[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                             LONG TERM CARE

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 19, 2005

                               __________

                           Serial No. 109-46

                               __________

         Printed for the use of the Committee on Ways and Means








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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
ROB PORTMAN, Ohio                    WILLIAM J. JEFFERSON, Louisiana
PHIL ENGLISH, Pennsylvania           JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona               XAVIER BECERRA, California
JERRY WELLER, Illinois               LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri           EARL POMEROY, North Dakota
SCOTT MCINNIS, Colorado              STEPHANIE TUBBS JONES, Ohio
RON LEWIS, Kentucky                  MIKE THOMPSON, California
MARK FOLEY, Florida                  JOHN B. LARSON, Connecticut
KEVIN BRADY, Texas                   RAHM EMANUEL, Illinois
THOMAS M. REYNOLDS, New York
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana

                    Allison H. Giles, Chief of Staff
                  Janice Mays, Minority Chief Counsel

                                 ______

                         SUBCOMMITTEE ON HEALTH

                NANCY L. JOHNSON, Connecticut, Chairman

JIM MCCRERY, Louisiana               FORTNEY PETE STARK, California
SAM JOHNSON, Texas                   JOHN LEWIS, Georgia
DAVE CAMP, Michigan                  LLOYD DOGGETT, Texas
JIM RAMSTAD, Minnesota               MIKE THOMPSON, California
PHIL ENGLISH, Pennsylvania           RAHM EMANUEL, Illinois
J.D. HAYWORTH, Arizona
KENNY C. HULSHOF, Missouri

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
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                            C O N T E N T S

                               __________

                                                                   Page

Advisory of April 12, 2005, announcing the hearing...............     2

                               WITNESSES

Congressional Budget Office, Douglas Holtz-Eakin, Ph.D...........     7

                                 ______

University of Texas, Health Science Center at San Antonio, San 
  Antonio, Texas, Meghan Gerety, M.D.............................    31
Genworth Financial, Buck Stinson.................................    38
George Mason University, Center for Health Policy, Research and 
  Ethics, Arlington, Virginia, Mark R. Meiners, Ph.D.............    44
Lutheran Homes of Michigan, Frankemuth, Michigan, David M. Gehm..    51
Georgetown Public Policy Institute, Judy Feder, Ph.D.............    55

                       SUBMISSIONS FOR THE RECORD

American Council of Life Insurers, Alane Dent, statement.........    72
Americans for Long Term Security, Laura Howard, statement........    76
American Health Care Association, Hal Daub, statement............    76
American Network of Community Options and Resources, Alexandria, 
  Virginia, Suellan Galbraith, statement.........................    79
Council for Affordable Health Insurance, Alexandria, Virginia, 
  Merrill Matthews, statement....................................    84
Hometown Insurers, Inc., Saint Petersburg, Florida, Barbara 
  Haseldon, statement............................................    90



















                             LONG TERM CARE

                              ----------                              


                        TUESDAY, APRIL 19, 2005

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 4:19 p.m., in 
room 1100, Longworth House Office Building, Hon. Nancy L. 
Johnson (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
April 12, 2005
No. HL-5

              Johnson Announces Hearing on Long Term Care

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on long term care. The hearing will 
take place on Tuesday, April 19, 2005, in the main Committee hearing 
room, 1100 Longworth House Office Building, beginning at 4:30 p.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include officials from the Congressional Budget Office 
(CBO) and representatives from the provider and insurer communities. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    As our society ages, the question of how we finance long term care 
services will become even more pressing. About 9 million adults 
currently receive long term care assistance, either in community 
settings or in nursing homes. Over 80 percent of those adults reside in 
the community, not in institutions. Among those 85 and older, about 55 
percent require long term care assistance. Nearly 60 percent of elderly 
persons receiving long term care assistance rely exclusively on unpaid 
caregivers, primarily children and spouses. Only 7 percent of the 
elderly rely exclusively on paid services.
      
    In 2004, according to CBO, approximately $135 billion was spent on 
long term care for the elderly. Sixty percent of this amount was 
financed through Medicaid and Medicare, one third through out-of-pocket 
payments, and the remainder by other programs and private insurance. 
This funding excludes the significant resources devoted to long term 
care by informal caregivers (primarily spouses and children). The CBO 
estimates that informal care is the largest single component of long 
term care.
      
    In announcing the hearing, Chairman Johnson stated, ``As the Baby 
Boom generation ages, increasing strain will be placed on our system of 
long term care. We must find new and innovative ways to encourage 
individuals to prepare for their long term care needs. It is important 
for us to develop a thorough understanding of how the current system is 
financed, how care is delivered, and what challenges we face in helping 
individuals plan for their long term care needs.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on current financing for long term care 
services; the range of services available in the continuum of care from 
home- and community-based services to nursing home care; private long 
term care insurance options, including the Long Term Care Partnership 
programs; and the challenges ahead in financing needed services for an 
aging population.

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noted above.

                                 

    Chairman JOHNSON OF CONNECTICUT. Good afternoon, everyone. 
Today I am pleased to Chair this hearing on long-term care. The 
issues surrounding long-term care, how to prepare for it, how 
it is delivered, how it is financed, will become ever more 
pressing as the baby-boom generation retires. As a result we 
must find new and innovative ways to encourage people to 
prepare for their long-term care needs as part of the broader 
examination of retirement security. Some of you may be 
surprised to learn that long-term care is not just 
institutional care, but encompasses a whole range of services. 
According to the Congressional Budget Office, about 9 million 
adults over the age of 18 currently receive long-term care 
assistance, with more than 80 percent receiving care in the 
community, not in institutions. Among those 85 and older, about 
half, 55 percent, require long-term care. Informal unpaid care 
by children and spouses is a critical component of long-term 
care. More than half of elderly persons receiving long-term 
care assistance rely exclusively on unpaid care givers, while 
only 7 percent of the elderly rely exclusively on paid 
services. The Congressional Budget Office (CBO) estimates that 
informal care is the largest single component of long-term 
care, and as we move forward in consideration of this subject 
and what the public policy ought to be in regard to long-term 
care, I believe we absolutely must never lose sight of the fact 
that informal care is the largest single component of long-term 
care.
    Thus, as we consider this issue, we must consider the 
impact not only on public and private finances, but on families 
and communities. The formal financing of long-term care to date 
has fallen largely on the public sector, primarily Medicare and 
Medicaid. CBO estimates these two programs financed 60 percent 
of formal long-term care spending on the elderly in 2004. 
Nearly one-third of our Medicaid benefit spending goes for 
long-term care services, and three-quarters of that one-third 
is spent for beneficiaries who are dually eligible for both 
Medicare and Medicaid. Thus, the interrelationship between 
these two streams of financing must be considered when looking 
at this issue. Most of the remainder of formal financing for 
long-term care is made up through out-of-pocket payments by 
beneficiaries themselves. To date, private long-term care 
insurance has not played a significant role in financing long-
term care. For many years now, I have sought to draw attention 
to the issue of long-term care and the burden it places on 
individuals and families by introducing legislation to provide 
tax incentives for the purchase of private insurance and to 
provide relief for family care givers. Although sales of 
private long-term care insurance are increasing, it still 
covers a small portion of the population and, therefore, a 
small portion of overall long-term care costs. Without a 
significant change in the market for private insurance or in 
the product itself, the burden of long-term care costs is 
likely to continue to fall largely on the public sector and on 
families. Ironically, the very existence of public sector 
programs serves as a disincentive to some individuals to 
purchase private insurance and will reduce the drive for 
greater innovation in private insurance products. Thus, as we 
move forward in examining the issue, we need to consider the 
interplay of public and private financing and the incentives 
created by each in order to develop a comprehensive solution 
for the long-term care system.
    I am pleased to have an outstanding array of witnesses here 
today to help us lay the foundation of knowledge necessary to 
understand the current state of long-term care and the changes 
we face in the future. We will begin by hearing from Douglas 
Holtz-Eakin, the Director of the Congressional Budget Office. 
Dr. Holtz-Eakin will provide us with an overview of long-term 
care financing, an update on the report CBO did last year on 
long-term care financing for the elderly. And our second panel 
will begin with Dr. Gerety. Dr. Gerety is President of the 
American Geriatric Association and will provide a broad 
overview of demographic and aging trends, how the baby boomers 
will change the long-term care system, and how the industry 
will need to respond to meet increased long-term care needs. 
Buck Stinson, President of the Genworth Financial's Long-Tterm 
Care Division, will provide us with a view from the private 
insurance market. Genworth is the longest-tenured provider of 
long-term care insurance in the United States and is the 
largest provider of individually purchased long-term care 
insurance. Mark Meiners, professor and director of the Center 
for Health Policy, Research, and Ethics at George Mason 
University, has done extensive research on long-term care and 
directed the Robert Wood Johnson grant for the Long-Term Care 
Partnerships. Dr. Meiners will discuss the partnership programs 
and issues arising from the interrelationship between Medicare 
and Medicaid in long-term care financing. David Gehm, President 
and chief executive officer of the Lutheran Homes of Michigan, 
will give us a provider's perspective by discussing the full 
continuum of long-term care services that are available today, 
including institutional and home- and community-based services, 
along with the challenges care providers face in navigating 
various financing mechanisms. And, finally, we will hear from 
Judy Feder, Dean of the Georgetown Public Policy Institute. Dr. 
Feder will discuss the Georgetown Long-Term Care Project that 
she is co-directing, which has issued seven background papers 
and is currently in the process of reviewing a wide range of 
proposals for long-term care financing, and whose report we 
look forward to reviewing when it is published in, I hope, the 
not-too-distant future.
    This hearing will lay the foundation of knowledge that this 
Committee needs to consider the enormous challenge of long-term 
care for the baby-boom generation. But I hope this hearing will 
also be followed by those of you who know about small, 
significant expandings where improvements are being made, where 
new thoughts are being played out, and I hope to have some 
futurists meet with our Committee to clearly elucidate how 
current changes in medical science and those we can conceive of 
will affect in 10 years or 20 years the nature of the long-term 
care needs of our seniors and the structure of services that 
they may need. I believe this is a very important hearing for 
the Members of the Committee. It may in the end prove to be as 
far as we can go. But it should be a beginning. In other 
Congresses it has been an end. So, I thank those who are 
testifying today, and I hope as they listen to each other and 
as others listen to this hearing that you will consider this a 
beginning, because I do not believe we know how to provide 
long-term care services for the size population that is going 
to need them in 10 years, and even more so in 20 years. And if 
we do not begin to get ourselves more focused, realistic, and 
profoundly knowledgeable about this, we will not be able to 
adjust policies to begin to prepare for the future. So, with 
that much introduction, let me yield to my colleague and 
friend, Mr. Stark.
    Mr. STARK. Thank you, Madam Chair. Today's hearing on long-
term care addresses a problem that is important and complex, 
and like you, I hope that this may be the first in a series of 
hearings that might lead to some action, although it seems to 
me Dr. Feder and I will be able to remember the Pepper 
Commission of some years back. And I think we went through this 
once before.
    Chairman Thomas has said that he thinks long-term care 
should be part of the discussion on Social Security, and so 
perhaps it is time to revisit the issue and look into a variety 
of options. Medicare and Medicaid probably combine to be the 
largest payer for long-term care services in the United States, 
and if non-paid care is factored in, then individuals and their 
families and friends clearly have their greatest burden. But I 
think we have to remember that our family structures, as when 
we were children most women did not work outside the household, 
and now it seems with the ability for the nuclear families to 
disperse geographically, we lack the neighborhood cohesiveness 
of the family structure that often provided bed and board for 
Grandpa or Grandma by all the relatives in the neighborhood. 
And that is changing. So, I guess my question would be: Could 
we determine what the Government role should be in the years 
ahead? I personally think that long-term care is the poster 
child and few benefits are better suited for social insurance. 
It to me is the classic problem. Everyone might need it. Only 
some actually do need it. It is probably actuarially impossible 
to determine within age groups who is apt to need it. The 
expense can bankrupt the family, even though our bankruptcy 
bill did not do much to address that. It should be a program, 
in my opinion, into which everyone pays a small amount and 
everyone might or may benefit. In addition, I suppose a social 
benefit for long-term care could relieve some of the Medicaid 
pressures on the States, and, of course, that would be welcome 
today.
    So, I think there is a strong case that can be made that 
this should be social insurance. The tax incentives for private 
insurance I think are a weaker case. The private market is 
flawed, it is failing. Without non-forfeiture protection, most 
people are better off playing the slot machine or the office 
baseball pool than they are buying private long-term care 
insurance. But it is fine with me if people who can afford it 
want to buy it and it supplements a core benefit. That would be 
all right, I suppose, but I do not think that we should offer 
tax incentives to purchase the insurance. That is throwing 
billions of dollars at a flawed product which the market has 
rejected. So, if we really believe in the marketplace, let's 
let it work. To contemplate spending tax money when we are 
poised to cut Medicaid really seems like we would be setting up 
robbing me to pay Paul, and I think that is unwise. So, if we 
can really engage in the issue of what the government role 
should be, what the benefits should be for every American, we 
might reopen that dialog of 15 or 20 years ago when we nibbled 
around the edges of it. When we were in the majority, we had 
not much luck, so maybe it is your turn. Thank you, Madam 
Chair.
    Chairman JOHNSON OF CONNECTICUT. I would just remind you, I 
answered that Commission that Congressman Baird chaired and how 
many times we wrote bills to provide prescription drugs for 
seniors and how long it finally took us to do it. I think the 
time has come for us to really sink our teeth into the 
challenge of long-term care that the retirement of the baby-
boom generation poses to Americans. So, I welcome you all here 
today. I am very pleased and I want to congratulate the 
Committee Members for coming in early to attend this hearing. I 
appreciate your doing it because it is hard in the very busy 
days that we have in Washington to get such attendance. So, 
thank you very much for making it your business to be here. Dr. 
Holtz-Eakin?

      STATEMENT OF DOUGLAS HOLTZ-EAKIN, PH.D., DIRECTOR, 
                  CONGRESSIONAL BUDGET OFFICE

    Mr. HOLTZ-EAKIN. Chairman Johnson, Congressman Stark, and 
Members of the Committee, the Congressional Budget Office 
thanks you for the opportunity to be here today. As the 
Chairman mentioned in her opening remarks, we did produce a 
report in this area last year. We have submitted a written 
summary of that with an update as our written testimony. I will 
devote my opening remarks to four points regarding that report. 
Number one, with the aging of the baby-boom generation, the 
United States will likely face rising demands for long-term 
care services. Number two, the corresponding resource demands 
will rise above their already substantial levels. Currently, 
these are about 2 percent of gross domestic product, something 
that is in the neighborhood of $25,000 per senior with 
impairments. Distributing the burden for this care is a key 
aspect of both the policy design and the long-term budget 
outlook.
    And, finally, the fourth point is that currently financing 
is heavily influenced by rules that discourage people from 
making their own financial preparations. Left unchanged, those 
incentives will add to the financial demands for other 
Government programs in the face of rising demographic changes 
and rising health care costs. And so this problem must be 
addressed within the context of these other demands. So, I 
thought I would sketch the aspects of this problem. The aspects 
are familiar to this audience because you are familiar with 
health care programs, and they always break into two parts: 
what will be the costs and how will those costs be financed. 
The future costs of care are driven largely by demographics. 
Our baseline projections suggest that the costs will rise over 
the next four decades from about 2 percent of GDP to 2.3 
percent of GDP. That is a rise of about 15 percent. It is 
something that does not look as large as the roughly 50-percent 
rise of Social Security benefits under current law, but it is 
quite significant. It is driven by the rising share of the 
population that is the oldest old. The share that is 85 or 
older is going to more than triple from 1.5 percent to 5 
percent by 2050. That group is the very dark line at the bottom 
of that chart that I am showing you.
    But our assumption that costs rise by that much assumes 
that we get continued improvement in the incidence of 
impairment among the people in this population. Impairment has 
declined at about 6 percent per decade over the 20th century. 
In the absence of that kind of improvement, costs could grow by 
65 percent and rise to 3.3 percent of GDP. So, it seems clear 
that there will be rising demands for resources in this area 
and that the risks are largely on the upside if we fail to see 
continued improvements in impairment. Now, what will be the 
sources of financing for this care? A good starting point is 
the current allocation of spending and how it is financed in 
the United States. As the Chairman mentioned in her opening 
remarks, of the roughly $25,000 per impaired senior, private, 
non-market-donated care forms the vast majority. It is about 
$9,000. It is the largest. It is extremely difficult to value. 
The aggregate estimates range from $50 billion to $200 billion. 
We include it in our estimates because it is clearly a very 
important aspect of the current financing of long-term care. A 
figure of that is in our report where over 50 percent--51 
percent of highly impaired individuals rely exclusively on 
informal care for their long-term care services.
    Going forward, the demographics may affect the supply of 
this kind of care as well as the demand. As Congressman Stark 
mentioned, the demographics will affect both total family sizes 
and also the availability of care givers given labor force 
participation of women and divorce. Moving to the other sources 
in the private sector, self-insured or out-of-pocket care is 
about $5,000, and the key issue here is the degree to which 
individuals will accumulate more in personal saving than they 
do at the moment. It is unlikely that all but a significant 
minority could afford to face long-term care expenses of any 
magnitude by relying on this source. Private market long-term 
care insurance is a small aspect of the financing at the 
moment. Under 10 percent of people have policies, and this low 
utilization is one of the striking features of the current 
market. Instead, the vast majority comes in Medicare and 
Medicaid, as mentioned at the outset, and these public programs 
are bearing the largest fraction of the non-donated care.
    So, going forward, what issues will remain? Well, first, 
the larger budget context suggests that dollars will be scarce. 
I don't have to repeat the litany of financial demands that 
will be placed under current law. It will be the case that 
Federal dollars will be scarce and need to be used wisely. This 
will require balancing the programs as they stand, balancing 
home- and community-based care versus nursing homes and 
Medicaid; balancing Medicaid versus Medicare, which has become 
a de facto long-term care program. Or it may involve limiting 
those Federal programs by revising income and asset tests in 
Medicaid, by providing more cost sharing in Medicare. Or it 
could take the form of encouraging a greater reliance for those 
who can use long-term care insurance provided by the private 
sector.
    The current low rates of utilization beg for an 
explanation. A variety have been offered. High administrative 
costs and the potential for adverse selection lead some to 
believe that the policies are simply so unfavorable as to be 
unwise to take up. Alternatively, it could be that premium 
instability and the difficulty of insuring against large health 
care cost shocks is underneath the problem. Or other research 
suggests that some policies do look to be at least actuarially 
fair, particularly for women, and the still low rates of take-
up are indicative of other sources being available, be they 
private sources or public insurance programs, Medicaid and 
perhaps Medicare. In any event, going forward, rebalancing this 
mix to make sure that the dollars are used in the most 
appropriate fashion is a pressing policy problem. The only good 
news that I can offer to this group on this front is in the 
demographics, where in contrast to most of the programs which 
rise with the top line as people reach 65 and older, the 
largest incidence of impairment is with the bottom line, those 
85 and older. To the extent the public policies can be molded 
and put in place, we have a bit more time for people to adjust 
and for the budget to take advantage of those new policies. I 
thank you for the chance to be here, and I look forward to your 
questions.
    [The prepared statement of Mr. Holtz-Eakin follows:]
Statement of Douglas Holtz-Eakin, Ph.D., Director, Congressional Budget 
                                 Office
    Chairman Johnson 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.
Figure 1. People Age 65 and Older as a Share of the U.S. Population, 
        Selected Years from 1900 to 2050

                               (Percent)



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    Source: Congressional Budget Office based on Bureau of the Census, 
U.S. Interim Projections by Age, Sex, Race, and Hispanic Origin, Table 
2a, ``Projected Population of the United States, by Age and Sex: 2000 
to 2050'' (March 2004), available at www.census.gov/ipc/www/
usinterimproj/natprojtab02a.pdf.

    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.
---------------------------------------------------------------------------
    \1\ Darius Lakdawalla and others, ``Forecasting the Nursing Home 
Population,'' Medical Care, vol. 41, no. 1 (2003), pp. 8-20.
---------------------------------------------------------------------------
    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.
Figure 2. Estimated Shares of Spending on Long-Term Care for the 
        Elderly, 2004



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Congressional Budget Office.
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\
---------------------------------------------------------------------------
    \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.
Table 1. Long-Term Care Expenditures for the Elderly, by Source of 
        Payment, 2004

                         (Billions of dollars)

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Source: Congressional Budget Office.
    Notes: Donated care is measured as the cost of replacing that care 
with professional services.
    Numbers may not add up to totals because of rounding.
      a. Includes local public programs, minor federal spending, 
charity care, and so forth.

    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.
Figure 3. Annual Number of Policies of Private Long-Term Care Insurance 
        Sold, 1988 to 2002

                              (Thousands)

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Source: America's Health Insurance Plans, Research Findings: Long-
Term Care Insurance in 2002 (Washington, D.C.: AHIP, June 2004), p. 15.

    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.
Table 2. Average Annual Premiums for Long-Term Care Insurance, 2002

                               (Dollars)


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Source: America's Health Insurance Plans, Research Findings: Long-
Term Care Insurance in 2002 (Washington, D.C.: AHIP, June 2004), p. 32.
    Note: These premiums are for policies offering a $150 daily benefit 
for four years of coverage and a 90-day elimination period.

    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.
---------------------------------------------------------------------------
Figure 4. Medicaid Long-Term Care Expenditures for Elderly 
        Beneficiaries, Fiscal Years 1992 to 2004

                         (Billions of dollars)


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Sources: Personal communication by Brian Bruen of the Urban 
Institute, and the Congressional Budget Office's estimates.

    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.
Figure 5. Medicare Spending for Skilled Nursing Facility Care and Home 
        Health Care for Elderly Beneficiaries, Fiscal Years 1992 and 
        2004

                         (Billions of dollars)


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Source: Congressional Budget Office.
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 levelsfrom 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.

