rebalance our country's long-term care system
toward increased access to home and community services.
For many older Americans, the home is their most valuable asset.
Many are reluctant to touch this resource until their other financial
resources and family caregivers are exhausted. This strategy can
increase the risk that seniors will not have enough money to maintain
their independence or the home they cherish. When they reach a crisis
point, older homeowners often tap home equity by selling the home.
Housing wealth, however, can be more than just a last resort. Reverse
mortgages can pay for preventive measures such as home modifications,
expenses of family caregivers, as well as day-to-day support that can
reduce the risk of institutionalization.
Reverse mortgages can also strengthen existing financial plans by
filling in gaps (such as the cost of replacing a furnace) and help
impaired elders manage cash flow to cope with the uncertainties that
often come with a chronic health condition. Tapping home equity can
give seniors who have not been able to plan ahead through conventional
means (such as long-term care insurance) new options for maintaining
independence and choice if they need help at home. These loans give
seniors more flexibility in managing their financial assets over time.
Reverse mortgages hold considerable promise to help impaired, older
homeowners pay for the services they need to continue to live at home.
Using home equity to pay for long-term care insurance is more
problematic. Based on our analysis, this approach will likely be an
option for only a very small number of older homeowners. It can be very
costly for borrowers since they would be paying both insurance premiums
and interest on the loan for many years. In addition, borrowers who use
the proceeds of their loan to pay their premiums face the risk of their
coverage lapsing if they run out of loan funds before they need care.
An alternate approach would be to use the loan proceeds to increase the
amount of home and community care that homeowners fund out-of-pocket.
This could make private insurance more affordable because elders could
buy more limited long-term care insurance coverage. Current
policyholders could also use a reverse mortgage for additional funds to
avoid lapsing their existing coverage.
Need for Government Action
Additional cash from reverse mortgages offer impaired elders the
flexibility and choice that can enhance aging with independence and
dignity. This financing option should appeal to a greater number of
older Americans and can encourage increased personal responsibility.
But the strong feelings that today's seniors have about their homes
suggest that this approach will not be a quick or easy solution to our
nation's long-term care financing problem. Few older homeowners are
currently interested in using a reverse mortgage due to a reluctance to
use home equity and a lack of understanding about how these loans work.
Without additional education and strong incentives to support family
decisions regarding the use of home equity, the actual number of older
homeowners who take out a loan to pay for help at home is likely to be
small.
Impaired, older homeowners need additional information to evaluate
the appropriateness of taking out a reverse mortgage. Consumer outreach
can help older homeowners and their families understand the benefits
and limitations of using a reverse mortgage to ``age in place.''
Greater awareness of the potential of reverse mortgages will help
seniors and the people who advise them consider this product as a
mainstream option for long-term care financing.
Government, non-profit organizations, and industry could work
together to develop educational campaigns targeting consumers, service
providers in the community, and senior advisors. The state and federal
governments should also include the use of reverse mortgages in their
educational efforts on long-term care. The NCOA study found that adult
children are far more comfortable with the idea of using home equity
than their parents. Conversations about reverse mortgages could serve
as an important catalyst to help families plan for their long-term care
needs. A broad public education campaign would be of enormous value.
There are a number of other things Congress and CMS can do to
address several consumer concerns that currently limit the use of home
equity.
1. Remove government barriers that hinder access to reverse
mortgages. Since reverse mortgages must be in first lien position,
state use of Medicaid liens can be a deterrent to promoting home equity
to pay for long-term care. Fannie Mae requires that any outstanding
liens against the property must be paid in full at the loan closing. If
a state places a lien on a home when one spouse goes on Medicaid, the
community spouse will not be eligible to apply for a reverse mortgage.
CMS should clarify Medicaid rules to ensure that Medicaid liens will be
released if the surviving spouse wants to sell or refinance the
property, or obtain a reverse mortgage.
2. Increase the funds available from home equity by reducing
reverse mortgage loan costs. In 2000, Rep. LaFalce included a provision
in the American Homeownership and Economic Opportunity Act to amend
Section 255 of the National Housing Act to waive the up front mortgage
insurance premium (usually 2 percent) for a reverse mortgage used to
purchase private long-term care insurance. While we support the intent
of the law, which was to make reverse mortgages more available for
long-term care needs, it unduly limits consumers' options by requiring
participants to use the entire payment exclusively for insurance. A far
more desirable and appropriate use would be for long-term services
themselves. Congress should amend or repeal the provision and instead
waive the premium for borrowers who use a reverse mortgage primarily to
pay for such services and supports. The law could also be expanded to
waive the premium for borrowers independently assessed to need long-
term care.
3. Stretch loan funds to promote aging in place for as long as
possible. The Center for Medicare and Medicaid Services (CMS) could
enable Medicaid beneficiaries to use funds from a reverse mortgage to
purchase non-covered home- and community-based services. Other
alternatives include developing Medicaid buy-in programs with home
equity or enabling states to target older homeowners at risk for
Medicaid.
CMS could allow states to experiment with programs that target
seniors who are ineligible to qualify for home and community services
under a Medicaid waiver program because they have not yet met the
nursing home level of care criteria. Incentives could be developed to
use home equity to pay for earlier interventions that support aging in
place and reduce the risk of institutionalization.
4. Reduce the risk of impoverishment and protect the spouse.
Congress is likely this year to consider making long-term care
``public-private partnership'' programs more available to consumers in
many states. Four states--California, Connecticut, Indiana and New
York--now use this approach to promote the purchase of long-term care
insurance by protecting purchasers' resources from the Medicaid
eligibility asset test. A similar approach should be used to promote
the use of reverse mortgages. Borrowers who use a certain portion of
the equity in their homes to pay for long-term care could receive more
favorable treatment under Medicaid's resource rules.
Government incentives for reverse mortgages may encourage impaired
seniors to access home equity sooner and reduce the need to recoup
public long-term care expenses through estate recovery. Many of the
consumer concerns that motivate the use of Medicaid estate planning,
such as loss of control of assets and a desire to leave a bequest, can
be addressed through reverse mortgages. By providing cash, these loans
enable impaired seniors to control the type and amount of services they
receive. Since a reverse mortgage only taps a portion of home equity,
it is possible that there will be funds left for heirs after the loan
is paid.
Use of Reverse Mortgages Must be Voluntary
In developing a roadmap for the future, it will be important to
ensure that the desire for government savings is balanced with the need
to expand the ability of seniors to continue to live at home. As we
look to the future, it will be important to find ways to improve the
functioning of the reverse mortgage market in such a way that both
consumers and government benefit.
NCOA opposes mandatory use of reverse mortgages. We believe that
government incentives will increase demand for these types of loans
while still preserving consumer choice and autonomy. Incentivizing the
use of reverse mortgages also offers a better way to respond to rising
demand and fiscal constraints. Offering incentives to increase the use
of home equity could open new avenues for public and private resources
to complement one another in meeting the changing needs of impaired
seniors who live at home.
Other Medicaid Reforms
There are a wide variety of other Medicaid long-term care reforms
that would promote greater independence, dignity and choice, while
reducing per capita costs. For example, NCOA supports:
The President's ``Money Follows the Person'' rebalancing proposal.
Under the proposal, for persons transitioning out of
institutions, the federal government would cover the entire
first year of costs for Medicaid home and community-based
waiver services in select states;
Permitting states to provide Medicaid home and community-based
services (HCBS) under a state plan amendment, rather than
having to go through an often burdensome waiver process;
Giving states more flexibility by eliminating the current requirement
that Medicaid HCBS coverage be linked with a need for nursing
home level of care;
Recognizing under the Medicaid eligibility asset test that persons in
need of HCBS must pay for housing, food, clothing, utilities,
and transportation, while nursing home residents do not incur
these costs;
Leveling the playing field on protections for spouses since, under
current law, spousal impoverishment protections are mandatory
for nursing facility services, optional for HCBS waiver
programs, and prohibited under the Medicaid personal care
program;
Permitting states to include Medicare savings in their Medicaid HCBS
waiver budget neutrality calculations;
Reducing barriers for states to provide consumers with greater
opportunities to choose consumer directed models of Medicaid
home and community services, such as cash and counseling; and
Permitting Medicaid recipients in need of long-term care to receive
community attendant services as an alternative to institutional
care.
In summary, funding the growing demand for long-term care is a--
major national challenge. Policymakers should leverage limited housing
assets by promoting reverse mortgages as part of a public-private
effort to help fund services for aging in place. With additional
education and strong consumer protections, this strategy can open new
possibilities for a more coordinated financial approach that can reduce
the risk of institutionalization and enhance quality of life for older
Americans.
Mr. Deal. Thank you. Ms. Hansen.
STATEMENT OF JENNIE CHIN HANSEN
Ms. Hansen. Thank you, Mr. Chairman and Mr. Brown. Can you
hear me now? Yes, I hear myself. All right. Thank you, Mr.
Chairman and members of the subcommittee who are here. My name
is Jennie Chin Hansen. I am a member of the Board of Directors
of AARP, and I appreciate the opportunity to testify.
I will be testifying primarily on the area of reverse
mortgages, as well as long-term care insurance, and also, the
partnership program, but as an aside comment, part of my past
25 years actually has been involved with a program that
integrated acute and long-term care. I was the direct--the
organization of On Lok Senior Health Services just a few months
ago, and certainly, many of the comments of looking at the
issues of community-based care is really fundamental to really
the founding of our organization. So we really do, as AARP, and
certainly, in my previous role as head of the prototype for the
National Pace Program, really support this whole effort right
now on moving toward community-based care.
But the issue at stake today is really about Medicaid, and
I think so much has already been said, to acknowledge that with
Medicaid and long-term care, there really isn't an effective
system that has been designed, and especially since it was
designed as a program close to 40 years ago, that was
institutionally based. Ironically, the fact that nursing homes
were actually considered the alternative at that time to help
families, and so here we have a pendulum swing at this time to
make sure that we do have services moving in the other
direction.
But right now, with the fundamental issue that we have is
oftentimes the need for both discussion and debate on how to
provide Americans with further alternative options for
financing long-term care, just so that they don't have to rely
on Medicare, excuse me, Medicaid alone, and then how to make
sure that we will preserve and strengthen the program of
Medicaid as a health insurance safety net.
We well understand and appreciate the immediate concerns of
the Governors and Congress, as we have been hearing today,
about the challenges of financing Medicaid, both now and in the
future. There are policy changes that can make Medicaid more
effective, but these changes should be driven by sound policy,
and not just the arbitrary budget target.
However, we do recognize the need for some immediate
changes in the Medicaid program, but we don't think that that
should overshadow the longer range debate about transforming
our system of long-term care, of which many speakers have
spoken in a similar manner. Today, I have been asked to speak
about three options for financing long-term care, reverse
mortgages, long-term care insurance, and the long-term care
partnership program.
You have heard a great deal earlier from the expertise of
Dr. Stucki about the interest on reverse mortgages, but we
wanted to address this as AARP, that this could play an
important role as one answer to helping in the financing of
long-term care. The chief advantages that we see of reverse
mortgages are that there are no income limits or requirements,
as Dr. Stucki has said, and then, especially, that there are no
required monthly payments. But a huge downside is the
considerable high cost associated with instituting a reverse
mortgage. The total upfront cost of this could affect a typical
borrower at the rate of $16,500 per transaction.
So there have been changes, some that have been enacted,
and some proposed, that would make reverse mortgages less
attractive to consumers. In the year 2000, Congress waived the
upfront mortgage premium for individuals who get a reverse
mortgage through HECM, but only if the available equity is used
to buy long-term care insurance, as was stated.
Tying the purchase of long-term care insurance to a reverse
mortgage is expensive for the consumer, and not necessarily the
best way to finance needed services. The homeowner pays all the
costs associated with the reverse mortgage, and plus the long-
term care policy itself. The equity, needless to say, is tied
up in insurance and not available to directly purchase
preferred home and community-based services, or to actually do
some work on their home to make it safer for them to be able to
stay at home.
Some suggested really using the reverse mortgage in order
to qualify for Medicaid. Unfortunately, this approach would
expose a community spouse to a much greater risk of
impoverishment, and in some cases, Medicaid could actually end
up paying more to care for somebody who has had a reverse
mortgage. Given the limited experiences most consumers have had
with reverse mortgages, a logical way would be to test the use
of these loans as a long-term financing option, is a
possibility through a limited demonstration program. These
demos could be designed to reduce borrower cost, and I think
Dr. Stucki offered that as an option, and this is what we
realize is a key reason why people don't want to take out
reverse mortgages. In fact, the current HECM program began
initially as a research and development study that became a
demonstration program, and eventually became, now, a permanent
program.
So let me turn briefly to long-term care insurance, which
has had a limited role in financing long-term care.
Unfortunately, as you have heard, people don't buy long-term
care policies for a wide variety of reasons, including costs,
the market instability, denial that they need it, and other
pressing financial issues that they may be facing.
We wanted to emphasize that consumer protections, as has
been cited, is an important part of long-term care policies.
The National Association of Insurance Commissioners has
developed a long-term care insurance model act and regulations
that States can adopt to provide standards for long-term care
policies. Legislation introduced in previous Congresses include
consumer protections for long-term care insurance, and this,
AARP supports.
Finally, I have been asked to comment on the long-term care
partnership program that allows individuals who buy long-term
care insurance policies to protect a certain amount of their
assets to become eligible for Medicaid. The program, as you
have heard from both Dr. McClellan and many other speakers, is
limited to four States, and only a small number of partnership
programs right now have actually accessed Medicaid. It is not
clear whether these persons using Medicaid would have likely
spent down to Medicaid if they did not have a partnership
program, and that was what Dr. Holtz-Eakin had said also.
Partnership programs may offer another option for financing
long-term care, but several improvements really need to be
made, as outlined in my written testimony. So, we know that
Congress must begin to look for options that will allow for
Americans to pay for the care that they need in the setting of
their choice. Choice has been an operative word here.
