[Senate Hearing 109-429]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-429

           LONG-TERM CARE FINANCING: ARE AMERICANS PREPARED?

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             MARCH 9, 2006

                               __________

                           Serial No. 109-18

         Printed for the use of the Special Committee on Aging




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                             WASHINGTON: 2006        
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                       SPECIAL COMMITTEE ON AGING

                     GORDON SMITH, Oregon, Chairman
RICHARD SHELBY, Alabama              HERB KOHL, Wisconsin
SUSAN COLLINS, Maine                 JAMES M. JEFFORDS, Vermont
JAMES M. TALENT, Missouri            RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina       BLANCHE L. LINCOLN, Arkansas
MEL MARTINEZ, Florida                EVAN BAYH, Indiana
LARRY E. CRAIG, Idaho                THOMAS R. CARPER, Delaware
RICK SANTORUM, Pennsylvania          BILL NELSON, Florida
CONRAD BURNS, Montana                HILLARY RODHAM CLINTON, New York
LAMAR ALEXANDER, Tennessee           KEN SALAZAR, Colorado
JIM DEMINT, South Carolina
                    Catherine Finley, Staff Director
               Julie Cohen, Ranking Member Staff Director

                                  (ii)




                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Gordon Smith........................     1
Opening Statement of Senator Mel Martinez........................     3

                                Panel I

Robert F. Danbeck, associate director and chief human capital 
  officer, Office of Personnel Management (OPM), Washington, D.C.     4

                                Panel II

Eileen Tell, senior vice president, Long Term Care Group, Inc., 
  Natick, MA.....................................................    17
Malcolm Cheung, vice president, Long Term Care Prudential 
  Financial, Livingston, NJ......................................    38
Joanne Vidinsky, insurance purchaser, San Francisco, CA..........    53
Robert B. Friedland, Ph.D., founding director, Center on an Aging 
  Society, Washington, DC........................................    60

                                APPENDIX

Prepared Statement of Senator Herb Kohl..........................    89
Questions from Senator Lincoln for Robert Danbeck................    89
Questions from Senator Lincoln for Joanne Vidinsky...............    90
Questions from Senator Lincoln for Malcolm Cheung................    92

                                 (iii)



 
           LONG-TERM CARE FINANCING: ARE AMERICANS PREPARED?

                              ----------                             



                        THURSDAY, MARCH 9, 2006

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:13 a.m., in 
room SD-138, Dirksen Senate Office Building, the Hon. Gordon H. 
Smith (chairman of the committee) presiding.
    Present: Senators Smith and Martinez.

      OPENING STATEMENT OF SENATOR GORDON SMITH, CHAIRMAN

    The Chairman. Good morning, ladies and gentlemen. We thank 
you for your patience. It has been a hectic morning and we 
thank you all for coming.
    Today's hearing topic, long-term care, is a subject 
Congress must begin to address if we are to ensure that future 
generations of retiring Americans are able to meet their health 
care needs while not crippling entitlement programs like 
Medicare and Medicaid.
    I am very glad we have the opportunity to discuss long-term 
care financing and take the first steps to answering the 
question, ``Are Americans prepared?'' The biggest concern 
regarding long-term care is that it is very expensive. The 
Centers for Medicare and Medicaid Services estimate that 
national spending for long-term care was approximately $160 
billion in 2002, representing about 12 percent of all personal 
health care expenditures.
    To make matters even more difficult, demand for long-term 
care is expected to increase significantly in the coming 
decades. Today, almost two thirds of people receiving long-term 
care are over the age 65, with the number of people receiving 
care expected to double by 2030.
    To put a human face on this growing problem, we hear 
stories every day of disabled Americans who cannot afford care, 
turning then to self-impoverishment as a last resort of 
beginning to receive Medicaid benefits. For these reasons, 
urgent action is needed on two fronts.
    First, we must strengthen Medicaid to ensure that it 
remains a viable safety net for millions of needy Americans 
well into the future. Second, we need to encourage savings and 
the purchase of long-term care insurance for those who are in a 
position to prepare for long-term care expenses.
    Why is this such a great concern? As the baby boomers begin 
retiring in increasing numbers over the coming years, our 
ability to pay for entitlement programs will simply be 
stretched to the breaking point. In addition, the Deficit 
Reduction Act that was enacted earlier this year included 
several provisions that dramatically changed eligibility 
standards for Medicaid, such as lengthening the look-back 
period for asset transfers and disqualifying individuals with 
substantial home equity.
    On a positive note, the bill created the National 
Clearinghouse for Long-Term Care Information and expanded the 
Long-Term Care Partnership Program. For that, I must commend 
the work of Senator Craig, who is the former Chairman of this 
Committee and who still serves with distinction. We commend him 
for all his hard work to expand the Long-Term Care Partnership 
Program. His leadership as Chairman of this Committee was one 
of the primary reasons Congress expanded the Long-Term Care 
Partnership Program.
    With these greater restrictions on Medicaid eligibility, we 
must begin to offer positive estate planning solutions to give 
Americans better opportunities to prepare for their long-term 
care needs. As with health care, the best way to be prepared 
for long-term care expenses is to be insured. However, 
insurance can be expensive, especially when weighing the pros 
and cons of purchasing long-term care insurance versus 
remaining uninsured.
    Currently, about 55 percent of the people over 85 years old 
need some form of long-term care. When deciding to purchase 
insurance, the gamble that a person could be one of the 45 
percent that will not need long-term care can be perceived as a 
better option than paying for insurance.
    We must tear down the notion that the purchase of this type 
of insurance is a gamble. Long-term care insurance protects 
assets and income from the devastating financial consequences 
of these costs.
    Today's comprehensive long-term care insurance policies 
allow consumers to choose from a variety of benefits and offer 
a wide range of coverage choices. They allow individuals to 
receive care in a variety of settings, including nursing homes, 
home care, assisted living facilities, and adult day care. 
Last, long-term care insurance allows individuals to take 
personal responsibility for their long-term health care needs 
and reduces the strain on the Medicaid budget.
    While planning for long-term care costs by buying insurance 
is a step in the right direction, this may not be the ideal 
solution for everyone. For younger individuals, saving for 
long-term care needs, whether for the later purchase of that 
care or paying outright for it, is sometimes more beneficial 
than buying insurance. We should support early savings efforts 
for insurance and care, as many people don't think about this 
need until it is just simply too late.
    Putting away money over time, as we will hear from Joanne 
Vidinsky, can be a very powerful means of affording insurance 
or care. However, with our national savings rate in steady 
decline, I fear the American middle class is woefully 
unprepared to meet this coming challenge.
    Today, I will introduce the Long-Term Care Trust Account 
Act of 2006 with Senator Lincoln of Arkansas, who serves with 
me on this Committee and the Finance Committee as well. This 
bill will incentivize savings and the purchase of insurance by 
creating a savings vehicle for the purpose of preparing for 
costs associated with long-term care services and purchasing 
long-term care insurance.
    Individuals who contribute to this account will receive a 
refundable tax credit on their contributions. This will help 
individuals save for insurance and the many people in our 
country that want to help their parents or a loved one prepare 
for their health care needs as well.
    The issue of long-term care expenditures and costs need not 
be an insurmountable task. However, it will require action and 
cooperation by public officials and private providers as we 
work to find ways to help Americans prepare. As with any major 
issue facing this Nation, Republicans and Democrats must come 
together to bring new and innovative solutions to the table. It 
is a time for ideas, not ideals, and I look forward to working 
with my colleagues as we strive to meet this growing challenge.
    Last, I would like to thank all of our witnesses who join 
us here this morning. We have assembled two excellent and 
diverse panels. I am eager to hear your thoughts as we engage 
in this meaningful and productive dialog.
    With that, I am very pleased to be joined by a 
distinguished member of our Committee, Senator Martinez of 
Florida, for your opening statement.