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you very much. I 
would point out that that group on the bottom are exactly the 
group that the Medicare Modernization Act aimed at, and the 
urgency of passing the bill was really not the prescription 
drug portion of the bill but the policy changes that will 
enable us to meet the needs of the over-85 population, most of 
whom have multiple chronic illnesses, so hopefully we will be 
able to bend that uniformly, and help the appearance of that 
chart. In your testimony, Dr. Holtz-Eakin, you mentioned that a 
recent study found that the availability of Medicaid 
constitutes a substantial deterrent to the purchase of private 
insurance even for people a relatively high income levels. This 
issue of the take-up rate of long-term care insurance has been 
a long-term concern of mine as the chief sponsor of that 
initiative. I would think that the greater prevalence now of 
long-term care insurance being a cafeteria option and it being 
now part of a Federal program that we might be seeing some 
increase in uptake. The group insurance does lower the 
administrative cost, it has a lot of advantages, and we do see 
some greater activity. How much greater activity do we see 
there, and what evidence does this report give that the 
disadvantage to providing yourself with long-term care 
insurance, that just the existence of the Medicaid offers is 
something that affects people at all income levels and it does 
work as a substantial deterrent?
    Mr. HOLTZ-EAKIN. There has been some modest uptake in 
private long-term care insurance. We would be happy to work 
with you to get the numbers pinned down. The broader question 
of what are the deterrents of the choice to take up long-term 
care insurance in the private sector has been divided in the 
research literature to supply kinds of issues associated with 
really what amounts to unfair pricing from an actuarial point 
of view, and then demand issues which is the fact that there 
may be alternatives out there, be it Medicaid, the most direct 
substitute, or Medicare to the extent that that it is a 
substitute, and as a result people don't buy long-term care 
insurance.
    The literature is not definitive on this and I think that 
is always frustrating when you don't have a clean solution, but 
the most recent research is suggestive in that for those 
instances where it appears that the supply problems, the 
pricing is one which provides actuarially fair premiums, and 
that would not likely be the men, but some of the women in 
these studies looked at their insurance and do not take it up. 
That then leads you to suspect there must be something else 
that could provide the insurance as a substitute. And then 
former models clearly show that in the presence of a choice 
between Medicaid and private long-term care insurance the 
Medicaid would crowd out the private market. So, former models 
and actual real-world experience are a bit apart, but it is a 
suggestive collection in recent research.
    Chairman JOHNSON OF CONNECTICUT. I am going to yield to Mr. 
Stark now as we proceed. But that has always been a mystery to 
me. And I think the existence of the very large contingent of 
people who make a living learning to help people to spend down 
to Medicaid ineligibility indicates that in the long-term care 
area Medicaid has lost that sort of negative aura that clearly 
in the children's health care it has taken us years to battle. 
So, that is interesting. Mr. Stark.
    Mr. STARK. I would just like, doctor, to have you 
elaborate. In your report and I guess in your testimony, you 
are suggesting that the reason that long-term care insurance is 
doing well is because everybody's waiting for Medicaid to bail 
them out and that they are planning to cheat and hide assets 
and do those sorts of things. Could you elaborate whatever data 
or theories you have that say that people don't buy long-term 
care insurance because they are counting on Medicaid?
    Mr. HOLTZ-EAKIN. As I mentioned in my response to the 
Chairwoman, there isn't a definitive study or set of research 
in this area.
    Mr. STARK. Is there any study?
    Mr. HOLTZ-EAKIN. There are. The two most recent studies are 
by Jeff Brown and Amy Finkelstein, and that----
    Mr. STARK. That wasn't peer-reviewed but go ahead.
    Mr. HOLTZ-EAKIN. That research does the following two 
things, roughly speaking. The first takes a look at a sample of 
actual policies and tries to determine the degree to which the 
premiums charged are actuarially fair or not, because clearly 
if buying a policy is an unfair bargain, people are not going 
to buy it. And their, on-average they are not actuarially fair, 
but the striking result is that they are far more fair, indeed 
probably roughly actuarially fairer for women, but take-up 
rates are the same. So, that is piece of evidence number one.
    Mr. STARK. I guess what I want to hear though is why you 
are suggesting that it is Medicaid that keeps them from doing 
this because they think Medicaid is going to bail them out?
    Mr. HOLTZ-EAKIN. It is far more conclusive--the suggestive 
evidence is that if it is not the pricing, then it must be the 
decision to buy, and presumably people value some sort of long-
term care insurance. This looks to be an important financial 
risk. So, if you are not buying this insurance it could be 
because you have some other type of insurance. Medicaid is 
one----
    Mr. STARK. What percentage of the Federal employees, let us 
say that people who are in the Federal Employee Health Benefit 
(FEHB) plan, what percentage of them buy long-term care 
insurance now under our Federal employee plan?
    Mr. HOLTZ-EAKIN. I don't know that number off the top of my 
head, but I can certainly find out.
    Mr. STARK. A small percent, 5 percent?
    Chairman JOHNSON OF CONNECTICUT. Very small.
    Mr. STARK. Very small. Now, most of these Federal employees 
know that they are going to have a fairly generous pension, 
right? They don't change that. In 30 years they will end up 
with 70, 80 percent of their I-3. Most of the benefits that I 
see in the Federal long-term care have a maximum value of 100 
grand, maybe 3 years 36,000 bucks a year. So, they are going to 
look at that and see if their pension is going to be anywhere 
near 50. I think they aren't going to get Medicaid, are they? 
Can you tell me a State where somebody with $50,000 worth of 
income can qualify for Medicaid? Maybe I will move there.
    Mr. HOLTZ-EAKIN. Well----
    Mr. STARK. There aren't any. So, I just don't know who this 
person is that says that Medicaid will replace whatever 
responsibility they may have for building for their retirement, 
which I think people do, and if they can live comfortably in 
their retirement, many of them could figure out how to pay 
for--they aren't going to get Medicaid. I think that is a 
double dip and I am not sure it is fair, doctor, that is all. 
Absent any kind of studies, Medicaid is in enough trouble 
without having respected economists like yourself beating up on 
it. We are having trouble getting health care for little kids, 
and when experts like you begin to suggest that Medicaid is 
keeping us from getting long-term care insurance to the market, 
that borders on being a little bit irresponsible, not to the 
long-term care people----
    Mr. HOLTZ-EAKIN. I take exception to that.
    Mr. STARK. All right.
    Mr. HOLTZ-EAKIN. I think that it is the responsibility of 
our office to examine all the potentia interactions between the 
public sector and the private sector. It is well established 
that individuals will look at interactions between what their 
options are in the public sector and the private sector. As I 
have tried to make clear, I think a comprehensive review of the 
places that one would find----
    Mr. STARK. I think you----
    Mr. HOLTZ-EAKIN. --expenses.
    Mr. STARK. --issues.
    Mr. HOLTZ-EAKIN. I think we should comprehensively----
    Mr. STARK. --abstinence training for high school students. 
That might bring up some interesting things that you would have 
a responsibility to report on.
    Thank you, Madam Chair.
    Chairman JOHNSON OF CONNECTICUT. Mr. McCrery.
    Mr. MCCRERY. Thank you, Madam Chair.
    Dr. Holtz-Eakin, we could spend a lot of time talking about 
why people aren't buying long-term care insurance. The fact is 
they aren't, at least not in very big numbers. Have you looked 
at--and I think you mentioned in your testimony that your 
projection for people purchasing long-term care insurance is 
not very optimistic. In other words, it is going to go up a 
little but not very much. Is that right?
    Mr. HOLTZ-EAKIN. We don't have a formal projection for the 
take-up. We have a projection of the costs of care. The costs 
are growing. We currently have some long-term care, and we 
don't have an elaborate forecast of what would happen in, for 
example, to 2030 to the long-term care market. The question is, 
how would it evolve in the presence of more improved 
incentives?
    Mr. MCCRERY. We provided some incentives in the past few 
years through the Tax Code. What has been the experience just 
in the last few years of people purchasing long-term care 
insurance? Has it gone up?
    Mr. HOLTZ-EAKIN. I think it is up modestly, but I don't 
know the numbers off the top of my head. We can certainly give 
you the past couple of years.
    Mr. MCCRERY. It would be interesting, Madam Chair, I think 
for us to explore a little more what the chances are of our 
being able to incentivize individuals to purchase private 
insurance for this purpose. I think you agree with me that that 
would be the most desirable solution to this problem, but 
clearly, what we have done so far hasn't worked. I am wondering 
if we could develop through some of our smart folks in 
government some conclusions as to how generous those incentives 
would have to be in order for people to purchase that. If we 
conclude that those incentives are so generous that we can't 
afford them, then obviously we have to look at elsewhere for a 
solution. I think this is an interesting discussion, but maybe 
our next panel, some of our next panelists will have some 
thoughts on this subject. Dr. Holtz-Eakin, what about 
Medicare's home health benefits? You mentioned that in your 
testimony, and how that has become kind of a de facto long-term 
care benefit for folks. Can you elaborate on that?
    Mr. HOLTZ-EAKIN. For many individuals it does appear to be 
a substitute for Medicaid or some other form of long-term care 
insurance. To the extent that it will be of interest to 
directly control costs in that program, we have, for example, 
done a budget option where we studied it at a 10 percent co-pay 
per episode and showed the budget savings that came from that. 
If people perceive it to be similar to Medicaid, and if there 
is a genuine substitution of one kind of insurance for another, 
it could also fit into the larger outcomes we are seeing with 
choices of financing for long-term care costs. So, I do think 
it is important to look at these comprehensively and think 
about how they interact.
    Mr. MCCRERY. Thank you.
    Thank you, Madam Chair.
    Chairman JOHNSON OF CONNECTICUT. Thank you.
    Mr. Lewis?
    Mr. LEWIS OF GEORGIA. Madam Chair, thank you very much. 
Thank you very much, Mr. Director, for being here today. In 
your written testimony you claim that Medicaid is a barrier to 
getting people to purchase long-term care insurance. You also 
said middle income people shelter their assets in order to 
qualify for Medicaid. However, you also said that there are 
drawbacks to Medicaid, like using all saving and limits choice. 
Now, with all of these drawbacks. With all of these drawbacks, 
wouldn't people want to avoid Medicaid? Isn't it possible that 
there are other reasons people don't buy long-term care 
insurance?
    Mr. HOLTZ-EAKIN. Well, it is certainly the case that any of 
these decisions has many dimensions. So, it is neither the case 
that people don't purchase long-term care insurance exclusively 
because of the existence of Medicaid; neither would you view 
any difficulties in getting Medicaid as a deterrent from using 
it at all because in fact it is a wisely-used public program. 
Instead, the programs interact. It is the case that there is a 
large industry devoted to advising individuals about how to 
shelter their assets under Medicaid, and that while I think it 
is impossible to place a numerical estimate on the degree to 
which assets are sheltered, there is an enormous amount of 
smoke, and one would suspect that there is a fire. There are 
web pages devoted to calculators and how they shelter assets. 
There are web pages at Amazon.com showing the books on how to 
do it. So, we know that that is an aspect of the incentives 
presented by Medicaid, and it is a form of insurance that is 
available. As I have said several times, I don't think it is a 
panacea, it is not the exclusive solution to the problem for 
the long-term care market and may be the case that long-term 
care insurance in the private market is best suited for a 
fraction that is higher income, but they do interact and we 
simply wanted to highlight the potential for interaction.
    Mr. LEWIS OF GEORGIA. Do you have evidence of people 
sheltering their resources or is this just based on limited 
evidence? Do you have data that would testify to the fact that 
we have wholesale sheltering, people hiding their resources?
    Mr. HOLTZ-EAKIN. As I said, I don't--it is not a question 
of the sheltering, but there are--you can go to places that 
say, www.Medicaidhelp.com that gives you a calculator. You plug 
in your age and your assets and it tells you where you stand 
relative to Medicaid and getting long-term care insurance. 
There are lots of books. There are well-known strategies, half-
a-loaf strategies, where the moment you enter the Medicaid 
program you give away a fraction of your assets, half of them, 
and you get to shelter half very effectively with no risk. So, 
I don't know the net asset transfer that comes from that. I 
know that there is a lot of evidence of people thinking about 
those activities.
    Mr. LEWIS OF GEORGIA. Let me just try and ask you this in 
another way, and maybe throw something else into here. As I see 
it, if there is someone going to a nursing home, Medicaid looks 
back 3 years to see if they have transferred any of their 
resources. If so, that person is disqualified from Medicaid 
benefits for a time. This means that in order to qualify for 
Medicaid, an applicant would have to have transferred their 
resources more than 3 years prior to doing long-term care 
service. This would take some kind of crystal ball for any of 
us, any of these seniors to know when they are going to need 
long-term care. Do any of us know? So, how can you prepare? Do 
we know in 2010 or sometime down the road we are going to need 
long-term care?
    Mr. HOLTZ-EAKIN. Well, there is not a crystal ball, but it 
is the case that at the moment you enter the program you can 
shelter half without any risk.
    Mr. LEWIS OF GEORGIA. That is what I am trying to ask, we 
don't know whether we are going to need it and then we don't 
know when, we don't know the date or the time. So, what does 
this seem to say, they must get rid of everything?
    Mr. HOLTZ-EAKIN. What is going on--and the kinds of 
policies you might like to put in place. What is going on I 
think is a risk-free transfer of one half at the moment of 
entry. Three years in advance, no one has a crystal ball, there 
is some risk associated with that, there is no question. We 
know, for example, from the waiver application of the State of 
Connecticut, 30 percent of folks had undertaken some sort of 
asset transfer. So, there is evidence out there. As I said 
before, I don't think anyone has a firm numerical estimate of 
the pervasiveness and scale, but this is an activity that is 
provided--that the Medicaid program has provided an incentive 
to undertake.
    Mr. LEWIS OF GEORGIA. Madam Chairman, I know my time is up. 
If I can have just a quick three seconds?
    Chairman JOHNSON OF CONNECTICUT. Go ahead.
    Mr. LEWIS OF GEORGIA. Mr. Director, you stated in your 
prepared report that Medicaid spending for home-based care for 
service was going faster than spending for institutional care. 
Could you give us I guess the nature of why? Most people would 
like to stay in their home and not go into a nursing home.
    Mr. HOLTZ-EAKIN. If you divide costs into cost per person, 
more people--that seems largely to be driven by the entry of 
more beneficiaries into the home and community based care 
program, perhaps as a substitute for the informal care that had 
prevailed earlier because people would like to remain in their 
home.
    Mr. LEWIS OF GEORGIA. Thank you.
    Chairman JOHNSON OF CONNECTICUT. Thank you.
    Mr. Johnson of Texas.
    Mr. JOHNSON OF TEXAS. Madam Chairman, I would like to 
continue on that vein if I could. I think you are absolutely 
right that people are not buying insurance because of the 
reasons you state, and I just wonder--you point out again, and 
it has been stated two or three times that home health care 
under Medicare has become something of a defacto long-term 
health care benefit. What implications has this had on Medicare 
and how do home health benefits under Medicare and those 
provided under Medicaid relate to each other?
    Mr. HOLTZ-EAKIN. Well, the implications for Medicare for 
2004, the numbers that we presented today, the total outlays 
under Medicare are about $32 billion. So, this is not an 
enormous share of the overall Medicare bill. Instead, it is 
about 16 percent of the financing for long-term care costs. It 
is an alternative to Medicaid, and, for that reason, I think it 
is probably best bought comprehensively in thinking about 
forward how are you going to do business.
    Mr. JOHNSON OF TEXAS. Okay. Thank you. I don't have any 
further questions, Madam Chairman.
    Mr. THOMPSON Thank you, Madam Chair, and thanks for holding 
this hearing. I want to--there are a couple of things that have 
already been asked. Specifically, the issue of the look back 
issue that Mr. Lewis mentioned. If you're still--you say if you 
go back 5 years as opposed to the three that the savings would 
be modest. So, and I want to stipulate that I think any effort 
to hide money or disposed of money to get away from paying your 
share is wrong. We ought to be able to figure out how to stop 
that if we can. But I just wonder how widespread the abuse is. 
If you add 2 years to the look back you only pick up modest 
savings.
    Mr. HOLTZ-EAKIN. Our last answers are based on or 
discussions with the State-level Medicaid officials in charge 
of this. How we got the numbers associated with three versus 
five, I don't have off the top of my head, but I would be happy 
to work with you. We could walk through it with your staff.
    Mr. THOMPSON. Well, we ought to try and figure out what is 
real and what is projected and not attainable, but at the same 
time figure out how to stop those practices from happening. On 
the home health care issue. It seems to me that is pretty 
inexpensive way to deal with the problem. I know in California, 
our in-home support services is about $8,000 a year where 
facility care is about $50,000 a year. So, that is a fairly 
substantial savings, and it seems to me we ought to be--and we 
know it is cheaper and to do in-home health care vis a vis some 
type of acute care. So, we probably should be looking at ways 
to expand that to help solve this problem.
    Mr. HOLTZ-EAKIN. Certainly my message today--this happens 
to me all the time. I come. I talk about costs. There are some 
things that are worth it. Those are the benefits and that is 
certainly part of the picture. Designing this--I think the 
basic message is we have to pick things that make sense in a 
cost effectiveness send because, money will, in fact, be harder 
to come by going forward, and if we can find those policies 
that are most worth it, where the benefits are the highest, 
then that is the place to go.
    Mr. THOMPSON. And then the other thing that has already 
been brought up and I don't want to beat a dead horse. But the 
whole issue of tightening the Medicare eligibility to change 
behavior. I am skeptical of that thesis. And if you look back 
at the changes in Social Security in 1983, most economists will 
agree that benefactors realize a real decrease in benefits. So, 
using your theory, they would have saved more in order to deal 
with the decrease in benefits. But we know that that has not 
been the case. At the time that they '83 Social Security 
changes took place, the personal savings were about 11 percent 
of disposable income. And today, they are less than 2 percent. 
I think less than a percent and half. So, using that as a model 
would suggest that you can tighten these regulations or this 
eligibility all you want, but it is not going to in itself 
change the practices of individuals. And if you have any other 
data that suggest otherwise, I would like to see those.
    Mr. HOLTZ-EAKIN. We will certainly work with you on that. 
Sure. I'm sympathetic to the notion that, as I said, that 
formal models are not the answer to all our policy questions--
far from it. I am also sympathetic to the notion that 
explaining the U.S. savings rate is pretty hard. If I could 
explain the U.S. saving rate, I would be in a far better place 
than I am right now. But, there is I think a sensible approach 
to analyzing this important issue, which involves 
comprehensively surveying all the available sources of 
financing, comprehensively thinking about the incentives that 
the present, and, then to the extent possible, comparing the 
data--which is limited and is an issue--with the kinds of 
potential responses that incentives predict. I am with you on 
the notion that not all economic incentives turn out to be as 
powerful as economists might think, myself included. But that 
is ultimately a data base exercise.
    Mr. THOMPSON. And I want to try and squeeze one more in. Is 
there some way that we can figure out the cost of Medicare 
expansion to include long-term benefits--kind of a menu. I know 
it already covers some things, and I am not suggesting that we 
move to expansion, but some folks are, and it may make sense. 
If there was a way to see a menu of what it would cost if we 
extended different benefits or how much for each benefit that 
we extended. That would be I think very helpful.
    Mr. HOLTZ-EAKIN. Nothing would make me happier than to 
volunteer the staff's time. Why don't we figure out the----
    [Laughter.]
    Mr. THOMPSON. If looks could kill, you would be shot from 
behind. Thank you.
    Chairman JOHNSON OF CONNECTICUT. Thank you, Mr. Thompson. 
Mr. Emanuel.
    Mr. EMANUEL. Thank you, Mrs. Chair. With that answer, you 
may need a food taster at the next staff meeting. Let me ask 
you a question about your analysis on the partnership 
expansion. As I understand it, the whole notion of the Robert 
Wood Johnson--and I think there are about 10 States that do 
this. It was supposed to save money. And your analysis of the 
President's budget is that it actually cost Medicaid money. A, 
what was the basis of, I don't want it line by line, but what 
was the basis of why that is, and B, what do we got to do to 
get to the savings for Medicaid so the whole intention of this 
partnership was supposed to be a savings, not expenditure of 
greater resources.
    Mr. HOLTZ-EAKIN. Well, two part answer. The first is that 
the analysis of the President's budget is economic changes from 
whatever the current is. So, to the extent that there were 
savings by instituting the program to begin with, that is 
already in the baseline. We are only looking at the expansion. 
With respect to the expansion, you can think of purchases 
coming from two sources: people who would have bought a private 
policy anyway and basically doesn't look any different, or 
those people who will come into this market, buy a partnership 
policy, and are new entrants and thus qualify for Medicaid for 
the first time, it is our expectation that the modest costs 
come from that group.
    Mr. EMANUEL. Let me ask you based on the premise that the 
partnership should save money, do you think we will ever see 
that realization? Part of that whole premise--am I 
misunderstanding the premise?
    Mr. HOLTZ-EAKIN. I guess compared to what. I am trying to 
figure out what--compared to what baseline. To the extent that 
the partnership policy and expansion of the type that, was 
proposed, those new people buying policies who ultimately 
qualify for Medicaid that will cost Medicaid money, because 
there will be new beneficiaries that would not have been there 
otherwise and extension of that on a regular basis. Now, that 
is one set of comparisons that you can make. A second set of 
comparisons might be what would a world look like with 
substantial private long-term care insurance, perhaps 
engendered by the partnership policies and with some pressures 
as a result on the delivery of services and savings rate there. 
That is a different question and not one that we have priced. I 
am sympathetic, but it is just past what that particular number 
would contain.
    Chairman JOHNSON OF CONNECTICUT. Excuse me. Would the 
gentleman yield on this?
    Mr. EMANUEL. Absolutely.
    Chairman JOHNSON OF CONNECTICUT. And I'll take it on my 
turn. Partnership policies the insurance pays for the first 2 
years of care, so what percentage of seniors as a whole use 
more than 2 years of nursing home care?
    Mr. HOLTZ-EAKIN. I don't know. It is a number we will get 
back to you on.
    Chairman JOHNSON OF CONNECTICUT. It is relatively small.
    Mr. HOLTZ-EAKIN. It is relatively----
    Chairman JOHNSON OF CONNECTICUT. Well, it is a sign that 
everybody who is bearing a partnership program is going to end 
up being--using Medicaid dollars is in my estimation----
    Mr. HOLTZ-EAKIN. It's not an expansion of everybody. It is 
an expansion of the pool who will ultimately touch Medicaid 
dollars.
    Chairman JOHNSON OF CONNECTICUT. And it is an expansion of 
a pool that won't touch Medicaid dollars until they have used 2 
years of nursing home care, paid for by their insurance. So, 
that is a very different pool than just those who would be 
eligible for Medicaid, because it is those who will be eligible 
for Medicaid and need a third year of nursing home care. So, 
this is worth more conversation later.
    Mr. HOLTZ-EAKIN. Certainly. You are right.
    Chairman JOHNSON OF CONNECTICUT. I simply want to point out 
that I did not agree with the answer that you were providing to 
my colleague.
    Mr. HOLTZ-EAKIN. Okay. We will be happy to work through the 
nuts and bolts of the estimate with you. I think the spiel of 
it, briefly and I won't oversell my expertise on the nuts and 
bolts, but these are large numbers to begin with so it is not 
as if everybody who touches this in the expansion is going 
straight on to Medicaid. There are these features that you 
pointed to, but it is the--the key features--it does make the 
net pool of people who have the potential to touch Medicaid 
larger because of the attractiveness of the policy. That is one 
of the features.
    Mr. EMANUEL. I don't want to belabor a point and I look 
forward to when we do press this a little farther and have a 
discussion and obviously, you're right: it is what benchmark 
you are comparing it off of because it can change the picture. 
As I remember, the whole bells and whistles around the 
partnership was that there was going to be a savings, not a 
greater expenditure. And my only question is based on your 
analysis of the President's Budget, the partnership is A, 
costing more money on Medicaid rather than less; therefore, 
either we got sold a bag of goods as it relates to the bells 
and whistles on the partnership, or we did not understand it 
when we were dealing with it, and then we can press this point 
later on. We don't have to use a lot of time here. And maybe 
you have maybe a one staff person that doesn't mind a lot of 
work gave you answer right there.
    Chairman JOHNSON OF CONNECTICUT. We will also have a member 
of the panel later who has done a lot of work in the 
partnership area.
    Mr. EMANUEL. Oh. That is fine.
    Chairman JOHNSON OF CONNECTICUT. It is difficult in the 
estimating area because there are only four States actually 
that have the right to do this. So, nobody can develop a 
product that could go nationwide.
    Mr. EMANUEL. Okay. Thank you.
    Chairman JOHNSON OF CONNECTICUT. Thank you. Mr. Pomeroy is 
not a Member of the Subcommittee, but he has an high interest I 
know these areas, and I am going to invite him to question.
    Mr. HOLTZ-EAKIN. Could I speak on this issue about the 
partnerships and make two points,. One big picture point which 
is I hope the spirit of the opening remarks was conveyed that 
there is a total cost to the demand or these services that 
would be incurred by the economy and the financing issue is 
about figuring out who bears them. So, savings in one piece, be 
they Medicaid--it may not necessarily mean that the overall 
bill is lower. That was my point.
    Chairman JOHNSON OF CONNECTICUT. Right. Okay.
    Mr. HOLTZ-EAKIN. Try to say more clearly. Number two, on 
the partnerships, the key leading to big savings is to get 
large increases in new purchasers, and it was our judgment that 
the particular proposal we looked at would have incremental new 
purchasers that were not large, but instead we would really 
have just a big shift of the base, and that we the source of 
the cost estimate. And I am happy to get us together and work 
through the details on it.
    Mr. EMANUEL. Can I--you mind if I? Or you want to move on?
    Chairman JOHNSON OF CONNECTICUT. Well, can you make it 
brief? I did interrupt you so.
    Mr. EMANUEL. No. I'll make it----
    Chairman JOHNSON OF CONNECTICUT. Sorry.
    Mr. HOLTZ-EAKIN. If that is the basis and the premises and 
the tipping point is you are looking for scale, and you don't 
have the scale, and so, therefore, it is going to cost Medicaid 
more money and until we do this on the scale to get an economy 
of scale and the efficiencies out of it. Basically, with four 
States and so forth, it is going to cost Medicaid more money 
and it has to be a program that is expanded nationwide or 
bigger.
    Mr. EMANUEL. So, we can certainly work with you and give 
you a feel for how that looks.
    Chairman JOHNSON OF CONNECTICUT. Well, let us leave this 
question open, because I think if you talk to some of the 
States where they have used it, we might get a different 
answer.
    Mr. Pomeroy.
    Mr. POMEROY. Well, Madam Chair, thank you so much for 
letting me see in this hearing. I got some data from the States 
themselves directly on the point. California issued 72,683; 
enforced 61,273, in claim 735, exhausted 86. Exhausted and 
assessed Medicaid 24. To me that's a very, very positive ratio. 
It is similarly with like to the other four States. Connecticut 
issued 36,613; exhausted 21. Indiana issued 32,800; exhausted 
16 I think there is--these are the data report by the States 
themselves. I think unlike a lot of long-term care insurance 
issues, we have data here--10 years of records from the States 
themselves and I am convinced that it is very positive; that 
people are laying private third party protection is protecting 
their assets and they are not following into Medicaid 
eligibility. I also think for those that say, well, that is 
just for those very affluent households that never would have 
hit Medicaid eligibility, the dollar for dollar coverage model 
is one that can be priced for--as limited a time as one year. 
It is much affordable, and it protects assets dollar for dollar 
of third-party coverage. I think we have an experiment here 
that is working. We have got--I think with the States of 
California, Connecticut, Indiana, and New York. We have a body 
that we can really look at so it is not just conjecture or 
philosophy. We actually have numbers we can draw conclusions 
from. Dr. Holtz-Eakin, is that your brief?
    Mr. HOLTZ-EAKIN. It is certainly the case that that tells 
you performance in the presence of the partnership program. The 
question from the point of view of cost effectiveness is what 
would performance had been in the absence. That is the 
unknowable and in those circumstances. It other States, it is 
the reverse. You don't have the program, you ask what it would 
like in the presence of it. The intricacy of doing the cost 
estimates on these and evaluating the President's budget and 
other things is, in fact, comparing both. And so you never get 
to see both. You have one that we get to see in your case, and 
we ask what it would have looked like for Medicaid in the 
absence of the partnership program. This strikes me as of the 
same character as the questions that Mr. Emanuel and 
Congresswoman Johnson had. I would be happy to sit and work 
with all of you.
    Mr. POMEROY. And the Chairwoman as been very gracious in 
giving me time here to make a point. I would just ask you 
looking at what we've coming at us in terms of increased long-
term care expenses, and the need, the desperate need, to try 
and get more private pay dollars into this mix. Is long-term 
care an insurable risk?
    Mr. HOLTZ-EAKIN. The question I think--the answer of 
course, is yes from the broad point of view of the economy as a 
whole. You can spread the risks of those expenses. The question 
is whether the private market in isolation can they handle 
that? The next step would be are there particular regulatory or 
other government policies that we'll need to supplement a 
private market to make it work, or is it something that simply 
will not function in the absence of the government being the 
entity that spreads the risk. I think it is about that, and I 
don't think there is definitive answer, and I think this is the 
source of the interesting. The partnership program, which is 
the interaction between Medicaid and private long-term care 
insurance. It is the source of the interest more generally in 
the small scale, the current long-term care market.
    Mr. POMEROY. I'll allow you it is an insurable risk, and 
that viewed not on the micro--not on the macro, but on the 
micro for an individual household that doesn't want to face 
just spend down to get Medicaid eligibility it can be viable 
risk protection tool. Now, admittedly, we need to advance this 
topic, but I don't think that when an individual household has 
the kind of cost exposure that long-term care brings them, we 
can afford to be just dismissive of this as something that can 
never work. Indeed, we've got now plenty of market data that I 
think suggests this can be a valuable protection to families 
and you can have sufficient consumer protection, so they are 
getting something meaningful for their premium dollar. I yield 
back, Madam Chair.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much, Mr. 
Pomeroy. We will get together and discuss this at greater 
length after this panel and in the course of these 
deliberations. But we have all recognized and we all recognize 
in our daily life that the performance of a market depends in 
part on the evaluation of value. And as you pointed out and 
several others would point out in their testimony, many people 
don't evaluate the current policies as offering very much 
value. But these partnership policies offer a different value. 
And they have provided particularly to modest income families a 
cheaper product that guarantees them the right to pass some 
inheritance on to their children and these are not big savers 
who have any other inheritance.
    So, it is worth looking at the motivation, at the structure 
of the product, and, therefore at the nature of the savings or 
cost to the system. So, we look forward to working with you on 
that. Thank you very much, Dr. Holtz-Eakin. We appreciate your 
being here today. And now we will call the next panel forward 
altogether. And we will start with Dr. Gerety. I numerated 
your--the institutions that you represent as I had my 
introductory remarks, but as you sit down, Dr. Gerety is the 
Professor of Medicine, Geriatrics and Extended Care, the 
University of Texas in San Antonio, and represents the 
Geriatric Society. Buck Stinson is with Genworth Financial. 
Mike Meiners is from George Mason University, and Dr. Gehm 
represents the Lutheran Homes from Michigan. And we have been 
joined--by Dr.Feder has been before us before and we welcome 
you back. And we have been joined by our Committee Member, Mr. 
Camp, whose plane just arrived from Michigan, and I would like 
to recognize him.
    Mr. CAMP. Thank you. I just wanted to welcome Mr. Gehm from 
Michigan and not from my district, but from an area near my 
district, and I wanted to thank him for all the good work that 
Lutheran homes does and to welcome him to the Committee and 
just to mention I look forward to your testimony.
    Chairman JOHNSON OF CONNECTICUT. Thank you, Gary. Dr. 
Gerety, you probably are familiar you have 5 minutes. The 
yellow light will remind as you are coming to the end and red 
light will indicate when the 5 minutes is up, and your entire 
statement will be included in the record. If you have trouble 
seeing it and you all sort of get the picture from the rest. 
They'll be nodding. Thank you for being with us.

 STATEMENT OF MEGHAN GERETY, PROFESSOR OF MEDICINE, GERIATRICS 
 AND EXTENDED CARE, UNIVERSITY OF TEXAS, HEALTH SCIENCE CENTER 
               AT SAN ANTONIO, SAN ANTONIO, TEXAS

    Dr. GERETY. Members of the Subcommittee. You have already 
introduced me and my title, so I won't repeat that. But I will 
tell you that I am a geriatrician, and that geriatricians are 
primary care oriented physicians who do at least 1 year of 
additional training after initial specialty certification. We 
specialize in the care of older persons and are experts in the 
delivery of care across all settings, but particularly in long-
term care settings. Today as you are discussing long-term care, 
I think it is important that we recognize that long-term care 
cannot be defined as a list of settings or a defined set of 
services. And it is also not possible to accurately predict a 
person's long-term care choices based simply on a knowledge of 
his or her diseases or functioning. In addition to these 
factors, one has to have a comprehensive picture of an older 
person, both their social resources, psychological states and 
their personal preferences. Too often today, our system creates 
a gap between medical services and the essential non-medical 
services that are part of long-term care. In long-term care, 
these services are inextricably intertwined and are most 
effective when delivered together.
    Today our long-term care system is a fragmented patchwork 
of payers, providers, settings and formal and informal care. 
And too often this results in extra costs and poor outcomes, 
and I would like to illustrate this for you with an example, 
which is something that I see virtually on a daily basis in my 
practice. An 88-year-old woman who lives at home. She falls. 
She breaks her hip. She is admitted to the acute care hospital, 
has a hip repair, and following that she is transferred to a 
skilled nursing facility where Medicare will pay for the first 
21 days of her benefit without a significant co-pay on her 
part. At the conclusion of her therapy unfortunately, she 
hasn't gained sufficient independence to be able to return 
home. Now, she could go home with extensive--with some 
supportive services in the home, but Medicare's home health 
benefit only pays for an average of 42 days of care, and most 
of those visits are not skilled but rather unskilled. So, she 
does qualify for Medicaid and remains in the nursing home. 
Several months later, she develops a urinary tract infection 
requiring IV fluids and IV antibiotics. Medicaid won't pay for 
that in the nursing home, but Medicare will in the hospitals. 
So, she returns there to the hospital with all of its 
associated risks and potential complications.
    This is a sort of payment driven kind of chaotic care that 
is played out thousands of times every day in this country. 
When integrated properly, however, long-term care services can 
serve many purposes, completing care from hospitals, smoothing 
transitions between care settings, providing relief to care 
givers and indeed potentially preventing hospitalizations and 
emergency room services. That structure today, however, this 
long-term care system has a long way to go to fill its 
potential. And I believe as we face my aging--I am one of the 
baby boomers--we have got to modernize the system to meet our 
needs. I also believe that long-term care today is undergoing a 
transformation that acute care underwent a couple decades ago. 
Payment systems are modernizing to become resource-based rather 
than charge-based. But as acute care was then, long-term care 
still is now largely institutionally based. And providers and 
consumers now understand that what we once thought was safe to 
provide within only in institutional walls can be as safely 
potentially more economically and more comfortably provided at 
home. But long-term care's financing and eligibility has not 
caught up with this. It has not adopted the change in public's 
preferences or to the expanded array of long-term care 
services, settings, and technology. We believe that public 
policy must adopt a shift in its paradigm that acknowledges 
these changes, updating and reforming the long-term care system 
of today. We also believe that system inequities can be 
addressed by a series of fixes that should be carefully studied 
and considered.
    First, public and private financing systems should develop 
coherent methods to allocate resources across institutional and 
non-institutional programs. In doing so, we believe services 
should be targeted to high-risk populations and titrated 
according to need, potential benefit, and consumer preference. 
Second, while Medicaid provides permanently only a safety net, 
we must find a more comprehensive way to meet long-term care 
needs. As you know, a woman age 65 today can expect to live 
about 20 more years; five of those or more will be spent with 
some disability and she has about 40 percent chance of spending 
some time in a nursing home. Now private long-term care 
insurance vehicles are increasing in number, but they are not 
very accessible to people with modest means. And premiums as 
unpredictable over the long term, causing some people to drop 
coverage at an age when they most need it. I myself have not 
purchased long-term care insurance, because I find the policy 
options not as valuable as I might think and because it is 
difficult, in fact, to calculate the risks and benefits that I 
would receive from those policies. Third, prescription of long-
term care should be preceded by a comprehensive assessment 
prior to long-term care services.
    Too often today, care is not--is delivered based on 
eligibility, not on a thoughtful care plan that elicits 
preferences, assesses need and establishes goals. And although 
long-term care comprises many disciplines, typically these 
disciplines are not integrated into a team that provides 
compassionate competent care. And as we move toward--am I in 
the red? Okay. I'm sorry. I would just say that I believe that 
this Committee and the House itself faces many challenges in 
trying to address long-term care: the challenge of trying to 
marry public and private financing, the challenge to make 
insurance for long-term care sensible and accessible and 
affordable, and the challenge of creating a workforce that is 
going to be able to provide care for these people. So, I thank 
you for the opportunity to participate today, and will close my 
remarks.
    [The prepared statement of Dr. Gerety follows:]
Statement of Meghan Gerety, M.D., Professor of Medicine, Geriatrics and 
   Extended Care, University of Texas, Health Science Center at San 
                      Antonio, San Antonio, Texas
    Chairman Johnson, Congressman Stark and Members of the 
Subcommittee. Thank you for inviting me to testify today on a critical 
issue--long term care.
    I am Dr. Meghan Gerety, a Board certified geriatrician and 
Professor of Medicine at the University of Texas Health Sciences Center 
at San Antonio and Associate Chief of Staff and Service Line Manager 
for Geriatrics and Extended Care at the South Texas Veterans Health 
Care System. I have had a geriatric practice for twenty years and have 
practiced and overseen health care in virtually every form of long term 
care. I have experience in surveying nursing homes, serving as a 
nursing home and home care medical director and have provided care to 
many persons in assisted living facilities.
    I currently serve as President of the American Geriatrics Society. 
I appreciate the opportunity to participate in today's hearing on 
behalf of the American Geriatrics Society (AGS), an organization of 
over 7,000 geriatricians and other health care professionals dedicated 
to the care of older adults.
    Geriatricians are physicians who specialize in caring for older 
persons in all settings of care. Geriatric medicine promotes preventive 
care and care management that helps patients maintain functional 
independence in performing daily activities and improves their overall 
quality of life. When maintenance of function is not possible, 
geriatricians seek to optimize quality of life in the context of 
limited functioning. With an interdisciplinary approach to medicine, 
geriatricians typically work with a coordinated team of other 
providers, caring for the most complex and frail of the elderly 
population.
    Many geriatricians spend part or all of their time in long term 
care settings, including a broad range of medical, social, personal 
care and supportive services provided to persons with limitations in 
basic and instrumental activities of daily living (ADLs), such as 
bathing, dressing, or eating. It is important to recognize that we 
cannot define long term care as a list of settings or as a set of 
defined services. Equally important to understand, it is not possible 
to accurately predict a person's long term care choices by knowing his 
or her diseases, functional status, or cognitive abilities. Instead, 
one must have a comprehensive picture not only of these factors but 
also social resources (the scope and depth of the caregiving network), 
psychological states, and personal preferences. At the present time, 
our current, fragmented long term care system too often creates an 
artificial gap between the medical components of long term care and the 
equally as important non-medical components. In a long term care 
population, medical needs and supportive care are inextricably 
intertwined.
    Today I will focus on the following areas:

      Long term care: The past and present
      Long term care policy: How we allocate resources
      Comprehensive assessment: A method to assess needs
      Attaining an adequate long term care workforce
      Long term care: Costly but often inefficient
      Modernization: Using successful intervention studies to 
shape long-term care
      The Baby Boomers and the future
Long term care--The Past and Present
    When employed properly, long term care services can serve many 
purposes. Long term care can complete essential medical care begun in 
acute care hospitals, smooth the transitions between hospital and 
nursing home or nursing home to home, fill unmet need for basic or 
instrumental activities of daily living, defer the need for 
institutional care, provide relief to caregivers, and prevent 
unnecessary hospitalizations and emergency room visits. As it is 
structured in our nation, however, long term care has yet to fulfill 
its potential. As we face the demographic imperative of the aging baby 
boomers (a group to which I proudly belong) it is imperative that we 
organize long term care to fulfill its potential over the next 40 years 
after which most of us will be gone and need will decline.
    Our current long term care system is not well designed to provide 
ongoing support of chronically ill, functionally impaired persons. A 
woman reaching age 65 can now expect almost twenty additional years of 
life, but over five of those years are likely to be spent with some 
degree of disability, and she has a 40 percent chance of spending some 
time in a nursing home. Interestingly, despite an increase in the 
number of aged persons, nursing home use has remained relatively static 
during the last decade, a fact which may in part be explained by older 
persons preferences for other long term care settings such as assisted 
living and in part by slight declines in disability rates in old age.
    Today, unpaid family caregivers provide most long term care 
informally, but many persons must rely on formal or paid care as a 
supplement or a sole source of care. Unfortunately, our nation's system 
of long term care is neither integrated nor comprehensive, but rather a 
fragmented patchwork of payers, providers and settings, government and 
private programs, and formal (paid) and informal (unpaid) caregivers. 
This mix of programs provides varying services and often has confusing 
and differing eligibility criteria, enrollment processes, access points 
and financing systems. Access to long term care varies significantly 
from state to state and from payer to payer. Today, we face the 
challenge of modernizing care to include proven methods, accommodate 
consumer expectations, incorporate new technologies, and maximizing the 
partnership between private and public sources of funding.
    This is best explained through a common patient example. An 88 
year-old woman lives in her home, falls and breaks her hip. She is sent 
to the hospital where Medicare covers her care. Following her surgery, 
she is sent to a nursing home for rehabilitation, also covered by 
Medicare. However, when her therapy is completed she is less 
independent and therefore cannot return to her home. She qualifies for 
Medicaid coverage in the nursing facility, but NOT for enhanced 
services that would allow her to return safely home. After several 
months at the nursing home, she develops a urinary tract infection and 
needs antibiotics and IV therapy. Unfortunately, Medicaid will not 
cover this service in the nursing home, but Medicare will cover it in 
the hospital. The woman is transferred back to the hospital. This 
chaotic, payment-driven approach to care is played out thousands of 
time each day throughout the country. It does not serve the patient 
well.
    Long term care today is undergoing a transformation similar to that 
experienced by acute care over the last two decades. As acute care was, 
long term care today is still largely provided in institutional 
settings with only a few states spending more on home--and community-
based care than on nursing homes. Many long term care payment systems 
have become resource-based rather than charge-based, forcing providers 
to carefully evaluate the mix, intensity and duration of services that 
can be offered, resulting in marked variations in service availability 
and quality across the nation.
    At the same time, providers and consumers have come to understand 
that services once thought to be safe only within institutional walls 
can be safely, more economically, and more comfortably provided in 
home--and community-based settings. Consumers of care, their families 
and caregivers are no longer satisfied accepting the settings and 
services that some agency or authority prescribes. Instead, they expect 
services that fill the needs they perceive and services that are more 
easily consumer-directed or modified. Long term care financing and 
eligibility systems have not yet adapted to changes in the public's 
attitudes or to the expanded array of long term care settings, services 
and technologies. In many ways, while long term care delivery has 
evolved, our public policy and financing have remained static. Public 
policy must adopt a paradigm shift that acknowledges these changes; 
updating and reforming the long term care system of today.
Long term care Policy: How we allocate resources
    At the present time, publicly and privately funded long term care 
systems do not have a coherent method of allocating resources across 
programs or targeting services according to an individual's need or 
potential benefit. Instead, any person who satisfies eligibility 
criteria is entitled to receive a service package that often is not 
matched to need or titrated to potential benefit. Despite their 
recognition of the importance of institutional and home- and community-
based long term care services, there is no consensus among private or 
public payers about the role of these services, the population to which 
they should be targeted, or the scope and duration of services that 
should be provided. Long term care services are popular with consumers 
and have been codified in statute and regulation as entitlements to 
eligible persons who have severe functional impairments, skilled needs, 
or who are at risk for institutionalization. The status quo has become 
ingrained and made changes in eligibility for, targeting of, or defined 
limitations of scope or amount of long term care difficult to propose 
or evaluate.
    One interesting approach to allocation of long term care resources, 
as proposed by William Weissert in a recent Journal of Aging and Health 
article, would be to characterize the eligible long term care 
population with respect to different types of risk, e.g., risk of 
hospitalization, functional decline and/or institutionalization. Each 
of these risk profiles may benefit from different intensities and mixes 
of services. For instance, those at risk of hospitalization may require 
more nursing than unskilled care. The plan of care might include a 
focus on patient/caregiver education and illness management. In 
contrast, moderately frail persons at risk for functional decline may 
benefit from rehabilitation-oriented interventions that restore 
function and lower risk for decline or institutionalization. Persons at 
the highest risk for institutionalization (those with more functional 
disabilities who require heavier care) may be able to defer 
institutionalization if more home care provides sufficient unskilled 
services to meet functional needs.
    First, under this system, the government would establish clear 
financing for services for persons with long term care needs. Once 
eligibility for services has been established, a systematic method 
could be used to `titrate' services on the basis of risk of adverse 
outcomes, effectiveness of the in-home services of mitigating the risk, 
and the value (or cost) of the outcome to be avoided. Long term care 
providers could be provided with an individual patient's profile of 
estimated risks of death, functional decline, hospitalization and 
nursing home admission. A projected budget could be developed based on 
each person's risk of each of the outcomes and a plan of care developed 
within that budget. For instance, persons at high risk of 
institutionalization (the most costly outcome) would have a higher 
monthly budget for care than persons at low risk. A person with high 
risk of all of the adverse outcomes: hospitalization, 
institutionalization, functional decline and death would have the 
highest budget.
    Our current long term care system would make such a system 
difficult to propose or to evaluate. Most significantly, the current 
system utilizes a cliff approach whereby Medicaid covers the majority 
of long term-care services for persons in nursing homes. Those who do 
not meet the eligibility criteria for spend down or the limited 
Medicare benefits do not receive government-financed long term care. 
Medicaid is not a satisfactory solution. It's a critical safety net, 
but we need to find a more comprehensive and even way to meet the long 
term care needs so the burden doesn't fall to the states. We must 
change this approach through the development of a meaningful long term 
care benefit for all that need it. The reallocation of resources 
discussed above could help defray some of the costs of such a benefit.
Comprehensive assessment--a method to assess needs
    The AGS believes that a comprehensive assessment by qualified 
providers of geriatric care should precede the prescription of long 
term care. Often long term care services are allocated according to 
eligibility, rather than being based on a care plan derived from a 
comprehensive assessment that evaluates needs, elicits preferences, and 
establishes goals. For any person, it is very difficulty to create a 
package of long term care services that addresses both medically 
necessary care for illnesses and supportive care for the functional 
deficits that are the consequence of disease. The package should also 
address personal preferences for care design.
    The ability to perform assessment is limited by the different 
eligibility criteria and different methods of resource allocation 
employed by the States and the federal government. Medicare provides 
short-term nursing home care for persons recovering from acute illness 
and injury and provides medically necessary skilled home health care 
services to homebound Medicare beneficiaries. Personal care and 
homemaker services are restricted to situations in which they are 
incident to the skilled care needs and in cases where they facilitate 
treatment or to maintain health. So, Medicare home care largely focuses 
on medical needs and does not support the functional needs that are 
present in many persons requiring long-term care. States provide 
nursing home care for very low income persons who meet minimum 
functional criteria. Access to Medicaid funded alternatives to nursing 
home care, such as in-home personal care or chore services, adult day 
health care or care in assisted living settings is highly variable from 
State to State. Hence a person who requires both skilled care and 
personal care must rely on a patchwork of programs that are not 
integrated, not based on identified needs or treatment goals. Too 
often, the program fragmentation deters appropriate assessment to 
promote the highest level of quality care and patient choice.
Long term care--An adequate workforce
    We are faced with growing workforce shortages in all long term care 
settings. The AGS highly values direct caregivers in our nation's 
nursing homes, home care agencies and other long term care settings. 
Not only must they have the requisite knowledge and skills, but also 
their attitudes while delivering hands-on care can influence the 
success of care and affect quality of life for vulnerable elders. 
Compassionate, competent care must be our goal.
    National policy and action will be required to create and maintain 
a workforce qualified to deliver skilled, competent compassionate 
geriatric care. There is already a shortage of physicians, nurses, 
social workers, and personal care providers who are trained in 
geriatric care. Unless action is taken to meet future need, drastic 
shortages will occur over the next decade. Our current long term care 
financing system is not designed to support a workforce sufficient in 
numbers, skills, stability, and commitment to geriatric care. To 
increase recruitment into geriatric disciplines, trainees must envision 
a bright future in geriatric care, have role models who enjoy their 
work and feel satisfied with their lifestyle. Given the current low 
recruitment rates, measures to ``jump-start'' recruitment into the 
geriatrics disciplines are justified and are urgently needed. The 
measures should include loan-repayment for geriatric trainees and 
support for advanced fellowships to train geriatricians in research, 
administrative, and educational skills.
Long term care is costly but often ineffective
    About 10 million people in the U.S. need long term care, with about 
two-thirds of this population comprised of the elderly. Most of these 
individuals live in the home and community, but as their needs progress 
they may require long term nursing home care. According to the Centers 
for Medicare and Medicaid Services (CMS), national health expenditures 
for nursing home and home care were approximately $139 billion dollars 
in 2002. Of that cost, approximately 55% is funded by the Federal and 
State Governments, 32% comes from out of pocket payments by consumers 
and 11% from private insurance. Although long term care insurance 
vehicles are increasing in number, a relatively small number of 
individuals have purchased such insurance.
    Long term care insurance is not yet a viable option for many 
Americans. Private options tend to be less appropriate for those with 
modest means. Tax incentives for private long term care insurance 
primarily benefit the higher income. Additionally, premiums are often 
unpredictable over the long term. Long term care insurance premiums 
often increase dramatically as individuals age, meaning that people 
drop their policies just when they need them most. In fact, as a baby 
boomer and a geriatrician I have neglected to purchase a long term care 
policy because it is of limited value.
    Despite these large expenditures described above, our fragmented 
system is inefficient, costly and lead to poor outcomes. Lack of 
coordination among settings and providers of care is a serious problem. 
Often there is inadequate transmission of information among providers, 
inadequate assessment of patient needs, poor care during transitions, 
and both under- and over-medication and health care utilization. 
Vulnerable persons often find themselves in long term care programs 
that use a `one size fits all' approach where services are not matched 
to their needs or available in a timely fashion when need arises. The 
absence of flexibility in long term care programs poses a barrier to 
`just in time care' which has the potential to prevent hospitalization 
or emergency room care.
    The current system lacks proper incentives for promoting 
alternative delivery systems. For instance, many consumers have 
indicated a preference for care in the home and community. But, our 
current system of financing has a strong institutional bias. While the 
majority of persons with long term care needs (83 percent) live in the 
community, 78 percent of their help is from unpaid sources such as 
family and friends. Government financing as well as long term care 
insurance favors institutional settings. Congress should promote 
alternative delivery systems, such as early intervention and care 
management in nursing homes and the community, as well as greater use 
of home and community based care when appropriate.
    The long term care system needs modernization and we urge Congress 
to thoughtfully consider these issues before enacting sweeping change 
in long term care programs. Improvement in the long term care delivery 
systems requires innovation and investment in development and testing 
of new models of care. We urge Congress to fund evaluation of new 
models of long term care and use the results to modernize the system.
Modernization: Using successful intervention studies to shape long term 
        care
    To achieve improvements in functioning and achieve reductions in 
avoidable health care utilization, long term care programs must have 
the flexibility to pattern themselves after proven interventions. The 
most effective models of care incorporate coordinated interdisciplinary 
team care. Although most nursing homes and home and community-based 
services are delivered under a plan of care approved by a physician, 
there is no real integration of health care professionals and personal 
care providers into a functioning interdisciplinary team that 
coordinates medical, social, rehabilitative, and other services. Case 
management models that use either nursing or social work personnel that 
are not members of integrated teams do not appear to either avoid costs 
or promote function. In the last decade, numerous examples of models of 
care that are characterized by integrated interdisciplinary teams have 
emerged. Policy makers in a position to influence the direction of home 
and community based services may wish to incorporate lessons learned 
from these trials.
    One model of care is based on comprehensive geriatric assessment. 
In this model an integrated interdisciplinary team assesses the patient 
and, in consultation with the patient and caregiver, develops a plan of 
care. Part or all of the assessment may be conducted at home and home 
visits may be a part of the intervention.
    A different and successful model of care targets short-term home 
care services not toward meeting needs for ADL support or skilled care, 
but rather to the mitigation of specific risks or conditions. An 
interdisciplinary assessment followed by a twelve-week intervention to 
reduce risk of falls was highly successful in reducing fall risk by 
almost one-third. A highly focused short-term rehabilitation 
intervention in the home has been shown to significantly reduce the 
risk of functional decline in persons who are only moderately frail and 
have not yet developed significant ADL disability. These interventions 
suggest that highly focused, intensive, short-term, home-based care can 
be successful in addressing common geriatric conditions and preventing 
functional decline, often in persons who would not meet either skilled 
need or disability criteria for home and community based long term 
care. Despite these positive outcomes, today's long term care system is 
not structured to permit such uses of home care or rehabilitation 
services.
Long term care and Baby Boomers--The Future
    Long term care needs will explode in the next few decades as baby 
boomers like me age. Baby boomers are less likely to be satisfied with 
a narrow range of long term care programs or to be forced into one size 
fits all programs like traditional nursing home or home care. We are 
informed consumers and expect to be able to pick and choose among 
services to select those that we feel may best meet our needs. Indeed 
the long term care marketplace is evolving quickly and providing an 
large array of available services: assisted living, retirement 
communities, personal assistants, shopping and transportation services, 
personal care homes among others. Baby boomers have increasing 
sophistication about program characteristics such as quality 
indicators, and are willing to embrace new technologies such as 
telehealth.
    The challenge to today's policy makers will be how to most 
effectively marry public and private funding for long term care. How 
can we encourage the purchase of long term care insurance? What is the 
optimum cost-sharing methodology that will permit access to necessary 
care, encourage participation of families and caregivers in care, and 
discourage over-utilization? What public policies will support the 
development and maintenance of a workforce of providers highly skilled 
in geriatric care? What set of regulations and policies will give long 
term care providers the flexibility to target resources according to 
need and to potential benefit? What is the appropriate mix of provider 
directed and consumer directed care? All of these questions will need 
careful deliberation by public and private entities as we move to 
modernize the system.
    The American Geriatrics Society would like to work with the 
Subcommittee to resolve the issues these issues. We thank you for 
including us in today's important hearing.

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you very much, Dr. 
Gerety. Mr. Stinson.

    STATEMENT OF BUCK STINSON, PRESIDENT OF LONG TERM CARE 
       DIVISION, GOVERNMENT RELATIONS, GENWORTH FINANCIAL

    Mr. STINSON. Thank you, Mrs. Johnson. Distinguished Members 
of the Committee, thank you for inviting Genworth Financial to 
testify at today's hearing. We believe that long-term care is 
an often overlooked, yet critically important Federal policy 
issue and are pleased that you have decided to have an open 
discussion about our Nation's long-term care needs. I am the 
President of Genworth Financial's Long Term Care Insurance 
Division. Genworth Financial is a Richmond, Virginia based 
company which provides life, health, retirement, and mortgage 
insurance products to more than 15 million customers in 22 
countries. We are the largest and most experienced long-term 
care insurance provider in the country, with more than 30 years 
experience and more than $500 million in claims being paid 
every year.
    We will submit more extensive information in our written 
testimony to the Committee, but for now I think it would be 
most helpful if I touch on a couple of the populations that we 
have learned over the years and what we think it means to long-
term care marketplace. As a private long-term care insurance 
company, we take our job very seriously. We believe that we 
provide policies that protect people from potentially 
catastrophic consequences and allow them access to quality care 
environments. The expected growth in the number of people 
needing long-term care is staggering. Based on Genworth's 
unique 30 years of long-term insurance claims history, 60 
percent of those reaching age 65 use long-term care at some 
point in their lives. There are more than 6.2 million Americans 
that own long-term care insurance today. Since 1996, the 
average age of purchase of long-term care insurance has 
radically dropped 10 years, from age 69 to age 59. This 
customer is married and likely to be college educated. Where 
our customer used to be post-retirement, today's customers are 
baby boomers who purchased the product as part of a larger 
financial plan.
    The long-term care insurance market has evolved from 
nursing home only to one that offers flexible care options and 
numerous consumer protections. For example, of the top long-
term care insurance salaries, coverage now includes flexible 
plans covering nursing homes, assisted living facilities, home 
health care, hospice care, and respite care; strict adherence 
to consumer protections in line with HIPA and the National 
Association of Insurance Commissioners (NAIC); benefits 
including case management services, home care, or chore 
services; coverage of some medical equipment; survivor benefits 
and care giver training. Due to consumer interest in limited 
pay policies, some companies offer these types of policies as 
well in different variations. For example, single pay, 10 pay, 
or pay to 65. Benefits through policies are triggered when the 
policyholder has cognitive impairment, as an example suffering 
from Alzheimer's or they need assistance in performing two or 
more activities of daily living, such as bathing or dressing. 
Plans are guaranteed renewable, meaning that the insurer cannot 
change the terms of the policy coverage as long as the policy 
holder continues to pay the premium.
    Rates cannot be raised without approval from the State 
Departments of Insurance. Coverage also includes a 30-day free 
look period, and some companies offer a return of premium 
feature that allows the refunding of premiums paid if the 
policy ever dies before a certain age. We believe that over the 
time the long-term care insurance market will continue to 
expand as a result of aging demographics, increasing health 
care and nursing care cost, growing awareness of the 
limitations of government programs, and increasing public 
awareness of the benefits of private long-term care insurance. 
However, more must be done. We believe that a public education 
effort must be a critical component of the expanding awareness 
of the true cost and likelihood of long-term care needs. Many 
non-buyers mistakenly believe that their health insurance or 
Medicare provides coverage for long-term care. Generally 
speaking long-term care is very expensive. Depleting the 
perspective according to a 2004 Genworth Study on the cost of 
care, the average nursing in the United States cost $65,200 per 
year. Yet only 7 percent of seniors have said enough money to 
cover even 1 year of nursing home care.
    Assisted living facilities cost on average $28,800 per 
year. There is no magic wind that will solve the long-term 
financing problems that are looming for millions of Americans. 
In the end, many different approaches will have to be applied 
if we are to solve the problem. We believe it is important for 
private industry to be a part of the solution. Two partial 
solutions that we urge the Subcommittee to explore are tax 
incentives for long-term care insurance and public education. A 
great example of an effective awareness campaign is the recent 
Department of Health and Human Services (HHS) and Center for 
Medicare and Medicaid Services (CMS) ``Own Your Future'' 
program, which was launched earlier this year and in five pilot 
States--Virginia, Nevada, Arkansas, Idaho, and New Jersey. We 
believe this type of program--this is the type of program that 
should expanded nationwide. Madam Chairwoman, we want you to 
know that we applaud your efforts to bring attention to this 
issue from these hearings today, to the legislation that you 
have proposed to enact an above the line tax deduction for 
long-term care insurance premiums.
    As the market leader, we fully support tax incentives for 
the purchase of long-term care insurance, and we offer your 
support to help you achieve this goal. Just last month, we 
hosted a forum on Capitol Hill to present focus group findings 
on long-term care policy to many of your staff. The research 
confirmed what many of us in the industry have long suspected 
that many Americans do not understand that they have a huge 
potential long-term care financing burden hanging over their 
heads. We would be happy to present it to you and your staff 
members, as well as discuss other ways we can develop research 
and find answers to the long-term care policy problems. Let me 
close by telling you that we are committed to being a partner, 
a resource, and an asset to this Committee on both sides of the 
aisle. We are eager to work with you and your staff to share 
our abundant data and to conduct new research as needed. We 
know that long-term care insurance is not the solution for 
everyone; however, we believe it has to be a part of the 
broader solution that leads to a better long-term care strategy 
for our country. Thank you for the opportunity to be here 
today.
    [The prepared statement of Mr. Stinson follows:]
   Statement of Buck Stinson, President of Long Term Care Division, 
                Government Relations, Genworth Financial
    Genworth Financial is a Richmond, Virginia based company, which 
provides life, health, retirement and mortgage insurance products to 
more than 15 million customers in 22 countries. Our long-term care 
business is the largest and most experienced provider in the country, 
with more than a million customers and over $500 million in claims 
being paid every year.
    We believe that long-term care is an often overlooked, yet 
critically important federal policy issue and are pleased that you have 
decided to have an open discussion about our nation's long-term care 
needs. As a private long-term care insurance company, we take our job 
very seriously. We provide policies that protect families from 
potentially catastrophic consequences and allow them access to quality 
care environments.
Current Trends in Caring for Our Aging Population
    Americans are living longer with the oldest of the 77 million baby 
boomers reaching retirement age in 2008. The most significant growth 
will be among those 85 and older, a segment that will more than triple 
in size to 5.2 percent of the population by 2050. This surge in our 
elderly population will create an acute demand for long-term care (LTC) 
services.
Long-Term Care Differs
    Long-term care is different than what most of Americans think of as 
health care, and it isn't usually covered by health insurance policies, 
HMO plans or Medicare supplemental policies. Both Medicare and most 
health insurance policies are designed to cover expenses resulting from 
ordinary doctor care or hospital stays.
    The Congressional Budget Office estimates that total expenditures 
for long-term care services for the elderly in 2004--excluding the 
value of donated care--will total $135 billion. Of that, nearly a third 
is paid out of pocket.
    Long-term care needs are typically triggered by the need for 
assistance with activities of daily living, including bathing, eating 
or dressing, as well as cognitive impairment resulting from illness 
including dementia and Alzheimer's disease. Long-term care can range 
from basic help with chores and activities in your own home, assistance 
with activities of daily living in an assisted living facility or 
highly skilled care in a nursing facility. The possibility of needing 
long-term care due to an illness or physical disability is something 
most people don't like to think about. But as we age, and because 
Americans are living longer, the likelihood that we will need some kind 
of assistance is very real.
    The expected growth in the number of people needing long-term care 
is staggering. Sixty percent of those reaching the age of 65 are 
expected to need long-term care at some point in their lives[1] 
According to the AARP, seven million people over the age of 65 needed 
long-term care in 2001 and by 2020, the number is expected to increase 
to 12 million.
Caregiver Changes
    Traditionally, long-term care needs are taken care of within the 
family, with nearly 70 percent of elderly individuals receiving 
volunteer help from their personal network. Over the next several 
decades, that number is expected to drastically decline due to several 
factors. With the size of the American family getting smaller, there 
are fewer adult children to take care of elderly parents--and these 
children live farther away from their parents than they did a 
generation ago. In addition, there are more women--the traditional 
caregivers--in the workforce, and studies have shown that care giving 
at home suffers proportionately with hours of employment[2]
Long-Term Care Payment
    Beyond their families, Americans have several options when it comes 
to receiving and paying for long-term care, but few are prepared for 
the financial reality or the impact on their assets.
    We often underestimate the costs of long-term care. With nursing 
home care averaging $65,200 (daily rate of $179) per year, savings and 
assets may be quickly diminished. According to the 2004 Genworth Cost 
of Care Survey, the problem is even more acute in urban areas, where 
nursing home care costs are 20 percent higher than in rural or suburban 
areas. In some states, such as New York, California and Minnesota, the 
cost of urban area care was more than 40 percent greater than in non-
urban areas of those states. The survey queried more than 6,000 
providers in 88 separate regions, including nursing homes, assisted 
living facilities and home care providers. These numbers become 
especially daunting when we consider that ten percent of those entering 
nursing homes will stay there for five or more years.\3\

          Average Costs of Long Term Care in the United States:
------------------------------------------------------------------------

------------------------------------------------------------------------
Nursing Homes                                           $179.00 per day
------------------------------------------------------------------------
Assisted Living Facilities                               $79.00 per day
------------------------------------------------------------------------
Certified Home Care                                     $20.08 per hour
------------------------------------------------------------------------
Source: 2004 Genworth Cost of Care Survey for Nursing Homes, Assisted
  Living Facilities and Home Care Providers

Most Seniors Unprepared
    Most seniors are not financially prepared to pay for these long-
term needs. According to a study done by the Bureau of Census, only 
seven percent of American seniors have enough saved to cover even one 
year of nursing home care.\4\
    Most Americans are also not wealthy enough to fully fund their 
long-term care needs through private savings. Many rely on public 
programs provided at taxpayer expense by the state and federal 
government. However, the majority of Americans are unaware of the fact 
that Medicare is not intended to cover the majority of long-term care 
expenses, and Medicaid coverage for long-term care only becomes 
available if and when an individual depletes most of their savings and 
assets or that Medicaid can recoup long-term care expenses after a 
covered individual's death by foreclosing on that individual's house. 
State Medicaid programs force seniors to ``spend down'' their assets, 
essentially spending all of their savings and assets before they will 
cover expenses such as nursing home care. In fact, according to the 
Department of Health and Human Services, this accounts for more than 
half of the nursing home residents, who ``have become poor enough'' to 
qualify for Medicaid coverage.
    Nearly one-third of all long-term care bills are paid by 
individuals and families out-of-pocket. As a result, 70 percent of 
single people and 50 percent of married couples who require long-term 
care become destitute.\5\
    Even those seniors who believe they have saved enough may still be 
in trouble. The one thing that none of us can predict is the length or 
extent of any impairment that may befall us.
Long-Term Care Insurance Helps Americans Plan for Long-Term Care Needs
    Long-term care insurance allows people to pay certain, smaller 
payments now in order to ensure that they can afford the long-term care 
coverage they likely will need later in life, instead of taking the 
financial risk of losing their life savings in order to become eligible 
for government programs.
    In addition to ``sharing the risk'' with others to mitigate the 
costs, long-term care insurance often allows policyholders more choices 
and greater quality of care.
    According to LIMRA International, there are 6.2 million Americans 
who own long-term care insurance today. Despite those positive numbers, 
there remains a general lack of understanding with respect to LTC 
insurance that leaves many people baffled, discouraged and, in the end, 
unprepared to meet their own needs.
    With more than 30 years of experience, Genworth has also been at 
the forefront of identifying emerging trends and working with health 
and advocacy experts to develop better forms of coverage and 
protections. Most significantly, Genworth has determined that nearly 50 
percent of all the company's claims paid over time have been for care 
provided to patients with Alzheimer's and other forms of dementia. With 
four and a half million Americans currently diagnosed with Alzheimer's, 
and the number projected to grow to 14 million in coming decades, this 
is an important chronic illness to plan for early on in life.
Policy Coverage and Offerings
    Planning for future long-term needs by securing a long-term care 
insurance policy is one way Americans can help ensure that they retain 
their independence and quality of life as they age. Industry trends 
indicate that the baby boom generation is gaining an appreciation for 
long term care insurance as evidenced by more Americans planning for 
their long-term needs earlier. The average age of people buying long-
term care insurance has shifted dramatically from post-retirement to 
pre-retirement. Since 1996, the average age of individuals purchasing 
long-term care insurance has dropped from 69 to 59. One explanation of 
this trend can be attributed to the baby boomers planning ahead, as 
they see how their parents' needs for long-term care are addressed.
    Of the top 13 companies providing long-term care insurance, there 
have been more than $8 billion in claims paid through 2002. The 13 
largest companies offer policies to individuals ranging in ages from 18 
to 99, provide a $50-$600 per day benefit, guarantee renewability and 
offer many different options for coverage and inflation protection.
    In addition to ``sharing the risk'' with others to mitigate the 
costs, long-term care insurance often allows policyholders more choices 
and greater quality of care. For instance, the market has evolved from 
nursing home-only to one that offers flexible care options and numerous 
consumer protections.
    Most policies allow customers to choose between in-home care, 
assisted living facilities and nursing homes, encouraging the 
individual and their families to customize his or her care needs. In 
addition, policies offer the services of a local care coordinator that 
meets with a policyholder at the time of claim to help craft a plan of 
care and identify local care providers. There is a chart in the 
appendix that illustrates the typical coverage offered by the top long-
term care insurance sellers.
    The most recent study of industry-wide data and trends was 
conducted by America's Health Insurance Plans (AHIP) in 2002.
    At that time AHIP found that:

      Approximately 80 percent of all long-term care insurance 
policies were sold through the individual market. Ninety-four percent 
of long-term care insurers sold in this market.
      In contrast, as of December 31, 2002, 28 percent of the 
2002 long-term care insurance carriers sold policies in either the 
employer-sponsored or life insurance markets. This is in comparison 
with only 14 percent in 1988. The employer-sponsored and life insurance 
markets also represented 21 percent of all long-term care policies sold 
as of 2002, up from less than 3 percent in 1988.
      This study validates the persistency of long-term care 
insurance coverage. Findings from this study show significantly lower 
than expected lapse rates.
      Long-term care insurance carriers paid more than $8 
billion in benefits to their claimants through 2002.
      More than 280,000 new long-term care insurance 
policyholders, representing almost one-third of all policies sold in 
2002, purchased their coverage though their employer. A significant 
portion of this growth can be attributed to the launching of the 
Federal Long-Term Care Insurance Program. This program made long-term 
care insurance available to federal government employees and annuitants 
and their qualified dependents and relatives.