AARP stands ready to work with members on both sides of the
aisle, the administration, and all stakeholders, to really
address this emerging and very important issue of long-term
care facing our country.
Thank you very much.
[The prepared statement of Jennie Chin Hansen follows:]
Prepared Statement of Jennie Chin Hansen, AARP Board Member
Mr. Chairman and members of the Subcommittee, I am Jennie Chin
Hansen, a member of AARP's Board of Directors. Thank you for the
opportunity to testify today.
Affordable long-term care is a critical issue for AARP members and
their families. I learned this firsthand as the Executive Director of
On Lok, Inc., a non-profit family of organizations that provide
comprehensive primary, acute, and long-term care services to nearly 950
frail older persons and 5,000 other older adults in San Francisco.
AARP believes the time has come to reinvigorate a national debate
over how to help Americans plan for and obtain the long-term care
services they need in the most appropriate setting. To that end we
commend the Subcommittee for holding this hearing. We hope that this is
the first in a series of ongoing discussions.
THE NEED FOR AN AFFORDABLE SYSTEM OF LONG-TERM CARE
Americans are living longer than ever thanks to tremendous advances
in medicine and public health, and this longevity brings the need for
appropriate long-term care. The segment of our population age 85 and
older--those most likely to need long-term care--is estimated to
increase by over 2.6 million people (about 60 percent) between 2002 and
2020. Baby boomers are now nearing retirement, taking care of aging
parents, and facing their own future long-term care needs. In the near
future, more Americans in their 60s will be caring for people in their
80s and 90s. We hear from our members every day who are trying to do
the right thing--balancing the demands of work and family and balancing
their personal finances, while worrying about their future retirement
income and how to pay for long-term care.
Unfortunately, aside from a handful of programs like On Lok, there
is no comprehensive public system of long-term care available to most
Americans and very few other long-term care financing options exist.
Long-term care insurance is limited and generally expensive. According
to America's Health Insurance Plans, in 2002, the average cost of a
long-term care insurance policy with automatic inflation protection was
$1,134 per year when purchased at age 50 and $2,346 per year if
purchased at age 65.
Public programs are also limited. Medicare provides some home
health and skilled care, but does not cover nursing home stays.
Medicaid's income and asset limits require impoverishment. For those
people who pay out-of-pocket for their care, the expense associated
with years of care often outstrips personal savings. According to a
recent MetLife Marketing Institute report in 2004, the average annual
nursing home costs were over $61,000 for a semi-private room and over
$70,000 for a private room. The average hourly rate for a home health
aide in 2004 was $18, so as little as 10 hours a week of home health
care would average over $9,000 per year.
Many Americans currently rely on informal caregivers for the bulk
of long-term care services. According to a forthcoming analysis of data
from the National Long-Term Care Survey for AARP, over 90 percent of
persons age 65 and older with disabilities who receive help with daily
activities are helped by unpaid informal caregivers. Two-thirds of
those 65 years of age and older with disabilities who receive help with
daily activities only receive informal unpaid help. But caregivers face
many physical, emotional, and financial demands that often take a
serious toll.
One of the fundamental issues at the heart of the current Medicaid
debate is how to provide Americans and their families with alternative
options for financing long-term care services while maintaining
Medicaid as a critical safety net program for the millions of lower
income Americans who rely on it for health care. The notion that middle
and upper income Americans are clamoring to qualify for long-term care
coverage through a poverty program is far from accurate. The problem is
that there are few other options available.
We believe one way to change the paradigm is to create new choices
that give consumers more control and allow older Americans and people
with disabilities to age with dignity and independence in the setting
of their choice. We also believe it is important that consideration of
specific long-term care financing options be made in the context of
this broader discussion, and not be driven by the current budget debate
and a specific budget target.
As Congress begins to explore new financing options, we should look
to the growing role that private financing is already playing to
support people with disabilities and their families with the home-and
community-based services that they prefer. Our members want greater
control over the services they receive and the providers of those
services. Policymakers, providers, and consumers should work together
to bring about comprehensive changes in the way we finance and deliver
care. At the same time, we must work to strengthen Medicaid to ensure
that it provides choices and quality care to the persons who rely on
the program.
Our testimony today focuses on three specific financing options for
long-term care and the pros and cons of each: reverse mortgages, long-
term care insurance, and the Long-Term Care Partnership Program.
REVERSE MORTGAGES
Because of the large and growing amount of home equity held by some
older Americans, increased attention is being paid to the role this
resource could play in financing long term care. Over the past decade,
more homeowners have begun using their home equity as a means of paying
for long-term care services. In some cases, they have done so by
selling their homes and reassigning the proceeds to assisted living and
continuing care retirement communities (CCRCs). Others have used home
equity to retrofit their houses or to pay directly for home and
community-based services. Still others have chosen reverse mortgages
for purposes other than long-term care.
There are two basic types of reverse mortgages: public sector
reverse mortgages that must be used for a single purpose and private
sector reverse mortgages that can be used for any purpose. Public
programs are offered by some state and local governments, generally at
a low cost, and with income requirements. Most of these programs are
limited to paying for home repairs or property taxes, although
Connecticut developed a program specifically for long-term care
financing.
Private sector reverse mortgages include the Home Equity Conversion
Mortgage Program (HECM) that is insured by the Department of Housing
and Urban Development (HUD), as well as two smaller private programs.
HECMs make up more than 90 percent of the private sector reverse
mortgage market.
To qualify for a reverse mortgage, an individual must: be age 62 or
over; occupy the home as a primary residence; have paid off the
mortgage or have a mortgage balance that could be paid off with
proceeds from the reverse mortgage at closing; undergo required
counseling in the HECM program; and live in a home that meets minimum
HUD property standards. According to a recent study, HECM borrowers
tend to be older, female, racially and ethnically mixed, live alone,
and have lower incomes.
The chief advantages of these loans are that there are no income
limits or requirements, and there are no required monthly repayments.
The amount of money available depends upon the: age of the youngest
borrower; the value of the home; the median home value in the county;
current interest rates and other loan costs; and the type of private
sector loan. Money from the reverse mortgage can be paid to the
borrower as a lump sum payment at closing, monthly payments, a line of
credit, or a combination of these methods. Borrowers make no loan
payments as long as they live in the house. The loans are paid back
when the last living borrower dies, sells the house, or permanently
moves away.
A considerable downside to reverse mortgages is the high costs
associated with the loans. For example, the total upfront costs and
deductions on a HECM loan for a typical borrower (75 years old and
living in a home valued at $230,000) is about $16,500. This amount is
nearly equal to the $17,000 median income of HECM borrowers.
Another disadvantage is the small size of the private reverse
mortgage market. Even though HUD indicates the market is growing, only
about 139,000 HECM loans have been taken out since the program's
inception in 1989. High costs are a key reason cited by prospective
borrowers for deciding against a HECM.
REVERSE MORTGAGES ARE NOT ALWAYS THE ANSWER
In 2000, Congress included a provision in the American
Homeownership and Economic Opportunity Act that waives the upfront
mortgage insurance premium for individuals who get a reverse mortgage
through HECM if all the available equity is used to buy long-term care
insurance. Consumer organizations--including AARP--have objected to the
required tie to an insurance purchase and, to date, HUD has not
implemented the program.
Tying the purchase of long-term care insurance to a reverse
mortgage is expensive for the consumer and not necessarily the best way
to finance needed services. The homeowner pays all the costs associated
with the reverse mortgage plus the premiums and cost-sharing for the
long-term care insurance policy, and it is not required that consumers
be informed of the total, combined cost. Over time, reverse mortgage
costs can double or triple the total cost of purchasing long-term care
insurance due to high upfront loan costs and the growing amount of
interest charged on the loan. Homeowners who can afford long-term care
insurance without borrowing would be unlikely to need to use a reverse
mortgage for this purpose particularly if they know how much the loan
would add to the total cost. If homeowners cannot afford to buy long-
term care insurance, it would not be wise to use a reverse mortgage to
purchase the insurance since the reverse mortgage only adds to the cost
of the insurance.
Another issue is the lack of a requirement to disclose the risks
related to long-term care insurance policy cancellation or lapses, HECM
loan default, or Medicaid eligibility. For example, if an individual
exhausts all available reverse mortgage funds for the long-term care
insurance premiums and is no longer able to pay the premiums, the
policy could be cancelled or lapse due to nonpayment. The insurance
coverage would be lost; the borrower would owe substantial and growing
debt on the home, and would no longer be able to pay for the cost of
long-term care.
Finally, borrowers could only use the loan money for insurance
policies and not to directly purchase home-and community-based services
or for home modification that may better meet their needs. Most older
Americans want to remain in their homes and are looking for ways to get
needed services there rather than be institutionalized. Use of reverse
mortgages may be one means of financing long-term care, but consumers
should not be required to use their equity to purchase an insurance
policy. Rather, they should have the choice to use the equity for the
appropriate services in the setting of their choice.
In addition, some are considering requiring the use of a reverse
mortgage in order to qualify for Medicaid. AARP does not support such a
proposal. A reverse mortgage requires that a significant portion of
home equity is used to pay for the costs of the reverse mortgage,
rather than paying directly for long-term care needs. In fact,
according to a recent study by Mark Merlis, there could be cases under
such a proposal in which Medicaid actually ends up spending more to
care for someone with a reverse mortgage. This is because Medicaid can
recoup more of the money it spends through estate recovery if none of
the home's equity has already been consumed by the high upfront costs
and growing interest charges on a reverse mortgage. With a prior
reverse mortgage, Medicaid cannot recover home equity that has already
been used to pay the high costs of the loan.
Requiring a reverse mortgage before Medicaid eligibility would be
particularly burdensome for persons owning lower-valued homes. For
example, a 62-year-old living in a $50,000 home could qualify for a
HECM reverse mortgage of just under $29,000--but over $10,000 of that
amount would be needed for upfront loan costs and deductions, leaving
the borrower with less that $19,000 in available loan funds. Medicaid
would be requiring this homeowner to obligate over $10,000 of home
equity in order to borrow less than $19,000.
This proposal raises many other concerns including the fact that
taking out a reverse mortgage to cover the nursing home costs of a
spouse would expose a surviving community spouse to much greater risk
of impoverishment.
OPPORTUNITIES TO TEST THE USE OF REVERSE MORTGAGES
Given the limited experience most consumers have with reverse
mortgages, a logical way to test this approach is through a limited
demonstration program. One approach is to look at two ways to reduce
borrower costs: 1) with modest, one-time public subsidies and
competition among private providers in the HECM program, or 2) by
building on the experience of low-cost public sector reverse mortgage
programs to develop public loans for long-term care. Either way,
borrowers would be able to access their own home equity to pay for the
lower-cost services they want instead of waiting for estate recovery
and liens to reimburse Medicaid for the institutional care they want to
avoid.
Demonstration programs would allow for the examination of how
people could use reverse mortgages to pay for their long-term care
needs, which segments of the population might best be served by using
reverse mortgages, how reverse mortgages could help expand access to
home-and community-based services, and how to give people more choice
and control in how they receive long-term care services.
The public sector has experimented with reverse mortgages relating
to long-term care. The HECM program also provides valuable experience
that could be drawn on to establish a demonstration program to allow
older homeowners with disabilities to remain in their homes longer by
using reverse mortgages to pay for services that they need to remain
independent. Reverse mortgages could pay for things like home health
care, chore services, and home modification.
Demonstrations would create opportunities for the federal and state
governments, the private sector, and consumer groups to work together
to explore the potential of reverse mortgages to pay for long-term
care. There is time to carry out demonstration programs to test new
approaches, to bring down the cost of reverse mortgages, and to make
sure we get the policy right.
LONG-TERM CARE INSURANCE
Relatively few older persons have private insurance that covers the
cost of long-term care. Many common long-term care needs (e.g. bathing,
dressing, and household chores) are not medical in nature, do not
require highly skilled help and, therefore, are not generally covered
by private health insurance policies or Medicare. Long-term care costs
are significant. The average hourly rate for a home health aide in 2004
was $18, so even just ten hours of home health care per week would cost
over $9,000 per year. Average annual nursing home costs were over
$61,000 for a semi-private room and over $70,000 for a private room in
2004, according to a recent MetLife Mature Marketing Institute report.
The market for private long-term care insurance has grown in recent
years, but its overall role is still limited. Currently long-term care
insurance pays for only about 11 percent of all long-term care costs.
By the end of 2002, over 9.1 million long-term care insurance policies
had been sold in the United States with about 6.4 million of these
policies still remaining in force. Most policies sold today cover
services in nursing homes, assisted living facilities, and in the home.
Typically, policies reimburse the insured for long-term care expenses
up to a fixed amount, such as $100 or $150 per day. To receive
benefits, the insured must meet the policy's disability criteria.
Nearly all policies define disability as either severe cognitive
impairment or the need for help in performing at least two activities
of daily living (such as bathing and dressing). Most policies sold are
in the individual market.
The cost of long-term care policies varies dramatically depending
on a number of factors. The consumer's age at the time of purchase, the
amount of coverage, and other policy features affect the policy's cost.
Insurance companies can increase premiums for entire classes of
individuals, such as all policyholders age 75 and older, based on their
experience in paying benefits. Older adults are more likely to have
more long-term care needs and higher costs, thus higher premiums. Other
factors that affect the policy's premium include the duration of
benefits, the length of any waiting period before benefits are paid,
the stringency of benefit triggers, whether policyholders can retain a
partial benefit if they let their policy lapse for any reason,
including inability to pay (nonforfeiture benefit), and whether the
policy's benefits are adjusted for inflation. Individuals with
federally qualified long-term care insurance policies can deduct their
premiums from their taxes, up to a maximum limit, provided that the
taxpayer itemizes deductions and has medical costs in excess of 7.5
percent of adjusted gross income.