         OPENING STATEMENT OF THE SENATOR MEL MARTINEZ

    Senator Martinez. Mr. Chairman, thank you very much. I 
again congratulate you and welcome your holding of this hearing 
and appreciate the opportunity to make an opening statement and 
welcome our speakers as well.
    I know that the issue of long-term care is an extremely 
important topic in the area of health care, and we in Congress 
really cannot afford to wait any longer to devise a plan to 
help educate individuals on the importance of having a policy 
and helping citizens to purchase this type of insurance.
    Mr. Chairman, our country is heading toward a demographic 
meltdown on long-term care. It is simply unsustainable for 
individuals in the Government to maintain the current rate of 
spending without further endangering the state of health care 
in the United States.
    Preparing for future health care cost is something that 
every American should be doing. Long-term care insurance is one 
of the ways in which Americans plan for periods of extended 
disability without burdening their families, going bankrupt, or 
relying on Government assistance.
    It is important that incentives are put in place today that 
will deal with the impending influx of elderly Americans who 
will rely on the long-term health care system in the future. 
That is why I am pleased the Congress recently acted, through 
the deficit reduction act, to expand the Partnership for Long-
Term Care Program, the public-private long-term care insurance 
program that formerly was only available in a handful of 
States.
    The benefits of the partnership program are two-fold. The 
program provides incentives for individuals to purchase long-
term care insurance and relieves pressure on State Medicaid 
programs, where long-term care expenses are growing 
exponentially. The State of Florida is certainly no exception 
to that problem.
    Additionally, if the purchasers of these policies spend 
down their policy and need to rely on Medicaid, they will be 
able to protect assets on a dollar-for-dollar basis. This 
arrangement helps protect beneficiaries, important assets, and 
relieves pressure on publicly financed long-term care.
    While this is a positive step forward, more will be needed 
as the baby boomer generation begins to retire. Mr. Chairman, I 
am in a long list of notable Americans like our President, our 
immediate past President, who will be turning 60 this year, and 
it is upon us that the baby boomers are coming of age.
    All options should be considered, and I am a co-sponsor of 
a bill that will allow individuals to use their 401(k) and 
403(b) plans to purchase long-term care insurance with pre-tax 
dollars at any age and without early withdrawal penalties. 
Under this legislation, the consumer has the option to purchase 
long-term care insurance at the most appropriate amounts for 
their own needs and their spouses.
    I also, Mr. Chairman, welcome the bill that you have filed 
today, including a tax credit to individuals who purchase long-
term care insurance. I look forward to reviewing that bill and 
perhaps joining as an early co-sponsor with you on that 
measure.
    I hope that both of those proposals will soon get 
consideration in the Finance Committee, and I look forward to 
hearing the panelists today. I appreciate the indulgence of the 
Chair to have my remarks.
    The Chairman. Thank you very much, Senator Martinez. We 
would welcome you on the bill.
    Senator Martinez. Thank you.
    The Chairman. If you find it meritorious, we would 
certainly love your support.
    Testifying today on our first panel will be Robert Danbeck. 
Mr. Danbeck is associate director and chief human capital 
officer at the Office of Personnel Management. Mr. Danbeck will 
be discussing the Federal Long-Term Care Insurance Program, 
which Congress started in 2000.
    Mr. Danbeck, thanks for coming. The mike is yours.

 STATEMENT OF ROBERT F. DANBECK, ASSOCIATE DIRECTOR AND CHIEF 
 HUMAN CAPITAL OFFICER, OFFICE OF PERSONNEL MANAGEMENT (OPM), 
                         WASHINGTON, DC