    As in previous years, the long-term care insurance market was 
concentrated among a relatively small number of sellers. Thirteen 
companies represented approximately 80 percent of all individual 
policies sold in 2002. AHIP also conducted an in-depth look at the top 
sellers' latest policies and found that these insurers offer policies 
with a wide range of benefit options and design flexibility at 
moderately priced premiums. Its key findings were:

      All companies offer plans covering nursing home, assisted 
living facility, home health care, hospice care, respite care, and 
alternate care services.
      Other common benefits include case management services, 
homemaker or chore services, restoration of benefits, reimbursement of 
bed reservations in long-term care facilities, coverage of some medical 
equipments, survivorship benefits, and caregiver training.
      Spousal discounts are more prevalent and offer 
significant reductions in premiums. The discount ranges from 10 to 40 
percent.
      There appears to be consumer interest in limited pay 
policies and some companies are beginning to offer these types of 
policies in different variations, such as single pay, 10-pay, and pay 
until 65 options.
      Criteria used for benefit eligibility is deficiency in 
performing activities of daily living (ADLs) and cognitive impairment.
      All plans are guaranteed renewable, have a 30-day ``free 
look'' period, cover Alzheimer's disease, have a waiver of premium 
provision, and offer unlimited or lifetime nursing home maximum 
periods.
      All companies use a six-month or less preexisting 
condition limitation.
      Age limits for purchasing continue to expand. Companies 
offer individual policies to people as young as 18 and as old as 99.
      All plans offer the National Association of Insurance 
Commissioners (NAIC) Long-Term Care Model Act and Regulation inflation 
protection requirement of benefits increasing at an annual 5 percent 
compounded rate, funded with a level premium.
      All companies offer plans that have a nonforfeiture 
benefit; shortened benefit period is the most common type offered.
Future Outlook
    Over time, the long-term care insurance market will continue to 
expand as the result of aging demographics, increasing healthcare and 
nursing care costs, growing awareness of the limitation of government 
programs and the increasing public awareness of the benefits of private 
long-term care insurance.
    However, more must be done. There is no magic wand that will solve 
the long-term care financing problems that are looming for millions of 
Americans. In the end, many different approaches will have to be 
applied if we are to solve the problem.
    While Congress has done a great deal to encourage private 
retirement planning, long-term care planning has been largely 
unaddressed.   We believe it is important for private industry to be 
part of the solution, both in terms of educational awareness and 
legislative policymaking.
    There are several policies that could make a great impact on both 
American's long-term care needs and the federal budget. Financial 
incentives, most notably in the form of some level of tax 
deductibility, would most likely produce the greatest stimulus for more 
Americans to better plan for their future health needs. Public 
education and greater cooperation between the public and private 
sectors could also make a very significant contribution to easing the 
pressures that are currently building.
    Genworth recognizes, as part of its corporate mission, an 
obligation to raise the public's awareness of the impending long-term 
care challenges. The company is also fully committed to working in 
partnership with policymakers and consumer advocates to better serve 
the needs of the nation's aging population.
    Just last month, we hosted a forum on Capitol Hill to present focus 
group findings by noted researchers Bill McInturff of Public Opinion 
Strategies and Geoff Garin of Peter D. Hart Research on long-term care 
policy to many of your staff.
    The research confirmed what many of us in the industry have long 
suspected--that many Americans do not understand that they have a huge 
potential long-term care financing burden hanging over their heads.
    We would be happy to present it to you or your staff members, as 
well as discuss other ways that we can develop research that finds 
answers to our long-term care policy problems.
    A great example of an effective awareness campaign is the recent 
HHS and CMS ``Own Your Future'' program which was launched early this 
year in five pilot states (VA, NV, AR, ID and NJ) We believe this 
should be expanded nationwide.
    In closing, we want to assure Members of the Committee, as well as 
staff, that we are committed to being a partner, a resource and an 
asset on both sides of the aisle. We are eager to work with you to 
share our abundant data and to conduct new research as needed. We do 
not have all of the answers, but we hope to be part of the solution 
that leads to a better long-term care strategy for our country.
    Thank you for the opportunity to provide this testimony to the 
Committee.
Appendix
    Source: American Health Insurance Plans; Long-Term Care Insurance 
in 2002
---------------------------------------------------------------------------
    \1\ Employee Benefit News, A Federal Case for Long Term Care, 2/02/
03.
    \2\ The Tradeoff Between Hours of Paid Employment and Time 
Assistance to the Elderly, Urban Institute, February 2000.
    \3\ U.S. Department of Health and Human Services.
    \4\ 1996 Survey of Income and Program Participation, U.S. Census 
Bureau, adjusted by CBO for 2000.
    \5\ Fischer Center for Alzheimer's Research Foundation, Why Should 
I Buy Long-Term Care Insurance?

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

    Chairman JOHNSON OF CONNECTICUT. Thank you very much, Mr. 
Stinson. Doctor Meiners?

 STATEMENT OF MARK R. MEINERS, PH.D., PROFESSOR AND DIRECTOR, 
  CENTER FOR HEALTH POLICY, RESEARCH AND ETHICS, GEORGE MASON 
                UNIVERSITY, ARLINGTON, VIRGINIA

    Mr. MEINERS. Thank you for inviting me to speak on a topic 
that has been new and dear to me for many years. In my 
testimony today, I want to focus on two of the programs I have 
been working on-the Partnership for Long-Term Care and the 
Medicare-Medicaid Integration Program. Each of these programs 
provide excellent case studies of the creativity and 
perseverance States have demonstrated in carrying out their 
long-term care responsibilities in the face of often times 
great barriers. It is the barriers with which we need your 
help. States are hungry for workable models to deal with their 
long-term care responsibilities. There is general recognition 
of the need to improve the health care delivery system for 
those with chronic care needs. A commonly accepted premise is 
that to make progress, we must improve the integration and 
coordination of acute and long-term care. To do this, health 
plans and providers must experiment with systems of care and 
financing. But I want to start with the financing option that 
is known as the Partnership for Long-Term Care because, as many 
of you know, form tends to follow finance in health care.
    The Partnership for Long-Term Care is a state-based program 
developed with the support of the Robert Wood Johnson 
Foundation. The program is designed to stimulate long-term care 
insurance market by helping to balance the difficult competing 
pressures between product value and price. Four States-
California, Connecticut, Indiana, and New York-are currently 
operating the public-private partnership which provides 
consumer special protection against depletion of their assets 
in the financing of long-term care. The Partnership long-term 
care insurance policies work in the following way: By buying a 
Partnership Policy, a person qualifies for Medicaid benefits 
under special Medicaid rules. When a Partnership Policy is 
exhausted, the policyholder is permitted to retain assets equal 
to the amount his or her insurance has paid out. There are some 
nuances to this that allow for total assets model. We can talk 
about that another time. The person is then eligible for 
coverage under Medicaid without having to be impoverished. 
Insurers participating in the Partnership must meet the program 
certification standards. These standards ensure the 
participating long-term care policies are of a high quality. 
Among the standards required in each State are inflation 
protection, minimum benefit amounts, and agent training. 
Participating insurers are also required to provide the State 
with information on purchasers of certified products and on the 
utilization of benefits.
    The program is fiscally conservative, helps middle income 
people avoid impoverishment, serves as an alternative to 
Medicaid estate planning, promotes better quality insurance 
products which promote consumer protection efforts, enhances 
public awareness regarding long-term care needs and options, 
and helps maintain public support for the Medicaid program. 
About $43 million in asset protection has been earned to date, 
but the vast majority of that protection will never actually be 
needed because in most cases the insurance covers the needs of 
beneficiaries until they die. This is one of the unique 
strengths of the Partnership. It provides a meaningful 
incentive to prepare for the risk of long-term care with 
insurance, while costing relatively little. Indeed, early 
estimates and recent experiences suggest that the program can 
save Medicaid costs. At least some of you Committee Members are 
quite familiar with the Partnership Program having had a hand 
in grandfathering the current States, giving them the right to 
operate the program and it is part of the 1993 Omnibus Budget 
Reconciliation Act. The same legislation, however, put 
restrictions on wider State replication of this idea, which has 
proved to be a major barrier to broadening the success of the 
program. Without the repeal of the OBRA '93 restrictions on 
partnership style asset protection, it has not been possible to 
stimulate the multi-State interest necessary to justify the 
commitment of resources by insurers and their agents to support 
these alternative marketing strategies.
    We respectfully ask you all to work with your colleagues on 
the Ways and Means Committee to remove the OBRA restrictions on 
the Partnership Program. In addition to financing innovations 
like the Partnership, there is a profound need for new systems 
of care that integrate the financing, delivery, and 
administration of primary, acute, sub acute, and long-term 
care. The current Medicaid crisis along with the new Medicare 
prescription drug benefit and the increased recognition of the 
high cost and unique care needs of many special needs 
populations, including those eligible for both Medicare and 
Medicaid, the dually eligible, has prompted renewed interest in 
the integration of Medicare and Medicaid managed care. 
Effective care management for such a population can best be 
accomplished when health plans have the ability to coordinate 
the service delivery and financing the entire continuum of 
health and long-term care services. The current financing 
delivery system contains many obstacles to the development of 
such integrated care models. The Medicare-Medicaid Integration 
Program, with the support of the Robert Wood Johnson 
Foundation, has been working with States to help end the 
fragmentation of financing, case management and delivery, and 
service delivery that currently exists with our two main public 
financing programs.
    The ultimate goal of these efforts is to help evolve an 
effective way for all populations in need of or at risk for the 
full continuum of acute and long-term care services to get care 
more efficiently and effectively. The Partnership for Long-Term 
Care is a strategy that can help broaden the market for long-
term insurance. But financing is only part of the problem to be 
solved. There needs to be systems of care that integrate acute 
and long-term care so that the limited resources available are 
spent wisely on behalf of the consumer. Together, Medicare and 
Medicaid have an enormous impact on our health care delivery 
system as well as on the private insurance market. We must 
begin to recognize the critical interrelationship between these 
two programs and approach Medicare-Medicaid modernization 
efforts in tandem. Systems of care that integrate Medicare and 
Medicaid for dual eligibles are beginning to show us how to 
deal with the complex clinical, operational, and financial 
problems that will increasingly confront us as our population 
ages. These State-based efforts should be supported as good 
investments in our future. Thank you.
    [The prepared statement of Mr. Meiners follows:]
Statement of Mark R. Meiners, Ph.D., Professor and Director, Center for 
Health Policy, Research and Ethics, George Mason University, Arlington, 
                                Virginia
    Chairman and members of the Subcommittee, my name is Mark Meiners. 
I am a professor at George Mason University where I direct the Center 
for Health Policy, Research, and Ethics. I specialize in the economics 
of aging and health as it relates to public policy. For over 30 years I 
have worked with the Federal government, state governments, the Robert 
Wood Johnson Foundation and many others to develop and direct state 
programs designed to improve our Nations' long-term care financing and 
delivery systems. In my testimony today I want to focus on two of the 
programs I am working on--the Partnership for Long-Term Care and the 
Medicare-Medicaid Integration Program. Each of these programs provide 
excellent case studies of the creativity and perseverance states have 
demonstrated in carrying out their long-term care responsibilities in 
the face of great barriers. It is the barriers with which we need your 
help.
The Medicaid Crisis and State Initiatives in Long-Term Care
    It is not surprising that states have been the focal point in 
reform of long-term care. Much of long-term care is related to daily 
living needs rather than health care needs. This tends to make the 
approach to care more the concern of individuals and their communities. 
Perhaps even more important, financing and administration of long-term 
care under the Medicaid program has been an increasing burden for 
states. Their desire to find alternatives to nursing home care has 
provided most of the experience with program innovation.
    States are hungry for workable models to help deal with their long-
term care responsibilities. There is general recognition of the need to 
improve the health care delivery system for those with chronic care 
needs. A commonly accepted premise is that to make progress we must 
improve the integration and coordination of acute and long-term care. 
To do this, providers must experiment with new systems of care and 
financing.
The Partnership for Long-Term Care
    The Partnership for Long-Term Care is a state-based program 
developed with the support of the Robert Wood Johnson Foundation. The 
Partnership program is designed to stimulate the long-term care 
insurance market by helping to balance the difficult competing 
pressures between product value and price. Four states (California, 
Connecticut, Indiana, and New York) are currently operating this 
public-private partnership which provides consumers special protection 
against depletion of their assets in the financing of long term care.
    The Partnership long term care insurance policies work in the 
following way. By buying a Partnership policy, a person qualifies for 
Medicaid benefits under special Medicaid rules. Once a non-Partnership 
policy runs out, an individual must spend virtually all of their 
savings before they qualify for Medicaid. In contrast, when a 
Partnership policy is exhausted, the policyholder is permitted to 
retain assets equal to the amount his or her insurance paid out (IN and 
NY have allowed some policy holders to keep all remaining assets). The 
person is then eligible for coverage under Medicaid without having to 
be impoverished.
    Insurers participating in the Partnerships must meet the program 
certification standards. These standards ensure that participating 
long-term care policies are of high quality. Among the standards 
required in each state are inflation protection, minimum benefit 
amounts, and agent training. Participating insurers are also required 
to provide the state with information on purchasers of certified 
products and on the utilization of benefits.
    The Partnership states selected the strategy of linking the 
purchase of long-term care insurance to Medicaid eligibility after 
considering numerous alternatives. The program is fiscally 
conservative, helps middle income people avoid impoverishment, serves 
as an alternative to Medicaid estate planning, promotes better quality 
insurance products which promote consumer protection efforts, enhances 
public awareness regarding long term care needs and options, and helps 
maintain public support for the Medicaid program.
    Each of the four Partnership states maintains a web page full of 
useful information that, among other things, tracks the experience of 
their program for consumers, agents, and policy makers. For example, 
approximately 238 thousand applications have been taken in the four 
states since the start of the program. The average age of purchasers is 
in the range of 58-63 and women comprise 55-60 percent of the 
purchasers. For more information see: www.umd.edu/aging and go to the 
Partnership for Long-Term Care. Links for each or the Partnership 
States can be made from this web page.
    About $43 Million of asset protection has been earned to date but 
the vast majority of that protection will never be actually be needed 
because in most cases the insurance covers the needs of the beneficiary 
until they die. That is one of the unique strengths of the Partnership; 
it provides a meaningful incentive to prepare for the risk of long-term 
care with insurance while costing relatively little. Indeed early 
estimates and recent experience suggest that the program can save 
Medicaid costs. During the planning phase of the program (1991) we used 
the Brookings-ICF Long-Term Care Financing Simulation Model and 
identified potential savings gradually increasing so that by the final 
estimation period of 2016-2020 there was a 7 percentage point decline 
in Medicaid's share of the long-term care bill. More recently, the 
Partnership states that are using the dollar-for-dollar model have 
developed their own estimation strategy which shows their cumulative 
Medicaid savings to date as being in the range of $8-10 million. While 
it is always difficult to estimate with certainty the behavior change 
that would come from a National Partnership model it seems clear that 
the current Partnership States' experience are going in the direction 
of the savings that were originally anticipated from the earlier 
simulations.
The Partnership Balancing Act
    Partnership policy sales indicate steadily growing interest in 
public-private long-term care insurance policies. However, the numbers 
also reveal that the public is still wary about the need for such 
policies and needs positive reinforcement to consider such an 
investment in their future. There are good reasons for this that 
involve the differences in perspectives that have fueled the status 
quo.
    In the early stages of program development, arguments against the 
Partnership were raised primarily by social insurance advocates who 
viewed the program as an incremental step which would erode support for 
more ambitious reform. As the Partnership was implemented, insurers 
voiced their own dissatisfaction with certain aspects of the program 
design because it deviated from some of the standard approaches used to 
market this coverage and required extra attention beyond that for non-
partnership products. Not satisfying everyone exactly to their liking 
is, after all, what we believe to be necessary for a workable public-
private partnership.
    Most of the arguments for and against the Partnership share common 
issues viewed from different perspectives. Central to the strategy is 
the fact that Medicaid is the primary public payer for long-term care 
that states are the key decision makers regarding Medicaid rules and 
insurance regulation, and that the states need to be at least budget 
neutral in their efforts to provide a positive incentive to the 
insurance market.
OBRA '93 Language A Major Barrier to Replication
    At least some of your committee members are quite familiar with the 
Partnership program having had a hand in grandfathering the current 
Partnership States the right to operate their programs as part of the 
1993 Omnibus Reconciliation Act. That same legislation, however, put 
restrictions on wider state replication of this idea which has proved 
to be a major barrier to broadening the success of this program.
    At the time when the Partnership programs were initiated, two 
countervailing forces clashed. First, state interest in the Partnership 
grew well beyond the four states funded by the Robert Wood Johnson 
Foundation. In fact, 12 states passed enabling legislation to create 
programs modeled on the RWJF program. Second, the Omnibus 
Reconciliation Act of 1993 (OBRA '93), enacted the same year as the 
RWJF Partnership was implemented, contained language with both indirect 
and direct impact on the expansion of Partnership programs. Indirectly, 
the Act closed several loopholes in the Medicaid eligibility process, 
thereby providing further incentives for persons to purchase private 
insurance for long-term care. The Act also makes specific mention of 
Partnership programs. The statute contains a ``grandfather'' clause 
which recognizes as approved the four initial states, plus a future 
program in Iowa and a modified program in Massachusetts (protecting 
only the home from estate recovery). These states were allowed to 
operate their partnerships as planned since the Health Care Financing 
Administration had approved their state plan amendments before May 14, 
1993.
    While states obtaining a state plan amendment after that date are 
allowed to proceed with Partnership programs, they are also required to 
recover assets from the estates of all persons receiving services under 
Medicaid. The result of this language is that the asset protection 
component of the Partnership is in effect only while the insured is 
alive. After the policyholder dies, states must recover what Medicaid 
spent from the estate, including protected assets. At the very least 
this becomes a very complicated and convoluted message for consumers. 
It also removes one of the major incentives people have to plan for 
their long-term care needs. The effect has been to significantly stifle 
the growing interest in replicating the Partnership in other states. 
Promising efforts in Colorado, Illinois, Iowa, Maryland, Michigan, and 
Washington, to name a few, were sidetracked by the impression that 
Congress did not support this program.
Next Steps
    Without the repeal of the OBRA '93 restrictions on Partnership 
style asset protection, it has not been possible to stimulate the 
multi-state interest necessary to justify the commitment of resources 
by insurers and their agents to support these alternative marketing 
strategies. But there is growing recognition that States need 
flexibility in dealing with the pressures on the Medicaid system and 
that private long-term care insurance is a needed alternative to public 
financing. The National Governor's Association has for some time now 
been calling for elimination of federal barriers to public-private 
insurance partnerships like those in the RWJF states and the expansion 
of authority to all states to implement such programs.
    When the OBRA '93 restrictions are repealed, the current 
Partnership States suggest the following core benefit and 
administrative features be considered for a National Long-Term Care 
Insurance Partnership Program. The idea is that a Partnership Rider be 
created that could be attached to a federally tax-qualified long term 
care insurance policy. The purpose of the proposed features is outlined 
in brackets.
    Rider Benefit Standards:

1.

Compound inflation protection at 5% annually for both the daily and maximum 
benefit for all ages. [To protect both the consumer and the state's 
Medicaid program.]

2.

Maximum lifetime benefit options must include 1 or 2 year plans (according 
to state law/regulations). [Opens the market to the middle income consumer 
who is most at risk of having to go through Medicaid spend-down. Protects 
the state's Medicaid program.] Maximum lifetime benefit paid out in a pool 
of money.

3.

Minimum daily benefit--calculation to be determined later. [To protect both 
the consumer and the state's Medicaid program.]

4.

Tax-qualified plan that includes an assessment and plan of care developed 
by a licensed health care practitioner who is independent of the insurance 
company. ``Independent'' = not on the staff of the insurance company. [To 
provide some level of standardization and to protect the consumer.]

5.

Reduced benefit offer, in place of lapsing, at original issue age and 
taking into account accrual of inflation protection over time. [To protect 
both the consumer and the state's Medicaid program.]

6.

Asset protection--start with the dollar for dollar model. [Currently in 
existence are three models--dollar for dollar, total asset protection and a 
combination of both dollar for dollar and total asset protection. Starting 
with the dollar for dollar model would be the easiest for states to 
implement with a budget neutral stance for Medicaid.]

7.

Coordination of benefits. [Protects the state's Medicaid program.]

    Administrative/Regulatory Standards:

1.

Existing partnership programs would be allowed to remain as they are.

2.

Companies wanting to participate would sign a National Participation 
Agreement. One agreement would suffice for all states. An Officer of the 
company would sign the agreement. It would state the following:

a.

Partnership Riders may not be attached to home care only policies.

b.

Partnership Riders may be attached to tax-qualified policies that calculate 
premiums based on issue age. No attained age premiums. [Protects the 
consumer and the state's Medicaid program.]

c.

A Partnership Rider must be offered with all eligible tax-qualified 
policies, with premium for the Rider being equal to the policy with a 5% 
compounded inflation protection feature.

d.

The company agrees to abide by the reporting requirements (some type of 
uniform system--could be the Uniform Data Set already in existence). 
Reporting requirements are for the purpose of tracking participation and 
tracking asset protection. The companies would submit data to a central 
repository on a regular basis. States would have access to the data. 
(Funding of the repository to be determined later.) [Protects the consumer 
and the state's Medicaid program.]

e.

The company agrees to abide by the reporting requirements even if they 
later decide to stop issuing Partnership riders.

f.

The company agrees to be audited by a State (in-person) after the first 
Partnership policyholder has gone into benefit status. An audit performed 
by one state will be accepted by all other states. However, any state may 
perform an audit of that state's policyholders' records via mail or 
electronic means. The purpose of the audit is to ensure accurate tracking 
of asset protection. [Protects the consumer and the state's Medicaid 
program.]

g.

The company agrees to provide quarterly asset protection reports to 
policyholders who are in benefit status; and providing service summary 
reports to policyholders who have exhausted policy benefits, lapsed their 
policies, or upon the policyholders' requests. A copy of such reports will 
be sent to the State. [Protects the consumer and the state's Medicaid 
program.]

h.

The company agrees to obtain from, and provide a copy to, the applicant 
consent to release information to the State as well as a disclosure form 
(content to be determined later) that provides information about asset 
protection and Medicaid. [Protects the insurer, the state's Medicaid 
program, and the consumer.]

i.

The company agrees to accept applications for policies with Partnership 
Riders from, and pay commissions to, agents who show completion of a five-
hour continuing education course on the Partnership program. [Protects the 
consumer.]