There are several reasons why Americans have not purchased long-
term care policies. Denial is an important factor--most of us do not
want to think about needing long-term care assistance. About one-third
of Medicare beneficiaries still believe that they can rely on Medicare
for their long-term care. Cost is another critical factor. Younger
individuals are often concerned with the immediate costs of monthly
bills, as well as major items such as buying a home, putting children
through college, and saving for retirement. People don't plan for long-
term care needs that they don't know much about or think they will not
have. People may also associate a long-term care insurance policy with
institutionalization. Others may be leery of long-term care insurance
due to large premium increases and market instability. In addition,
some individuals are not able to qualify for long-term care insurance
due to underwriting.
Consumer protections are an important part of long-term care
insurance policies. Standards and protections for long-term care
insurance policies could make them better products that consumers are
more likely to buy. For example, an individual who buys a policy in his
or her 60s may not need long-term care for over 20 years. Without
inflation protection, the value of the insurance benefits can erode
over time. A daily benefit of $100 in coverage will not buy as much
care in 2025 as it does today. Nonforfeiture protection allows a
consumer who has paid premiums for a policy, but can no longer afford
to pay premiums to still receive some benefits from the policy.
The National Association of Insurance Commissioners (NAIC) has
developed a Long-Term Care Insurance Model Act and Regulations that
states can adopt to provide standards for long-term care insurance
policies sold in a state. NAIC standards include: inflation protection,
nonforfeiture, required disclosures to consumers, minimum standards for
home health and community care benefits, premium rate stabilization,
and standards for what triggers benefits. While all states have adopted
some of the NAIC provisions, only 21 states have adopted a critical
provision on premium stability that protects consumers from
unreasonable rate increases that could make their policies
unaffordable.
Legislation introduced in previous Congresses by Representatives
Nancy Johnson (R-CT) and Earl Pomeroy (D-ND) includes consumer
protections mandated by the Health Insurance Portability and
Accountability Act of 1996 and incorporates some of the consumer
protections in the NAIC Model Act and Regulations. AARP supports the
standards for long-term care insurance included in this legislation.
LONG-TERM CARE PARTNERSHIPS
A hybrid of the public/private approach to financing long-term care
services is the Long-Term Care Partnership Program. Currently operating
in four states (California, Connecticut, Indiana, and New York), the
program allows individuals who buy long-term care insurance policies
under the program to protect a certain amount of their assets and
become eligible for Medicaid. People who purchase long-term care
insurance policies under the Partnership are partially exempt from
estate recovery under Medicaid, except for New York and Indiana which
offer total asset protection. A provision in the Omnibus Budget
Reconciliation Act of 1993 limited this estate recovery exemption to
these four states who had state plan amendments approved by May 14,
1993 (plus Iowa which has not implemented a Partnership program).
The goals of the Partnership include encouraging people to buy
private long-term care insurance when they might not otherwise do so;
saving money for Medicaid by delaying or preventing spend-down to
Medicaid eligibility; reducing the incentive for individuals to
transfer assets; and saving money for individuals by having them rely
on insurance policies to cover long-term care costs that they would
have paid otherwise.
According to recent evaluations of the program, about 181,600
insurance policies have been sold under the Partnership. About 149,300
are currently in force. Of the individuals who purchased policies, only
about 2,200 persons (1.2 percent of Partnership purchasers) have used
their long-term care insurance policies and only about 90 people have
actually accessed Medicaid (0.5 percent of total purchasers). It is
unclear whether these persons using Medicaid would have likely spent
down to Medicaid absent their participation in the program. It is not
clear whether the policies were purchased by people who otherwise would
not have bought insurance, whether the Partnership policies are a
substitute for other long-term care insurance policies, and whether
participants would have used Medicaid regardless. Because Partnership
policyholders tend to be younger than other long-term care
policyholders, it may be hard to assess the full impact of the
Partnership program on Medicaid. It is possible that not enough time
has passed for many Partnership policyholders to have exhausted their
long-term care insurance policy and become eligible for Medicaid.
The Partnership states use three different methods to determine the
amount of assets that will be protected for program participants: a
dollar-for-dollar model, a total assets model, and a hybrid model.
California and Connecticut use the dollar-for-dollar model that
protects $1 in assets for every $1 in benefits paid out by the
Partnership policy. New York uses a total assets approach where all of
an individual's assets are protected if the individual purchases a
Partnership policy with a minimum benefit package defined by the state
and exhausts all of its benefits. New York is considering expanding its
model to include a hybrid model. Indiana uses a hybrid model in which
the amount of asset protection depends on the value of the benefits
exhausted. To qualify for total asset protection, participants must
exhaust a policy that covers about 4.2 years of nursing home care. Any
policy with a benefit value below this amount would provide dollar-for-
dollar protection. Partnership participants in California, Connecticut,
and Indiana who have qualified for Medicaid have protected a total of
$2.8 million in assets, according to recent studies.
According to a recent report by the Congressional Research Service
on the program, the income and asset levels of Partnership program
participants vary. Almost half of Partnership purchasers in California
and Connecticut have assets of greater than $350,000 and 60 percent of
purchasers in Indiana also have assets greater than this level (all
excluding the home). An average of 20 percent of purchasers in
California and Connecticut has assets of less than $100,000 (excluding
the home). In New York, 13 percent have assets between $50,000 and
$200,000. The dollar-for dollar-model allows states to approve more
affordable options for lower-income consumers, while total asset
protection encourages states to approve policies that are higher in
value and more attractive to people with higher incomes. A significant
number of participants in California and Indiana, 58 percent and 43
percent respectively, have monthly incomes that exceed $5,000. Yet more
than half of purchasers in Connecticut (57 percent) have income less
than $2,500. In Indiana, 17 percent of purchasers had monthly income
less than $3,000, 34.5 percent had monthly income between $3,000 and
$5,000, and 43 percent had income of greater than $5,000.
Partnership programs may offer another option for financing long-
term care but several improvements need to be made. These improvements
include:
Protecting the Medicaid safety net for low-income people who need
long-term care. The Partnership may increase Medicaid long-term
care expenditures if people with significant assets are able to
access Medicaid more easily. If this occurs and states are
unwilling or unable to spend more on Medicaid, additional
beneficiaries could reduce the resources available to
impoverished people who need care.
Requiring stronger consumer protections, particularly nonforfeiture
and inflation protection, premium stability, and clear
disclosure of current income requirements for Medicaid benefits
and the state's right to change those requirements. As
discussed earlier, consumer protections are very important to
long-term care policies. Partnership participants need to also
be clear on the Medicaid income requirement and that it is a
requirement that they must meet for Medicaid eligibility after
they have exhausted their long-term care policy.
Guaranteeing the types of services (particularly home-and community-
based services) that the state would provide to eligible
Partnership policyholders under Medicaid. Most current
Partnership policyholders will not need long-term care for many
years. Without this protection they have no assurance that the
services covered by Medicaid today will be covered in the
future.
Requiring that states monitor admissions to nursing homes to ensure
that equal access is available to everyone on the waiting list,
regardless of source of payments. Nursing homes should not be
able to discriminate against residents based on who is paying
for their care.
CONCLUSION
We can no longer afford to put the issue of long-term care
financing on the back burner. Congress must begin to look for options
that would allow Americans to pay for the care they need in the setting
of their choice. We urge you to focus on the people behind the policy
discussion of new financing options and budget implications--the faces
of families struggling to help a grandparent with Alzheimer's or a
parent with physical limitations, and the faces of older Americans
interested in staying independent and in their own homes for as long as
possible.
AARP looks forward to working with this Committee, Congress, the
Administration, and all stakeholders to address the broad long-term
care needs our country is facing. We stand ready to work with members
on both sides of the aisle to begin to tackle this important challenge.
Mr. Deal. Thank you. Dr. Feder.
STATEMENT OF JUDITH FEDER
Ms. Feder. Thank you, Mr. Chairman, and stalwart members of
the committee. I appreciate the opportunity to participate in
this hearing on such a critical issue, and I am sure I share
with many people involved in long-term care work that we are
pleased to see long-term care financing on the policy agenda.
However, as I hear the discussion, both today and more
broadly, about long-term care and future policy, I am concerned
about some distortion in that discussion. We hear enormous
enthusiasm for private resources and private insurance as the
foundation for future public policy toward long-term care
financing, including proposals even to invest public dollars in
supporting the private insurance.
On the other hand, we hear enormous skepticism about and
even denigration of the capacity and desirability of public
programs to meet long-term care needs, including proposals that
would withdraw extremely important financing for long-term
care. Based on 30 years of research and experience, and a
review of the evidence, I can tell you that that perspective
has the issue exactly backwards.
Private resources, both in caring and in dollar and private
long-term care insurance have important roles to play in future
financing for long-term care, but if we are to promote
equitable, affordable access to long-term care when people of
all ages need it, greater investment in public programs,
whether through Medicaid or new social insurance, is absolutely
essential.
Let me elaborate. I want to begin by emphasizing the
importance of insurance. Insurance is the mechanism that we use
to spread the risk of unpredictable catastrophic events, rather
than allowing the costs to fall so overwhelmingly on the
minority who experience financial catastrophe. Long-term care,
intensive long-term care, is one such catastrophic event. It is
clearly unpredictable for the close to 40 percent of the long-
term care population who are under the age of 65, but it is
also unpredictable for people at retirement age, 30 percent of
whom are estimated to die without needing any long-term care,
while 20 percent of them are estimated to need more than 5
years of care.
Reliance on savings to deal with a catastrophic risk leaves
the burden concentrated on those who experience it, even if it
is handled by cashing out houses, as we would do with reverse
annuity mortgages. And even when people have housing assets,
research studies call into question whether seniors should
sacrifice so much housing value in interest costs and other
payments to banks, and whether these bank finance loans are
preferable, or more precisely, less costly to Medicaid than
estate recovery, which is already a provision of current law.
Now, let me turn to the risk spreading through insurance.
The next question I would ask is why is private insurance so
limited a vehicle, and there are several reasons. It is not
available to people who need long-term care now, and the
problem is now, not just in the future. It is not priced to
serve the younger population that is also at risk. It is not
affordable to significant segments of the older population,
both now and in the future, and I would remind us that the
median household income of elderly Medicare beneficiaries is
$25,000. Its benefits are often limited in an effort to keep
premiums more affordable, and its premiums may be unstable,
leaving purchasers still at risk of substantial expenses even
if they hold insurance. With appropriate standards or
protections, private long-term care insurance may be fine for
the better off population, but policies that would use taxpayer
dollars to subsidize it represent misplaced priorities, and in
my view, misplaced investment of those dollars.
First, partnerships which rely on Medicaid to subsidize a
time-limited insurance benefit remain expensive to modest
income people, may substitute for insurance that they would
have bought on their own, and according--because of this,
according to CBO, may cost rather than save Medicaid money.
Second, tax credits for the purchase of long-term care
insurance would clearly cost new taxpayer dollars, and would
also be targeted to the better off older population who can
take care of themselves. Third, and most distressing, proposals
to cut back Medicaid to force people to purchase private long-
term care insurance are simply unconscionable, and as CBO
recognizes in discussing such proposals, would likely leave
many people without any protection or access at all.
Evidence on actual behavior shows that it is not Medicaid
limitations that are the primary barrier to--excuse me,
Medicaid, that is the primary barrier to the purchase of long-
term care insurance. Rather, it is many other factors, some of
which I and others have discussed.
Now, the public role. Medicaid is our Nation's long-term
care safety net. Its costs are high, not because it is serving
the wrong population, but because serving the large numbers of
people who need long-term care and cannot afford it is
expensive. Remember, Medicaid is a public-private partnership.
Beneficiaries give up virtually everything they have to receive
Medicaid benefits. The argument that the bulk of Medicaid
resources go to people who are able to pay for their--on their
own, and who transfer their assets is not supported by the
evidence, and the evidence tells us that most elderly likely to
need long-term care have too little income and assets to
warrant transfer, especially if they are disabled. People in
poor health are more likely to conserve their assets than to
exhaust them. Among all the elderly, transfers that do occur
are typically modest, less than $2,000, and for those seeking
Medicaid eligibility, they are not significant contributors to
Medicaid costs, and the fact is that most elderly nursing home
users pay most or all of their costs of the care.
Making Medicaid meaner is likely to save Medicaid little,
and punishing modest income people unlucky enough to need long-
term care before they die, while preserving the estates of the
wealthiest Americans and everyone else is just plain unfair.
Today's Medicaid provides not too much but too little
protection, focusing on nursing homes, not home care, or more
than home care. Eligibility and benefits vary tremendously
across States, and as we have heard, States are struggling with
today's fiscal burdens, let alone what they will have to deal
with in the future.
As the Governors regularly tell us, they need more, not
less, in Federal resources to do the job. Additional Federal
commitment will not replace personal responsibility or personal
contributions to financing long-term care or to care giving.
Those we will all do always. Nor will it bankrupt the Nation.
To argue that the Nation cannot afford this commitment confuses
affordability with distribution--somebody has to pay--and
confuses affordability with policy choice. Choices Congress is
currently making, the choice not to tax the baby boom
generation, my generation, in the peak of our earning years,
and choices to incur enormous debt to finance the Federal
Government, these choices are robbing the Nation of our
ability, through taxes on a growing, a growing, not a shrinking
economy, to serve all our citizens, old and young, fairly and
effectively.
We can make better choices, and I hope we will. Thank you.
[The prepared statement of Judith Feder follows:]
Prepared Statement of Judith Feder, Professor and Dean, Georgetown
Public Policy Institute, Georgetown University
Chairman Deal, Ranking Member Brown, and members of the Committee,
I'm pleased to have the opportunity to testify before you today on
long-term care. My testimony will reflect more than twenty-five years
of research experience in long-term care, at Georgetown University and,
before that, the Urban Institute. Based on that research, my policy
conclusions are the following:
Today, 10 million people of all ages are estimated to need long-term
care, close to 40 percent of whom are under the age of 65.
Among the roughly 8 million who are at home or in the
community, one in five report getting insufficient care,
frequently resulting in significant consequences--falling,
soiling oneself, or inability to bathe or eat.
The need for long-term care is unpredictable and, when extensive
service is required, financially catastrophic--best dealt with
through insurance, rather than personal savings. But the nation
lacks a policy that assures people of all ages access to
quality long-term care when they need it, without risk of
impoverishment.