    Mr. Danbeck. Mr. Chairman, it is a pleasure to be here. I 
have a longer statement that I request be made part of the 
record.
    The Chairman. Without objection.
    Mr. Danbeck. Mr. Chairman and members of the Committee, I 
appreciate the opportunity to appear before you today to 
discuss the Federal Long Term Care Insurance Program.
    The Office of Personnel Management (OPM) views this program 
as a critical component of the Federal Government's effort to 
attract and retain a high-caliber workforce. It is the largest 
group long-term care insurance program, with over 211,000 
participants. It is a true success story, thanks to the strong 
congressional leadership, which made the Federal program 
possible.
    OPM staff worked extensively with congressional staff and 
industry representatives to ensure the authorizing legislation 
for the program would be viable from both an administrative and 
an industry perspective. Shortly after enactment of the Long-
Term Care Security Act of September 19, 2000, OPM staff began 
meeting with national experts in the fields of long-term care 
and long-term care insurance to help us design a program that 
would be at the forefront of the marketplace.
    On June 20, 2001, OPM issued a request for proposal from 
qualified carriers to insure and to administer the program. 
After a competitive bidding process and an extensive evaluation 
of competing proposals by both technical and financial panels, 
OPM awarded a contract to Long Term Care Partners, the joint 
venture formed by John Hancock and MetLife, on December 18, 
2001.
    John Hancock and MetLife are the Nation's two largest 
carriers of group long-term care insurance and consistently 
earn top ratings for financial strength from the major rating 
organizations. Both have been in the long-term care insurance 
business for well over 15 years and have a history of rate 
stability.
    Federal and Postal employees and annuitants, active and 
retired members of the uniformed service, and certain District 
of Columbia employees and their qualified relatives are 
eligible to apply for long-term care insurance under this 
program. The Federal program is underwritten and thus certain 
medical conditions or combinations of conditions prevent some 
people from being approved for coverage.
    We held an early enrollment period for the program from 
March 25 to May 15, 2002, for those who were familiar with the 
product and desired coverage as soon as possible. We followed 
that with our first open season from July 1 to December 31, 
2002. The open season was accompanied by an extensive 
educational initiative to acquaint the eligible population with 
the product and the need for the product.
    During the early enrollment period and the open season, 
employees and their spouses could apply for coverage using the 
abbreviated underwriting application, containing only a handful 
of health-related questions. The remaining eligible population 
utilized the full underwriting application, which contains many 
health-related questions.
    Open season ended in 2002, and abbreviated underwriting is 
still available for a 60-day period to new or and newly 
eligible employees and their spouses and newly married spouses 
of employees. Everyone else must use the full underwriting 
application, but the program remains open to the entire 
eligible population.
    As you can imagine, one of the greatest challenges we faced 
early in the program's history and continue to face is how best 
to educate and communicate with the eligible population about 
what long-term care is and about the need for long-term care 
insurance. This is not unique to our program.
    Long-term care insurance is typically a difficult sell, 
whether in the Government or the private sector. Some people 
are hesitant to purchase long-term care insurance because of 
its expense, as well as the possibility that they will never 
need to use the insurance coverage--the gamble that you 
referred to before.
    I personally would rather pay for long-term care insurance 
and never need it than need it and not have it. I feel the same 
way about collision insurance on my automobile or fire 
insurance on my house. Peace of mind is worth a lot.
    Over the last 5 years, we have learned a lot about how to 
encourage people to apply for long-term care insurance. One of 
the most important aspects of the purchase decision is multiple 
exposure to the message.
    It is very hard for people to project themselves into the 
future, perhaps 20, 30, or 40 years, and imagine that they may 
need help with activities that today they take for granted--
just caring for themselves, feeding themselves, clothing 
themselves. So, it is important that they hear the message over 
and over and over again.
    We have continuing educational opportunities at benefits 
fairs. We distribute materials. We run seminars. We have 
positive press. We provide education on State tax incentives 
for purchasing insurance. We have discussions at retirement 
planning seminars. We have discussions with colleagues. 
Sessions such as these go a long way to get that message out to 
the eligible population.
    Another important lesson that we learned is nothing can 
match personal experience. Someone who has seen a loved one 
spend a lifetime of savings on long-term care services, someone 
who has nursed a loved one through chronic illness and 
experienced the emotional and physical stress that caregiving 
entails will be much more receptive to thinking about long-term 
care insurance than someone who has not had this type of 
experience.
    Endorsement by the Federal Government also is key. Through 
focus group surveys, we know that OPM sponsorship and oversight 
of the Federal program, being established by an Act of Congress 
and ratified by the President, instantly lend credibility to 
the program.
    The Federal program competes with many other long-term care 
insurance policies in the marketplace, and sometimes it is hard 
to compare benefits or to know that you are comparing them 
accurately. The Federal endorsement itself is sometimes enough 
to give applicants the peace of mind to believe that they have 
made the right choice.
    Payroll deduction also lends credibility to the purchase 
decision. Almost 70 percent of the Federal and Postal employees 
choose payroll deduction at time of application. About 65 
percent of enrolled annuitants have annuity deductions for 
their premiums. It is a distinct competitive advantage.
    We know we need to do a better job educating people and 
reaching out to people about the need for this insurance, 
especially in venues where we have difficulty getting to the 
eligible population. This would currently include military 
bases with limited access to active members of the uniformed 
services and the Postal Service, where employees are very 
dispersed and have to attend educational opportunities on their 
own time.
    Some agencies are better than others at distributing 
information about the program and making educational 
opportunities available, such as pre-retirement seminars. 
Contact at the home can be an effective way of getting to 
people because they are inundated in the workplace with many 
messages.
    Yet we cannot take advantage of home settings, as private 
insurance agents can, because we do not have access to non-OPM 
employee addresses, and we do not have a network of paid 