Medicare/Medicaid Integration
    I have started my testimony with the Partnership program because I 
believe that overturning the OBRA '93 restrictions is a relatively easy 
to accomplish next step that can lead to even more creative efforts 
that are needed to help reform Medicare and Medicaid. Further, form 
follows finance and, in the absence of appropriate financing mechanisms 
and incentives, delivery reform will be nearly impossible to 
accomplish. In addition to financing innovations like the Partnership, 
there is a profound need for new systems of care that integrate the 
financing, delivery and administration of primary, acute, sub acute, 
and long-term care services. The current Medicaid crisis along with the 
new Medicare prescription drug benefit and the increased recognition of 
the high cost and unique care needs of many special needs populations, 
including those eligible for both programs (the dually eligible), has 
prompted renewed interest in the integration of Medicare and Medicaid 
managed care.
    There are more than six million individuals in this country who are 
eligible for both Medicare and Medicaid. The dually eligible represent 
a costly subset of the Medicare population. More than $200 billion is 
likely to be spent on duals in 2005--roughly the same amount spent on 
either population alone, despite the relatively small case load in each 
program. While only about one-sixth of Medicare beneficiaries were 
dually eligible in 2001, they accounted for over a quarter of total 
Medicare expenditures. With Medicaid where duals comprise a little over 
a sixth of the population, the costs even more disproportionate, with 
the duals accounting for about a third of all Medicaid costs. Total 
spending across all payers for duals was more than double the amount 
for Medicare-only beneficiaries in 2001.
    Many in this group have complex medical care needs due to multiple 
chronic conditions. Twice as many duals are in poor or fair health as 
non-duals, they have more chronic conditions than Medicare-only 
enrollees and 75% have functional limitations. Comorbid medical 
conditions and disabilities require the use of multiple care providers 
and care management services to coordinate care among multiple 
providers to ensure appropriate care, optimize health outcomes and 
prevent adverse health events. Consider, for example, that Medicare 
beneficiaries with 5 or more chronic conditions, on average, sees 14 
different physicians annually, has 40 office visits and fills 50 
prescription drugs.
    Effective care management for such a population can best be 
accomplished when health plans have the ability to coordinate the 
service delivery and financing of the entire continuum of health and 
long-term care services. The current financing and delivery system 
contains many obstacles to the development of such an integrated 
system. Of major concern to the development of managed care programs is 
the fragmentation of financing and responsibility for patient care. 
Medicare and Medicaid currently maintain wholly separate contracting, 
reimbursement and quality standards for managed care organizations, in 
spite of overlapping populations. If managed care providers are to be 
effective in accessing the most appropriate and cost effective care for 
their patients they must have the flexibility to provide whatever 
combination of care and services is the most clinically effective and 
economically efficient.
    Getting Medicare and Medicaid policy to work together can be quite 
difficult. Unnecessary hospitalizations of those in nursing homes are 
encouraged by low Medicaid reimbursements, bed hold day payments, and 
DRG related payment incentives for short stay hospital admissions. 
Medicare physician payments are biased toward hospital care instead of 
care in the office, home, or nursing home. More emergency room visits, 
medical transportation, and readmissions result. Too little home and 
community care is available to serve as an alternative to nursing home 
care. Improved managed care models are again being looked to as a way 
to handle these problems. Integrated care programs represent an 
opportunity for better care outcomes and greater cost-efficiencies by 
improving the attention to detail that is often missing for people when 
there is no systematic effort to coordinate care.
    The model of nursing home care originally demonstrated by Evercare 
is a case in point of improved care management and outcomes through 
integrated care. Evercare provides care management, aggressive primary 
care services and early identification and treatment of acute illness 
to long-term nursing home residents. While beneficiaries with four or 
more chronic conditions are 99 times more likely to be hospitalized for 
an ambulatory care sensitive condition that could have been prevented 
with appropriate ambulatory care, Evercare has reduced hospital use 
among nursing home residents by 45%, including preventable 
hospitalizations. Reductions in hospitalization result in significant 
cost-savings to both the acute and long-term care systems when one 
considers risks associated with hospitalization for seniors--
infections, depression, falls, irreversible functional decline that may 
require life-long supportive services, loss of bone mass and other 
forms of decline that can lead to life-long decline in health status 
and increased acute and long-term care costs.
    The PACE model is probably the best known example of successful 
integration of acute and long-term care under managed care 
arrangements. Full integration is made possible by a pooling of 
Medicare and Medicaid resources; over 95% of PACE members are dually 
eligible. Now that PACE has been made a permanent option within 
Medicare there is growing interest in making this model of care more 
appealing to private pay populations who need similar care. The 
challenge will be to get middle class seniors to substitute private 
insurance or financing for long-term insurance for Medicaid dollars and 
to make a commitment to the prescribed delivery system. One approach 
that might work is to offer this care approach as a preferred provider 
arrangement under long-term care insurance contracts. Other options for 
expanding alternative financing, contracting and care arrangements 
warrant examination to determine the potential for PACE alternatives to 
serve large numbers of Medicare beneficiaries.
    The Medicare/Medicaid Integration Program, with the support of the 
Robert Wood Johnson Foundation, has been working with states to help 
end the fragmentation of financing, case management, and service 
delivery that currently exists with our two main public financing 
programs. The ultimate goal of these efforts is to help evolve an 
effective way for all populations in need of or at risk for the full 
continuous of acute and long-term care services to get their care more 
efficiently and effectively.
    Arizona, Florida, Massachusetts, Minnesota, Texas, New York, and 
Wisconsin are among the states that have made considerable progress in 
integrated care program development with the help of the Center for 
Medicare and Medicaid Services (CMS). Other states (CA, GA, NJ, MD, WA) 
have been working at it and are interested in doing more. Though the 
initial focus is on public pay clients the delivery system development 
lessons are equally relevant to long-term care insurance links that 
might be made with Medicare managed care products as the private market 
alternative for those not eligible for Medicaid. The growth of Medicare 
managed care products designed to serve special needs populations will 
eventually stimulate the development of products in the private sector 
that could well benefit from the type of incentives offered by the 
Partnership program as a way to encourage the purchase of comprehensive 
shorter-term coverage that is appealing and affordable to middle and 
modest income purchasers. Indeed the group most at risk for spend-down 
to impoverishment if they need long-term care could benefit greatly by 
being in a system of care that managed chronic illness well. That way 
unnecessary accidents, behavior, and transition mistakes associated 
with the client's special needs could be better avoided and help keep 
people from needing Medicaid all together.
    Currently the conflicting Medicare and Medicaid financing and 
administrative rules continue to result in significant duplication, 
fragmentation, and costs. The new Medicare Special Needs Program (SNP) 
statute and regulations could be a way to begin to mainstream the types 
of care system improvements that have begun to be tested in the various 
state integrated care demonstrations. The current SNP regulations do 
not as yet provide states and health plans the authority to integrate 
financing, care delivery and administration that has been achieved 
under the current dual demo waivers. It is important to allow Medicare 
demonstrations seeking designation as SNPs to convert to SNP 
demonstrations with the authority to retain previously approved waivers 
so that they can continue to refine and enhance the models developed 
under demonstration authority. Consideration should also be given to 
allow states to waive Federal Medicaid rules where they conflict with 
Federal Medicare rules and to add requirements for long-term care 
benefits that are not addressed in Federal regulations.
    States should also be allowed to integrate Medicare and Medicaid 
administration and expand eligibility through state plan amendments. 
This could allow for creative upstream program development for pre-
duals that could be linked with Partnership type asset protection 
incentives in exchange for voluntary participation in managed care plan 
programs involving care coordination and/or chronic care management 
strategies.
Conclusions
    Medicare and Medicaid often share in the delivery of health and 
social services to high-cost chronically ill elderly and disabled 
individuals. But Medicare does not cover long-term care so private 
insurance enters the picture as a way to help people prepare for this 
risk and avoid having to depend on Medicaid. The Partnership for Long-
Term Care is a strategy that can help broaden the market for long-term 
care insurance. But financing is only part of the problem to be solved. 
There needs to be systems of care that integrate acute and long-term 
care so the limited resources available are spent wisely on behalf of 
the consumer. Together, Medicare and Medicaid have an enormous impact 
on our health care delivery system as well as on the private sector 
insurance market. The incremental development of these two programs has 
created many distortions and inefficiencies in providing care to 
individuals who qualify for both programs, as well as in the delivery 
system as a whole. We must begin to recognize the critical inter-
relationship between these two programs and approach Medicare and 
Medicaid modernization efforts in tandem. Only through a unified 
approach to care for the dually eligible, can we optimize health care 
outcomes and contain the cost of care for the highest-cost subgroup in 
the health care system. Systems of care that integrate Medicare and 
Medicaid for dual eligibles are beginning to show us how to deal with 
the myriad of complex clinical, operational, and financing problems 
that will increasingly confront us as our population ages. These state 
based efforts should be supported as good investments in our future.

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you very much. Mr. 
Gehm.

STATEMENT OF DAVID GEHM, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
        LUTHERAN HOMES OF MICHIGAN, FRANKEMUTH, MICHIGAN

    Mr. GEHM. Thank you. Madam Chairman and Members of the 
Subcommittee, I am pleased to have the opportunity to testify 
today on behalf of Lutheran Homes of Michigan and the American 
Association of Homes and Services for the Aging, of which we 
are a member. Lutheran Homes of Michigan is a non-profit 
Christian agency providing a full range of services to God's 
oldest children. Our facilities provide round-the-clock 
Medicare-certified skilled nursing care, certified home care, 
senior housing, hospice, and private-duty services to hundreds 
of Michigan seniors and their families of all faiths. Lutheran 
Homes' history tracks the trends in long-term care over the 
last several decades and the ways in which our field has in 
some ways come back to the future. Over the last 114 years, 
Lutheran Homes has evolved from a housing provider for 
impoverished elderly to adding services as needed. Post 
enactment of Medicare and Medicaid in the sixties, we became 
predominantly a nursing home provider and now we are back to 
the future as we evolve back to housing, with services leading 
the way. In that context, I want to mention the need to finance 
supportive and health-related services in affordable housing 
settings. Public payments for nursing home care bundle housing 
costs together with the cost of health care and supportive 
services. For short stay skilled nursing patients and some very 
frail longer stay residents, this arrangement has proven to be 
a cost-effective way of ensuring that they receive the level of 
care they require.
    However, we are seeing the unbundling of the services can 
make much more sense for people who don't need the entire 
package of services that nursing homes are required and bound 
to provide. But if housing and supportive services are 
unbundled, they must both available and affordable to people if 
people are to have a realistic alternative to nursing home 
care. The full Ways and Means Committee has jurisdiction over 
the Nation's largest affordable housing program, the low-income 
housing tax credit. I would hope that this Committee can 
spearhead discussions with other congressional Committees that 
oversee housing and supportive services to overcome some of the 
obstacles to coordinating affordable housing with services that 
enable people to age with dignity in place. In the future, we 
believe that housing plus services can help many people avoid 
or postpone entry into nursing homes. I want to emphasize that 
although Medicaid and Medicare to a lesser extent are an 
important source of funding for long-term care, our community 
also plays large role in financing the services our clients and 
residents receive.
    Lutheran Homes and providers like us across the Nation 
create life enriching opportunities for our elders by 
leveraging the social capital in our communities. Last year 
alone, Lutheran Homes logged over 19,000 hours of volunteer 
time in support of our services. We also received donated funds 
nearing $1 million to help offset unfunded needs and create 
additional services seniors need. Future policy should find a 
way to strengthen this public and private partnership. Because 
Medicaid is primarily a health care program, long-term care 
developed an excessively medical and institutional bias that is 
difficult to overcome. And the lack of realistic financing 
alternatives at least for the current generation of seniors has 
made Medicaid a de facto long-term care insurance program for 
middle class individuals, although it is important to keep in 
mind that families still provide the preponderance of long-term 
care on an informal and unpaid basis.
    The increasing trend of asset divestitures to qualify 
prematurely for Medicaid coverage of nursing home costs has 
negative consequences for the Medicaid program, for long-term 
care providers, and for consumers, both those who access 
Medicaid and those who use their own resources to pay for their 
care. People are often surprised by the price of long-term 
care, which reflects constantly rising costs for staff and 
other elements of top notch services. In most States, Medicaid 
reimbursement does not keep up and private room rates become 
higher than they otherwise would have to be in order for a 
facility to break even. The burden of cost inadequately covered 
by Medicaid now falls unequally on the narrow segment of 
nursing home residents who pay their own way because they end 
up paying more than they otherwise would have to, drawing down 
their savings more rapidly. The question isn't is long-term 
care properly funded? But rather what is it we want the program 
to buy? If the intended outcome is the bare survival of 
residents, then Medicaid probably is adequate. However, if the 
intent is to have nursing home residents and elders in the 
community thrive according to the spirit of the nursing home 
standards in OBRA 87, we have a long way to go.
    The future of long-term care when innovatively and 
successfully created will be led by a government, provider, 
consumer partnership that leverages emerging care technologies 
and fully embraces the consumer-focused culture change movement 
that is now underway. To be successful, we will need 
regulations rethought for this new world, and we will need 
innovative funding design which aligns with what seniors and 
their care givers want. In closing, I just want to mention a 
project that Lutheran Homes has initiated, which we are calling 
Operation Enduring Thanks. In early June, we plan to bring 
approximately 30 of our World War II veteran residents here to 
Washington to see the new World War II Memorial on the Mall. 
Congressman Camp is a member of our honorary steering Committee 
for this project, and we greatly appreciate his generosity in 
helping us help these older veterans achieve this recognition. 
Once again, I appreciate the opportunity to discuss these 
issues with you today, and I look forward to working with you 
on the future of aging services. Thank you.
    [The prepared statement of Mr. Gehm follows:]
  Statement of David M. Gehm, President and Chief Executive Officer, 
            Lutheran Homes of Michigan, Frankemuth, Michigan
    Madame Chairwoman and members of the subcommittee, I am pleased to 
have the opportunity to testify today on behalf of Lutheran Homes of 
Michigan and the American Association of Homes and Services for the 
Aging (AAHSA), of which we are a member. Lutheran Homes of Michigan is 
a non-profit Christian agency providing a full range of services to 
God's older children. Our facilities provide round-the-clock Medicare-
certified skilled nursing care, certified home care, senior housing, 
hospice, and private-duty services to hundreds of Michigan seniors of 
all faiths. In addition to basic housing, nutrition, and medical care, 
Lutheran Homes provides a number of life-added programs whose cost is 
completely covered by private fundraising. Sixty percent of our 
residents are dually eligible for Medicare and Medicaid.
    Our history tracks the trends in long-term care over the last 
several decades and the ways in which our field in some ways is turning 
back to the future. Lutheran Homes began 114 years ago primarily to 
give low-income seniors an affordable place to live, adding whatever 
services were necessary. Over the next several decades, we developed a 
long history of finding ways to meet seniors' varied needs. With the 
establishment of the Medicare and Medicaid programs in the 1960s, we 
became primarily nursing home oriented. While that so-called medical 
model and the government programs that finance it continue to fill a 
critical need, we are finding that consumers strongly prefer to receive 
services in the places they call home. We therefore are diversifying 
our services once more to approximate the kind of care we originally 
provided, with affordable housing as the focal point for the delivery 
of supportive services. In fact, within the next fifteen years we see 
ourselves moving away from providing skilled nursing facility care 
except for short-term rehabilitation and some levels of dementia.
    In that context, I want to mention the need to finance supportive 
and health-related services in affordable housing settings. Public 
payments for nursing home care bundle housing costs together with the 
costs of health care and supportive services. For short stay skilled 
nursing patients and some very frail longer stay residents with more 
extensive care needs, this arrangement has proven to be a cost-
effective way of ensuring that they receive the level of care they 
require.
    However, we are seeing that unbundling the services can make much 
more sense for people who don't need the entire package of services 
that nursing homes provide. But if housing and supportive services are 
unbundled, they must both be available and affordable if people are to 
have a realistic alternative to nursing home care.
    The full Ways and Means Committee has jurisdiction over the 
nation's largest affordable housing program, the low-income housing tax 
credit. I would hope that this committee can spearhead discussions with 
other congressional committees that oversee housing and supportive 
services programs to overcome some of the obstacles to coordinating 
affordable housing with services that enable people to age in place. In 
the future, we hope that housing plus services can help many people 
avoid or postpone entry into a nursing home.
    I want to emphasize that although Medicaid, and Medicare to a 
lesser extent, are an important source of funding for long-term care, 
our community also plays a large role in financing the services our 
clients and residents receive. We do not discharge residents who become 
indigent, and private fundraising in the community pays for 
approximately half of the cost of their care. Our Annual Fund assists 
many seniors who are in desperate need of help with their health care 
expenses. Last year we fund-raised nearly $1 million, of which about 
half was used for direct program support, with the rest placed into 
long term capital replacement or other special accounts.
    In addition to financial support, our communities contribute 
greatly to the quality of life for our residents through many hours of 
volunteer time. Volunteers help our residents with activities, 
religious services, telephone companionship, transportation, meal 
deliveries, and errands, as well as assisting our staff with clerical 
and office work. In 2004, we logged 19,000 volunteer hours, people 
giving of their time and talent to enrich the quality of life for our 
residents.
    We need to build on the existing private contributions to long-term 
care in order to develop a more rational and balanced long-term care 
system. Up to now, heavy reliance on the Medicaid program as the 
primary source of financing for long-term care has had some unintended 
consequences. Because Medicaid is primarily a health care program, long 
term care developed an excessively medical and institutional bias that 
is difficult to overcome. And the lack of realistic financing 
alternatives, at least for the current generation of seniors, has made 
Medicaid a de facto long term care insurance program for middle class 
individuals, although it is important to keep in mind that families 
still provide the preponderance of long-term care on an informal, 
unpaid basis.
    The increasing trend of asset divestitures to qualify prematurely 
for Medicaid coverage of nursing home costs has negative consequences 
for the Medicaid program, for long-term care providers, and for 
consumers, both those who access Medicaid and those who use their own 
resources to pay for their care. People often are surprised by the 
price of long-term care, which reflects constantly-rising costs for 
staff and other elements of top-notch services. In most states, 
Medicaid reimbursement does not keep up, and private-pay rates become 
higher than they otherwise would have to be in order for a facility to 
break even. The burden of costs inadequately covered by Medicaid now 
falls unequally on the narrow segment of nursing home residents who pay 
their own way, because they end up paying more than they otherwise 
would have to, drawing down their own savings more rapidly. A letter I 
recently received from the family member of a privately-paying resident 
expressed his outrage over the inherent unfairness built into the 
current system. At the same time, consumers who access Medicaid 
coverage must devote all of their income except for a small personal 
needs allowance to their nursing home care, removing from them any 
financial independence.
    We must find equitable and effective ways to better share the 
essential costs of long-term care between public and private sources. 
Any one of us at some point could find ourselves in need of these 
services.
    The question isn't ``is long term care properly funded?'', but 
rather ``what is it we want the program to buy?'' If the intended 
outcome is the bare survival of residents, then Medicaid probably is 
adequate. However, if the intent is to have nursing home residents and 
those in the community thrive, according to the spirit of the nursing 
home standards in the Omnibus Budget Reconciliation Act of 1987, we 
have a long way to go.
    We increasingly are looking to technology to maximize our quality 
and cost-efficiency of care. Traditionally, ours has been a ``high 
touch'' field, but we now are using new technology to track our home 
care staff, hoping to become as sophisticated at scheduling them as 
Federal Express is at tracking packages. AAHSA's Center on Aging 
Services Technology is working with researchers, Intel and other 
technology companies, and providers to find ways in which technological 
developments could be applied to the field of aging services in order 
to help elders remain independent and to provide services more 
effectively.
    Another important trend in our field is culture change, shifting 
away from hierarchical staffing to a team approach to care and 
emphasizing consumer direction of the services we provide. The federal 
nursing home standards that were put into place under OBRA '87 
generally have improved the quality of care provided in our nation's 
nursing homes. We feel that the culture change movement, emphasizing 
consumer direction and autonomy, is well within the spirit of OBRA and 
other federal and state nursing home quality initiatives. At the 
national level, officials at CMS have indicated that OBRA should not be 
a barrier to putting the ``home'' into nursing home care, but 
implementing culture change still requires step-by-step negotiations 
with state survey agencies because of highly prescriptive regulations. 
Lutheran Homes has embarked on a complete transformation of our nursing 
departments, but we are still short of our ideal goals. We need a new 
spirit of cooperation among providers and government agencies so that 
we can partner in carrying out innovative approaches to long-term care.
    In closing, I just want to mention a project in which Lutheran 
Homes is now involved, which we are calling Operation Enduring Thanks. 
We plan to bring approximately thirty of our World War II veteran 
residents here to Washington to see the new World War II Monument on 
the Mall. Congressman Camp is a member of the Honorary Steering 
Committee for this project, and we greatly appreciate his generosity in 
helping our older veterans achieve this recognition.
    Once again, I appreciate the opportunity to discuss these issues 
with you today, and I look forward to working with you on the future of 
aging services.

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you very much, and 
before I recognize Dr. Feder, let me excuse myself for the 
questioning portion. I am going to stay and listen, but I am 
going to let the gavel transfer as testimony concludes. But I 
do want to thank you all for your thoughtful comments and for 
the continuity that I see flowing between them as to great 
importance of integrating care to greater quality and greater 
flexibility, and to make the changes in payment system and 
thinking and regulatory law and so on that that kind of 
holistic approach requires. I have read your testimony, Dr. 
Feder, and I am sorry that I won't be here to listen to the 
questions, but I do look forward to the full report that you 
are working on. I recognize you and turn the gavel over to my 
colleague from Louisiana, Mr. McCrery.

STATEMENT OF JUDY FEDER, PH.D., PROFESSOR AND DEAN, GEORGETOWN 
                    PUBLIC POLICY INSTITUTE

    Ms. FEDER. Thank you, Madam Chair. I appreciate being part 
of such an informative panel, and I appreciate speaking before 
you all, Mr. Stark, Members of the Committee on long-term 
financing. As Mrs. Johnson said, a lot of the information that 
I am relying on today and is in my statement for the record 
comes from a Robert Wood Johnson funded project that we call 
the Georgetown Long-Term Care Financing Project. I hope the 
information can be useful to you, and you can find it at 
www.LTC.Georgetown.edu. So, please take advantage of it. I want 
to concentrate now on three points: on long-term care financing 
as a problem not just for the future, but now, and not just for 
the budget, but more importantly for people in need of long-
term care and their families; on the inability of private long-
term care insurance regardless of its potential value and 
growth in use to address that problem adequately; and on the 
critical role of increased public, especially Federal 
financing, to assure affordable access to long-term care, both 
now and in the future.
    First, long-term financing as a problem now, not just as 
well as in the future. Among the roughly eight million people 
outside of nursing homes who are estimated to need long-term 
care, one in five report receiving insufficient care, with a 
great likelihood of falling, soiling themselves, or being 
unable to bathe or to eat as a result. The burden of long-term 
care is borne overwhelmingly by individuals and the families of 
those in need, in both caregiving and dollars, rather than 
spread through a public or private insurance. This is true 
despite the fact that the need for long-term care poses an 
unpredictable catastrophic risk, best handled by insurance. 
Almost 40 percent of the population estimate to be in need of 
long-term care today is under the age of 65, a population that 
clearly faces an unpredictable risk. And among the population 
about to retire today, the need for long-term care is also 
unpredictable, with tremendous variation in the likelihood o 
long-term care use. Close to half of today's retirees are 
estimated to die ultimately having needed either no long-term 
care or a year or less, while at the other extreme, one in five 
are estimated to need more than 5 years of care.
    Insurance is increasingly recognized as the way we ought to 
handle long-term care financing. But private insurance can only 
do some of the job. Indeed, promotion of private insurance as a 
fundamental solution or even as a priority ignores its 
significant limitations. Private long-term care insurance is 
not available to people who already have long-term care needs. 
Though available, it 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 policy holders 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 the experience in health insurance to 
recognize that reliance on the individual market plagued by 
risk selection, high market and cost 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 short of assuring insurance protection. 
Medicare focuses primarily on skilled care, not long-term care. 
Medicaid is the Nation's long-term care safety net. It is 
invaluable but it provides care-it does not provide what we 
think of as insurance in that it does not protect people 
against financial catastrophe. Rather, it protects them only 
after catastrophe strikes. Some have labeled the impoverishment 
of Medicaid as a fallacy, claiming that many people on Medicaid 
could pay for themselves. And some have claimed that having 
Medicaid available is a substantial deterrent to the purchase 
of long-term care insurance. As CBO Director Holtz-Eakin 
indicated a few moments ago, there is little evidence available 
to support either claim.
    Despite Medicaid's essential role, however, its protection 
has significant limitations. It provides too little care in the 
home where people would prefer to receive it; its eligibility 
and benefits vary substantially from State to State; and its 
services are too vulnerable to the fiscal pressures that States 
face. And as we have heard from CBO, if the problem is bad 
today, it is only likely to get worse in the future. What is 
needed for a different future is a public policy action. 
Developing better policy requires an assessment options to 
assure access to affordable 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 budget implications is a part of that 
assessment, but allowing budgetary constraints to drive that 
process distorts the Nation's policy choices. Last April's CBO 
report did precisely that, though I was pleased to hear Dr. 
Holtz-Eakin present a far more balanced approach today. To 
assert that, as CBO does, cutting back already inadequate 
Medicaid and Medicare protection would save Federal dollars is 
not surprising if you are focusing only on reducing Federal 
costs. But as CBO states, such a policy would increase burdens 
on family and reduce access to care. Similarly, CBO notes that 
promoting long-term care insurance whether through partnerships 
or other mechanisms is unlikely to reduce costs or even 
substantially expand coverage. What is needed is the expansion 
of Federal dollars to support a more adequate approach across 
the Nation. We know that such an approach must need not 
eliminate personal responsibility, as many European nations are 
working to more fairly distribute burdens----
    Mr. MCCRERY. [Presiding.] Dr. Feder, if you could wrap up.
    Ms. FEDER. And in conclusion, to more fairly distribute 
burdens across individuals and taxpayers, we can do the same, 
and it ought to be our highest priority.
    [The prepared statement of Ms. Feder follow:]
 Statement of Judy Feder, Ph.D., Professor and Dean, Georgetown Public 
                            Policy Institute
    Chairman Johnson, Mr. Stark, 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. MCCRERY. Thank you. Mr. Stinson, Dr. Feder outlined a 
number of reasons that private long-term care insurance is not 
working and won't work in her opinion. Would you like to 
respond to the reasons that she gave or in the alternative give 
me your reasons why long-term care insurance is not being 
purchased in large numbers these days?
    Mr. STINSON. I would be happy to respond. Correct maybe 
just a couple of points or give my perspective on the a couple 
of the things that Ms. Feder presented and then give an answer 
perhaps to why more people haven't bought long-term care 
insurance. She indicated in her findings that the product is 
not designed for younger people. And I will take exception to 
that. I have dozens and dozens of claimants under age 50. In 
fact, my youngest claimant is 36 years old. The product to 
those families is extremely important. It is going to pay for 
costs of care for those families for many, many years, and the 
policies today are designed with extreme flexibility in terms 
of where you can receive care. So, I believe the products are 
built for a younger population. In fact, in my testimony, I 
indicated that the average age is now down in the high fifties, 
and it is dropping rapidly. So, it is a financial planning 
product for the baby boomers.
    The dialog before this panel got up was why aren't more 
people owning long-term care insurance. About 8 percent of 
adult Americans own long-term care insurance today. Over 65, 
that number is about 15 percent of Americans over age 65 own 
the product. That is not incredibly unique. Life insurance 
ownership is about 30 percent. long-term care insurance has 
only been around in its form today for about 10 to 15 years. 
So, the fact that 15 percent of adult Americans over age 65 own 
the product is actually a pretty good thing. I mention the 
statistic six million people. Why isn't the number 30 percent? 
I think the single biggest issue that we have in front of us is 
the reluctance of the American people to embrace an idea that 
they are going to lose their independence. People don't want to 
think about it. People don't want to talk about it. That forces 
a lack of awareness of three important things: the lack of 
awareness or the likelihood of needing care; the lack of 
awareness of the cost of long-term care; and a lack of 
awareness around what the funding options are. I think our 
single biggest issue facing the penetration of this particular 
product is the lack of awareness in the public today of long-
term care issues.
    Mr. MCCRERY. How do you change that?
    Mr. STINSON. I think a couple of things. The tax incentive 
that has been proposed I think does two things. It certainly 
will help on the cost, on the affordability side of purchasing 
long-term care insurance. As I mentioned, long-term care 
insurance is not a product for everyone. I think the most 
important thing that an above the line tax deduction would 
provide or a discussion around the Partnership is the fact that 
it would bring this topic to every kitchen table in America 
today. Everyone has just completed filing their tax returns. If 
that particular item was on every single tax return in America, 
people would be asking their financial planners, asking their 
advisors, or looking to one another and say what is long-term 
care insurance? Should I be taking some action? And I think the 
Partnership Programs are another great way in terms of getting 
the concept out and with an objective oversight from 
government, from the States, and a plan that works in public 
and private partnership is a great way and an inexpensive way 
to address the issue.
    Mr. MCCRERY. Why is it not a product for everyone?
    Mr. STINSON. In terms of affordability, if you look at 
lower income families, I think, the average premium for this 
product is $1,500 to $2,000. For those that are just getting by 
and putting food on the table, living paycheck to paycheck, I 
do not believe this particular product or many financial 
products is the right solution for that individual family.
    So, that is an area of the population I don't believe this 
product is designed for and we recognize that. And that is the 
purpose of our Medicaid system.
    Mr. MCCRERY. Ms. Stark.
    Mr. STARK. Thank you. Thank you, all of the witnesses for 
participating. Mr. Stinson, can you tell us what your 
persistency is on your long-term care policies?
    Mr. STINSON. Yes. Our--to flip it around and say lapse 
rate, voluntary lapse rate. The number of people that just stop 
paying premiums.
    Mr. STARK. Before they die or before they----
    Mr. STINSON. Right.
    Mr. STARK. Mature.
    Mr. STINSON. Excluding mortality, is about one and a half 
percent. Most of our customers hang on to this policy until 
they pass.
    Mr. STARK. Okay. And can you give us a loss ratio?
    Mr. STINSON. That is a more complicated answer.
    Mr. STARK. All right.
    Mr. STINSON. It is difficult to frame a specific percent 
for you, sir.
    Mr. STARK. Why?
    Mr. STINSON. I would have to understand the context of the 
question. I know about half of my customers are going to file a 
claim.
    Mr. STARK. No. Of the premiums you take in, how much do you 
pay out in benefits? That's what I have always thought of as 
loss ratio, but----
    Mr. STINSON. I can get you--I don't have the number right 
off the top of my head, sir.
    Mr. STARK. Well, I don't. Well, whatever you can give us. 
The last year you can think of what were your in force premiums 
for your long-term care?
    Mr. STINSON. In force premium is about a billion six. We 
pay out about $500 million in claims every year.
    Mr. STARK. So, your loss for insured is about a third. 
Right? Thirty percent?
    Mr. STINSON. In that definition.
    Mr. STARK. Very good.
    Mr. STINSON. And I know that about 50 percent of the people 
that own the policies today will file a claim at some point.
    Mr. STARK. Well, I don't have any other questions, Mr. 
Chairman.
    Mr. MCCRERY. Mr. Lewis?
    Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. 
Let me thank each of you for being here today, and thank you 
for your testimony. Dr. Feder, it is good to see you again. I 
haven't seen you in a long time. Thank you. Mr. Gehm, you 
written testimony stated that Medicaid reimbursement does not 
keep up with the cost of care in nursing homes. Can you tell me 
how the repeal of the Borne Amendment in 1997 has affected your 
bottom line? Has the quality of care diminished as a result or 
lower payment as anticipated? Would you say that some of the 
quality problems in nursing homes that are being reported in 
recent years are the result of the repeal?
    Mr. GEHM. I can tell you that in our experience through the 
early '90, even into some of the mid '90s with Borne intact, 
Medicaid funding was more consistent with our expense profile 
for caring for folks. As a result of the repeal of Borne, what 
we have seen at least in Michigan, and I think this is similar 
across the country, is that the increases in Medicaid initially 
did not keep up with what the inflation of the expenses were 
and more lately we have seen, of course, some rollbacks in 
Medicaid. As a result, our bottom line has been impacted 
significantly. Provider taxes came onto the scene, and so it 
would take some analysis to get you some direct numbers at 
least in the case of Lutheran Homes and that could be done. I 
would be happy to do that.
    Mr. LEWIS OF GEORGIA. I would love to seeing maybe other 
Members of the Committee would like----
    Mr. GEHM. I would be happy to do that. But I think the 
overall theme for us right now is certainly the trend with 
respect to Medicaid is that the differential between cost of 
care and coverage under Medicaid is a widening gap for us. Your 
broader question about whether it has impacted quality issues 
in nursing homes. On the one hand, I can't help but think that 
it hasn't. On the other hand, I know that the provider 
community has become very innovative within the regulations and 
very proactive in trying to create new futures and new models 
of care, and I think quality continues to grow and we have seen 
it in the quality indicators that are tracked and monitored. 
And so we are happy with the direction that it is going. But 
certainly funding will always impact quality, certainly to a 
certain extent.
    Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Gehm. Dr. 
Feder, I would like to ask you and this may be a question that 
my friend, Mr. Pomeroy, may be interested in. I understand that 
the National Association of Insurance Commissioners is 
currently promoting formation of an interstate compact that 
will circumvent State laws and allow same insurance products, 
including long-term care insurance, to be monitored and 
essentially regulated by non-governmental effort. Are you 
familiar with this proposal? What are you thoughts on that?
    Ms. FEDER. Mr. Lewis, I am relying on the work done by my 
colleague, Nila Kaufman, at Georgetown who has in looking at 
the policy has indicated a number of concerns as have many who 
have looked at it. The concerns being that rather than 
strengthening the standards that apply to the policies affected 
that it creates an opportunity for some insurance to be sold 
that escapes State standards that are more restrictive and more 
effective. So, rather than strengthening consumer protections, 
the concern is that it would weaken them.
    Mr. LEWIS OF GEORGIA. Other members of the panel have any 
reaction? Thank you, Dr. Feder. Thank you, Mr. Chairman.
    Mr. MCCRERY. Yes, sir, Mr. Lewis. Mr. Pomeroy?
    Mr. POMEROY. Thank you, Mr. Chairman. First of all, let me 
congratulate--first express my appreciation for being allowed 
to ask questions, not being a Member of the Health 
Subcommittee. But I want to acknowledge that I think this has 
been an excellent panel. And it has been my pleasure to work 
with a couple of panels for a long time--Dr. Feder, and even 
longer Mark Meiners. We have been trying to figure this one out 
for 20 years. And it is really good to see you again. The first 
question I direct to Mr. Stinson and it relates to the loss 
ratio questions that Mr. Stark--I am a little rusty from my old 
insurance regulatory days. But I believe the loss ratio 
includes claims reserving in the loss side of the equation. So, 
if it was--it is not simply a matter of claims paid out in a 
given year versus premium in a given year on the loss side, 
those premiums held in reserves to pay future losses are also 
counted as loss; isn't it for a loss ratio?
    Mr. STINSON. Hence, my reluctance to just jump at an answer 
to the question. Just an incurred loss ratio of the claims that 
I am actually paying was the 30 percent number there, the $500 
million, divided by the billion six, when, in fact, the 
insurance companies do have to put up substantial reserves to 
pay for claims in the future.
    Mr. POMEROY. And as the policy book ages, your claims go 
up?
    Mr. STINSON. Absolutely. Absolutely.
    Mr. POMEROY. Do you know your target loss ratio for getting 
policy form and rates approval in a given State?
    Mr. STINSON. Not in a particular State.
    Mr. POMEROY. My notion is it is 60 percent or better.
    Mr. STINSON. Right. Sixty to seventy percent is a range.
    Mr. POMEROY. Right.
    Mr. STINSON. Yes.
    Mr. POMEROY. The real debate of long-term care insurance is 
should we try and figure out some private protections for 
people or is it all basically a waste of time awaiting some 
significant Federal relief with a comprehensive program. I have 
run into this from my youngest days as insurance commissioner 
trying to work on improving what was offered by way of this 
coverage. My approach was kind of agnostic on the question. I 
think that until we pass something--that is a big Federal 
program to address the concern in this area--people have 
legitimate risk exposure and then therefore a legitimate need 
to try and get something in place that deals with it. Dr. 
Feder, do you acknowledge that can be a legitimate role in the 
meantime here.
    Ms. FEDER. Absolutely, Mr. Pomeroy. And I know how hard you 
have worked to achieve that. And I think that the policies, as 
we have heard from Mr. Stinson and also Mark Meiners and the 
Partnership, the policies have improved dramatically over the 
years as the policies have evolved. But when we look at a focus 
of public policy, I have a number of concerns.
    Mr. POMEROY. My question is--I am surprised to hear the 
debate almost, there was a wonderful little trip down memory 
lane, because it sounded a lot like 1985 all over again. I am 
just looking at this budget, which is in tatters, and has been 
horrifically handled by Congress in my belief. But I don't see 
any shred of a possibility of some significant new 
comprehensive Federal program to deal with this long-term risk, 
especially when you consider the aging of the population.
    Ms. FEDER. But, Mr. Pomeroy, what we do know in this budget 
is that we are seeing proposed cuts in the Medicaid program 
that we rely on for long-term care.
    Mr. POMEROY. I think that is very ill advised.
    Ms. FEDER. That the partnerships, we heard a CBO estimate 
that it might increase costs and that we--therefore, I find it 
a matter of concern to rely on a program that is being squeezed 
on the one hand to provide some subsidy on the others.
    Mr. POMEROY. Has Georgetown, your study been able to look 
at the partnerships and try and draw your own conclusions about 
whether it is a net cost or saving?
    Ms. FEDER. We have not done that. What we will be doing as 
part of the larger project is looking at the partnerships 
alongside other initiatives that could be taken to see what 
their consequences are in terms of costs and----
    Mr. POMEROY. Before my time entirely. Thank you very much, 
and it is I really good to see you again.
    Ms. FEDER. Could I just say one more thing on the trouble? 
No. I won't then.
    Mr. POMEROY. Well, I want to get Mark in here before my 
time runs out.
    Ms. FEDER. All right.
    Mr. POMEROY. I am at the Chairman's leave. So, do you have 
an evaluation in terms of whether this is a net cost or a net 
minus or largely a wash but in the meantime people are getting 
substantial private coverage and protecting some assets, which 
should be considered on the plus side I imagine.
    Mr. MEINERS. Well, back--it seems like 20 years ago, when 
we were starting the program. We did simulations with them and 
the state of the art modeling technique of using the Brookings 
ICF model that Judy is now using a version of. And we had 
estimated that as the program unfolded by year, it was done in 
five-year intervals, 2016 to 2020, the rollback should be a 7 
percent in each point drop in Medicaid costs as a proportion of 
the expenditures. Now, more recently----
    Mr. POMEROY. Well, I am just going to ask if you could take 
that model and then juxtapose into it the early, experiences 
that we have had in the pilot States.
    Mr. MEINERS. Because we get asked this question all the 
time, the States have really developed their own model based on 
some responses they have gotten from surveys as well as the 
experience of purchasers as much as you mentioned. There is a 
fairly good tracking that has been done now. And the States--
the three dollar for dollar States--California, Indiana, and 
Connecticut--have estimated at this point a savings of $8 
million to $10 million in an aggregate basis.
    Mr. POMEROY. And----
    Mr. MEINERS. They are showing savings from their 
perspective of putting these numbers on the table and----
    Mr. POMEROY. Actuarially, many--depending on the period of 
time of protection purchased, but people--and with the 
disability sufficient so that they actually become 
institutionalized many will before becoming Medicaid eligible--
before they have exhausted their coverage die, and is that 
seems to be--as I look at the data, it looks like this is 
fitting an actuarial expectation and that getting them that 
extra private coverage is indeed allaying the inevitable 
Medicaid hit. Even if it is essentially a wash on Medicaid, it 
is getting them additional private pay so they are having asset 
protection in a very meaningful way that is of value to 
creating the estate.
    Mr. MEINERS. What we are seeing is that most of the asset 
protection incentive that is earned is not used because the 
insurance is the first thing that pays and most people will 
die, in using up the insurance to take care of their long-term 
care needs. So, relatively little of the Medicaid asset 
protection is ever used. And the flip side of the way you get 
the benefit of it is the strategy is really designed to bring 
people in the market who are resistant. We worry about the size 
of the market. There is a lot of denial out there. There is a 
lot of worry about costs versus quality, and frankly the people 
who need it most are the ones who are asking those questions 
the hardest. And the Partnerships are really designed and I 
think can be effective in getting to that middle modest income 
group that really need this kind of protection because it is 
geared toward providing a more limited yet significant useful 
type of care, level of care.
    Mr. POMEROY. My time is exhausted, but I really appreciate 
this information.
    Mr. MEINERS. Good to see you.
    Mr. POMEROY. If you have stuff to bring to my attention at 
the office I would really enjoy learning a lot more from your 
perspective. Thank you, Mr. Chairman.
    Mr. MCCRERY. Before I ask Doctor, there was a couple more 
questions about the Partnership, I want to give Mr. Stark a 
follow up.
    Mr. STARK. I just wanted to ask unanimous consent to insert 
the CBO estimates in the record, which show a $45 million cost 
on the Partnerships and I think that should be part of the 
hearing's records.
    Mr. MCCRERY. Without objection.
    Mr. STARK. And I will discuss the question of reserves on 
loss ratios with my colleague privately.
    Mr. MCCRERY. Dr. Meiners, I want you to talk a little bit 
more about the partnership concept, especially as it relates to 
Medicaid estate planning. Dr. Feder says in her testimony that 
there is not really a lot of evidence out there that that is 
going on, that it is all anecdotal. I have several books here 
that we got from the library that are all about Medicaid estate 
planning. So, somebody thinks it is going on. There is a Web 
site from the University of Minnesota that says Medicaid estate 
planning involves legal and financial approaches to satisfying 
financial eligibility requirements for Medicaid. More 
specifically, an individual's assets are sheltered with the 
intention of voluntarily becoming impoverished to meet Medicaid 
eligibility criteria. So, there is something going on out 
there, and my question to you, Dr. Meiners, is if this is going 
on, do you think the partnership concept is a way to minimize 
that?
    Mr. MEINERS. Okay, yes. Let me take a pick on the issue. 
First of all, I think we can debate back and forth how much of 
it is going on. I think when it happens, unfortunately it 
happens because people haven't been able to prepare for this 
risk. And the reason they are unprepared for the risk is 
because they really haven't had good options, particularly 
those people that are most at risk of easily spending down. So, 
when the problem hits and they haven't prepared, they are going 
to look for ways to shelter their limited assets and that is, 
viewed as this divestiture notion. And most people, if you were 
facing them as a social worker, someone like that, you would 
probably help them do it because, their backs are to the wall 
and they don't really have a whole lot. So, what we are trying 
to come up with is an alternative that really is appealing to 
people so that when--they can avoid that situation. I think 
several things can happen then. The issue of going after 
people's divestiture behavior is something that is very hard. 
We have seen it being politically hard. So, the only way you 
can really do it is if you have a reasonable alternative, like 
the partnership, that really helps people plan for this risk 
and get that out there far enough in advance so that you have 
sort of the carrot and the stick. Otherwise, it becomes very 
hard to do that.
    I think, bottom line, in terms of what you do about asset 
transfers, we have debated this on and off and on and off, and 
it is kind of like if there are a lot of asset transfers going 
on, then it is something that we ought to do something more 
about. And if there is