Private insurance for long-term care is expanding and will play a
growing role in long-term care financing. However, even with
improved standards and special ``partnerships'' with Medicaid,
it does nothing for those currently in need, is not promoted as
a means to serve the under-65 population and, in the future
will be affordable and valuable for only a portion of the older
population--most likely, the better off.
Medicaid is the nation's only safety net for those who require
extensive long-term care. Rather than serving primarily as a
deterrent to the purchase of private insurance, it serves
overwhelmingly to assure access to care for those least able to
afford that insurance. But its invaluable services become
available only when and if people become impoverished; its
protections vary substantially across states; and, in most
states, it fails to assure access to quality care, especially
in people's homes.
A growing elderly population will mean greater demand on an already
significantly stressed Medicaid program, squeezing out states'
ability to meet other needs and, at the same time, likely
reducing equity and adequacy across states.
Policy ``solutions'' that focus only on limiting public obligations
for long-term care financing do our nation a disservice.
Although individuals and families will always bear significant
care-giving and financial responsibility, equitably meeting
long-term care needs of people of all ages and incomes--
throughout the nation--inevitably requires new federal policy
and a significant investment of federal funds.
The following will lay out inadequacies in current long-term care
financing; the implications of growth in the elderly population for
future inadequacies; and the importance of federal policy to sustain
and improve long-term care protection. Unless otherwise noted, I am
drawing on research from the Georgetown Long-term Care Financing
Project, funded by the Robert Wood Johnson Foundation, and available at
our web site: ltc.georgetown.edu. The opinions I present are, of
course, only my own.
People who need extensive assistance with basic tasks of living
(like bathing, dressing and eating) face the risk of catastrophic costs
and inadequate care. Today, almost 10 million people of all ages need
long-term care. Only 1.6 million are in nursing homes. Most people
needing long-term, especially younger people, live in the community.
Among people not in nursing homes, fully three quarters rely solely on
family and friends to provide the assistance they require. The range of
needs is considerable--with some people requiring only occasional
assistance and others needing a great deal. Intensive family care-
giving comes at considerable cost--in employment, health status and
quality of life--and may fail to meet care needs. Nationally, one in
five people with long-term care needs who are not in nursing homes
report ``unmet'' need, frequently resulting in significant
consequences--falling, soiling oneself, or inability to bathe or eat.
The cost of paid care exceeds most families' ability to pay. In 2002,
the average annual cost of nursing home care exceeded $50,000 and 4
hours per day of home care over a year were estimated to cost $26,000.
Clearly, the need for extensive paid long-term care constitutes a
catastrophic expense.
The likelihood of needing long-term care is also unpredictable.
Although the likelihood increases with age, close to 40 percent of
people with long-term care needs are under the age of 65. And the need
for care among the elderly varies considerably. Over a lifetime,
projections of people currently retiring indicate that about 30 percent
are likely to die without ever needing long-term care; fewer than 17
percent are likely to need one year of care or less, and about 20
percent are likely to need care for more than five years.
Because long-term care needs are unpredictable and may be
financially catastrophic, insurance is the most appropriate financing
strategy. Reliance on savings alone is inefficient and ineffective.
People will either save too much or too little to cover expenses.
However few people have adequate private or public long-term care
insurance. Although sales of private long-term care insurance are
growing (the number of policies ever sold more than tripled over the
1990s), only about 6 million people are estimated to currently hold any
type of private long-term care insurance. Growing numbers of older
people, especially of the segment with significant resources, will
create the potential for substantial expansion of that market. But
private long-term care insurance policies remain a limited means to
spread long-term care risk. Private long-term care insurance
Is not available to people who already have long-term care needs;
Is not designed to meet the needs of younger people who are also at
risk of needing long-term care;
Is not affordable to the substantial segment of older persons, now
and in the future, with low and modest incomes;
Limits benefits in dollar terms in order to keep premiums affordable,
but therefore leaves policyholders with insufficient protection
when they most need care; and
Lacks the premium stability and benefit adequacy that can assure
purchasers who pay premiums year after year that it will
protect them against catastrophe.
We need only look at experience in health insurance to recognize
that reliance on the individual market--plagued by risk selection, high
marketing costs, benefit exclusions, and other problems--for long-term
care will be grossly inadequate to assure adequate protection to most
people.
Current public policy also falls far short of assuring insurance
protection. Medicare, which provides health insurance to many who need
long-term care, covers very little long-term care. Its financing for
nursing home care and home care is closely tied to the need for acute
care and is available for personal care only if skilled services--like
nursing and rehabilitation therapy--are also required.
It is Medicaid that provides the nation's long-term care safety
net. Most nursing home users who qualify for Medicaid satisfy
Medicaid's income and asset eligibility requirements on admission. But
16 percent of elderly nursing home users begin their nursing home stays
using their own resources and then become eligible for Medicaid as
their assets are exhausted. Because the costs of long-term care are so
high relative to most people's income and resources, the opportunity to
``spend down'' to eligibility--spending virtually all income and assets
in order to qualify--is essential to assure access to care. Some have
labeled impoverishment a ``fallacy'', arguing that the bulk of Medicaid
resources go to finance nursing home care for people who could afford
to pay for themselves, but who ``transfer'' their resources in order to
qualify for Medicaid benefits. Such exaggeration relies on anecdote,
not evidence. Indeed, the evidence shows that few of the elderly have
the income or wealth that would warrant such transfer; that people in
poor health are more likely to conserve than to exhaust assets; that,
for the elderly population as a whole, transfers that occur are
typically modest (less than $2000); and that transfers that are
associated with establishing eligibility are not significant
contributors to Medicaid costs.
Further, there is little evidence to support the argument that
Medicaid's availability is a substantial deterrent to the purchase of
long-term care insurance (CBO, ``Financing Long-term Care for the
Elderly,'' April 2004). This argument is based far more on theoretical
assumptions than on empirical analysis of people's actual behavior.
Indeed, analysis of actual purchases of private long-term care
insurance found no impact on purchase decisions among older workers and
found the slight impact on purchasers over age 70 too small to explain
the very low proportion of elderly holding policies (Frank A. Sloan and
Edward C. Norton. 1997. ``Adverse Selection, Bequests, Crowding Out and
Private Demand for Insurance: Evidence from the Long-Term Care
Insurance Market, Journal of Risk and Uncertainty 15, no.3: 201-219).
Despite Medicaid's essential role, however, its protections differ
considerably from what we think of as ``insurance''. Medicaid does not
protect people against financial catastrophe; it finances services only
after catastrophe strikes. Further, Medicaid's services fall far short
of meeting the needs and preferences of people who need care.
Medicaid's benefits focus overwhelmingly on nursing home care--an
important service for some, but not the home care services preferred by
people of all ages. In the last decade, Medicaid home care spending has
increased from 14% to 29% of Medicaid's total long-term care spending.
But nursing homes still absorb the lion's share of Medicaid's support
for long-term care.
Medicaid protection also varies considerably from state to state.
As a federal-state matching program, Medicaid gives states the primary
role in defining the scope of eligibility and benefits. A recent Urban
Institute analysis emphasized the resulting variation across states in
service availability as a source of both inequity and inadequacy in our
financing system. In an examination of 1998 spending in 13 states,
long-term care dollars per aged, blind, or disabled enrollee in the
highest spending states (New York and Minnesota) were about 4 times
greater than in the lowest (Alabama, Mississippi)--a differential even
greater than that found for Medicaid's health insurance spending for
low income people.
Both our own research and that conducted by the Government
Accountability Office tells us that differences in state policies have
enormous consequences for people who need long-term care. Studies
comparing access for individuals with very similar needs in different
communities show that people served in one community get little or no
service in another. Georgetown research finds that the same person
found financially eligible or sufficiently impaired to receive Medicaid
services in one state might not be eligible for Medicaid in another--
and, if found eligible, might receive a very different mix or frequency
of service. And a comparison of use of paid services in 6 states finds
almost twice the incidence of unmet need (56%) in the state with the
smallest share of people likely to receive paid services as in the
state with the largest (31%).
This variation--as well as ups and downs in the availability of
benefits over time--undoubtedly reflects variation in states'
willingness and ability to finance costly long-term care services. The
recent recession demonstrated the impact on states of changes in their
economies and the vulnerability of Medicaid recipients to states'
reactions. In 2001, Medicaid accounted for 15% of state spending, with
long-term care responsible for 35% of the total. Virtually all states
were cutting their Medicaid spending as budget pressures struck,
endangering access either for low income people needing health
insurance, older or disabled people needing long-term care, or both.
In sum, under current policy, neither public nor private insurance
protects people against the risk of long-term care. Despite Medicaid's
important role as a safety net, the overall result for people who need
care is catastrophic expenses, limited access to service, and care
needs going unmet.
Given inequities and inadequacies in our current approach for long-
term care, it is no wonder that we are concerned about the future, when
a far larger proportion of the nation's population will be over age 65
than are today. Experts disagree on whether disability rates among
older people in the future will be the same as or lower than they are
today. But even if the proportion of older people with disabilities
declines, the larger number of older people will likely mean a larger
number of older people will need long-term care in the future than need
it today. The population aged 85 and older, who are most likely to have
long-term care needs, is likely to double by 2030 and quadruple by
2050.
States will vary in the aging of their populations--with resulting
differences in the demand for long-term care and the ability of their
working-aged population to support it. To identify future demands on
Medicaid, a Georgetown study examined census data on the ratio of
elderly people to working-age adults between 2002 and 2025. Nationally,
this ratio changes from about one to five (one person over age 65 for
every 5.2 people of working age) in 2002 to one to three--an increase
of about 66 percent. But the changes differ across states, with some
states well below the national average (e.g. California, Connecticut,
D.C., Massachusetts) and others, far above. In many states, the ratio
increases by more than three quarters and in a few (e.g. Colorado,
Utah, and Oregon), it more than doubles. All states will be challenged
to meet increased long-term care needs.
States are already struggling with Medicaid's fiscal demands, which
challenge their ability to meet equally pressing needs in education and
other areas. And state revenue capacity varies considerably. If current
policies persist, pressure to make difficult tradeoffs will only get
stronger. In the future, states with bigger increases in the elderly-
to-worker ratio will face the greatest pressure. And, since many of the
states with above average changes currently spend relatively little per
worker on Medicaid long-term care, there is a strong likelihood that in
the future, long-term care financing will be even less equitable and
less adequate across the nation than it is today.
What's needed for a different future is public policy action.
Developing better policy requires an assessment of options to assure
access to affordable quality long-term care and to distribute financing
equitably between individuals who need long-term care and their
families, on the one hand, and the rest of federal and state taxpayers,
on the other. Consideration of federal budgetary implications is an
important part of the assessment process. But allowing budgetary
constraints to drive that process distorts the nation's policy choices.
Last April's CBO report on long-term care financing did precisely that.
Explicitly focusing on the achievement of only one policy goal--
alleviation of ``pressure'' on the federal budget--the report treated
as legitimate only policy options with the potential to reduce federal
spending, without regard to the consequences for people in need.
From this perspective, the report's first set of policy options--
cutting back already inadequate Medicaid and Medicare protection--is
not surprising. But its implications are nevertheless horrifying. CBO
straightforwardly states that such action could reduce the number of
people dependent on public programs--a fairly obvious conclusion. But
it presents no evidence that people inappropriately rely on Medicaid
today; and no evidence that savings or private long-term care insurance
would provide adequate protection if Medicaid were made more
restrictive for the future. Indeed CBO explicitly recognizes that this
approach implies greater burdens on family and friends, greater
difficulty in obtaining care, and greater bad debt for long-term care
providers. If the policy goal is--as it should be--to improve care and
distribute costs equitably, such cutbacks seem unconscionable, not
desirable.
The CBO report's second set of options to alleviate fiscal pressure
aim to ``improve the functioning of the market for private long-term
care insurance''--a strategy that is less likely than public cutbacks
to reduce access but still unlikely to significantly improve either
access or equity. Standardizing long-term care insurance policies might
facilitate consumers' ability to make choices in the marketplace and
improve the adequacy of private long-term care insurance. But, as CBO
notes, standards that improve policies would likely increase insurance
premiums. The result might be better protection for those who can
afford private insurance--a worthy goal, but it is highly unlikely to
be an increase in the numbers of people willing or able to buy
insurance.
CBO's consideration of so-called ``partnerships for long-term
care''--which would allow benefits paid by private insurance to offset
(or protect) assets for Medicaid users who purchase approved private
long-term care insurance policies--also reveals this strategy's
limitations. These partnerships have been advocated as a means to save
Medicaid money by preventing ``spend-down'' and asset transfers. The
hope is that allowing the purchase of asset protection, along with
insurance, will encourage modest income people to purchase private
long-term care insurance. Experience with these policies in four states
has produced only limited purchases, primarily among higher income
people, and has affected too few people for too short a period to
assess its impact on Medicaid spending (Alexis Ahlstrom, Emily
Clements, Anne Tumlinson and Jeanne Lambrew, ``The Long-Term Care
Partnership Program: Issues and Options'', Pew Charitable Trusts''
Retirement Security Project, George Washington University and The
Brookings Institution, December 2004). The partnership has contributed
to improved standards for long-term care insurance policies and more
partnership policies are being sold to more modest income people as the
standards that apply to them are also applied to the broader market.
However, as CBO notes, if these policies simply substitute for policies
individuals would otherwise have purchased or increase the likelihood
of using long-term care services, they may eventually increase rather
than decrease Medicaid expenditures. From the budgetary perspective,
advocacy of reliance on Medicaid to essentially subsidize private long-
term care insurance alongside promotion of budget legislation to
curtail federal Medicaid contributions seems both disingenuous and
risky. Further, from the broader equity perspective, targeting private
long-term care insurance to modest income people seems questionable.
The purchase of a limited long-term care insurance policy could easily
absorb close to 10 percent of median income for a couple aged 60--a
substantial expenditure for a cohort acknowledged as woefully
unprepared to meet the basic income needs of retirement.