agents. We cannot easily reach qualified relatives since we 
really don't have a way to contact them either.
    Given all of these challenges, we firmly believe the 
Federal program has done a commendable job reaching the 
eligible population, as evidenced by the 211,000 current 
enrollees.
    In closing, we want to assure you that this program will 
continue to be a success and a leader in the long-term care 
insurance marketplace. We are deeply grateful for the support 
of Congress and believe your active advocacy can be very, very 
helpful.
    Thank you for your time today and for your continued 
interest in the Federal Long Term Care Insurance Program and in 
long-term care insurance in general. I would be pleased to 
answer any questions.
    The Chairman. Thank you, Robert. Your testimony is very 
helpful and enlightening.
    I suppose there is in all of us a sense that we will never 
die and why bother with an extra insurance policy because of 
that? Your point that, well, if I do die, I won't get to use 
it. So, it is a hard sell.
    For my own education and perhaps for anyone watching on C-
SPAN, what are the relative costs between long-term insurance 
versus a health care policy for every day care or your care for 
today? Is it expensive?
    Mr. Danbeck. It is expensive.
    The Chairman. OK.
    Mr. Danbeck. The exact figures I don't have with me at the 
time. However, I can get those for you. It is more expensive 
than normal insurance, if you will, normal health insurance. 
There are a number of different plans that you can choose. Of 
course, it also is dependent on your age. So it is, from a 
comparative point of view, an expensive product.
    I do have the figures now, but I can share them with you 
later.
    The Chairman. If you can share them, that would be fine.
    You know, we talk about Federal tax incentives, and 
obviously, the bill Senator Lincoln and I have is providing yet 
another tax incentive to get people to make this choice. But 
frankly, at the current point, Federal tax incentives are 
fairly minimal to get people to make this choice.
    You reference in your testimony that you educate Federal 
workers about State tax incentives for long-term care 
insurance. In your position, how often do you feel these State 
tax incentives move someone to purchase that insurance?
    Mr. Danbeck. Well, I don't think that they are the impetus 
for someone to make that decision based only on that fact. I do 
think, though, that once the individual has done their homework 
and assessed the various plans that are available, that they 
really do have a tremendous impact on the individual. They add 
to that decision.
    They are probably, the crowning point, if you will, for the 
person's decision making process. So, I think they are very 
valuable.
    Again, this is a unique program, as you mentioned. So 
people go through quite a bit of thought process before they 
make a decision. But once they are there, and then you couple 
that with the tax incentives, that is the thing that closes the 
deal.
    The Chairman. Should the Federal Government do more in 
terms of tax incentives, in your view? Would that be the 
tipping point to get more and more American seniors----
    Mr. Danbeck. I certainly think it would help.
    The Chairman. OK. Senator Martinez.
    Senator Martinez. I am impressed by the very large 
enrollment number among your folks. Tell me how that has been 
accomplished. Understanding what you also have said, which is 
it is not a cheap product, how have you accomplished that?
    Mr. Danbeck. Well, the first thing we have is a very active 
Web site. I mean, OPM has an active Web site, as well as the 
Long Term Care Partners.
    We do an extensive education program. Every opportunity we 
get to speak at pre-retirement seminars, we take that 
opportunity. Every opportunity we have to be at conferences, we 
will see a booth there from the Long Term Care Partners 
presenting the product.
    We have a call center. We are always reaching out. I mean, 
we have even gone so far as to send birthday cards to 
annuitants who might not be covered by the product to just say, 
``Hey, your birthday is coming up. This is something you might 
want to think about.'' So we have an extensive outreach 
program, and we have completely revamped the way we did it. We 
have made it much more user-friendly.
    As I mentioned earlier, people receive a lot of mail. So 
what we have done is we have branded, if you will, all of our 
correspondence so that when they receive that at home, they do 
know that it is something related to their insurance and 
something personal to them.
    We have done a lot in that area. But I have to tell you, 
the website, the website gets over 184 million hits a year.
    Senator Martinez. Do you have the address for it? It might 
be good to let folks know what that is and they could address 
it.
    Mr. Danbeck. www.ltcfeds.com.
    Senator Martinez. Say it again. I am sorry.
    Mr. Danbeck. LTC--long-term care--feds--F-E-D-S--dot-com.
    Senator Martinez. In the State of Florida, we have a large 
population of military retirees with a very integrated 
community network, and I was wondering if there have been any 
outreach efforts on behalf of military retiree organizations to 
try to expand the Federal enrollment program?
    Mr. Danbeck. We will submit the answer for the record.
    Senator Martinez. OK. Very good. Thank you.
    Mr. Danbeck. I am just not personally aware of them at the 
present time.
    Senator Martinez. Right, right. OK. That will be good. 
Thank you.
    That is all I have, sir.
    The Chairman. Mr. Danbeck, thank you very much. We 
appreciate your role in this important Federal program and 
encourage you to keep all of those good efforts going and get 
the numbers up, and we thank you for that and your public 
service.
    Mr. Danbeck. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Danbeck follows:]
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    The Chairman. With that, we will call up our next panel.
    Our first witness on this panel will be Ms. Eileen Tell. 
She is the senior vice president for product development with 
Long Term Care Group, Inc. Ms. Tell is an expert on the long-
term care insurance market. In her current position, she has 
been involved in research, education, and product development 
strategies for insurers and Government agencies.
    She will be followed by Mr. Malcolm Cheung, who works in 
Prudential's Long-Term Care Division as an expert in pricing, 
product development, contracts, compliance, financial 
reporting, and risk management. Today, Mr. Cheung is here to 
discuss current trends in the long-term care insurance market 
and how, as Government, we could help these markets become more 
robust.
    He will be followed by Ms. Joanne Vidinsky. She is here to 
share her personal experience with long-term care. She has a 
mother-in-law with Alzheimer's disease, and she learned 
firsthand of the challenges of financing long-term care.
    Finally, Robert Friedland is the founding director at the 
Center on an Aging Society. Mr. Friedland has written on issues 
pertaining to the financing and delivery of health care, long-
term care, and retirement income security. He is the author of 
``Facing The Costs of Long-Term Care.'' So, we welcome each of 
you here. Eileen, why don't we start with you?