not a lot of assets transferring going on, then what does it 
matter if we do something about it? So, either way, doing 
something about it is to sort of send the message, that this 
really isn't what ought to happen, is important. But I, 
frankly, feel like you really need something like the 
partnership or other ways to help people prepare for this risk 
so that the information can be out that there is something 
positive that can be done about it. One of the reasons that we 
struggle with this is because we don't really have good 
answers, so we don't raise the problem, and sort of--CMS, for 
example, has done their educational campaign, but it has been 
very slow in unfolding and fairly limited. And I think in part 
it is because there is a hesitancy to acknowledge that we have 
any answers. I think the partnership is an answer that we can 
work on that actually can help to strengthen the Medicaid 
program and give people incentives to provide for themselves at 
the same time. And then the asset transfer issue can be dealt 
with more effectively.
    Mr. MCCRERY. Thank you. Before I give any of the other 
panel members a chance to make a last comment before we 
adjourn, I just want to point out that while we haven't made a 
bubble on deductibility public policy for long-term care 
insurance, we have allowed the use of health savings accounts 
balances for paying premiums which, of course, are pre-tax 
dollars. So, there is that vehicle out there now that is 
available for paying premiums for long-term care insurance. 
Does any other panel member want to make a comment before we 
adjourn.
    Ms. FEDER. I would.
    Mr. MCCRERY. Dr. Feder?
    Ms. FEDER. Just I wanted to say, going back to Mr. 
Pomeroy's questions about frustration in trying to do 
something, one area of concern to me is that we will be cutting 
Medicaid while talking about these other areas that would rely 
on it. But even of greater concern if we take new initiatives 
is if we are going to actually commit to spending new public 
dollars, it seems to me that they must go first to those who 
are in greatest need, which means targeted down the income 
scale. And that is why I am most concerned about policies that 
would continue to, that have done or would continue to offer 
tax incentives for the purchase of private long-term care 
insurance, or targeted to the higher-income population. It 
seems to me that many of us can afford to buy these products 
already if we so choose. And spending these--you are quite 
right--hard-do-come-by tax dollars on the population most able 
to take care of themselves seems to me a very unwise policy 
choice.
    Mr. POMEROY. Mr. Chairman, if I might ask a follow-up 
question.
    Mr. MCCRERY. Sure.
    Mr. POMEROY. Well, what if it is like this. We have enough 
dollars to either help a broader number, if we leverage some 
private dollars into the mix, even though that means gearing it 
at middle income as opposed to the most needy income, versus 
helping a smaller number that have no assets at all and so have 
to be 100 percent public funded. These are the terrible policy 
choices a bad budget environment leaves us with, but I think 
that it shouldn't be dismissed out of hand, helping the 
broadest number that you can.
    Ms. FEDER. Well, actually, I think that it is not that we 
are helping people even today, with people who have no assets, 
people who are going on Medicaid, the evidence is overwhelming, 
or people with modest income and assets who contribute all 
those assets and income to the costs of their care. So, we are 
relying on private and public resources now. It is just a 
public-private partnership, if you will, that is tremendously 
unfair to the individuals unlucky enough to fall into that 
trap. I have heard some people refer to it as the last estate 
tax left, is on individuals who are so unlucky as to need long-
term care and exhaust their resources. So, we can enhance 
Medicaid's ability to protect people who have long-term care 
needs and still rely, still be relying on profit resources but 
do a far better job of mixing public and private resources, 
even if we don't go all the way to a social insurance program, 
as Mr. Stark----
    Mr. POMEROY. My notion is, just in response--the discussion 
will be continued, I suppose, in philosophical ways for a long 
time. If, for example, you took the Federal dollars and tried 
to bring up spend-down levels so we have a higher level for 
eligibility for Medicaid; or, on the other hand, you tried to 
preserve, the payment for Medicaid services that are under 
great stress now. Either way. You basically do not expand 
substantially the portion of the population that you are 
helping. And if you, on the other hand, with a partnership 
approach, can incent additional people buying this third-party 
coverage, which is getting additional private payment into the 
mix, conceivably you are leverage dollars that allow you to 
help a larger number of people.
    Ms. FEDER. It is just not clear to me that the partnership 
is actually serving as the incentive that you would like it to 
be. People can buy limited-dollar policies now. They do run the 
risk of having to ultimately spend down to Medicaid, so I do 
get that they are getting the additional asset protection. But 
as we hear, most of them are dying before they exhaust the one- 
and two-year benefit period. So, they buy that now.
    What is troubling to me as a public policy is targeting our 
attention on modest-income people. I looked at the data. It 
says for a 60-year-old, you are asking somebody for a limited-
dollar policy to spend--I have to double-check my notes, but I 
think it was 10 percent of income, roughly, median income for 
60-year-olds, on a policy. That doesn't feel to me like we are 
helping them so much. They haven't even got sufficient 
resources for retirement. So, I would rather we worked harder 
on making the safety net decent.
    Mr. POMEROY. I certainly understand your point.
    Ms. FEDER. Thank you.
    Mr. MCCRERY. Let's go--this is your last chance. Mr. Gehm?
    Mr. GEHM. Thank you. I would like to offer maybe an 
alternative kind of perspective with respect to long-term care 
insurance and its kind of market penetration, such as it is, 
and these kinds of things. I am not sure that, from where I sit 
on kind of the long-term care continuum, from the provider 
side, both within, certainly, my organization, colleagues I 
speak with in Michigan and across the country, I have really 
come to the conclusion that the lack of buy-in to long-term 
care insurance isn't necessarily a rejection of that product, 
but mostly a rejection of what you are insuring against, and 
that is the notion that it is buying you traditional nursing 
home care rather than what it really can do for us with respect 
to buying services that link to housing. So, I think we might 
have some success if we begin to think a little differently 
about what it is we are trying to get long-term care insurance 
to really do. And when it allows folks to link services with 
housing, which the programs do allow, I think we will have some 
success. The problem is people think they are insuring against 
nursing home risk. They don't want to deal with it. And I agree 
with my colleague down the panel here, who suggested that there 
is this kind of I-don't-want-to-deal-with-my-own-aging bias 
with respect to that. And if we can offer the market choices in 
terms of care venues and housing with services and other things 
as part of what we talk about when we talk about long-term 
care, I believe that we will have more success in creating the 
right incentives in the market for folks to go ahead and insure 
against that risk.
    Mr. MCCRERY. Thank you.
    Dr. Meiners?
    Mr. MEINERS. I appreciate the opportunity to mention one 
more thing, and that is as we try to think creatively, I really 
was trying to orient us to thinking about these systems of 
care, the integration of Medicare and Medicaid, because when 
you pull those dollars, you really have the chance to actually 
take Medicare dollars the only way you really can and turn it 
into more of an ability to pay for things like the In-Home 
Supportive Services program that was mentioned earlier, a 
personal care program, long-term care programs. So, I think 
those are a model of where you can pool dollars and the States 
are creating systems of care that are unique in doing more than 
is normally out there in the process, coming up with better 
ways of caring for people. I think, with that structure in 
place, you could use something like the partnership incentive 
to perhaps encourage people who are pre-duals, who haven't yet 
ended up on Medicaid, and get them in some of those systems of 
care with care management, care coordination, and perhaps have 
them get the kind of coordination that helps them avoid ever 
needing to spend down or at least delaying that spend-down 
process, where they would ever need to end up on Medicaid. Now, 
that is something, if you let States work with those pre-duals 
and some incentive systems, States really get a lot out of that 
because this person never really becomes a full dual-eligible, 
never really becomes Medicaid-eligible, because they are 
getting better care up front. I think there are a lot of 
creative things we can do there in this situation we are in, 
which is not unlike the situation we were in when I first 
started looking at long-term care insurance more than 20 years 
ago. We need that kind of creativity. And I think there are 
ideas that we can pursue in that regard, and the partnership 
and those integrated care systems can both be part of it.
    Mr. MCCRERY. Mr. Stinson?
    Mr. STINSON. Thank you, yes. Just in response to the 
question around does the partnership program help sell 
insurance. We believe it does. Statistically, we sell more 
partnership programs in those States that have the partnership 
program than non-partnership policies. A significant proportion 
of the policies we sell in California, Connecticut, Indiana, 
New York are partnership policies because we believe consumers 
see the value of the private and public partnership and the 
value of that program. So, we believe it does help insurance 
and would offer broader coverage for consumers. Again, the 
long-term care insurance industry does not believe that the 
long-term care insurance product is the only solution. We 
believe that it should be part of the solution. We believe that 
the way to get greater penetration is a program of greater 
education and awareness. I think broader consideration of the 
partnership program is a very just cause, and considering 
above-the-line tax deductions, other forms of tax incentives 
will help people consider this product and own more of it.
    Mr. MCCRERY. Dr. Gerety, you get the last word.
    Dr. GERETY. I would just urge the Subcommittee to think, 
along with all these issues about financing and the structure 
of care, to not forget that you need a workforce to deliver 
that care. And right now we are already in a situation where we 
have a real shortage of qualified professionals who can deliver 
geriatric care--doctors, nurses, social workers, therapists, 
personal care providers. And so as we are trying to prepare for 
all this need, I think the Nation has to face the fact that 
without public policy action, you simply will not have trained 
people to be able to provide high-quality care. And I think any 
program that you undertake to reform long-term care has to 
address these work-force issues, or we will be stuck with 
still-poor-quality care even in a system that might have 
financing available.
    Mr. MCCRERY. At the risk of engendering more discussion, 
which I will cut off immediately, any ideas you have on how we 
could improve that climate, we would welcome. Because we have 
been struggling with it for some time. Thank you all very much 
for a very interesting discussion of the topic. And we thank 
you very much for coming to our humble chamber and sharing your 
ideas with us..
    [Whereupon, at 6:18 p.m., the hearing was adjourned.]
    [Submissions for the record follow.]
   Statement of Alane Dent, American Council of Life Insurers (ACLI)
    The American Council of Life Insurers (ACLI) is a Washington D.C.-
based national trade association representing more than 350 member 
companies that offer life insurance, annuities, pensions, long-term 
care insurance, disability income insurance and other retirement and 
financial protection products. ACLI member companies have 81 percent of 
the long-term care insurance in force in the United States.
    We are delighted that this Subcommittee is addressing an important 
issue facing this nation--long-term care--through the hearing process 
and possibly through legislation. Subcommittee Chairwoman Nancy Johnson 
has been and continues to be a thoughtful leader on this issue by 
introducing legislation that would encourage individuals to plan ahead 
and adequately provide for their future long-term care costs by 
purchasing long-term care insurance. A number of Members of this 
Committee have sponsored this legislation, and we are pleased to 
discuss with the Subcommittee the role that private long-term care 
insurance plays in ensuring the retirement security of millions of 
middle-income families.
     To elevate the issue of long-term care today and over the next 
decade ACLI cosponsored the 2005 White House Conference on Aging's 
Mini-Conference on Long-Term Care. At this conference participants 
representing long-term care stakeholders within both the public and 
private sectors came together to actively address the serious issues 
associated with long-term care and worked to formulate public policy 
recommendations to the upcoming White House Conference on Aging that 
will be held later this year. The Mini-Conference on Long-Term Care 
participants urged Congress to enact laws which would encourage private 
arrangements by individuals and their families for LTC services, such 
as tax incentives for the purchase of long-term care insurance or other 
private options for financing long-term care.
    One of the greatest risks to asset loss in retirement is 
unanticipated long-term care expenses. ACLI has found that nearly half 
of all Americans will need long-term care at some point in their lives. 
A 65-year-old woman has a 50-percent chance of needing nursing-home 
care in her lifetime; a 65-year-old man has a 30 percent likelihood of 
needing such care. One in five over age 50 is at risk of needing it in 
the next twelve months. The annual cost of a nursing home stay averages 
$55,000 and is projected to reach $241,000 by 2030. Two visits a day by 
a home health aide to help with bathing, dressing, and household chores 
can cost $2,500 a month. If skilled help, such as physical therapy, is 
needed the expense is greater. These costs can quickly erode a hard-
earned retirement nest egg.
    Today, your Subcommittee is focusing on the current financing for 
long-term care services; private long term care insurance options 
include the Long Term Care Partnership programs; and the challenges 
ahead in financing needed services for an aging population. We want to 
stress that both current and future long-term care financing needs can 
best be met through the broader use of long-term care insurance.
Current Financing for Long-Term Care Services
   Long-Term Care Insurance
    The long-term care insurance market is vibrant and innovative. ACLI 
recently surveyed the long-term care insurance market, with the 
assistance of America's Health Insurance Plans (AHIP) and found that 
the individual market in terms of premiums is approximately 12.5 times 
larger than the group market in terms of premiums--$6,502 million 
compared to $510 million, and 3.5 times larger in terms of policies 
versus certificates--4 million policies compared to 1.1 million 
certificates.
    The individual market grew at 7.5% from 2003 to 2004 (in terms of 
premiums). The group market grew at 25%. The strong growth in both 
markets represents the value of the product and the continued effects 
of the Federal Long-Term Care Insurance Program that made long-term 
care insurance available to federal government employees, annuitants 
and their qualified dependents and relatives. This program stands as an 
example to all employers to offer similar programs to encourage their 
employees to prepare for their future retirement needs. The average age 
of purchasers of long-term care insurance continues to decrease as 
individuals increasingly understand it as a tool to retirement income 
security, In 2004, long-term care insurance carriers paid more than 
$2.1 billion, or a 20 percent increase from 2003, in long-term care 
insurance benefits.
    long-term care insurance continues to evolve to give policyholders 
more choices and greater quality of care. For instance, the market has 
evolved from nursing home-only to one that offers flexible care options 
and numerous consumer protections. Most policies allow customers to 
choose between in-home care, assisted living facilities and nursing 
homes, encouraging the individual and their families to customize his 
or her care needs. In addition, policies offer the services of a local 
care coordinator that meets with a policyholder at the time of claim to 
help craft a plan of care and identify local care providers. Other 
common benefits include:

      case management services;
      homemaker or chore services;
      restoration of benefits;
      reimbursement of bed reservations in long-term care 
facilities;
      coverage of some medical equipments survivorship 
benefits;
      caregiver training; spousal discounts; and
      limited pay policies.

    All plans are guaranteed renewable, have a 30-day ``free look'' 
period, offer an inflation protection, cover Alzheimer's disease, have 
a waiver of premium provision, and offer unlimited or lifetime nursing 
home maximum periods.
    Incentives to Encourage Individuals to Buy Long-Term Care 
        Insurance
    An integral solution to meeting long-term care expenses will be the 
reintroduction and passage of H.R. 2096, the ``Long-Term Care and 
Retirement Security Act of 2003'' that the Chairwoman introduced in the 
108th Congress. The measure provided individuals with an above-the-line 
federal income tax deduction for the premiums they pay to purchase 
long-term care insurance. The long-term care policies subject to the 
deduction are covered by broad consumer protections. In addition, the 
measure would permit long-term care insurance policies to be offered 
under employer-sponsored cafeteria plans and flexible spending 
accounts. Finally the bill includes a tax credit to individuals with 
long-term care needs or their caregivers of up to $3000.
    This important tax incentive will go a long way toward encouraging 
the purchase of long-term care insurance by middle-income Americans. 
Moreover, providing this important tax incentive means that Americans 
who take advantage of long-term care protection will not be a burden on 
the Medicaid system and will not have to spend-down their retirement 
assets to pay for long-term care before becoming eligible for Medicaid. 
Instead, they will have the choice of a variety of services if they are 
unable to perform a specific number of activities of daily living or 
are cognitively impaired. Today's long-term care insurance policies 
cover a wide range of services to help people live at home, participate 
in community life, as well as receive skilled care in a nursing home. 
Policies may also include respite care, medical equipment coverage, 
care coordination services, payment for family caregivers, or coverage 
for home modification. These options can enable people who are 
chronically ill to live in the community and to retain their 
independence.
    While the financial benefits to individual policyholders are 
obvious, the benefits to government--and future taxpayers--of wider 
purchase of private long-term care insurance are substantial. By the 
year 2030, Medicaid's nursing home expenditures could reach $134 
billion a year--up 360 percent over 2000 levels. ACLI's research 
indicates that by paying policyholders' nursing home costs--and by 
keeping policyholders out of nursing homes by paying for home--and 
community-based services, private long-term care insurance could reduce 
Medicaid's institutional care expenditures by $40 billion a year, or 
about 30 percent.
    In addition, the ACLI study found that wider purchase of long-term 
care insurance could increase general tax revenues by $8 billion per 
year, because of the number of family caregivers who would remain at 
work. Today, 31 percent of caregivers quit work to care for an older 
person; nearly two-thirds have to cut back their work schedules; more 
than a quarter take leaves of absence, and 10 percent turn down 
promotions because of their care giving responsibilities. It costs the 
typical working caregiver about $109 per day in lost wages and health 
benefits to provide full-time care at home--which is almost as much as 
the cost of nursing home care.
    Long-Term Care Partnerships
    Increasingly, states are tackling the costs of long-term care and 
are exploring ways to partner with the private insurance industry to 
alleviate the growing burden. One such way is through the Partnerships 
for Long-Term Care, a pilot program developed by the Robert Wood 
Johnson Foundation in conjunction with state governments and the 
support of the private insurance industry.
    The Partnerships allow consumers to purchase a long-term care 
policy whose benefits must be fully utilized prior to qualifying for 
Medicaid. When that coverage is exhausted, individuals may apply for 
Medicaid, as they would have without the private insurance. Because 
they utilized their insurance coverage under the Partnership, they can 
protect the level of assets as defined in their policy.
    Partnerships have taken the form of two models. The dollar-for-
dollar model allows people to buy a policy that protects a specified 
amount of assets. The total asset model provides protection for 100 
percent of assets once they exhaust their private insurance coverage.
    The Partnership program is currently operational in four states: 
California, Connecticut, Indianaand New York. More than 180,000 long-
term care insurance policies have been purchased in those states, and 
it is estimated that through these Partnerships, approximately $30 
million of assets have been protected. The Partnership benefits 
consumers, Medicaid and private insurers.
    Few Partnership policyholders have accessed Medicaid to date. Of 
the more than 180,000 policies that have been purchased since 1992, 
fewer than 100 individuals have exhausted those benefits and applied to 
and or accessed Medicaid.
    In 1993, shortly after the Partnership pilots began, Congress 
suspended expansion of the Partnership to any additional states. The 
pilots were stopped due to concerns that a publicly funded program such 
as Medicaid would endorse private insurance programs. Others were 
concerned that the Partnership might increase Medicaid spending. 
However, as Medicaid costs increase, Congressional representatives from 
non-Partnership states have become interested in implementing 
Partnership programs. During the 108th Congress, legislation was 
introduced in both the House and the Senate that would repeal that 
prohibition. In addition, 16 states have passed legislation that would 
implement a Partnership once the 1993 restrictions are withdrawn or 
waived. The long-term care insurance industry is interested in 
expanding the Partnership beyond the four pilot states and is actively 
engaged in a public policy dialogue that is intended to utilize the 
lesson learned those four Programs.
    ACLI believes that some type of simplified uniform approach to the 
LTC Partnership Program that includes eligibility for benefits for any 
approved tax-qualified LTC policy; state reciprocity; dollar for dollar 
asset protection; uniform, simplified annual reporting to a single 
respository; and consumer protection can play an important role in 
encouraging the purchase of LTC insurance and help provide important 
savings to Medicaid.
Future Financing for Long-Term Care
    Private long-term care insurance will be the key to future 
financing for long-term care. The insurance industry continues to 
educate Americans that a financially secure retirement includes a plan 
to cover future long-term care expenses. To help educate consumers on 
how to select and purchase a long-term care insurance policy, ACLI 
maintains educational brochures and information on its website, and 
upon request, which encourages consumers, when considering a major 
purchase of long-term care insurance, to:

    (1)  look for insurance companies that are reputable, consumer 
oriented, financially sound and licensed in their particular state,
    (2)  obtain the name, address and telephone number of the agent and 
insurance company,
    (3)  take time when making a purchase, ask for and read the outline 
of coverage of several policies,
    (4)  understand what the policy covers and ask questions to be 
clear about what the policy is not intended to cover,
    (5)  understand when the policy becomes effective, what triggers 
benefits and if it is tax deductible at the state and/or federal level,
    (6)  answer questions on medical history and health truthfully on 
the application, and,
    (7)  contact the State Insurance Department or the State Health 
Insurance Assistance Program with questions on long-term care insurance 
and the insurance company with specific questions about the policy.