Even more questionable are proposed tax preferences for private
long-term care insurance. CBO does not analyze these proposals, perhaps
because they would clearly increase rather than decrease public
expenditures. Nevertheless, they are consistently on the policy agenda,
despite the likelihood that they will be poorly targeted to improve
insurance protection. Experience with health insurance tells us that
such credits are likely to primarily benefit those who would have
purchased long-term care insurance even in the absence of credits--
substituting public for private dollars--and, as currently proposed,
are not even designed to reach the substantial portion of older and
younger Americans with low and modest incomes.
Indeed, the whole focus on reducing public spending and promoting
private insurance ignores the public responsibility to address for all
Americans what should be our fundamental policy choice: do we want to
live in a society in which we assure affordable access to long-term
care for people who need it or in a society in which we leave people in
need to manage as best they can on their own?
There is little question that to address both current and future
long-term care needs requires not a decreased but an increased
commitment of public resources--and, to be adequate and effective in
all states--federal resources. Expanded public financing for long-term
care could take a variety of forms and by no means need eliminate
private contributions. One option, modeled on Social Security, would be
to provide everyone access to a ``basic'' or ``limited'' long-term care
benefit, supplemented by private insurance purchases for the better-off
and enhanced public protection for the low income population. Another
option would be establishment of a public ``floor'' of asset
protection--a national program assuring everyone access to affordable
quality long-term care--at home as well as in the nursing home--without
having to give up all their life savings as Medicaid requires today.
The asset floor could be set to allow people who worked hard all their
lives to keep their homes and modest assets, while allowing the better
off to purchase private long-term care insurance to protect greater
assets. Either public/private combination could not only better protect
people in need; it could also provide substantial relief to states to
focus on health insurance, education and other pressing needs--relief
that governors have explicitly requested by calling on the federal
government to bear the costs of Medicare/Medicaid ``dual eligibles''.
Because Medicaid serves the neediest population and, in the current
budgetary environment is at risk, my highest priority for expenditure
of the next federal dollar would be responding to this call (along with
supporting more home care and better quality care) with more federal
dollars to Medicaid.
Some will undoubtedly characterize proposals like these as
``unaffordable'', given the fiscal demands of Medicare and Social
Security and the current federal budget deficit. But that deficit
reflects policy choices. I would far rather see expenditure of the next
federal dollar devoted to enhanced Medicaid long-term care financing
than to tax credits for long-term care or tax cuts in general. Indeed,
the estate tax is especially appropriate for long-term care financing:
taxing everyone's estate at certain levels, to provide reasonable
estate protection for those unlucky enough to need long-term care.
As we look to the future, examination of the choices being made by
other nations of the world is instructive. Analysis by the Organization
for Economic Cooperation and Development (OECD) of long-term care
policy in 19 OECD countries (presented at the June 2004 research
meeting of AcademyHealth) found that the number of countries with
universal public protection for long-term care (Germany, Japan and
others) is growing. Public protection, they report, does not imply the
absence of private obligations (cost sharing and out-of-pocket
spending), nor does it imply unlimited service or exploding costs.
Rather, in general, it reflects a ``fairer'' balance between public and
private financing--relating personal contributions to ability to pay
and targeting benefits to the population in greatest need. Many of
these nations have substantially larger proportions of elderly than the
U.S. does today and therefore can be instructive to us as we adjust to
an aging society.
Clearly, we will face choices in that adjustment. If we are to be
the caring society I believe we wish ourselves to be, we too will move
in the direction of greater risk-sharing and equity by adopting the
national policy and committing the federal resources which that will
require.
Mr. Deal. Thank you. Well, I think this panel has truly
demonstrated how difficult our task is. You literally are all
over the board in terms of perceiving the problem and certainly
in terms of suggesting solutions.
Let me start out with just asking a few things, and see if
there is any consensus on anything. Okay. First of all, would
you all agree that we should attempt to do away with the
institutional bias, as Dr. McClellan called it.
I see everybody pretty well--Dr. Feder, you don't agree
with that?
Ms. Feder. I--no, I agree with having a broad array of
services available in Medicaid, and I believe that will require
the investment of additional resources, and I am absolutely for
it.
Mr. Deal. But you acknowledge the institutional bias is
there, and that it does do away with flexibility. All right.
Good. Yes. Ms. O'Shaughnessy.
Ms. O'Shaughnessy. Sorry. One thing I would like to point
out, and I agree with the supposition about institutional bias.
I do want to point out just something from the data, that the
acuity level of people in nursing homes has gone up over the
past 10 years or so, so people, many people in nursing homes
need to be there, but as was suggested, there needs to be a
broad array of services as well.
Mr. Deal. Right. Mr. Moses.
Mr. Moses. I really think it is critical to understand why
we have an institutional bias, and that is because Medicaid
came along in 1965, and started paying for nursing homes almost
exclusively, which chilled the market for private financing for
home and community-based care and insurance to pay for it. So,
if we try to retrofit the home and community-based system on
what we have before we control the eligibility hemorrhage, we
are going to have an enormous problem with that woodwork
factor, and with encouraging Medicaid planning and discouraging
private insurance.
Mr. Deal. Okay. Obviously, this is such a difficult issue
to get a handle on. We range all the way from are there the
rich people in this country who are divesting themselves to
become eligible. I certainly agree with Mr. Krooks in this
regard. I don't think anybody wants to be a pauper. I do think,
as Mr. Moses points out, that there are transfers being made.
It is sort of one of those life cycle things where, you know,
you may not have much when you start out. You become a little
wealthier as you work, and you accumulate, and you sort of get
that attitude like the bumper sticker on the back of the RV
going down the road. I am spending my grandchildren's
inheritance. And then, you get to the point where you realize
that you need institutional care, and it is going to consume
everything that you have worked for, and everything that you
have saved for, which we, as a people, have encouraged people
to do that. We have encouraged them to save. We have encouraged
them to buy their homes, and then all of a sudden, all of these
are at risk. There is certainly human nature takes over, and to
say, I am going to do whatever I can within the law and get an
ingenious attorney to figure out what the loopholes of the law
are, to preserve that. That is human nature, I think.
So let us back up to another thing, and see if there is any
consensus, and I know that Dr. Feder had some reservations
about this one, and it is one that Ms. Ignagni, I think you
were suggesting in your proposal, and that is, let us
incentivize the purchase of long-term care health insurance.
Right now, there is not any real incentive, other than the four
States in the partnership, if you want to call that an
incentive, and we can argue about whether that is an incentive
or not. That is, to incentivize the purchase of long-term care
health insurance.
Most of us have the attitude that we are not going to need
it, you know. And so therefore, if you don't perceive you are
going to need anything, why buy it? It is sort of like my
mother. I told you about when she lost her leg, and she had to
come live with us, and she had to, she called it break up
housekeeping, and she was crying 1 day as we were trying to
decide where to put this and where to put that, and she says, I
just hate to break up housekeeping, and my wife said, well, you
know, you knew you were probably going to have to do that at
some point, and at 92 years of age, she said but I didn't think
I would have to do it this soon.
You know, we are all sort of that attitude. How do we
incentivize us to do something for ourselves. You suggested a
tax credit. You say it is too expensive. Mr. Krooks.
Mr. Krooks. Thank you, Mr. Chairman. We support tax
incentives which are enacted to encourage consumers to purchase
long-term care insurance, incentives that are coupled with
caregiver tax credits, because I think, as we have all
recognized, the lion's share of care in this country is
delivered by informal caregivers, and it is just unfair not to
offer a tax credit. People are giving up their jobs, taking
time off from work.
Mr. Deal. Those are the ones I feel sorry for.
Mr. Krooks. Yeah. The current system is flawed in terms of
incentivizing people to purchase long-term care insurance. I am
not sure that people do anything because of tax reasons. I
don't think the tax tail wags the dog, but certainly, under
current law, when your insurance premiums are deductible as a
miscellaneous itemized medical expense, which means that they
are only deductible to the extent all of your medical expenses
exceed 7.5 percent of adjusted gross income, many people don't
qualify.
Mr. Deal. Right.
Mr. Krooks. What we need to do, and what we have done in
other States and in my home State, is offer a dollar for dollar
tax credit, so if you buy a long-term care insurance policy,
and it is $2,000, as Mr. Burgess stated, then you get a $2,000
tax credit. I think that that will go a long way. Although I
think we do need to recognize that although we are supportive
of long-term care insurance, not everyone is going to qualify.
There is a whole generation of people who are 60 plus, 70 plus,
who the insurance companies, they don't want them. They want
me. The problem is, I have got four kids who I have got to
provide college for. I have got 401(k) plan that is half of
what it was before the year 2000, and you know, I have got my
own issues. So we need to incentivize the insurance companies
to insure seniors and people with disabilities, people with MS,
because these people are going to have no other choice other
than to go on Medicaid.
Mr. Deal. Let me ask Ms. Ignagni to respond. And I am going
to have to cut it off with those responses, and maybe we will
get a second round if everybody leaves, and I get back to
myself. Yes, ma'am.
Ms. Ignagni. Thank you, Mr. Chairman. You made a very
important point. A No. 1 issue that we found in our surveys
with respect to reluctance to purchase is the denial issue. So
we clearly need more education. People are confused about what
Medicare covers, in particular. A number of individuals,
particularly baby boomers, think that Medicare will cover long-
term care. They don't plan ahead. The lack of a tax incentive.
We agree with Mr. Krooks. You need an above the line. You also
need the caregiver credit, for the reasons that he very aptly
articulated. Also, the flexible benefits issue. We know that a
number of individuals, in the context of their employee
situation, would like to devote pretax dollars to the purchase
of long-term care. That is not permissible now. Section 125
accounts, that is not permissible. So, those are very important
issues that could be taken to start us moving toward this very
productive response and strategy.
Mr. Deal. If we don't get all the responses right now, we
will come back to you, if somebody else doesn't ask a similar
question. Mr. Strickland, I will let you next.
Mr. Strickland. Thank you, Mr. Chairman.
And I would like to begin my questioning by yielding some
time to Dr. Feder, in case she would like to respond to what
you have just said. Dr. Feder?
Ms. Feder. Thank you, Mr. Strickland.
I just would say that the tax, when you talk about these
kinds of tax credits and incentives, unless these tax credits
are designed to be deductible, they only go to the higher
income segment of society. Several of you members have said
they are buying long-term care insurance. That is a fine thing
for people to do, but essentially, this whole hearing is about
concerns that we--that some think we don't have enough public
resources. If that is the case, to invest those resources in
the upper end, at the upper end of the income stream seems to
me an outrage.
Mr. Strickland. So, Dr. Feder, are you--if I can try to say
what you have said, you are saying that these proposed
solutions may benefit those who may be the least in need----
Ms. Feder. Absolutely.
Mr. Strickland. [continuing] and the most able to deal with
their long-term care needs without public assistance. So, thank
you. Ms. Stucki, I noticed in your testimony that you said
there is about $2 trillion available in home equity from the 20
million, or estimated 20 million elderly households in the
Nation. However, I think it would be helpful and useful for us
to understand that the portion of that number that would
realistically yield Medicaid money for long-term services. For
example, Mark Merlis, I understand, at the Georgetown
University's Long-Term Care Financing Project, did a study, and
he focused on Medicaid or near-Medicaid households who had home
equity that would be eligible for a federally backed reverse
mortgage. Now, when you narrow in on the target population,
Merlis estimated that out of that theoretical $2 trillion, only
about $4.2 billion would have been available in the year 2000,
and the question I have for you is do you agree that this is a
reasonable estimate of what Medicaid could actually save?
Ms. Stucki. Our estimates, if we look at--we are looking
into the future, and he looked to the past. But our estimates
are in the neighborhood of about $3 to $5. If we focus
specifically on Medicaid, folks who are imminently likely to
use Medicaid. So, I think we are pretty much in the same
ballpark.
Mr. Strickland. In the ballpark, of----
Ms. Stucki. Yeah.
Mr. Strickland. [continuing] somewhere in the range of $3
to $5 billion.
Ms. Stucki. Right. One thing that we have emphasized very
much in our report is that we are talking about aging in place,
and has been pointed out in other discussions, that is more
than just paying for supportive services. It also means paying
for appropriate housing, home repairs, transportation, and many
other kinds of things that oftentimes are not taken care of
under our current system, and when we look at the larger
numbers that we have put on the table, what that reflects is
the opportunities to help fill the gaps in our current
financing. Right now, a person may be able to receive services
through various programs to help them with personal care, but
nothing to help them fix the roof, and you can't live at home
if you don't have that----
Mr. Strickland. [continuing] can't fix the roof.
Ms. Stucki. Yeah, maybe something as simple as that. So,
what a reverse mortgage enables a person to do is manage their
assets. It helps fill the gaps in their financing. Even with a
long-term care insurance policy, even if they need somebody to
help with groceries. An insurance policy doesn't kick in until
you are very severely impaired. The equity in your home can
help fill that gap and help avoid a cash crunch.
Mr. Strickland. Okay. If I--thank you for your answer, and
if I can just follow up with Dr. Feder. Dr. Feder, the thing
that is most intriguing to me about all the talk about using
reverse mortgages to save Medicaid money is that Medicaid
already has the ultimate claim on the home equity of people who
receive long-term care. Now, creating incentives, this is
related to what we were talking about earlier, incentives for
people to use reverse mortgages before they get on Medicaid
just creates a lien on the home by a bank instead of Medicaid,
as it is under current law.
So, in the end, is it possible that Medicaid could actually
lose money. I would like your response, please.
Ms. Feder. Short answer is absolutely yes. This is
essentially they would be, the dollars would be going to
finance these loans, pay interest to banks. And under current
law, Medicaid has full access to recover the house.
Mr. Strickland. And so, based on information that has been
available to me, it appears that reverse mortgages could
perhaps yield something like 60 percent of what Medicaid could
eventually receive through estate recovery, so it is defeating
what we hope to accomplish, it seems.