STATEMENT OF EILEEN TELL, SENIOR VICE PRESIDENT, LONG TERM CARE 
                    GROUP, INC., NATICK, MA

    Ms. Tell. Thank you.
    Good morning, Mr. Chairman, members of the Committee. I am 
very pleased to be here. Thank you for the opportunity.
    Really important to talk about the greater consumer 
awareness and incentives to encourage people to take personal 
responsibility to planning ahead for their long-term care 
needs. Over the last 21 years, I have worked in various 
capacities to educate consumers about the risks and costs of 
long-term care and to help them understand the advantages of 
planning ahead.
    My work has also focused on creating and enhancing a 
variety of private finance options and products to meet those 
needs. Through this work, we talk every day with people who 
planned ahead for long-term care for themselves and for their 
loved ones, and we hear what motivated them to obtain 
insurance, to plan ahead, and, more importantly, how having 
that insurance has impacted their lives.
    Specifically, planning ahead and having insurance can make 
a significance difference to the financial well-being, quality 
of care, control over care choices, and peace of mind. I have 
included in my written testimony some personal statements from 
individuals who have gone through the long-term care need and 
made some planning choices.
    Despite these compelling advantages, however, the number of 
people with private insurance is still small. The magnitude of 
this problem is captured in a tool developed in 2003 called the 
Index of the Long-Term Care Uninsured. Specifically, we see 
that 87 percent of the eligible population age 45 and older are 
currently uninsured for long-term care.
    Last year, for the first time, this index was also used to 
take a look at some State-specific trends to identify State-
level activities that can possibly encourage private 
responsibility for long-term care. These include State tax 
incentives, a public-private partnership initiative, public 
education, a long-term care insurance program for public 
employees and retirees such as the Federal plan, speed to 
market, and others.
    We do see that these State activities appear to be making a 
difference. You asked about State tax incentives, and one thing 
we looked at is for those States that have adopted State tax 
incentives, they do have a higher market penetration for long-
term care insurance than those that don't. Specifically, a tax 
credit seems to have a stronger impact than a tax deduction.
    Specifically, market penetration among those States with a 
long-term care tax credit or a deduction is 8.1 percent, 
compared with 6.7 percent in States without such tax treatment. 
Similarly, in States with a State-sponsored long-term care 
insurance program like the Federal program for public 
employees, retirees, and their families, we see market 
penetration as 8.1 percent, compared with 4.6 percent in States 
without such a program.
    So that general education that happens in an area really 
rises and spreads across to populations beyond those just 
eligible for that program and makes a difference.
    With respect to the partnership program, we see among the 
18 States that have above average market penetration for long-
term care insurance, 3 of the 4 partnership programs are among 
those. So it does look like national expansion of a partnership 
kind of concept, which is a key component of the deficit 
reduction act, is an important element that is going to help 
the marketplace.
    Finally, we know that raising consumer awareness and 
education is critical. If individuals are more aware of their 
potential need for long-term care and the options for 
addressing it, they are much more likely to take steps to 
prepare for the future. This, in fact, is the key premise 
behind the Department of Health and Human Services long-term 
care consumer awareness initiative.
    Called ``Own Your Future,'' the campaign represents a 
unique partnership between the Federal Government and States to 
offer a consistent message about personal responsibility and 
planning ahead for long-term care needs.
    Another element of the campaign, which we feel has been 
vital to consumer acceptance of this message, is the objective 
sponsorship, providing information and education product-
neutral, but from an independent Government source. It is 
really the concept of planning and knowledge about how to plan 
for long-term care needs that is being sold through this 
education.
    Phase 1 of the demonstration launched in January 2005 in 
five States--Arkansas, Idaho, Nevada, New Jersey, and Virginia. 
In each State, the Governor sent a letter to every household 
with an individual age 50 to 70, offering them a long-term care 
planning kit. The response rate to the campaign was an 
impressive 8 percent. For a direct mail campaign, when we hear 
about all the mail clutter and information that people get, we 
were very pleased with that result.
    The Chairman. With 8 percent?
    Ms. Tell. Eight percent was the response rate. Eight 
percent of the people that got that letter asked for the 
planning kit.
    The Chairman. That is a good rate?
    Ms. Tell. That is an excellent rate for direct response 
mail, even for a social awareness kind of program.
    Also individuals from every demographic segment responded. 
So there was something relevant about the planning message, and 
it was designed this way, across the age spectrum from 50 to 
70. The kind of planning people would do at those different 
ages is very different.
    We have seen anecdotally a favorable impact on awareness, 
on inquiries to insurance companies, and, in some cases, sales. 
Our own research supports these findings. We have done some 
survey work with the people that have received the planning 
information and those that have not, and we see a significant 
impact.
    Individuals who received the planning material were more 
than twice as likely to take some kind of planning action as a 
result. That might include talking to an agent or a financial 
planner about long-term care, looking at their existing 
coverage to see if, indeed, they do have a gap that needs to be 
addressed, or, more specifically, buying long-term care 
insurance.
    The campaign is an important model and a great start, but 
States and the Federal Government need to expand on these and 
other efforts to make consumers more aware and motivate and 
enable them to plan ahead. The deficit reduction act includes a 
very important consumer awareness campaign, which you 
referenced in your opening remarks, the National Clearinghouse 
for Long-Term Care.
    We are fortunate to have learned from Phase 1 of the Own 
Your Future campaign that this model is effective in raising 
consumer awareness and also in encouraging planning behavior. 
This gives us a tested and effective infrastructure as we 
implement the National Clearinghouse for Long-Term Care.
    Thank you for the opportunity to share these remarks, and I 
will be happy to answer any questions.
    [The prepared statement of Ms. Tell follows:]
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    The Chairman. Eileen, how expensive are your products for a 
45-year-old as opposed to a 65-year-old?
    Ms. Tell. Well, my company doesn't have a single product. 
We represent about 40 different insurers. We are an outsource 
partner for them. I believe in the industry, the average 
premium across all ages, across all types of products is about 
$1,500, $1,700 a year. That is the average annual premium that 
is being spent.
    People seem to focus on a price point of what they can 
spend, and younger people buy richer coverage, which makes 
sense for the needs they might have. More uncertainty about 
what they might need. Older people have perhaps a finer focus 
on what their needs are going to be and are able to pinpoint 
their coverage more cost effectively.
    The Chairman. Do you think that most people who have health 
care coverage, they just assume that that includes long-term 
coverage?
    Ms. Tell. To a great extent, that is true. That is why we 
found if people said to us, ``I am looking at my health plan to 
see if it covers long-term care,'' we thought that was a great 
planning action. Trying to get the message to people that small 
steps make a big difference.
    Talk to your family about what your preferences are. There 
is a real disconnect between adult children feel like they are 
abandoning their parents if they talk about insurance products 
or other options for planning ahead. The parents want a lot of 
financial and emotional independence from their children. They 
want loving relationships, not hands-on caregiving and 
financial support.
    The Chairman. I believe you referenced that tax credits are 
better than tax deductions. Is that because it is found money 
and it is now as opposed to later?
    Ms. Tell. I think that is a part of it. There may be other 
factors at work that we have not yet analyzed. For example, how 
well it is communicated.
    The State of Minnesota did an enrollment, and the first 
sentence of the letter told people there is a $500 tax credit 
in your State. That makes this insurance program an even better 
deal for you. Look at it carefully.
    So the more strongly it is presented is also going to make 
a difference. Not all States have done the work around 
communicating that feature that perhaps they can.
    The Chairman. You note in your testimony that 87 percent of 
people age 45 years and older are uninsured for long-term care. 
That 80 percent, only a 7 percent difference, are insured for 
long-term after they are 65. Those aren't very impressive 
figures, are they?
    Ms. Tell. They are not. In fact, comparing this year's 
index to the previous one, we have lost a little ground. Now, 
to be frank, we have lost some ground because population growth 
is outstripping purchase and policies, and there is a switch in 
the dynamics of who is buying.
    The over 65 population has about I think it is 80 percent 
uninsured, compared to 90 percent for the baby boomer 
population. So, we have done a better job reaching the older 
population. That is where the focus of attention was in the 
early years. But now, as work site products have grown and 
programs like the Federal program and State employees programs, 
we are more effectively reaching the baby boomer population.
    So the average age at which people buy is coming down, 
which is also a really good thing for affordability. So, those 
dynamics have changed the comparison in numbers over time as 
well.
    The Chairman. You also reference, I think, in your 
statement that the Deficit Reduction Act does do more to 
incentivize through education and also making it more 
affordable, long-term care. Are you optimistic that we are 
going to see some improvement?
    Ms. Tell. I am. I am also optimistic from the indirect 
education that will come as another element of the deficit 
reduction act are the Medicaid changes.
    I think you already see the media sending a message about 
the importance of planning for long-term care and taking a 
different focus on this issue than perhaps they have before. I 
think they are a really important intermediary to reach 
consumers as well.
    The Chairman. Thank you very, very much, Ms. Tell.
    Mr. Cheung.