    The federal government and the states have also recognized the need 
to educate individuals in the workplace to plan to cover their future 
long-term care needs. The federal government, by Act of Congress, has 
taken the lead and set the example for other employers by offering 
federal employees and their families the protection of long-term care 
insurance. Through this program, federal employees are able to protect 
their retirement savings from a long-term care event and will have the 
choice of providing care for themselves or a family member in the home, 
through assisted living or in a nursing home.
    Last year, the Department of Health and Human Services began a 
federal project to increase awareness among retirees and near-retirees 
about the need to plan ahead for potential long-term care needs. 
Governors of five pilot states are conducting long-term care awareness 
campaigns over a two- to three-month period, starting in January 2005. 
The campaign includes press conferences, mailings to 50- to 70-year-
olds in each state, advertising and follow-up mailings. Results will be 
evaluated and improved before expansion to other states. The five 
states include Virginia, Idaho, New Jersey, Nevada and Arkansas.
    About half the states have programs through state personnel offices 
that afford state employees/retirees the opportunity to purchase 
individual long-term care insurance policies. Twenty-one states provide 
tax incentives for purchasing long-term care insurance. Most state tax 
deductions share some features with federal rules--allowing all or part 
of premiums and expenditures to be deducted. Two states provide a tax 
deduction or credit for employers offering group LTC insurance 
policies. As more than 77 million baby boomers approach retirement, the 
rapidly aging workforce together with more employees caring for elderly 
parents heighten the importance of long-term care planning as a 
workplace issue.
    In conclusion, we believe that protection and coverage for long-
term care is critical to the economic security and peace of mind of all 
American families. Private long-term care insurance is an important 
part of the solution for tomorrow's uncertain future. As Americans 
enter the 21st century, living longer than ever before, their lives can 
be made more secure knowing that long-term care insurance can provide 
choices, help assure quality care, and protect their hard-earned 
savings and assets when they need assistance in the future. We also 
believe that the costs to Medicaid--and therefore to tomorrow's 
taxpayers--will be extraordinary as the baby boom generation ages into 
retirement, unless middle-income workers are encouraged to purchase 
private insurance now to provide for their own eventual long-term care 
needs. ACLI believes it is essential that Americans be given an above-
the line deduction for this product that is so vital for their 
retirement security.
    Again, the ACLI looks forward to working with this Subcommittee to 
help Americans protect themselves against the risk of long-term care 
needs.

                                 

  Statement of Laura Howard, Americans for Long Term Security (ALTCS)
Chairman Johnson;

    Americans for Long Term Care Security, a bi-partisan, 35-member 
organization commends you on scheduling today's hearing examining long 
term care. It is consistent with your strong leadership on this issue 
for most of the past decade.
    ALTCS strongly believes that as Congress prepares to examine broad 
issues and possible legislation related to retirement security, long 
term care must be included. We believe your Long Term Care and 
Retirement Security Act from the past several Congresses and when 
introduced in the 109th Congress will be the most comprehensive long 
term care bill before Congress.
    We must not just recognize but respond to the growing challenge 
that long term care poses to individuals, families and the nation. Long 
term care costs now exceed costs for medical devices and prescription 
drugs combined. Medicaid, which will get much attention at this 
hearing, now exceeds education as the largest expenditure in state 
budgets. Nursing home expenses under Medicaid have risen by more than 
100 percent between 1990 and 2000.
    Meanwhile, we confront the aging of the baby boomers in our nation. 
Long term care remains the greatest unfounded liability for this 
generation.
    We need greater incentives through the tax code to encourage more 
Americans who are able to purchase long term care insurance. Your 
legislation has proposed a phased-in, above-the-line deduction for 
qualified long term care insurance premiums. This is good policy that 
can encourage more Americans to purchase this product which is evolving 
in a positive way to address more of what people might face with 
respect to long term care.
    Any discussion of long term care must also address another growing 
challenge--family caregiving. Estimates point to more than 20 million 
American families who are confronted with caregiving responsibilities 
of one kind or another. They need relief from the costs associated with 
caregiving. These are direct and daily costs and other costs such as 
reduced earnings. Your bill recognizes this need by calling for up to a 
$3,000 tax credit for family caregivers.
    We also applaud your legislation's call for coverage of long term 
care in employer cafeteria plans and FSAs. This too will be important 
to achieve balanced long term care reform.
    As the hearing will raise today, by approaching long term care 
reform as both a public and private sector responsibility it might be 
achieved.
    ALTCS also strongly believes that we must intensify our public 
education efforts around long term care. It remains a fact that too 
many Americans still believe that Medicare covers long term care. There 
remains a huge disconnect between what people need to know and what 
they do know about long term care to help them make responsible 
decisions. ALTCS salutes the work being done by the 2005 White House 
Conference on Aging on this aspect of work on long term care. Their 
mini-conference on long term care is being held today as well and it 
should produce one or more resolution for later consideration and 
adoption by the delegates.
    ALTCS believes that beyond robust public education, improving long 
term care will also require a strong and trained workforce and the 
sharing of financial risks involved in providing care.
    ALTCS looks forward to our continued work with you, Chairman 
Johnson, this Subcommittee, and later the full Congress on behalf of 
achieving passage of meaningful long term care legislation. We must 
make the necessary investments today in terms of tax incentives and 
reforms to Medicaid. Important savings can and eventually will be 
achieved to Medicaid and Medicare through this investment. Medicare and 
Medicaid both are celebrating their 40th anniversaries. It also means 
we are 40 years older as a society in terms of addressing the needs of 
our aging population. Today's challenges are tomorrow's crises if we 
fail to act.

                                 

        Statement of Hal Daub, American Health Care Association
    As President and CEO of the American Health Care Association 
(AHCA), the nation's largest association of long term care providers, 
and as a former member of the Ways and Means Committee myself, I would 
like to thank Rep. Nancy Johnson for holding this hearing--and for her 
long time advocacy of not just improving long term care, but also for 
exploring and proposing new ways to finance our seniors' growing care 
costs
    I would also like to thank every Member of the Health Subcommittee 
for their consistent, diligent attention to the healthcare needs of 
America's most vulnerable population of seniors and persons with 
disabilities.
    A thoughtful discussion regarding long term care's chronic solvency 
crisis--and the extent to which the expansion of long term care 
insurance and partnerships can improve the financial stability and 
quality of Medicare and Medicaid services--is timely and necessary.
    As we are all aware, the Administration's proposed FY 2006 budget 
reduces Medicare long term care funding by $25 billion and Medicaid by 
an unprecedented $60 billion over a ten-year period. These double 
whammy budgetary reductions will undoubtedly create short-term 
instability, thereby putting in jeopardy the financial foundation 
required to maintain and sustain the care quality improvements we have 
all worked so hard together to achieve.
    I'd like to remind members of this Subcommittee that former HHS 
Secretary Tommy Thompson and CMS Administrator Mark McClellan stood 
with our profession last December to announce not just that nursing 
home care quality in America is improving in a quantifiable manner 
through the Nursing Home Quality Initiative (NHQI)--but that there is 
indeed a direct correlation between stable funding sources and levels 
of care quality.
    At the time the Secretary expressed ``hope'' that continued 
stability of long term care funding will lead to further quality 
improvements.
    In light of the improvements in nursing home care we have achieved 
with the Administration through the NHQI, the cumulative long term care 
funding cuts are ill considered, and not only place seniors' care 
quality at risk, but sends the long term care sector backwards.
    Even the Medicare Payment Advisory Commission (MedPAC), which is 
historically critical of the skilled nursing facility (SNF) sector, 
declined to support the short-sighted budgetary savings of reduced 
Medicare reimbursements. Rather, the commission suggested 
preservation--but reallocation--of the add-ons.
    The bottom line is that these proposed budgetary reductions will 
cut into quality care and reduce our ability to properly prepare for 
the demographic challenges facing America.
    Since passage of the 1997 Balanced Budget Act (BBA)--which resulted 
in approximately 15 percent of long term care providers seeking 
bankruptcy protection--skilled nursing providers have been on a 
dangerous and unnecessary economic roller coaster ride of Medicare cuts 
followed by temporarily-restored funding.
    The President's proposed budget places a critical sector of our 
nation's health care delivery system back on the roller coaster in a 
manner that will negatively impact not only our current and future 
ability to maintain and sustain quality gains for the residents we 
serve, but also capital investment into our sector.
    This hearing today coincides with the White House Conference on 
Aging Long Term Care Mini-Conference--which today is hosting leading 
stakeholder organizations, including AHCA, as we work towards 
developing a comprehensive policy roadmap to ensure our nation's future 
long term care needs can be achieved.
    The policy recommendations developed at the mini-conference will 
serve as the basis for the long term care policy discussions at the 
full 2005 White House Conference on Aging, to be held later this year.
    Among those speaking during the two day forum are Harvard Law 
School Professor Arthur Miller who moderated the discussion, CMS 
Administrator Mark McClellan, and Dorcas Hardy, the former 
Administrator of the Social Security Administration, and Chairman of 
the White House Conference on Aging Policy Committee.
    For the record, Madame Chairman, I would like to submit AHCA's 
statement delivered today at the Conference, as it coincides with the 
very themes and issues being discussed today:
    ``The demographics are startling. With 77 million baby boomers 
rapidly approaching an age when many will require long term care 
services, it is imperative that we establish policies now to equip us 
to provide the highest quality care in the most appropriate setting for 
the patients and residents of tomorrow.
    ``This demographic wave will present new and unexpected challenges 
for providing and funding healthcare services in homes, communities, 
nursing facilities or other residential care settings. This forum of 
our nation's premier long term care experts and thought leaders will 
most certainly help provide policy makers a framework for taking the 
right steps now to meet the changing needs of an aging population.''
    We know for certain the impending wave of aging baby boomers and 
advances in health care and medicine will allow many, many more 
Americans to live longer--and these simultaneous developments require 
fresh, realistic approaches towards long term care financing.
    As America will soon confront its greatest unfunded liability--the 
public cost of future retirees' long term care needs--Congress needs to 
investigate a variety of new approaches that utilize the tax code to 
more effectively meet these costs.
    In that regard, AHCA and NCAL have always been strong proponents of 
your proposal, Madame Chairman--the ``above-the-line'' tax deduction 
also supported by President Bush, Rep. Earl Pomeroy (D-ND) and by 
Senators Charles Grassley (R-IA), among others.
    A deduction of this nature could dramatically increase the number 
of people who purchase long term care insurance by reducing its costs. 
Increasing the size of the pool will also drive down premium costs, 
making the insurance model progressively more appealing.
    We also strongly support the Long Term Care Insurance Partnership 
Program Act--legislation introduced by Senators Craig and Bayh in the 
last Session of Congress, which expands the ability of citizens to 
purchase state-approved long term care insurance policies--so they can 
take control of how and where their own long term care needs are met.
    Should the need for care exhaust the benefit of the policy, the 
Partnership program provides asset protection, allowing individuals to 
qualify for Medicaid, without ``spending down'' their entire savings.
    The many benefits to this legislation are significant:

      It would conserve scarce Medicaid resources due to the 
fact long term care expenses will be increasingly met by the private 
sector;
      It would promote greater self-reliance and individual 
responsibility as Americans meet their own care needs as opposed to 
relying exclusively upon government funding;
      It would allow seniors to bequeath at least a portion of 
their assets to loved ones; and
      It would encourage the expansion of the long term care 
insurance market which will have a positive impact of helping to make 
policies more affordable.

    In particular, Madame Chairman, expansion of the long term care 
insurance market is especially important: for patients, expanding the 
market will bring about increased long term care funding stability and 
the concomitant benefit of higher quality care; for states and for 
taxpayers, the inherent benefit is reduced financial and budgetary 
pressure on Medicaid-financed long term care.
    As we thank you here today for bravely addressing the so-called 
``elephant in the room''--the need to create longer term solutions for 
long term care financing--we also encourage the exploration of other 
private activities, such as reverse mortgages, tightening asset 
transfer requirements, and enacting new tax laws to incentivize the 
purchase by individuals of long term care insurance. But these alone 
will not create a comprehensive solution for long term care financing, 
and so, we look forward to working with you, Madame Chairman, your 
committee, Congress and the Administration to seek out and create new 
and innovative resolutions to this impending crisis.
    With the impending cuts proposed for both Medicaid and Medicare in 
the FY 2006 budget, these are much-needed initiatives meriting fast-
track consideration and enactment.
    With the funding instability produced by initial budget cuts, 
funding restorations, eligibility and benefit changes, more cuts and 
the general cycle of uncertainty that best characterizes federal long 
term care funding over the past decade--regardless of who controls 
Congress and the White House--our profession is acutely aware of the 
linkage between Medicaid and Medicare funding instability and our 
ability to maximize patients' care quality.
    It is alarming that that 85 percent of Americans believe their long 
term care needs will be met by Medicare, Medicaid or their existing 
health insurance. This fact underscores the need for government to help 
educate and inform its citizens to understand how to prepare for their 
retirement and its financing.
    When individuals understand the risks they face, the costs of care, 
and the options before them, we as a nation should be confident the 
vast majority of Americans will choose to act responsibly and plan for 
their future needs and the needs of their families.
    This fundamental premise reflects American values: Americans want 
to control their destiny, and every individual must--and should--take 
some level of responsibility for their future, and that of their 
family. If armed with the facts and the means, people will do what is 
right to protect their health, their family, and their economic 
interests.
    With the proper planning and level of commitment this matter 
deserves, Congress can begin laying the groundwork for a long term care 
financing system that has the capacity to meet the care needs of 
millions of future retirees.
    Madame Chairman, there is no stronger supporter of Medicaid reform 
than AHCA, and we have very publicly and consistently called on 
Congress and the states to maintain its financial viability with 
appropriate levels of investment.
    Demographic realities require a change in policy and a 
transformation in thinking.
    We must fundamentally shift the role of government--from government 
simply paying for services--to government helping individuals save for 
their own long term care needs.
    Thank you for the opportunity to submit our testimony today, and we 
look forward to working productively and cooperatively with this 
Committee, with this Congress and with this Administration to do what 
America has always done when presented with a challenge of this scope: 
engage in honest debate, create a workable plan, earn the support and 
trust of the nation's citizens, and pursue a course that is in the best 
interest of every American.

                                 

 Statement of Suellen Galbraith, American Network of Community Options 
                     (ANCOR), Alexandria, Virginia
    The American Network of Community Options (ANCOR) is the national 
organization of more than 850 private providers of supports and 
services to more than 380,000 individuals with mental retardation and 
other disabilities throughout the nation. For nearly 40 years, ANCOR 
has represented at the national level private providers who offer 
community living and employment supports and services to people with 
significant disabilities. Throughout its history, ANCOR has been a 
staunch advocate for quality long-term supports to people with 
disabilities in their communities. ANCOR appreciates this opportunity 
to provide written testimony to the Ways and Means Subcommittee on 
Health.
    First, ANCOR extends appreciation to Chairwoman Nancy Johnson for 
convening this hearing and for the subcommittee's attention on this 
important national issue. ANCOR will provide brief comments in the 
following five areas:

    1.  Diversity of Individuals in Need of Long-Term Care
    2.  Intersection of Multiple Federal Financial and Medical Services
    3.  Workforce Crisis Affecting Delivery of Long-Term Care
    4.  Need for Multiple Public and Private Options
    5.  Sustained National Dialogue

    ANCOR believes that how our nation frames public policy is in large 
measure due to the questions asked and/or problems identified which in 
turn determine how we arrive at answers and solutions contained in the 
public policy. To aid the Subcommittee in its work, ANCOR suggests that 
their work include addressing the following questions:

    1.  Who needs long-term care? (i.e, breadth and scope of 
populations, individual characteristics; differences and similarities)
    2.  Who pays for long-term care? (i.e, intersection of public and 
private health and financial mechanisms, private income and savings, 
Social Security cash benefits, state and federal programs)
    3.  Who delivers long-term care? (i.e., state and local 
governments, family and friends as caregivers, institutional and 
community-based agencies, paid staff)
    4.  What public programs assist in providing long-term care? (i.e., 
housing, transportation, social services)
    5.  What private means are currently available to help finance and 
deliver long-term care?
    6.  What public and private options need to be created to ensure 
availability of long-term care for those who need it?
    7.  What constitute quality supports and how can we ensure quality 
through our payment systems?
    8.  How will future demographic changes and system redesign 
strategies affect each of these areas?

Diversity: Long-Term Care: Not Just For Retirees, But a Lifetime Need
    Today, nearly 10 million Americans need long-term services and 
supports to assist in their daily living. And yet, any one of us at 
anytime can find him/herself in need of long-term supports and 
services. For some individuals, for example--a person born with mental 
retardation, cerebral palsy, or autism--these are lifetime needs. For 
others, the onset of a severe disability may come as a teenager when an 
automobile accident results in a brain injury; in mid-life as a result 
of a job injury and altering employment options; or as an elder with 
Alzheimer's disease.
    For some, the need for long-term services and supports is due to a 
physical disability that affects their ability to perform activities of 
daily living (ADLs) such as eating, dressing, toileting, and walking. 
For others, a cognitive disability affects their ability to perform 
typical instrumental activities of daily living (IADLs) such as meal 
preparation, medication management, and financial and home management. 
In some cases, the disability may an individual's affect cognitive, 
mental and physical abilities.
    The number of elderly persons is projected to increase 
dramatically, both as a percentage of the population and in absolute 
numbers, due in part to the aging of the 77 million baby boomers and to 
increased life expectancy. The entry of baby boomers into the long-term 
supports and services system will place additional burden on an already 
strained system. In addition, long-term services are vital to 
individuals with disabilities under the age of 65--especially in light 
of the fact that they may require supports over a lifetime. With the 
aging of parents who currently provide long-term supports to their 
adult children with mental retardation, nearly 700,000 parents who are 
caretakers now will soon be in need of their own long-term supports. 
long-term services and supports are not only an issue for older 
Americans, but also for children and working-age adults with 
disabilities as well, and any examination of long-term supports must 
account for all populations.
    While this Subcommittee is very aware of the fact that the need for 
``long-term care'' is not solely an issue for the elderly or aging, 
frequently policymakers address the financing and delivery of supports 
and services as if it were unique to the elderly. This singular focus 
limits the options in the range and type of supports and services 
offered to individuals. There is a wide range in the ages of those in 
need of long-term supports and services and that there is a wide range 
in the nature of those supports and services.
    Acknowledgment of these diversities are important in looking at 
both the financing and structure of long-term supports and services. 
What a 79 year old female with Alzheimer's with no family needs is 
entirely different than what a 42 year old man with mental retardation 
who can work part-time needs. The desires and needs of a person in 
their 60s and 70s is very different for someone in their 20s or 40s. 
For example, personal assistance to get to work is not a desire of 
someone in their 70s.
    ANCOR urges the Subcommittee to keep the following factors in mind:

    1.  Individuals who need long-term supports are a diverse group.
    2.  long-term supports may be time limited or needed over the 
lifetime of an individual.
    3.  Supports should be provided on an individual basis and are 
likely to change over the life-time of an individual.
Intersection of Multiple Financing and Delivery Systems
    For the 10 million people who need long-term supports and services 
now and for the millions of family members who are their caregivers and 
the millions of paid direct support professionals who deliver these 
supports and services, one thing is very clear: There is no national 
long-term care policy and there is no cohesive or uniform long-term 
care system. In fact, most individuals and families who arrive at the 
need for long-term supports and services face a fragmented delivery 
system. Hundreds of thousands of individuals each year must face the 
roller coaster of determining whether they meet eligibility to qualify 
for supports and if there will be money available in any given year for 
their essential supports.
    The system we now depend upon is best described as a patchwork of 
programs that vary from state to state and community to community. Each 
program has its own standards for eligibility and provides different 
services. This assortment of services is inefficient, inequitable and 
often ineffective. The lack of a cohesive national policy to assure 
access to long-supports has left most people with disabilities with an 
unrecognizable and splintered system of support for their long-term 
care needs.
    long-term care is an essential component of family financial 
security. The longer we continue to disregard the financial impact of 
long-term disabilities on individuals and on society, the wider the gap 
in our nation's economic security becomes. The current system for 
enhancing economic security is principally derived from earnings, 
Social Security, Medicare, employer provided pensions and savings, none 
of which addresses our long-term care needs. No one is immune from the 
risk of having a family member in need of long-term care, not to 
mention the possibility that they will need assistance themselves. 
About 45 percent of the long-term care population is under the age of 
65. Yet, although the need for health insurance to cover a patient's 
medical expenses in case of catastrophic illness is widely accepted, 
few people are insured against the costs of providing long-term support 
services. This lack of insurance coverage jeopardizes the financial 
security of families and diminishes the economic security of the 
country. It also places a greater burden on the nation's primary long-
term care financing program--Medicaid.
    And, yet, the public and many policymakers mistakenly assume that 
long-term supports are needed only by the elderly and that Medicare 
provides payment for such services to the elderly. Aside from the new 
prescription drug coverage added to Medicare and limited after-hospital 
care, this federal program provides little in the way of long-term 
supports to the nation's elderly and disabled populations.
     Medicaid successfully provides long term care to individuals with 
disabilities and seniors, accounting for 43% of total long-term care 
spending. It also finances premiums, co-payments, and long-term 
supports for those who are also Medicare eligible. However, most of 
Medicaid's long-term services are considered optional services under 
current Medicaid law. Yet, for those who need these essential services 
to get out of bed and to eat, go to school, go to work, and contribute 
to their community, they are by no means optional. More than half of 
all Medicaid long-term care spending goes toward institutional 
services.
    Currently, there are few if any long-term insurance products that 
will cover the comprehensive services needed by non-elderly individuals 
with severe disabilities. Once born with a disability, long-term 
insurance is not an option.
    By default, the Medicaid program has become the nation's only 
publicly financed source of long-term supports and services. However, 
Medicaid was never intended to be the nation's primary financing source 
of long-term supports and services. The state and federal governments' 
reliance on Medicaid as the sole source of long-term supports and 
services not only forces individuals to spend-down their assets and 
resources to become eligible for the essential services, but places the 
burden for our nation's long-term supports on one single program--
Medicaid--thereby jeopardizing its financing and its structure and 
rendering a need for radical changes with claims of unsustainable 
growth.
    Because long-term care financing was never integrated into our 
national retirement and disability security system, an unstable and 
convoluted patchwork system of financing has emerged. Federal programs 
do not co-ordinate with or even complement private long-term care 
insurance. States provide long-term care as a public assistance program 
that helps seniors only after they have reached the poverty level while 
it condemns people with disabilities to a life of permanent 
impoverishment. Unless they have purchased long-term care insurance or 
have significant savings, the average family must try to piece together 
limited Medicare coverage, public services, and personal resources, 
until they spend down to Medicaid eligibility. Clearly, the complexity 
of the health care financing system requires a multi-faceted solution. 
Public and private resources must be mobilized and coordinated into a 
flexible array of programs that can be adapted to provide appropriate 
levels of care at a reasonable cost.
    What is lost in examinations of long-term supports and services is 
the intersection of Social Security retirement and disability programs, 
Medicare, Medicaid, private insurance, housing, transportation, and 
other federal and state assistance programs.
Public and Private Options
    long-term care is an essential component of family financial 
security. The longer we continue to disregard the financial impact of 
long-term disabilities on individuals and on society, the wider the gap 
in our nation's economic security becomes. The current system for 
enhancing economic security is principally derived from earnings, 
Social Security, Medicare, employer provided pensions and savings, none 
of which addresses our long-term care needs. No one is immune from the 
risk of having a family member in need of long-term care, not to 
mention the possibility that they will need assistance themselves. 
About 45 percent of the long-term care population is under the age of 
65. Yet, although the need for health insurance to cover a patient's 
medical expenses in case of catastrophic illness is widely accepted, 
few people are insured against the costs of providing long-term support 
services. This lack of insurance coverage jeopardizes the financial 
security of families and diminishes the economic security of the 
country. It also places a greater burden on the nation's primary long-
term care financing program--Medicaid.
    Medicaid has become the single largest public payer of long-term 
care services. Moreover, although most people prefer to live at home, 
Medicaid's bias towards institutional care has left Americans with few 
alternatives and tremendous confusion over how best to arrange the 
options available to them.
    While many people equate term long-term care with someone who lives 
in a nursing home or other institutional facility, almost 80% of the 
elderly and 41% of individuals with severe disabilities live at home or 
elsewhere in the community. Many people with disabilities and older 
persons with functional limitations or cognitive impairments choose to 
remain in their homes or live in supportive housing if they can receive 
assistance with activities of daily living such as eating, bathing and 
dressing.
    The heavy bias in Medicaid funding toward institutional care does 
not reflect this growing preference for home and community supports and 
services. Ironically, while people with disabilities and a growing 
elderly population prefer to receive services in the community, the 
federal government imposes a strong bias toward institutional care 
through existing Medicaid and Medicare laws.
    Clearly, Medicaid has been forced to fulfill a role it was never 
intended to play. Though many Americans believe Medicaid only provides 
assistance to individuals with very low incomes, the reality is far 
different. Many middle class individuals are forced to spend down--or 
deplete--their income and assets to qualify for Medicaid services and 
receive assistance with the high costs of long-term care.
    Insurance programs--whether public or private--that provide income 
and health security only for people in retirement will fail to meet the 
needs of non-elderly individuals with a range of severe disabilities 
and a different set of life expectations. Because no one set of long-
term supports solutions can be appropriate for every American with a 
disability, we must design income, health, and long-term security 
programs that build upon each other and are flexible to support 
individuals of all ages and their families and communities.
Workforce Crisis
    In considering long-term supports and services to the elderly and 
to non-elderly individuals with disabilities, it is crucial to keep in 
mind that these supports are multi-dimensional in nature. Although 
financing is the cornerstone of the long-term care issue, our public 
policy must also consider other issues equally critical in building an 
adequate, seamless, and effective long-term care system. These issues 
include: supporting family caregivers, addressing workforce shortages, 
improving the quality of long-term care supports and services and 
improving access to transportation and housing.
    long-term care services and support encompasses a broad range of 
assistance to people who need ongoing help to function on a daily 
basis. These services may range from assistance with daily activities 
such as bathing, dressing and eating to more complex services such as 
meal preparation, shopping, money management, medication management, 
and transportation. long-term care cannot be relegated to specific 
hours, days of the week, or to services where one size fits all.
    ANCOR believes that the lack of a stable, quality direct support 
professional workforce is a crisis that is one that will plague the 
entire long-term care field in the 21st century unless national 
attention is brought to this issue. This crisis is a result of several 
factors, including the increased demand for long-term supports and 
services; a traditional labor supply not able to keep pace with demand; 
and jobs that cannot compete within today's labor market.
    The workers who provide the intimate and daily supports to people 
with disabilities are known by many job titles--but one thing in common 
is shared by all of them. They are the hands, voice and face of long-
term supports. They are the backbone of our nation's formal long-term 
support system. These paid workers assist with personal care, general 
health care, people with severe disabilities with medications, 
preparing and eating meals, dressing, mobility, and handling daily 
affairs medication administration, life sustaining medical care such as 
suctioning and tube feeding, transportation, emotional or behavioral 
support, community participation, financial management and/or any other 
life areas that an individual with disabilities might require 
assistance or support.
    A majority of these workers are female and often the sole 
breadwinner of their household. Although employed, the wages they earn 
keep many families impoverished. The cost of this labor comprises 
between sixty and seventy percent of the total dollars necessary to 
provide long-term supports. As Medicaid is the single largest funder of 
these supports, it is by default our nation's leading payer of these 
long-term supports. Yet this system inadequately reimburses providers 
to cover the cost of wages and benefits to attract, train and retain 
quality workers.
    As the pool of potential unpaid caregivers shrinks due to 
demographic and economic trends, direct support professionals will play 
an increasingly greater role in delivering long-term care. However, the 
relative size of the paid long-term care workforce is not likely to 
increase with the anticipated demand for paid long-term care. A low 
wage workforce, unrealistic workloads, inadequate government 
reimbursement rates, along with the need for additional training and 
support, as well as labor shortages have all contributed to high staff 
turnover. Recruitment and retention problems create an unstable 
workforce and are a barrier to high-quality care. In addition, our 
current financing system does not support today's wages, and therefore 
raises serious questions about the ability to recruit future direct 
support professionals.
Conclusion: Need for a Sustained, National Dialogue
    For the past 60 years, Americans have relied on a combination of 
social insurance and private means to pool risk and support financial 
security. The basis for our social insurance programs and most of our 
private means of pooling risk and enhancing financial security is tied 
to employment. Social Security, including the life and disability 
insurance portions for Social Security, and Part A of Medicare are 
earned rights derived from employment for the worker or the worker's 
dependent. Most private insurance is organized through group purchases 
made b employers on behalf of their employees and their dependents. 
Retirement income is also enhanced through employer-provided pensions 
and deferred compensation plans. Thus, the American approach to pooling 
insurable risks and protecting financial security has been a 
combination of social insurance and tax encouraged private insurance. 
However, there are gaps in these arrangements as well as gaps between 
these arrangements. Savings are used to bridge the gaps. And, in the 
absence of sufficient savings, public assistance is called upon with 
benefits targeted to those in specific categories with the least 
financial means.
    Unfortunately for those who need extended long term supports and 
services, public assistance remains the primary financing mechanism. In 
order to address the issue of how to best finance long term supports 
and services and then develop comprehensive means for delivering a 
range of supports and services, a national dialogue is needed today 
more than ever.
    The current fragmented services and supports available to people 
with disabilities does not reflect the growing need nor preference for 
long-term supports and is limited by the way in which such services 
have been funded in the past. Changing long-term care financing will 
change how long term supportsis organized and delivered. A rational 
approach to financing that looks at all income and health insurance 
options and maximizing their integration, and not merely one single 
program, will improve the efficiency and equity of the system. It will 
recognize an individual's desire to receive supports where and when 
they need it, and it will improve the quality of the supports.
    ANCOR believes there are a number of principles that should be 
implemented in the development of an ideal long-term services system. 
These principles include:

      The social commitment to long-term care must be in the 
form of a public/private system built on the principles of social 
insurance and private insurance.
      Eligibility for the social insurance benefit should be 
based on functional limitations as an entitlement benefit.
      Direct support professionals are critical to quality 
supports and must be recognized and valued by the system.
      Public assistance must be maintained and improved to 
provide a full range of services and supports to those who are not 
otherwise covered.
      The financing system must support a arrange of choices 
and help maximize personal independence, self determination, dignity 
and fulfillment.
      Systems should coordinate services for people with 
multiple needs that change over time, providing a seamless and 
continuing delivery system.
      Systems for assuring quality of supports should be built 
into all long-term supports and services programs. Such systems should 
assure quality and value based on identified outcomes and adequate 
provider payments.
      The financing of long-term supports should be spread 
broadly and progressively. This goal may involve tax policy, Social 
Security, Medicare, Medicaid, private health insurance as well as 
pensions, social services and housing policies. Both public and private 
financing mechanisms should be strengthened toward this goal.