Ms. Feder. I think that is absolutely correct.
Mr. Strickland. Mr. Chairman, my time is up. I yield back.
Mr. Deal. Mr. Buyer.
Mr. Buyer. Mr. Moses, are you--do you know what the States
are doing out there, in regard to going after people's assets,
and their homes. Are they being aggressive on recapture?
Mr. Moses. Well, I have done quite a few studies in
individual States over the years. There is a variance between
how aggressive they are, in terms of the eligibility
constraints on the front end. Just to speak to the issue of
estate recoveries, those are not particularly aggressively
enforced. It is not--it is kind of a politically sensitive
issue. I would just observe that Dr. Stucki said 82 percent of
seniors own their homes. Once they are on Medicaid, the best
State I have seen is only about 14 percent own their homes, and
we have no idea what happened to those assets. So, there is
very little to be captured out of the estates, and that is a
kind of punitive, after the fact approach that occurs when it
is too late for people to do anything. That is why it is so
important to convey the message up front that Medicaid is a
program for the needy, and that others should take personal
responsibility, and either have insurance or tap that equity in
the home.
Mr. Buyer. Mr. Moses, Ms. Feder states in her written
testimony the suggestion that Medicaid planning is widespread
is an ``exaggeration,'' which ``relies on anecdote, not
evidence.'' She also states ``there is little evidence to
support the argument that Medicaid's availability is a
substantial deterrent to the purchase of long-term care
insurance.'' What is your opinion with regard to her comments?
Mr. Moses. Well, as I explained in my formal remarks, there
is very little empirical evidence of how widespread this is.
But my goodness, all you have to do is open your eyes. Go on
the Internet, Google Medicaid planning, and find 1.3 million
cases of it. Open the newspaper, and see a program for people
on how to shelter and protect their assets. My heavens, I have
hundreds and hundreds of quotes and dozens of reports that we
have done. I have quotes from eligibility workers, who are
extremely frustrated having to act as, in essence, free
paralegals to attorneys who are constantly calling, you know,
``looking for loopholes.'' So, there is--where there is smoke,
I guess, I am pretty confident there is a good bit of fire
here, and if we could just get somebody to do a serious study,
look at a valid random sample of cases, and project that to the
Nation, you would have the hard evidence.
Mr. Buyer. Yeah. I--Ms. Feder, I just don't agree with your
statement. I practiced law in a little, small town, solo law
practice, and I was surprised at the number of the clients, and
they are not the wealthy, they have got a small business, or
they are trying to shelter their income. They were trying to
get some inheritance to their kids, and that is happening out
there. So I just want you to know it is a reality that we are
trying to face with, and so, you know, do we allow a Medicaid
program where individuals are permitted to shelter and transfer
their assets so they can pass it on to their children, and
then, the ultimate question is, what impact is that going to
have on the program, and being able to take limited dollars to
real, you know, people who--in need. And that is really what we
are struggling with here. I mean, let us just be upfront with
everyone. And so, I just want to share that with you, with
regard to your statements and how I feel.
I want to turn to the gentleman from Paralyzed Veterans.
Your comments, in your statement, you say well, almost all PVA
members rely on the Department of Veterans Affairs for
healthcare and support services. Potential changes to the VA
systems may have ramifications for other Federal programs such
as Medicaid. Like what? What potential changes are going to
happen in the VA that are going to have ramifications on
Federal programs?
Mr. Page. Well, if most of our members are spinal cord
injured veterans, and PVA, along with the other branches of the
Veterans Service Organization recommended the independent
budget that we submit to the House Veterans Affairs Committee
on healthcare, and from what I understand, the Veterans Affairs
Committee has not reported out the budget, that looks like it
is going to be a $2 billion shortage fund----
Mr. Buyer. Sir, wait a second. Time out. Mr. Page, you said
that there are potential changes to the VA system are going to
have ramifications on Medicaid. I chair this full committee. I
know of no, zero, zip, none, changes now or even in the future
that may have ramifications----
Mr. Page. What----
Mr. Buyer. [continuing] on Medicaid, so please----
Mr. Page. What I might mean in that category would be more
people that would be eligible for VA would be either turned
away from VA, and have to fall back onto other public programs,
such as Medicaid or Medicare.
Mr. Buyer. Sir, it was the majority of the Republicans here
in Congress that opened up the access that brought many of the
special needs veterans into the program, and out of that
system. We are placing the priority upon your members, and are
taking care of your members. I just want you to know that I am
very bothered that you would put a statement in there like
this, when in fact, we have made you the priority. So please I
want to take that back. I would be more than happy to revisit
with you, but I am really bothered that you would put some type
of a straw man that you get to knock down before this
committee, which in fact is false. So I would be more than
happy to work with you. I yield back.
Mr. Deal. Dr. Burgess.
Mr. Burgess. Thank you, Mr. Chairman. Well, unfortunately,
Mr. Strickland is gone, but he asked the question, I think to
you, Dr. Feder, will Medicaid lose dollars through reverse
mortgages, and your answer was that is a correct statement.
Ms. Feder. What he asked was whether, relative to the
capacity to get the full value of that--or the full--recover
the full expenses by having access to the full value of the
house, as under current law, whether--if a reverse annuity
mortgage had been in place, then the full value of the house
would not be available, and that is what I said could cost
Medicaid, could mean there was less to go to Medicaid than is
currently available.
Mr. Burgess. Okay. I like the concept of a reverse
mortgage. I don't know if I like it as far as paying for
Medicaid, but I do like the concept of aging in place. I think
if you age in place, you are likely to die in place, though I
don't have any hard data that says that. And I think that is a
more economical way to go, no pun intended. But Mr. Moses, you
looked particularly pained when Mr. Strickland asked Ms. Feder
that question, and it looked like you wanted to respond, so let
me give you an opportunity to respond to that.
Mr. Moses. Well, thank you. I already did, tangentially,
but the point is people don't retain their homes long enough
for Medicaid to recover them, even if the States were
aggressive, and the Federal Government required them to enforce
even the Federal laws that are in place. It just doesn't
happen, according to the studies that I have done. That is why
82 percent of seniors overall can own their homes, but by the
time they are on Medicaid, most of that home equity is gone. I
did a study in Nebraska a couple of years ago, and what we
found is while there was very little evidence of egregious
Medicaid planning, like what we have talked about today, people
routinely, in the course of estate planning, transfer their
assets, ownership of the farm or the small business, to the
next generation, around their late 60's, early 70's, never
intending to qualify for Medicaid for their long-term care. But
a decade goes by, all of a sudden, mom needs nursing home care.
The family can't handle it, because everybody is working now,
and voila, eligible for Medicaid, and nothing to recover out of
the estate.
Mr. Burgess. Thank you. I think that is worth repeating.
Ms. Ignagni, the question comes up, and I think you addressed
it in some regard, about why more people aren't purchasing
long-term care insurance. I said for the record that I had. I
didn't do that because of legislation. I didn't do that because
of a tax break. Again, I did that because my mother told me to
do it, and it was good advice 5 years ago, and I think it would
be good advice today. But why aren't more people buying long-
term care insurance?
Ms. Ignagni. I think, Dr. Burgess, there are several
reasons. One is that people are generally not thinking ahead.
They are in denial, particularly about care that--conditions
that might incapacitate them. So that is No. 1. No. 2, I think
that there is very little information broadly about whether or
not the Medicare program covers long-term care. We find that
repeatedly in our studies. Third, you want to encourage the
purchase at a time when it is most affordable, so the employer
vantage point is particularly productive in that regard. And we
are seeing that by far, employees would like to purchase, but
the barrier of not having tax subsidies for flexible benefit
purchase, 125 purchases, and through the kinds of accounts that
people routinely decide how they want to dedicate their assets,
that really holds back the middle class. It doesn't restrain or
constrain folks who have a great deal of income on the high
end, but we are really constraining the middle class from
thinking ahead.
A final point on your question to Dr. Feder and Mr. Moses,
with respect to reverse mortgages. One thing that hasn't been
said all day, or observed, as individuals are, appropriately,
we think, excited about the potential to put new assets on the
table, is that how far will those assets go if you don't try to
purchase long-term care insurance with those assets. If the
average cost of a nursing home stay is $70,000, and if Mr.
Krooks' example is any suggestion of the modal value of a home
today, then 2 years in a nursing home would cost $140,000. So
even when we talk about an individual purchasing at arguably
the most expensive time, or purchasing long-term care, it is
prudent to begin to think about, also, that concept, with the
idea of stretching the resources to make them go farther. And
we would like to very much in--be involved in those discussions
with the committee.
And that applies to the partnership concepts, in terms of
what we can learn from what is out there in the market, and how
we can extend those to a 50 State partnership program.
Mr. Burgess. Right. And I may have been out of the room
when he talked about partnerships, but that seems to me,
greater than tax credits, that seems to me to be a vehicle to
get people to think about long-term care insurance. Here is a
way to--a legitimate way to shelter your assets. Buy the
insurance policy up front, those assets are protected up to the
extent of your long-term care policy.
Ms. Ignagni. That is right. There are 180,000 people who
have purchased insurance under the partnership programs. Only
89 of them have spent down to the Medicaid levels. And so that
is important data, not to be dispositive, but to give us a
suggestion on a range of strategies that might work together.
And the final thing that we haven't mentioned in the last few
minutes is what can be done, Governors working to stretch their
resources in the context of the Medicaid program, we think we
can offer strategies there to--for the folks who are at the
bottom of the economic distribution, who are depending on
Medicaid for a safety net. We think that there can be more done
in the area of bringing private tools to the SSI population, et
cetera, and we are very much involved in those discussions at
the sate level.
Mr. Burgess. I want to thank everyone. I know we may have
another round of questions. I may not be able to stay. You see
why Congressional representatives can't think in paragraphs.
Mr. Deal. I thank the gentleman. Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman, and I want to thank
the panel for being patient, and as I said to the other panel,
we have some great challenges to tackle, and we ought to be--we
shouldn't be fighting and bickering. We ought to be trying to
find a solution, because as in the first panel, the
demographics, they speak loudly. And we are talking about
mandatory spending, spending that is--we have no control over,
because of the policies that we have put in place. We have to
spend these dollars, unless we reform it. So I think the
chairman, who I have great respect, and I hope he appreciates--
I loved his questions trying to--well, what do we agree upon.
Because we have to first get there before we can address--and
we are trying to do that with the Governors. We have a short-
term problem, and we have a long-term problem, and we ought to
look at--in both of those arenas, to address this. And that is
why we have this--a lot of these different issues on the table.
As you know, short-term, we might look at drug prices, average
wholesale price versus average sale price. We look at the asset
protection issue, and it is, I think, a credible issue. You
follow the money or you follow the advertisements.
I have a medical liability crisis in my State. And
everybody says the insurance companies are making money hand
over fist. Well, guess what, there is only one insurance
company down in southern Illinois, and it is a co-op. It is a
not for profit entity funded by docs so that they can stay in
southern Illinois. If they were making gazillions of dollars in
medical liability insurance, you would have people all over the
place. So why, when you Google asset protection, Medicaid, why
do you have thousands of ads, and we have them all here, all
these comments about you know, how do you protect yourself, and
how do you then protect your assets so that the government pays
for your Medicaid care. Because they are making money on it.
There is a demand for it, otherwise these guys would find
another line of work. So, I find--I really get troubled by us
not just looking at facts openly.
Let me ask a question--I want to get one to Ms. Ignagni on
the long-term care insurance, and anybody else can jump in,
many of you were here for the other panel, and know that I am
involved in the disability community. How do individuals access
that if they are already disabled? Is there--I mean, are they
means--not means tested, but what--I don't even know the
terminology, but are they preexisting conditions and are--do
they have trouble accessing this, in this environment now? And
then, if you can do quickly, then I want to talk about long-
term and throw something out on the table that should get
everybody's attention.
Ms. Ignagni. Yes, sir. Thank you for the question. There
are two ways to access right now. One is through, as an
individual, going to a broker, the way you would go for auto
insurance, car insurance. And your age is looked at, your
medical condition, and the pricing is determined. Eight
insurers represent 80 percent of the industry, and they haven't
had price increases, so there is a great deal of stability in
the market, and we would be delighted to provide data.
No. 2, there is another way to access, and this, we would
like to see, and we have recommended strategies to encourage in
the context of the employer group, where there is broad
pooling, the opportunity to encourage individuals to think
ahead and purchase, we think this would go a long way for
working families to help supplement their savings to think
ahead for long-term care.
Mr. Shimkus. Illinois is a pretty successful insurance
State. One of the reasons why is it doesn't regulate the price.
It does regulate, it does have a State insurance commissioner.
It does intervene, but they allow the competitive marketplace
to be involved in setting the prices. A lot of States don't
have that program and process. When you drive a car in the
State of Illinois, you are mandated by law to have health
insurance. Why not for catastrophic health--I mean automobile
insurance, and why not for catastrophic health insurance
coverage, or long-term care, out of the box, long-term, why
don't we mandate everybody to have a policy? You pay it
yourself, the business helps subsidize it, or if you are--can't
afford it, then the government intervenes, and we use the
taxpayer's dollars to move from a centralized market economy on
healthcare to a competitive marketplace, which may put emphasis
on preventative care, and options from institutional care to
home care.
Ms. Ignagni. Is that to me, sir?
Mr. Shimkus. You can.
Ms. Ignagni. Thank you.
Mr. Shimkus. And maybe someone else may want to jump in,
but----
Ms. Ignagni. The issue of how we expand access, both for
acute care services, access to services, and coverage, as well
as long-term care, is a very large question. I am not going to
duck it, though. I think that one of the things that we have
tried to recommend here, recognizing that people have a variety
of opinions about that issue. Should we mandate, shouldn't we,
et cetera. Is the idea of putting down on the table strong
incentives to grow the market, to expand the pool, as a first
step. To look at the successfulness of that, to be able to
think of Medicaid as a safety net for individuals who have low
income, to encourage the middle class. Folks who have
significant resources will always prepare for themselves, and
we don't need to worry as much about them. But it is the middle
class. So, we think that that would be an operative and
effective first round strategy, because we think that there is
a great deal of support, recognizing the bipartisan nature of
support for the legislative proposals. It could move forward.