  STATEMENT OF MALCOLM CHEUNG, VICE PRESIDENT, LONG-TERM CARE 
              PRUDENTIAL FINANCIAL, LIVINGSTON, NJ

    Mr. Cheung. Good morning, Mr. Chairman.
    My name is Malcolm Cheung, and I am vice president and 
actuary for long-term care at Prudential.
    Today, I am representing the American Council of Life 
Insurers, a Washington, DC-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.
    We are delighted that this Committee is addressing an 
important issue facing this Nation--long-term care insurance--
through the hearing process. We applaud Chairman Smith and 
Ranking Member Kohl for drawing attention to this matter, and 
we are pleased to discuss with the Committee the role that 
private long-term care insurance plays in helping to provide 
the retirement security of millions of middle-income families.
    Currently, about 55 percent of those aged 85 and older 
require some form of long-term care, and about 19 percent of 
all seniors--these are individuals over the age of 65--suffer 
some degree of chronic impairment. By the year 2050, it is 
estimated that up to 5.4 million seniors will need the services 
of a nursing home, the most costly form of long-term care, and 
another 2.4 million will require home health care.
    The cost of long-term care is high and increasing, 
averaging more than $60,000 annually for a semi-private room in 
a nursing home, $18.50 per hour for a visit by a home health 
aide, and an annual base rate of more than $30,000 for the 
services of an assisted living facility.
    Since 1990, the price of nursing home care has increased at 
an average annual rate of 5.8 percent, which is almost double 
the overall inflation rate. Private long-term care insurance 
currently pays for only 8 percent of total nursing home 
expenditures, but 36 percent of overall health expenditures. 
There is clearly a large gap in the financing of long-term care 
services that long-term care insurance can help fill.
    Currently, almost 75 percent of all nursing home 
expenditures are paid by Medicaid or out of pocket by those 
needing the care. If three quarters of individuals between the 
ages of 40 and 65 who can afford long-term care insurance--we 
define affordability as 2 percent of your income at age 40 
grading up to 5 percent of your income starting at age 60--were 
to purchase and maintain a policy throughout their senior 
years, then by the year 2030, annual savings in Medicaid 
nursing home expenditures would total about $19 billion a year, 
and annual savings in out-of-pocket expenses would total $41 
billion per year.
    Both the individual and the group, or the employer-
sponsored, segments of the long-term care insurance market are 
evolving and growing. The American Council of Life Insurers, 
with the assistance of America's Health Insurance Plans, 
recently surveyed long-term care insurance providers and found 
that the market has grown to nearly $7 billion in annual 
premiums and now covers over 5 million Americans.
    Between 2003 and 2004, the individual long-term care 
insurance market grew 7.5 percent, and the group market grew 25 
percent, in large part due to the enrollment at the Federal 
long-term care plan. The amount paid out in claims has also 
increased, with carriers paying a little over $2 billion in 
benefits in 2004, which was about 20 percent more than what 
they had paid in the previous year.
    Because private long-term care insurance is priced on the 
assumption that an individual will hold the same policy and pay 
the same premium until they need long-term care, premiums vary 
significantly depending on the age of the policyholder at 
policy issue and the specific benefits and coverage chosen.
    Additionally, younger candidates for policies are much more 
likely to pass underwriting screens than are older candidates. 
For these reasons, consumers are encouraged to purchase 
insurance while they are in their 40's and 50's, when premiums 
are lower and more affordable.
    The Chairman. How much lower, and how much more affordable?
    Mr. Cheung. Depending on what plan design you buy, you can 
pay as low as $500 per year for a fairly comprehensive plan at 
age 40, but you would need to pay about $1,500 per year at age 
60 or 65.
    The Chairman. If you buy it at 40, does that rate stay 
relatively static or----
    Mr. Cheung. The premiums are intended to be level. So that 
is why they are so much lower. You are paying for your coverage 
over a longer period of time.
    The Chairman. I think that would be a real selling point.
    Mr. Cheung. Yes, it is.
    Long-term care insurance products continue to evolve to 
give policyholders more choices and flexibility at the time of 
claim. When long-term care insurance was first offered, most 
plans were nursing home only. Recently, more flexible care 
options and consumer protections have become available. Today, 
most policies provide coverage for care received at home, in an 
adult day care facility, in an assisted living facility, or in 
a nursing home.
    Additionally, plans are now guaranteed renewable. They have 
a 30-day ``free look'' period. They offer inflation protection. 
They cover Alzheimer's disease. They have a waiver of premium 
provision, and some plans actually offer unlimited lifetime 
benefit periods. Benefits are paid when a person needs help 
with two or more activities of daily living or is cognitively 
impaired.
    There are many ways that public policy can better encourage 
individuals to prepare for their future needs by purchasing 
long-term care insurance. The recent passage of provisions in 
the Deficit Reduction Act to allow for the expansion of the 
Long-Term Care Partnership is a great example.
    Consumers that purchase long-term care insurance policies 
in the Partnership program would fully utilize their benefits 
prior to qualifying for Medicaid. They will be allowed to 
protect personal assets on a dollar-for-dollar basis as defined 
in their policy.
    The momentum continues with other important proposals to 
encourage more Americans to prepare for their future long-term 