    ANCOR recommends that the Congress work with the Administration, 
governors, state lawmakers, providers, workers, families, and 
individuals who depend upon long-term supports to initiate a 
comprehensive national dialogue on long term care financing and the 
looming workforce crisis facing people with disabilities of all ages 
who need health and health-related supports to live in the community. 
By initiating and continuing a national long-term care dialogue, we can 
move forward with a positive and comprehensive plan to help safeguard 
the health and well being of tens of millions of Americans.
    ANCOR again congratulates the Subcommittee for its initiative in 
calling for this hearing. We hope it is a first step in a national 
dialogue. ANCOR appreciates the opportunity to submit our written 
comments on this important issue. We would be happy to provide further 
information or testify at future hearings.

                                 

Statement of Merrill Matthews, Council for Affordable Health Insurance 
                      (CAHI), Alexandria, Virginia
    On behalf of the Council for Affordable Health Insurance's (CAHI) 
board of directors and members, I applaud Chairman Johnson and members 
of the House Ways and Means Health Subcommittee for opening this 
dialogue on how to improve the long-term care delivery and financing 
mechanisms in the United States. We appreciate your consideration of 
our comments on this critical issue.
    CAHI is a national non-profit research and advocacy association 
whose mission is to develop and promote free market solutions to 
America's health care challenges. Our membership includes health 
insurance companies (active in the individual, small group, HSA, long-
term care and senior product markets), small businesses, physicians, 
actuaries and insurance brokers.
    Our members represent a broad range of health care products, 
including long-term care and Medicare Supplement insurance, home health 
care services and prescription drug discount cards. They provide 
insurance policies that protect families from potential financial 
catastrophe, as well as critical services to people with disabling 
conditions and long-term health care needs.
    long-term care is the most significant health care funding expense 
Americans now face. Something must be done to stem the public's massive 
and growing dependence on government-funded long-term care--and it must 
be done now.
    Our comments will focus on the following:

      Private long-term care financing options available today, 
including long-term care insurance;
      Obstacles facing the private long-term care market;
      Solutions to removing barriers to private market growth 
and reducing the burden on Medicaid.
Today's Private LTC Market
    Beginning in 2011 the first baby boomers will turn 65. By 2031, all 
76 million boomers will have reached retirement age, many of them 
woefully unprepared for the cost of long-term health care. Americans 
are living much longer than in the past and the phenomenal advances in 
medicine will mean that many Americans will be living not only longer 
but also healthier and more fulfilling lives.
    While these advances were unimaginable just decades ago, they come 
at a cost. The public policy question facing us is, ``Who will pay?'' 
Government cannot--and should not--pay for it all.
    The private sector will have to provide workers with ways to 
protect their future health, independence and assets. The good news is 
that there are innovative and effective private long-term care 
financing options available to consumers today, such as long-term care 
insurance and home equity conversion.
    long-term care is usually provided in three venues--the home, an 
assisted living facility or a nursing home--and is financed primarily 
by three sources: private pay, Medicaid or Medicare. (The Congressional 
Budget Office estimates that if converted into dollars, donated care 
would represent 36% of all spending on long-term care for the elderly. 
Our focus here, however, is on paid care.)
    Private long-term care (LTC) insurance protects assets and incomes 
from the devastating financial consequences of long-term health care 
costs. In existence since the early 1970s, LTC insurance policies 
initially piggybacked on Medicare's skilled nursing benefit, providing 
short-term indemnity benefits for stays in a Medicare skilled nursing 
facility. Intermediate care and non-Medicare facility services were 
covered beginning in the late 1970s. Coverage for home care services 
emerged in the early 1980s. With the implementation of the National 
Association of Insurance Commissioners' LTC insurance model regulations 
in the mid-1980s, coverage expanded to include care in assisted living 
facilities, and insurers began offering longer periods of covered care, 
including unlimited lifetime benefits and increased daily benefits.
    Due to significant competition in the marketplace, LTC insurers are 
developing products with very flexible benefits to better meet 
consumers' needs. Today's comprehensive LTC insurance policies allow 
consumers to choose from a variety of benefits--including reimbursement 
for informal caregivers--and offer a wide range of coverage choices. 
They provide for care to be received in a variety of settings--nursing 
homes, homecare, assisted living facilities and adult day care--and 
some of the most recent policies are providing for a cash benefit that 
the consumer can spend anyway he/she feels is best. Additionally, 
insurers are coming out with hybrid products that are combined with 
life insurance and annuities.
    Policy options offered by one CAHI member include:

      Short term facility care plan for stays of less than one 
year;
      A stand alone home health care plan;
      A benefit plan for substandard health risks; and,
      A comprehensive benefit package covering all care 
settings--facility, home and community.

    Additionally, under a first-of-its-kind arrangement with a major 
university, their newest product incorporates an independent health 
promotion and disease prevention program, as well as caregiver support 
services.
    LTC insurance allows individuals to take personal responsibility 
for their long-term health care needs and reduces the strain on state 
Medicaid budgets. By the year 2030, Medicaid's nursing home 
expenditures are expected to reach more than $130 billion a year. 
Private LTC insurance is the only real alternative to more state 
Medicaid spending on seniors.
    Home equity conversion (HEC)--which allows people to convert the 
illiquid equity in their homes into a liquid monthly income or a lump 
sum payment without having to repay the loan while they live in the 
home--is another private financing option for long-term care needs. 
Eighty-one percent of seniors own their homes. Seventy-three percent of 
elderly homeowners own their homes free and clear. Nearly $2 trillion 
worth of home equity is held by seniors that could go to offset the 
cost of long-term care--enough money to solve the long-term care 
financing crisis now and in the future.\1\
    These reverse annuity mortgages are available to anyone 62 years of 
age or older and are strictly regulated by the government. Proceeds of 
a reverse mortgage can be used for any purpose. For example, when 
interest rates plummeted, many seniors turned to reverse annuity 
mortgages as a way to replace lost income.
    Properly done, reverse mortgages are medically underwritten so that 
the mortgages are priced so that they do not come due while borrowers 
are still able to live at home. In other words, the lender is taking on 
risk that the borrower may live in the home longer than anticipated. 
Thus, the product is insurance, not just a loan. Borrowers can never 
lose their homes and do not pay back the reverse mortgage until they 
leave or sell the home, usually as a result of death or nursing home 
institutionalization. At that time and only then, the lender recoups 
principal and all accrued interest.
    Recently, the Centers for Medicare and Medicaid Services and the 
National Council on the Aging (NCOA) have encouraged the use of home 
equity to pay for long-term care. In an estimate prepared for the NCOA 
by the Lewin Group, reverse mortgages could save Medicaid $3 billion to 
$5 billion annually by 2010 if sales reached certain levels.
Obstacles to Private Market Growth
    Most seniors are financially ill-prepared to meet potential long-
term care needs. According to the Congressional Budget Office, only 7% 
of American seniors have enough saved to cover one year of nursing home 
care.
    Consumer education about the need for long-term care planning is 
critical. The largest disincentive to buying private LTC insurance, 
however, is Medicaid. As originally conceived, Medicaid was mainly 
intended to be an acute-care safety net for poor women and children. To 
this day, approximately 75% of Medicaid recipients are poor adults, 
mostly women and children, who account for only about one-third of 
Medicaid's costs.
    The remaining 25% of Medicaid recipients are aged, blind or 
disabled, but they account for two-thirds of the program's costs. The 
main cost driver for this group is long-term care, principally nursing 
home care.
    Medicaid spent $50.9 billion on nursing home care in 2002 and paid 
for two-thirds of all nursing home residents.\2\ Medicaid also spends a 
large and rapidly increasing amount for home and community-based long-
term care. long-term care accounts for one-third to one-half of total 
Medicaid expenditures in most states.
    The American public is in denial about the risk of long-term care 
because Medicaid and Medicare have paid for most expensive extended 
care services since 1965. When a care crisis occurs and large expenses 
begin to be incurred, families frequently turn to the public benefit 
programs and learn that qualifying for Medicaid is easier than they 
thought and that Medicare, although very limited in its benefits, has 
no means test to obstruct eligibility. Consequently, few people plan, 
save, invest or insure for long-term care and most people end up 
dependent on the public programs.
    To qualify for Medicaid's long-term care benefits, someone must be 
aged, blind or disabled and medically in need of nursing-home level of 
care. Beyond that, there are two financial tests that must be passed: 
one is based on income and the other on assets.
    Income eligibility is determined in two ways. Thirty-four states 
and the District of Columbia have ``medically needy'' income 
eligibility systems.\3\ In those states, medical expenses--including 
private nursing home costs, insurance premiums, medical expenses not 
covered by Medicare, etc.--are deducted from Medicaid applicants' 
income. If they have too little income to pay for their care, they are 
eligible for Medicaid--not just for long-term care but also for the 
full array of Medicaid services.
    The remaining states have ``income cap'' Medicaid eligibility 
systems.\4\ In these states, anyone with income over $1,692 per month 
(300% of the SSI monthly benefit of $564) is ineligible for long-term 
care benefits. But $1,692 is not enough to pay privately for nursing 
home care and one dollar more is too much to qualify for Medicaid, a 
Catch 22. So Congress approved ``Miller Income Trusts'' in the Omnibus 
Budget Reconciliation Act of 1993 (OBRA '93) that allow people to 
divert income into the trust and become eligible for Medicaid. The 
trust proceeds must then be used to offset their cost of care, and any 
balance in the trust at death reverts to Medicaid. Nevertheless, Miller 
Income Trusts allow people with incomes substantially over the limit to 
qualify for Medicaid, enjoy the program's low reimbursement rates and 
receive its extensive range of additional medical services.
    Thus, whether you're in a ``medically needy'' or an ``income cap'' 
state, you don't have to be poor to qualify. You only need a cash flow 
problem. There is no set limit on how much income you can have and 
still qualify, as long as your private medical expenses are high enough 
and, if you are in an ``income cap'' state, you have a Miller Income 
Diversion Trust. Thus, income is rarely an obstacle to Medicaid long-
term care benefits, as long as medical expenses are high enough. Only 
the top 10% or 15% of seniors would have too much income to qualify.
    Most states allow individual Medicaid applicants to retain at least 
$2,000 worth of otherwise nonexempt liquid assets. What you don't hear 
so often is that Medicaid also exempts the home and all contiguous 
property regardless of value. Simply express a subjective ``intent to 
return'' to the home and it remains exempt, whether or not there is any 
medical possibility the patient will ever be able to return. According 
to the Social Security Administration's Program Operations Manual 
System (POMS), Medicaid also exempts:

      One business, including the capital and cash flow, of 
unlimited value;
      A prepaid burial space for ``the individual, his or her 
spouse, or any other member of his or her immediate family is an 
excluded resource, regardless of value'';
      Unlimited term life insurance with no effect on 
eligibility;
      Home furnishings up to $2,000, but they are rarely 
counted;
      One car of unlimited value, assuming it's used for the 
benefit of the Medicaid recipient. (And because it is exempt, giving it 
away is not a transfer of assets to qualify for Medicaid.)

    Many upper-middle-class people qualify for Medicaid by consulting 
legal specialists, known as elder law attorneys, who use an array of 
qualification techniques, including the purchase of annuities, 
irrevocable income-only trusts and life care contracts. Thus, even 
beyond Medicaid's extremely generous basic eligibility rules as 
described above, savvy seniors with cunning legal advisors can stretch 
Medicaid long-term care eligibility much further still.
    Medicaid planning has negative consequences beyond overloading the 
program with recipients who could have paid for their own care. Elder 
law attorneys routinely advise their Medicaid planning clients to 
retain enough ``key money'' to pay privately for at least a year of 
nursing home care. That's because it's common knowledge that patients 
cannot count on getting into a quality nursing home unless they can pay 
privately for an extended period of time. Once they're in, however, 
state and federal laws prohibit nursing homes from removing them just 
because they convert from private-pay to Medicaid. So, the well-to-do 
divest or shelter most of their wealth, but save out enough to pay 
privately for a year, lock into a good nursing home, and later transfer 
the financial burden to Medicaid, tax payers and nursing homes. The 
tragedy is that poor people, whom Medicaid is supposed to help, do not 
have key money and consequently must occupy the less desirable beds in 
nursing homes more heavily dependent on Medicaid's low reimbursement 
rates.
    Although state Medicaid programs have been required since OBRA `93 
to recover benefits paid from the estates of deceased recipients--and 
arguably from the estates of the spouses they predecease--few states do 
so efficiently and effectively.
    Two states--Michigan and Texas--have not implemented estate 
recoveries to this day. Most states make only a half-hearted effort. 
CMS reports that state Medicaid programs recovered only $350 million 
from estates in 2002 while spending $46.5 billion on nursing home 
care--an almost negligible return of only 0.75%.
    Even states like Oregon that pursue estate recoveries aggressively 
are hamstrung by restrictions in federal law that protect large amounts 
of money from recovery.\5\ Nevertheless, Oregon recovered $13.7 million 
from estates in 2002, which is 6.9% of what the state spent on Medicaid 
nursing home benefits that year.\6\ If every state were as successful 
as Oregon, estate recoveries would total $3.2 billion.\7\
    With a growing industry devoted to helping individuals qualify for 
Medicaid, and with little or no effort on the part of the states in 
pursuing estate recovery or otherwise limiting Medicaid eligibility, it 
should come as no surprise that consumers view long-term care as an 
entitlement, and see no value in using their own money to purchase 
private LTC insurance or long-term care services directly.
Solutions
    Encouraging individuals to plan for their own long-term care needs, 
and providing incentives to access the private market products to do 
so, are the two most important ways we can improve long-term care 
financing and delivery, and contain the growth of Medicaid.
    Tax Incentives: While pure demographics should spark some increased 
interest in LTC insurance, the onslaught of the baby boom generation is 
not enough in itself to encourage the purchase of the product.
    Today's private long-term care market continues to evolve with 
policy improvements, consumer protections and administrative 
efficiencies. It is competitive and innovative, changing to meet 
consumer demand. So why aren't consumers buying it?
    Studies of ``non-buyers'' show that if LTC insurance could be 
purchased with tax incentives, they would seriously consider buying a 
policy. By giving Americans a tax break to purchase LTC insurance, 
Congress can help millions of families enjoy a financially secure 
retirement. While an income tax deduction is one way government has 
encouraged Americans to purchase LTC insurance, the deduction applies 
only to premium amounts that exceed 7.5% of adjusted gross income, 
thereby limiting it to very few taxpayers. Pending legislation would 
provide an above-the-line income tax deduction for LTC premiums.
    One new LTC financing option is a Health Savings Account (HSA), 
which allows a worker to tax-shelter LTC insurance premiums. However, 
few people have an HSA, and some employers may never offer that option.
    Congress can do much more. Many Americans are saving for their 
retirement years through IRAs, 401(k) and 403(b) plans, with personal 
contributions matched in whole or in part by employers. Allowing 
taxpayers age 50 or older to use funds from those plans, without 
withdrawal penalties, to buy LTC coverage can: (a) encourage the 
purchase of LTC insurance at younger ages when premiums are lower and 
people are healthier; (b) motivate consumers to take responsibility for 
their long term health care needs; and (c) if restricted to just IRAs, 
would be almost tax neutral.
    However, when Congress or the state legislatures create new 
options, they sometimes feel compelled to impose new regulations on 
those options. It is important that Congress and the states not do to 
long-term care insurance what they--primarily the states--have done to 
health insurance: impose numerous mandates and restrictions that drive 
up premiums and reduce access to affordable coverage.
    Long-Term Care Partnerships: The private long-term care insurance 
market is robust and competitive, with products that offer consumers 
comprehensive benefits and financial security. However, the ease with 
which people can shelter or transfer their assets reduces the incentive 
to purchase private LTC insurance and increases the number of people 
who rely on Medicaid for their long-term care.
    Four states--Connecticut, California, Indiana and New York--have 
addressed the LTC problem by establishing public/private partnerships. 
These programs encourage people to purchase private LTC insurance by 
allowing insured persons to protect their assets in whole (New York) or 
in part if they exhaust their private LTC benefits. Thus, if 
partnership participants exhaust their LTC policies, they will not 
forfeit their estate once they enroll in Medicaid. In other words, if 
people go to reasonable lengths to act responsibly and protect 
themselves by buying LTC coverage, their assets are not at risk if they 
must eventually turn to Medicaid.
    While the current partnership programs are a step in the right 
direction, their mandated product design and administrative burdens 
encumber insurers. As a result, the products are expensive. Moreover, 
the Omnibus Budget Reconciliation Act of 1993 effectively precluded the 
establishment of partnership programs in new states by prohibiting the 
states from allowing participants who buy LTC coverage to be exempted 
from Medicaid's estate recovery provisions.
    Yet the fundamental concept behind LTC insurance partnerships is 
sound and could attract consumers if the restrictions were removed.
    A fresh, full examination of LTC partnerships is needed. An 
affordable partnership program would link the public and private 
sectors, allowing consumers to purchase private LTC insurance and 
making Medicaid the last option for long term care. What to do? First, 
Congress should allow states to establish an LTC partnership program by 
repealing the OBRA '93 ban on the forgiveness of estate recovery 
liability. Then, state legislators should advance public/private 
partnership programs that promote the development and availability of 
affordable, voluntary, private LTC insurance products.
    Home Equity Conversion: Seniors' home equity is the biggest 
potential source of private long-term care financing that could relieve 
fiscal pressure on Medicaid. Home equity represents over half the 
wealth of the median elderly household. Yet home equity is not being 
widely used to finance long-term care. Why? Because Medicaid exempts 
the home and all contiguous property regardless of value for any 
recipient who expresses an ``intent to return'' to the home. Under 
federal law, the medical feasibility of returning to the home is 
immaterial (except in three or four 209b states \8\). Expressed intent 
is all that matters. Thus the Medicaid home exemption and the ease of 
transferring the home to avoid estate recovery liability chill the 
market for home equity conversion products.
    The federal Medicaid program should require home equity conversion 
as a condition of qualifying for Medicaid-funded long-term care, and 
states should encourage the use of this program. This approach would 
prevent Medicaid from being ``inheritance insurance'' for baby boomer 
heirs as it is now, and it would wake up the boomers to the risk and 
cost of long-term care. With home equity genuinely at risk, most people 
would plan early to save, invest or insure for their long-term care 
needs. They would be less likely to ignore the problem until it's too 
late, as they do now, because if they did, they would have to consume 
their biggest asset before receiving public assistance. This approach 
would also unleash the long-term care insurance and home equity 
conversion markets, thus creating jobs and adding to state and federal 
tax revenues.
    Medicaid Long-Term Care Eligibility: Medicaid's income and asset 
limits are very severe for people who need acute care. The rules are 
much more generous for seniors who need long-term care. Income is 
rarely an obstacle to eligibility because applicants' medical expenses, 
including nursing home expenditures, are deducted from their income in 
30 ``medically needy'' states. In the remaining ``income cap'' states, 
applicants can divert excess income into ``Miller Income Trusts'' in 
order to qualify for Medicaid coverage.
    The key is to control eligibility. Many states have tried to reduce 
costs and improve service delivery by de-emphasizing nursing home care 
and encouraging home and community-based services. But in so doing, 
they've made their Medicaid programs more attractive and private 
financing less attractive. If they could control eligibility, however, 
so that people would access Medicaid only after consuming home equity, 
fewer people would become dependent on Medicaid, and the state could 
better afford to provide the most attractive home and community-based 
services (HCBS) and pay adequately for them.
    Congress and CMS should encourage states to study their Medicaid 
eligibility systems to determine how much they lose as a result of 
generous Medicaid eligibility rules, early wealth transfers and 
Medicaid estate planning. Then they should consider:

      Tightening income and asset limits;
      Enforcing the rules more strongly;
      Joining Connecticut, Minnesota and Massachusetts in their 
1115 waiver request to extend Medicaid's ``look-back'' period for asset 
transfers; and, to eliminate the ``half-a-loaf'' loophole (giving away 
half your assets and spending down during the resulting shortened 
eligibility penalty) by starting eligibility penalties at the date of 
Medicaid qualification instead of the date of the transfer.

    Medicaid Estate Recovery: Every state Medicaid program is required 
to recover the cost of care from the estates of deceased recipients 
(Omnibus Budget Reconciliation Act of 1993). Few states aggressively 
enforce the estate recovery requirements, however, and none effectively 
inform the public of this liability in advance. Oregon leads in estate 
recoveries, annually recouping 4.1% of its Medicaid nursing home 
expenditures from recipients' estates. If every state recovered at the 
same rate, estate recoveries could generate nearly $2 billion in nontax 
revenue to supplement Medicaid's limited resources. If states warned 
citizens about the risk and cost of long-term care, the downside of 
enrolling in Medicaid--such as loss of independence and choice--and the 
use of estate recovery, many more people would plan earlier to save, 
invest or insure for long-term care costs, thus reducing the burden on 
taxpayers and the Medicaid program.
    States should review their Medicaid estate recovery programs. If 
recoveries do not meet or exceed 5% of nursing home expenditures, 
states should consider: changing laws to encourage stronger recoveries; 
implementing ``best practices'' from other states; adding staff until 
recoveries are maximized; and publicizing the program to encourage 
responsible long-term care planning by consumers who are still young, 
healthy and affluent enough to purchase private insurance.
Conclusion
    The United States is the richest country in the world. We have more 
than enough wealth to ensure access to long-term care for all American 
citizens. Yet our long-term care service delivery and financing system 
is seriously dysfunctional.
    By making Medicaid nursing home benefits routinely available to 
virtually anyone since 1965, we created a nursing home-based, welfare-
financed long-term care system that fails everyone, especially the 
poor.
    While it is understandable that seniors want to protect their 
assets in order to pass something on to their families and friends, the 
best way to do that is to take financial responsibility and protect 
their assets by purchasing long-term care insurance, not becoming 
dependent on the Medicaid system.
    The private LTC insurance industry continues to serve consumer 
expectations well in the design and offering of quality products. 
Disincentives to buy the products do not come from a lack of benefit 
plans--excellent, affordable coverage is available and new products 
continue to be developed. Concern for the stability of premium rates 
for these products has been addressed by the National Association of 
Insurance Commissioners, while meaningful consumer protections have 
been put in place in the states.
    By providing individuals with the proper incentives to plan for 
their own long-term care financing, Congress can reduce the number of 
people dependent on Medicaid and allow the program to do a better job 
for its proper clientele: the poor. Medicaid could afford to offer home 
and community-based care, not just nursing home care, and perhaps it 
could pay long-term care providers something closer to market rates.
    Thank you again for the opportunity to share our comments. Please 
feel free to contact me if I can provide any further information.
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    \1\ Steve Moses, ``The Long-Term Care Dilemma: What States are 
Doing Right and Wrong,'' 2004, http://www.cahi.org/cahi_contents/
resources/pdf/LTCStudy2004.pdf.
    \2\ See: http://www.cms.hhs.gov/statistics/nhe/historical/t7.asp; 
``Table 7: Nursing Home Care Expenditures Aggregate and per Capita 
Amounts and Percent Distribution, by Source of Funds: Selected Calendar 
Years 1980-2002'' and C. McKeen Cowles, 2002 Nursing Home Statistical 
Yearkbook, Cowles Research Group, Montgomery Village, MD, 2003, p. 64.
    \3\ See ``SI 011715.020 List of State Medicaid Programs for the 
Aged, Blind and Disabled'' at http://policy.ssa.gov/poms.nsf/1nx/
0501715020.
    \4\ Ibid.
    \5\ See SEC. 1917 [42 U.S.C. 1396p] of the Social Security Act, 
``Liens, Adjustments and Recoveries, and Transfers of Assets,'' at 
http://www.ssa.gov/OP_Home/ssact/title19/1917.htm.
    \6\ Moses.
    \7\ Moses. This estimate is based on applying Oregon's probate 
recovery rate of 6.9% to the national total Medicaid nursing home 
expenditures for FFY-02 of $46.5 billion. Using the 8.1% estate 
recovery rate estimated by Oregon staff gives a total national estate 
recovery potential of $3.8 billion.
    \8\ ``209B states,'' refers to the states which retained the right, 
under Section 209(b) of the Supplemental Security Income (SSI) program, 
to continue to use their own eligibility criteria in determining 
Mediciad eligibility for the elderly and disabled rather than extend 
Medicaid coverage to all who qualify for SSI benefits. The Medicaid 
Resource Book, Kaiser Commission on Medicaid and the Uninsured.

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Statement of Barbara Haselden, Hometown Insurors, Inc., St. Petersburg, 
                                Florida
    Sixteen years ago I formed a corporation and opened a neighborhood 
Long Term Care Insurance Agency in St. Petersburg, Florida. My family 
had experienced the long term care needs of both of my grandmothers 
each lasting for seven years, one at home and one in a nursing home. I 
witnessed the financial and emotional impact this exacted on all close 
members of my family and when I became aware of the emerging product of 
insurance to cover these events I was hooked. Surely this would be a 
life's work that, once understood by the public, would provide both a 
good living and rewarding service to others. In my naivety, I had no 
idea of the road I was about to travel filled with years of struggle, 
moments of hope dashed by years of disappointment.
    I will not take your valuable time to relive the history of this 
industry as I know you have plenty of testimony covering this aspect. I 
will say that interest in the product peaked perhaps as long as five 
years ago. At that time the promotion of Medicaid planning Seminars by 
Elder Law Attorneys and Insurance Agents began to proliferate promising 
to assist families in escaping the consequences of uninsured long term 
care.
    One such seminar entitled ``Just Say No to Long Term Care'' drew 
crowds of 60 to 100 people consistently for years all over the southern 
half of the state. Another Seminar given by a young local Elder Law 
Attorney entitled, ``FINALLY, Answers to Your Medicaid Questions and 
Long Term Care'' has been running monthly for the past five years and 
in fact is in the St. Petersburg Times just this past Sunday. These 
seminars are actually held in public libraries and senior citizen 
centers.
    There are thousands of Purveyors of Medicaid nationwide each with 
their own approach to marketing Medicaid to the public for their own 
personal gain. I have attended many of these seminars in Florida and 
have been so disappointed by the general willingness of everyday 
Americans to engage in schemes to become eligible for Welfare and to 
escape paying an insurance premium to finance their own future personal 
needs. But, most seminars start out with a long pitch proclaiming 
Medicaid as an Entitlement Program guaranteed to every American if you 
only know how to play the game and, after listening to the distorted 
message, one walks away from these convincing half-truths thinking only 
a fool would buy long term care insurance. After all, you paid taxes 
all these years . . .
    Today we are loosing more policyholders monthly at my agency than 
we are able to add. They are going on claim at a rate that exceeds our 
growth due to the low interest in our product. If something isn't done 
quickly to assist our industry in reaching the public I fear the 
industry will collapse. The languishing legislative action on building 
a financially strong long term care delivery system thru adequate 
financing via insurance, like all other major risks in our society, 
threatens to rob us of our future ability to care for our aged in their 
own homes, assisted living or nursing facilities.
    While it is certain that the Medicaid Planning industry must be 
stopped, I fear the number of years that it may take to outwit 5000 
attorneys into submission. Therefore, I am asking for an above-the-line 
tax deduction now to give us compelling incentives to those that will 
listen to purchase long term care insurance. Then quickly shut every 
loophole you can to false impoverishment to send a clear message to all 
Americans that, if they can afford it, long term care insurance is 
their appropriate vehicle to finance their future care if they do not 
want to risk their savings.
    Thank You.

                                 
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