It could be a very significant, productive thing.
Mr. Shimkus. And Mr. Chairman, I kind of threw that out
there. My time is out. However you want to manage this. I will
leave it to your call. Thank you, Mr. Chairman.
Mr. Deal. We probably are going to be up against another
vote here in a minute. Let me go to Mr. Rogers, and get his
questions. If we have time, we will come back.
Mr. Rogers. Thank you, Mr. Chairman. Mr. Krooks, I just--
according to two elder law attorneys in Seattle, their average
Medicaid planning client owns a home free and clear worth
between $250,000 and $400,000, has another $150,000 to $200,000
in liquid assets, and an income of around $20,000 to $25,000 a
year. Is that about right from your experience, or would you
put that high or low, or average?
Mr. Krooks. It is probably slightly on the high side
nationwide. I mean, it is geographical. In New York, the homes
are probably more, or California. But I would say nationwide,
it is probably slightly on the high side.
Mr. Rogers. And I just want another quote, if I can. So if
there are any--if there is--so is there, excuse me, any
practical way to juggle assets to qualify for Medicaid before
losing everything? The answer is yes. By following these tips
on these pages, an older person or couple can save most or all
of their savings, despite our lawmakers' best efforts. Doesn't
seem like an honorable business to me to circumvent the system
designed to take care of those who are most in need. I mean, is
this a problem nationwide?
Mr. Krooks. No. I think, you know, in the legal business,
the Supreme Court has ruled that lawyers are allowed to
advertise. And I think what you are seeing is the price that
society pays when a few bad apples spoil the bunch. I can tell
you that the approach that our firm and that the majority of
elder law attorneys take is vastly different from the attorney
whose quote you just read. We help clients deal with legal
issues of aging. The Terri Schiavo case, I can't tell you how
many cases we get involved in where we are helping clients work
through end of life issues, advance directives.
Mr. Rogers. But you also do Medicaid planning.
Mr. Krooks. Yes, we do. Yes, we do, and our average
Medicaid client is on a fixed income, is living off Social
Security and pension. People with money don't want to give it
away. Seniors are--want to control their own destiny. They are
not about to give away money. It is just not reality, and I
think the reason why we don't have any data on it is because,
frankly, it just doesn't exist.
Mr. Rogers. So the laws are complicated enough to allow
lawyers to quite frankly earn a living helping people navigate
through Medicaid. Is that correct?
Mr. Krooks. Not dissimilar from estate planning or tax law.
That is correct.
Mr. Rogers. Well, that at least tells us where we have to
go, I think. Ms. Hansen, I just--a quick one. I was kind of
struck by something in your written testimony. You offer long-
term care insurance through AARP? In your testimony, it said,
and I quote ``Long-term care insurance is limited and generally
expensive.'' Are you promoting your long-term insurance by
telling your customers it is limited and too expensive?
Ms. Hansen. Well, I think our point is our subsidiary does
offer, through a contract, a long-term care insurance. I think
our point is that only about 20 percent of seniors, or people
over 65, oftentimes have the disposable income to purchase
long-term care insurance, so I think we are stating just a fact
that many people are not in a financial position to purchase
it, and so----
Mr. Rogers. I am sorry. What was that percentage again that
you said was eligible? I just----
Ms. Hansen. About 20 percent of the people who are 65 and
older, because you have to have enough discretionary income to
pay for that kind of premium.
Mr. Rogers. And what is your target group for getting
people into your insurance premiums, your insurance package on
long-term care?
Ms. Hansen. I think the general target group would be
similar to any of the eight major groups that are selling long-
term care insurance, and these people probably would normally
have at least a $35,000 income level in order to have some
discretionary income to do that.
Mr. Rogers. So do you think tax incentives would help that
particular group, in fact, encourage them to buy insurance?
Ms. Hansen. I think it is one of the options to take a look
at at this point. I think one of the things that we are saying
is that, in the spirit of looking at this broadly, there is not
one single solution or one factor alone, and so, if these are
brought up as topics of possible consideration, we would just
like to have that conversation with you.
Mr. Rogers. And Dr. Feder, you said something that struck
me as well, is that--in your mind, that these tax incentives
incentivize the wrong group of people to buy insurance. Is
$35,000 a lot of money?
Ms. Feder. What I am concerned about is that the people--
for people, $35,000, it is still, if you talk about a premium,
say $3,000 a year, you are talking about 10 percent of their
income. If you lower that a little bit, it is still a lot of
money for those folks. I suspect that the people who are most
likely to take advantage of a tax credit are going to be those
who were likely to buy anyway. We know that. That is true of
tax credits in other areas. It simply substitutes this new
public expenditure for private expenditures that would have
been made anyway, which is exactly the opposite of what you are
trying to do.
Mr. Rogers. Thank you. Do you agree with that, Ms. Ignagni?
I----
Ms. Ignagni. I think the market is being held back, because
middle class people don't have the existence of subsidies. If
you think about a $40,000 per year individual, they would have
to spend $3,000 before they could deduct anything from there.
And if you look at the tables that we have supplied, in terms
of the cost of insurance, you can see that that goes, the
expenditures for even someone at the 65 year level could be
under that. So, I think that they wouldn't get any credit for
that purchase, and I think psychologically, that is a very
significant barrier. We agree with Dr. Feder that the Medicaid
system itself should be at a strong safety net for individuals
at the lowest part of the economic distribution. But we
definitely think that the lack of tax support is a significant
barrier for the middle class. And we see this in the surveys
repeatedly, particularly with respect to people who have the
opportunity to use flexible benefit dollars, would like to have
the opportunity and cannot, and that is a very good place to
shine a spotlight on what the behavior is likely to be.
Mr. Rogers. Sure one thing I can tell you, Mr. Chairman. I
think I can see the problem. You have the hardest job up here,
I think, trying to sell insurance when there are whole groups
and institutions out there saying don't buy insurance, we are
going to promote the government to do it, and if you can't do
that, go see a lawyer, he will get you around the rules anyway.
It has got to be a tough--I can see where we need to come
together on some consensus here, so that we are all promoting--
I happen to be a free market guy, that promotes the purchase of
that insurance, versus this kind of really dysfunctional family
in the long-term care, of which we are equal members of that,
by the way. I thank you all for what you do, and thanks for
all, for being here. Thank you, Mr. Chairman. I yield back.
Mr. Deal. The gentleman's time has expired. Welcome, Mr.
Engel. These folks have been here since 10 waiting for your
questions if you have any.
Mr. Engel. Well, Mr. Chairman, was it 10 last night, or 10
this morning?
Mr. Deal. Well, I can assure you that those of us who have
been here can tell you it was 10 this morning.
Mr. Engel. Okay. Well, I just have a couple of questions,
and I am just--I will try not to keep them much longer, but I
understand there has been some discussion about people who are
supposedly divesting their assets to qualify for Medicaid, and
I would like to ask Ms. Allen, that the GAO has done some past
work in this area. I would like you to please tell me what you
found. Some estate planners are saying that the wealthy are
divesting themselves in order to qualify, and I wonder what GAO
has found.
Ms. Allen. Yes, sir. The last time we looked at this was in
1997. We had a very short timeframe, so we scurried to gather
together the most available information at the time. What we
were asked to do was to look at the prevalence of asset
transfers with intent to qualify for Medicaid. We found just a
few limited scope studies, but what we did find was that in a
couple of States, we found case studies where approximately 13
to 22 percent of individuals who applied for nursing homes had
transferred some assets, but many times, it wasn't enough to
even cover 1 month of care, and in most cases, was insufficient
to cover 1 year of care. A little earlier than that, in 1993,
we did some empirical work ourselves. We went to one State,
drew a random sample of about 400 cases of persons who had
entered into nursing homes. We found of those approximately 400
cases, about half had transferred some assets, but the amounts
were relatively small, and even half of those who had
transferred assets, this particular State denied them Medicaid
eligibility, because what they had done was not consistent with
State and Federal law and regulation.
At the current time, we have work in process on this issue.
Some members of this committee have asked us to undertake work
to look at the prevalence of asset transfers to qualify for
Medicaid, and we are hoping to have some information available
in the next few months.
Mr. Engel. Dr. Feder, I am wondering if you could comment
on the same thing. Have you seen any evidence?
Ms. Feder. That is--I am delighted that you asked about the
GAO study, because I was going to cite it as well. I think that
there is very little analysis that zeroes in, actually, on the
asset transfers, and I think that Ms. Allen has articulated
well that the evidence that exists shows that it is very rare
and very modest. The broader research on this field looks at
the resources that people have available, and the way in which
they are using those resources. And the bulk of that literature
indicates that people are actually saving more money that you
would expect them to as they approach long-term care needs.
They are not spending down at the rates expected. They are
doing less. And that they are not transferring substantial
assets. Although everybody is concerned about this advertising,
when you actually look at behavior, we find that it is modest
indeed.
Mr. Engel. Well, thank you, Mr. Chairman. I ask unanimous
consent to include in the record this GAO study, where GAO
notes that in their study of one State, the average amount of
assets converted was $5,618. In almost all cases, for burial
expenses only.
Mr. Krooks, would you like to add anything?
Mr. Krooks. Sure. I think we are losing sight of two very
important points here. I think we all agree that insurance
needs to play a larger role in the overall solution. However, I
have not heard one credible idea about how are we going to take
care of the people who are uninsurable. I have heard an idea
about well, we need to define a line based on how much income
you make as to whether or not you can afford insurance. But
what about the people who are not insurable? I also think that
this myth about people transferring these assets, we need to
either prove that or move on off of it. Because middle class
America does not wake up each morning and say, you know
something, I am going to go to my local elder law attorney
today and I am going to figure out how to qualify for Medicaid.
Even clients with $150,000, those are married people, so would
this Congress have the community spouse, the wife, spend all of
their money taking care of her husband in the nursing home, who
is going to stay there for an average of two and a half years,
spend the $150,000, and then, she becomes a public charge on
welfare. I am not sure that that is the type of social policy
we want to endorse.
Mr. Engel. Thank you. Mr. Chairman, I have one question I
would like to see if I can get in. I would like to go back to
Dr. Feder, and I am wondering if you can talk to us about your
concerns with long-term insurance. I recently had someone come
to sell me and my wife long-term insurance. I understand Ms.
Ignagni has testified to the benefits of long-term care
insurance. We weren't sure it was really appropriate for us. I
am wondering if you could help us with what population do you
feel it is really appropriate for, and what kind of consumer
protections are necessary, if someone is serious about buying
the policy?
Ms. Feder. I think that it is appropriate for, with
appropriate consumer protections, for people who are able to
pay well, long into the future, the premiums that it will
require, and I think that is a substantially upscale
population, higher income population. Because one of the things
that happens to people is that even if they start out buying
those policies, they buy--and they are encouraged to buy them
years in advance. If they buy a policy, say, a median income
couple, this is whom I think it is not appropriate for, a
couple at age 60, it is going to take 10 percent of their
income. That is too much. So, say, a 50 year old couple can
buy, can--wants to make that investment. They are likely to be
paying premiums for the next 20, 30 years before they need
long-term care insurance. They also, at the same time, have to
save for retirement. We know that that age cohort has put away
much too little for retirement, for basic income needs of
retirement. So, it is quite possible somewhere in that period,
they would find themselves needing their resources to live on,
rather than to pay their insurance premiums. Without
protections on non-forfeiture, inflation protection, a whole
array of consumer protections, they would find that they had
paid years of premiums, and when the need came along, they
would get nothing.
We can do a lot with consumer education, so that only
people with substantial resources, less risk of falling into
that trap, are likely to buy these policies. Even they may find
they get less out of them than they had hoped, but affluent
people, and I would include myself, we can prepare to take
those risks. Modest and lower income people are not the
appropriate target population for this benefit. And I would
again repeat that when we are talking about using what is
continually described as limited tax dollars, this is not the
first order of business. The first order of business is to
sustain and improve the Medicaid safety net, which is--useful
and important as it is, is grossly inadequate today for the
population who needs long-term care, and only becoming more so.
That is where our attention needs to go.
Thank you.
Mr. Engel. Thank you. Thank you, Mr. Chairman.
Ms. Deal. The gentleman's time has expired. We are going to
take a real quick second go around here. I don't want to detain
you all too much longer. But I had a couple of questions, and I
know Mr. Shimkus, I think, maybe had a followup as well. You
know, we can have differences of opinion about a lot of things,
as we have here today, but my staff has just provided me with
this little tidbit of information. If we want to know whether
or not asset transfers and planning to become Medicaid eligible
is happening out there, some would deny it. I am told that on
Google, there are 2,140,000 websites, that on Yahoo, there is
1,780,000 websites dealing with that issue. Now, I would
suggest that if you want to follow the money, and find out
where the issue is, you find out where people are advertising
and what they are doing it for. They are not doing it just for
their own enjoyment or their own health. There is transfer
going on. We can debate that all day long. But let me ask you
something, back to my concept of what can we agree on?
I think one thing we probably can all agree on is that the
current system of reducing you to absolute poverty, assuming
you have taken advantage of the transfers or whatever to get
there, that that is demeaning. Would everybody pretty much
agree with that? If you do, then, and if we are dealing with
this home, for example, that can be of unlimited value, and is
excluded from the picture, furnishings, including expensive
paintings we have all heard about, that are excluded from the
calculations of your eligibility, what would we come to, in
terms of establishing a reasonable level of assets that you
could retain, and I think retain your dignity in the process,
and still become eligible? Would it be a number that is
equivalent of, say, the average cost of a home in this country?
And if we choose that, should we then say that homes that are
valued in excess of that amount would not be excludable, or
furnishings of a certain level, that are valued above a certain
amount, would not be excludable? What about those things? Can
we agree on things like that?