care needs. Another way to encourage the purchase of long-term 
care insurance is by passing H.R. 3912. This bill would make 
product combinations possible, satisfying the evolving needs of 
some individuals by facilitating the addition of a long-term 
care rider to either a life insurance or an annuity contract.
    It would also update the tax code to include long-term care 
insurance contracts and riders among the insurance products 
that can be exchanged on a tax-deferred basis. Such provisions 
are also found in Senator Santorum's Aging With Respect and 
Dignity Act, and we commend him for that.
    Although product combinations may prove to be an effective 
and attractive alternative to stand alone long-term care 
insurance for many individuals, even more broadly appealing 
solutions to the financing of long-term care would be the 
passage of an above-the-line deduction for long-term care 
insurance premiums and measures to permit long-term care 
insurance policies to be offered under employer-sponsored 
cafeteria plans and flexible spending accounts.
    Long-term care insurers are also closely evaluating other 
recent legislation that recognizes the importance of the tax 
incentive component to encourage the purchase of long-term care 
insurance, such as Chairman Smith's long-term care trust 
accounts proposal. We applaud Chairman Smith and his staff for 
their leadership on long-term care insurance issues and look 
forward to a continued strong working relationship.
    Congress should not pass on this opportunity to 
definitively help Americans plan for their long-term care costs 
by allowing individuals to pay for long-term care insurance 
through cafeteria plans and flexible spending accounts, as well 
as through combination products for those paying for long-term 
care insurance outside of employer-sponsored plans.
    These would enable more Americans to pay privately and to 
have the choice of a variety of services and care settings and 
would have a significant impact on the public policy challenges 
related to the combination of rising long-term care costs, 
rising long-term care needs, and rising strains on the Medicaid 
budgets.
    In conclusion, ACLI looks forward to working with this 
Committee to help Americans protect themselves against the 
risks and high cost of long-term care.
    Thank you.
    [The prepared statement of Mr. Cheung follows:]
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    The Chairman. Malcolm, I want to highlight something from 
your testimony that you indicated that the annual savings in 
Medicaid nursing home expenses would total $19 billion. That is 
assuming all seniors got into this, right?
    Mr. Cheung. That is based on the assumption that 75 percent 
of people between the ages of 40 and 65 who could afford it had 
long-term care insurance. Roughly half of Americans would be 
able to afford it, based on the definition that I mentioned 
previously.
    The Chairman. So if 70 percent of those between 40 and 65--
--
    Mr. Cheung. Who could afford it.
    The Chairman. Who could afford it, got, bought long-term 
care, Medicaid would save $19 billion. But a lot more 
importantly to those individuals, they would save $41 billion?
    Mr. Cheung. Over 40 billion, right. Yes.
    The Chairman. That is a staggering amount of savings that 
would flow from obviously doing everything we can to get that 
70 percent to participate.
    Mr. Cheung. Yes, it is.
    The Chairman. Now you also mentioned that you are no longer 
in your policies requiring seniors just to go into a nursing 
home?
    Mr. Cheung. Correct.
    The Chairman. You are giving them choices of other, you 
know, home care and----
    Mr. Cheung. Yes. Most people want to receive their care for 
as long as possible in a home-like setting. So home health care 
is very important.
    The Chairman. Assisted living?
    Mr. Cheung. Those are becoming much more popular. They are 
expanding very significantly, and most policies, especially the 
newer policies that are being sold today, would provide 
coverage in an assisted living facility as well.
    The Chairman. What does that mean in terms of expense to 
your company? Giving those seniors the choice, don't those 
choices result in lower cost to you?
    Mr. Cheung. Depending on what choice they make, they could 
result in either lower or higher costs. I mean, if somebody 
went into an assisted living facility as an alternative to a 
nursing home, that would be lower in cost. If someone went into 
an assisted living facility as an alternative to home care, 
that might actually increase costs.
    So when insurance companies design their products and price 
their products, they have to take into account where they think 
people who are buying these policies will be getting their 
care, in which site, and for how long in each site.
    The Chairman. Would it be correct to assume that home care 
is less expensive than assisted living?
    Mr. Cheung. Home care is usually less expensive than 
assisted living unless you get home care for 12 to 24 hours a 
day, in which case it tends to be more expensive.
    The Chairman. Assisted living is less expensive than 
nursing home?
    Mr. Cheung. Generally, yes. It is about roughly half the 
cost of a nursing home, yes.
    The Chairman. Well, that is what I have been trying to 
preach around here is at least to eliminate the Federal bias. I 
have nothing against nursing homes, but we have a bias toward 
driving Medicare and Medicaid folks into nursing homes. Whereas 
giving them the choice, they may choose to be at home, and the 
savings are there for the Government.
    Mr. Cheung. Yes, I think there are some States that are 
experimenting and reimbursing or paying for care in sites other 
than a nursing home. But there is still a strong institutional 
bias in the Medicaid program.
    The Chairman. Thank you very much, Malcolm.
    Mr. Cheung. You are welcome.
    The Chairman. Joanne Vidinsky, thank you very much for 
being here, and we are anxious to hear your testimony.