Mr. Krooks. No, Mr. Chairman. That is--with all due
respect, not a good idea.
Mr. Deal. Why?
Mr. Krooks. The home is sacrosanct. We are encouraging
people, through the use of----
Mr. Deal. Yeah, but you are willing to take their home away
from them after they have passed on, you are willing for the
government to come seize it.
Mr. Krooks. The government.
Mr. Deal. Everybody over here voted for that in 1992, with
President Clinton's first budget. Asset recovery.
Mr. Krooks. That is correct.
Mr. Deal. Okay.
Mr. Krooks. But to force a sale of a home, I believe there
is a distinct difference between forcing a sale of a home while
somebody is alive, and then, having a State recovery action
after they pass away. We can't have policy in this country
encouraging people to buy homes, and then say well, if you
happen to have the wrong disease, then we are going to make you
sell it. I also want to just take a chance, this opportunity,
to respond to the Internet issue. I think that if your staff
takes a closer look, and I am not sure what term they put in
Medicaid planning, or elder law planning, whatever, many of
those hits are actually long-term care insurance sales brokers,
so----
Mr. Deal. I thought nobody was interested in that.
Mr. Krooks. No question about it. So--but I don't--I got
the sense here that we were coming to the conclusion of----
Mr. Deal. Okay. So you don't agree on setting any limit for
a residence.
Mr. Krooks. Not on the home, no. Not on the home.
Mr. Deal. The multimillion dollar mansion ought to still be
able to sit there, and not be touched, and a little old lady
who has got two children and she is a single mom paying her
taxes ought to pay for the multimillionaire's house sitting out
there.
Mr. Krooks. But it is not a multimillionaire's house. It is
a house they bought for $20,000 or $50,000----
Mr. Deal. No, he could pay a million dollars for it and
still be excludable.
Ms. Feder. Mr. Deal, the--what I think you are--what you
spoke about a minute ago, in terms of estate recovery, what you
get, you can get this money after the fact. It is there, so you
can--if you are serious about that----
Mr. Deal. Nobody is serious about that. My State just
finally got around to it this year of passing something to
implement the 1992 statute.
Ms. Feder. Well, you know, I think that is really
interesting. If the State is not interested in it, because it
is because the people in your State don't want you to do it, in
which case----
Mr. Deal. I agree with that.
Ms. Feder. Well, then, if that is the case, what we really
ought to be doing is saying to people in your State and in all
States, if you want to rely on this program, rely on a public
program, then we need to all contribute from all our resources,
all our estates, to pay for that.
Mr. Deal. Okay.
Ms. Feder. Maybe that is what people are telling you.
Mr. Deal. Let me take you to task with your analogy about
that you don't agree that we ought to spend any tax incentives
to incentivize purchase of long-range--long-term health care
insurance, that you are better off spending that money that we
realize by those tax dollars, by putting money into the current
system. If you use that analogy, then you would do away with
the deductibility of the home mortgage, and you would say we
shouldn't be giving taxpayers a break on home mortgages. We
should use that tax money to put more people into public
housing, and spend the money there. We shouldn't allow them to
have charitable deductions. We are losing tax dollars by
recognizing a charitable deduction, and we ought to just let
the government take care of them, instead of what the charities
are doing.
Ms. Feder. Well, actually, Mr. Deal, no, I think there is
both legitimacy and questions about the point you make. The--in
terms of the discussion here today, we are talking about, I
have heard several people talk about having difficulty
sustaining the Medicaid program that we now have. And what I am
objecting to in regard to using tax dollars that are likely to
go to higher income people is that if we don't have money,
enough resources, if you think we don't have the tax dollars to
support the population in greatest need, then I do not see how
you can invest more money in, invest the next dollar in higher
income people instead of the population in greatest need who
are now being cutoff Medicaid. That is the first thing.
Mr. Deal. Okay.
Ms. Feder. The second thing is, I think you are--I think
there are, in looking at the comparison to mortgage deductions,
pension deductions, health insurance deductions, those--all of
those deductions are absolutely entitlements that are now in
law, that go disproportionately to the better off members of
our society.
Mr. Deal. So, you would repeal those, then.
Ms. Feder. I would not repeal them. I would recognize----
Mr. Deal. We are going to have a whole lot of middle income
folks upset with that answer.
Ms. Feder. I would--I know that. I would recognize that
they exist, and that we are devoting resources there, and at
the same time, we ought to be willing to take advantage of
those who are less fortunate and not able to take advantage----
Mr. Deal. Doctor, with that, I am going to close with this,
and challenge you. All I have heard you do is criticize other
people's suggestions about what to do. Would you submit
something in writing to us as to the kind of things, other than
just putting more money into a system that almost every
Governor says is failing, and is leading to their bankruptcy?
Would you give us something in writing, positive things you
think we can do?
Ms. Feder. I would be delighted, but if you constrain me to
not use more resources, I cannot do my job.
Mr. Deal. Use your imagination. Mr. Shimkus.
Mr. Shimkus. Mr. Chairman, Mr. Strickland came back. And--
--
Mr. Deal. Oh, I am sorry. Excuse me, overlooked you. We
have been talking about you while you were gone. I recognize
you, we are going to go around one more time.
Mr. Strickland. Well, I can always trust Mr. Shimkus to
look out for my wellbeing. Thank you. Thank you, John. Ms.
Hansen, a question directed toward you. Some of us have
suggested that requiring individuals to tap into their home
equity before they can access Medicaid coverage for long-term
care, some have suggested that that be done. I understand that
AARP does not support that idea, and could you please describe
some of the potential dangers of doing that? For example, isn't
it possible that requiring a reverse mortgage could mean that
Medicaid would actually wind up spending more on care for some
individuals, because the bank, not the State, would be the one
to recover against the home, and thus, the State would not be
able to recover the costs it spent on care, or another concern
I have is that much of the home equity goes to pay lender's
fees and interest, and other associated mortgage costs, rather
than to pay for the actual care of the patient. Would you just
comment on that, please?
Ms. Hansen. Well, Mr. Strickland----
Mr. Strickland. And then, I would like for Dr. Feder to
also comment.
Ms. Hansen. Yeah. I think, actually, the answer I would
have given is the comment you have made. In other words, the
first money is already taken away by the fees, the upfront
fees, in order to pay for the home equity mortgage, or reverse
mortgage, that that is the first fee that goes. And when that
is gone, and they--what happens is Medicaid does not even have
that in order to recover. So, I think that the ability to make
sure that there are the funds there for the person to use, and
I think the suggestion was if it is to be used, we just still
would like to make sure that the choice for services and all
versus long-term care insurance, but we are concerned about the
upfront costs, which is why we would suggest, in order to
encourage this, or see that this is a viable option, is to
really take a look at some pilots on the process.
Mr. Strickland. Okay. Dr. Feder.
Ms. Feder. I would only reinforce what Ms. Hansen has said,
and take it just the point further, which is that people, in
looking for ways to find some kind of money some place else, or
ignoring what really is the reality, which is that we need
support for the public system that we have got.
Mr. Strickland. Thank you, and my second question. Dr.
Feder, I have a document from the National Association of
Health Underwriters that includes some interesting information
and statistics on the long-term care partnership program as of
October 2003. For example, in California, there were 67,500
applications for partnership policies. However, 11,897 were
denied. In New York, 65,987 applications were received, and
10,595 were denied. Approximately one out of every six
applicants were denied. Now, a number of witnesses today have
said that we should do more to force people to purchase long-
term care insurance. However, given the statistics that I have
shared with you, isn't it true that there are a whole range of
individuals who can't even get such coverage if they tried?
Would you please comment on these statistics and this
problem?
Ms. Feder. Well, I think--I can't speak to the specific
statistics about the partnership, but the broader question you
raise, about people being unable to get coverage, I actually
thought that was what Mr. Shimkus was asking earlier, when he
spoke to Ms. Ignagni about people who have long-term care needs
and disabilities, whether indeed they have access to long-term
care insurance. They don't. That is because there is always a
concern among private insurers, understandable, that if people
who need the services are the ones who buy it, it means they
have got to have more money to support those claims. That hikes
the premiums. It means fewer healthy people buy. Insurance
can't work that way. So it is understandable that people are
kept out of that private insurance market. But what it means is
that people who now need long-term care, old or young, cannot
buy this coverage, and that is as true of the Federal employees
long-term care benefit as it is of the rest of the industry.
So, given that the--our long-term care protection is inadequate
now, for younger and older Americans, to wait decades for a
solution that will only do a partial job seems to me a highly
questionable way to approach this problem.
Thank you.
Mr. Strickland. I thank you both for your answers, and Mr.
Chairman, I yield back my 35 seconds.
Mr. Deal. You are generous. I thank the gentleman. Mr.
Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. Again, I am very
pleased with this hearing, and I appreciate your patience. This
is, as you can see, it is a tough issue, and we are grappling
with is, and trying to wrestle with these concerns. . And we
all have real life stories, as people said before. My
grandmother suffered dementia. We actually sold her house to
pay for 3 years of long-term care, and then Medicaid picked up
the final seven. I think--and it was good. It was good that we
paid for--or 3 years was paid for, and it was good that
Medicaid was there to cover her.
My parents live in the home that my grandfather built. But
that is not the story for all seniors. A couple issues in this
debate, is I don't know how to define wealth in America any
more. What is affluent, what is modest, and what is low? In
low, we use the poverty level, or 125 percent of poverty, 150
percent of poverty. But what is modest? And that was the
question about $35,000 a year. In parts of my district, that is
above the average income of my Congressional district. So that
would be considered well off, middle class, upper middle class.
So I think when we start to talking about incomes, we ought to
start putting real dollars down, and I think that would help us
all.
Mr. Krooks, in your line of work, do you--there is an issue
about the--in fact, I don't know if it has been quoted today,
the editorial in the Wall Street Journal. Two clients, or
people that you deal with, are you involved in this stuff
called asset shifting or buying up?
Mr. Krooks. I am aware of the Wall Street Journal
editorial, Congressman. The asset shifting or buying up, I
don't know what that means.
Mr. Shimkus. Well, I will tell you what it means. It would
mean that my parents, instead of living in a home that my
grandfather built, upon getting a certain age, they end up
buying a $250,000 home. In this, you know, what I am trying to
do is address this debate of this--how sacred a home is.
Mr. Krooks. Okay.
Mr. Shimkus. Now, I will tell you that my--the home that
they live in has no garage. It is a very sacred home for them.
My mother has said she will be carried out of it. And so I
appreciate the comments of how sacred that home is. However, if
my folks were getting good legal counsel from the National
Association of, what are these NAELA guys? National Association
of Elder Legal Attorneys, and they said get a two car garage.
Buy one that is $250,000, the terminology is buy up, the house
is sacred. We are not going to go after that, and you hide your
assets, because now, you are paying, you have a mortgage, or it
is no longer a full asset of your own.
Mr. Krooks. Okay. May I respond?
Mr. Shimkus. Please.
Mr. Krooks. Okay. First of all, Medicaid is like the drive
through. Either you pay on the way in, or you pay on the way
out. So----
Mr. Shimkus. But we--I think--in the--but we have come to
the conclusion that if 82 percent of seniors own homes, and
then, when they qualify for Medicare, 14 percent actually
identify a home as an asset, where is the other 60 percent
going? So I think part of this hearing has accepted the premise
that no, it is not, because States aren't collecting at the
end.
Mr. Krooks. Okay. In my experience, I have never had a
client buy up. What I have had is clients who will spend money
on their homes to make them handicap accessible, to put in an
elevator, or handicap ramp, or handicap bathroom. I have had
clients do that. I have been practicing law for 20 years, and I
am, frankly, I am not aware of any of my colleagues, I am not
saying that nobody does it, I just don't know of anyone who
engages in that type of advice. In terms of the estate
recovery, I think that I would disagree that people are
transferring their homes.
Seniors want to die in their homes. I think we have common
ground that. To give away the house, and then run the risk that
the children are going to kick you out 1 day, or that you are
going to subject your estate to gift or capital gains taxes
just doesn't make sense. So, I don't know why the States aren't
recovering, and I don't know what is happening to the homes,
but our clients are not giving away their houses. Where are
they going to live?
Mr. Shimkus. Are you providing, and I don't want to give
you any, I mean, private consultations or stuff, but do you in
the practice, and I think most people understand, making sure
the spouse is able to keep the home, but what about heirs,
children?
Mr. Krooks. Well, there are certain protections in the law.
Let us say you have a child who has lived at home, taken care
of the parent, provided care to that parent, that kept the
parent out of a nursing home, to save the Federal Government
and the State's money, then there is a protection in the law
that allows the parent to pass on that asset or that house to
the child. It is called the caretaker child. I think again,
that is good policy. We want children to take care of their
parents. Other than that, if a parent transfers a house to a
child, they are not going to be eligible to receive Medicaid in
a nursing home for 3 years. So either they are going to pay for
those 3 years out of pocket, or they are not going to get care.
There is no other way around it.
Mr. Shimkus. Thank you, Mr. Chairman. I--even though there
are some contentious periods, this is a very important debate,
and I think--everyone ought to be encouraged to keep coming
back to committee members, talking through this, and hopefully,
trying to find some common ground. I would encourage that.
Thank you, Mr. Chairman.
Mr. Deal. Thank you. Ms. Myrick.
Ms. Myrick. No, I am sorry. I had to be gone. So I did not
hear your testimony per se. I do want to thank you for what you
have done by coming here, and I will get copies of what you
said, so I can find out.
Mr. Deal. I thank the gentlelady.
Well, you thought you were just going to come testify. This
is an endurance contest up here, as you found out. You have all
been great. I know that there were things that you would have
liked to have said that you didn't get a chance to say. We
would be glad for you to contact us and provide us with
whatever else you would like to say.
It is a difficult subject, one that I appreciate the fact
that all of you have weighed in on and taken the time to do it.
And this committee especially appreciates your presence here
today.
Thank you. The committee is adjourned.
[Whereupon, at 5:20 p.m., the subcommittee was adjourned.]
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