    STATEMENT OF JOANNE VIDINSKY, INSURANCE PURCHASER, SAN 
                         FRANCISCO, CA

    Ms. Vidinsky. Thank you.
    Good morning, and it is an honor be here representing the 
Alzheimer's Association and to discuss my in-laws' heroic 
efforts to cope with the ravages of Alzheimer's disease and the 
effect of their experience on my mother.
    In 1993, my mother-in-law, Velma, then age 78, showed the 
initial signs of confusion and memory loss that began her 
battle with Alzheimer's disease. Over the next 6 years, my 
father-in-law, Joe, cared for her at home in Ohio. It was 
hard----
    The Chairman. How many years?
    Ms. Vidinsky. Pardon?
    The Chairman. How many years did he care for her?
    Ms. Vidinsky. Oh, at home?
    The Chairman. Yes.
    Ms. Vidinsky. He cared for her at home for 6 years.
    The Chairman. Wow. OK.
    Ms. Vidinsky. Yes. It was hard for me and my husband to 
help Joe because we live in California, and he also disguised 
the difficulty of the situation to spare us the pain.
    At 83, Velma began behaving irrationally and could not take 
care of her most basic daily needs. It was a matter of honor 
for Joe to care for Velma himself.
    However, like many Alzheimer's families, after years of 
caring for her, he could no longer do it alone, and he had to 
place Velma in the best nursing home he could find. He paid for 
it at a cost of approximately $60,000 a year. Velma died after 
two years in the facility. She was 86 years old.
    Joe had been a coal miner and a chemical plant supervisor. 
He was not wealthy. But he was able to pay for all of Velma's 
care, and he started working in the mines when he was in eighth 
grade. He left school. He and Velma lived simply and saved 
money from every paycheck throughout their marriage of 63 
years.
    In addition to their savings, Joe had excellent pension and 
retiree benefits from the United Mine Workers Union. Joe, at 
age 91, now lives with Alzheimer's disease, and he pays for his 
care himself in an assisted living facility.
    My in-laws' story has had a profound effect on my mother. 
Although she and my father worked hard in sales positions all 
their lives, their incomes were never high enough for them to 
save much for their retirement. As is common in the service 
industry, my parents did not retire with pensions or health 
benefits.
    My mother lives modestly on Social Security and a small 
amount of savings from a life insurance policy that my father 
had. My mother does not have a spouse to help her remain at 
home, and her financial resources would be drained paying for 
care. She would face impoverishment if it were not for the help 
she receives from my brother and me.
    At age 78, my mother heard about long-term care insurance 
from friends. We respected my mother's desire to avoid becoming 
a burden and remain at home as long as possible and helped her 
buy a long-term care insurance policy. We knew that she could 
not afford the annual premiums herself, nor could she have 
waded through the complicated information available about long-
term care insurance.
    Luckily, my mother was in good health at age 79. If she 
were experiencing symptoms of Alzheimer's disease or another 
chronic illness, we would not have been able to purchase a 
policy for her. The policy we purchased costs $10,000 a year 
and covers the care at home that my mother wants. We also made 
sure that the policy would pay benefits if my mother had 
cognitive impairment.
    For us, placing $10,000 a year in other investments might 
have been more financially sound. But the tradeoff is that our 
mother will not view herself as a burden to us with the long-
term care insurance policy that she has.
    My in-laws represent the end of the long-term care 
financing spectrum that can self-insure for long-term care. My 
mother represents the other end of the spectrum. If she did not 
have children with the financial resources to care for her, she 
would have to rely on Medicaid if she acquired a disability.
    Unfortunately, most older people in this country cannot 
afford the average annual cost of $76,000 for nursing home care 
out of their own savings. Nor do they have children who can 
afford to buy long-term care insurance for them. The majority 
of older people must rely on Medicaid to help with long-term 
care when informal caregiving is no longer enough.
    As a nation, we are only beginning to wake up to the long-
term care crisis that is brewing. The Alzheimer's Association 
is pleased that the Government is addressing the issue through 
public education and expansion of the Long-Term Care 
Partnership Programs.
    While education and incentives to purchase insurance are 
important steps, the current long-term care system does not 
work for millions of people who cannot access or afford 
insurance or are forced into poverty in order to get help. We 
should initiate a national dialog immediately to reach 
consensus on a viable solution to the long-term care financing 
problem.
    In the meantime, Congress could take some incremental steps 
toward meeting families' long-term care needs. Simple caregiver 
interventions, such as respite and counseling, can have a major 
impact on health care costs by delaying nursing home placement.
    Providing care management for Medicare beneficiaries with 
multiple chronic conditions would save health care costs and 
delay the need for institutionalization. In addition, requiring 
health and long-term care plans and providers to identify 
people with dementia would improve care and treatment for this 
population.
    Chairman Smith, thank you for holding this hearing on 
private long-term care insurance. While it may seem slightly 
off point, I am compelled to plead with you to support funding 
for Alzheimer's research through the National Institutes of 
Health.
    I am a grandmother of an adorable toddler, David. He is 
cute.
    The Chairman. Yes, he is adorable.
    Ms. Vidinsky. Thank you.
    The Chairman. For the record, he is adorable. [Laughter.]
    Ms. Vidinsky. Thank you so much. I am not proud, right?
    But shown here on the cover of the Alzheimer's Association 
annual report. To think that this beautiful child may become a 
victim of Alzheimer's disease and travel the same journey that 
his great-grandmother Velma did overwhelms me with sadness.
    If we could prevent Alzheimer's disease or even just slow 
its progression and delay its onset for a few years, we could 
take a huge step toward relieving a staggering burden on our 
families and our long-term care system. That, perhaps more than 
anything else, could help us address the looming long-term care 
crisis.
    On behalf of the Alzheimer's Association, all of the 
individuals and families we represent, I thank you again for 
your commitment to these issues and for giving me the 
opportunity to be here today.
    Thank you.
    [The prepared statement of Ms. Vidinsky follows:]
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    The Chairman. Thank you very much, Joanne. That was a very 
heart-warming story of your family.
    As you relate the experience of your mother-in-law and 
father-in-law, that is a very noble story. We salute your 
father-in-law for caring for his wife in those circumstances of 
many years, and then you and your brother for making the 
provident choice of providing a policy for your mother.
    No doubt, she is relieved of a lot of anxiety that comes 
because, obviously, the cost to her would have been prohibitive 
if she had not that care or going into Medicaid, and that may 
not have been as good care as she deserves.
    Yours is a good story, and I think your admonition about 
Alzheimer's research is one that we need to heed. So thank you 
very much.
    Robert Friedland.

  STATEMENT OF ROBERT B. FRIEDLAND, Ph.D., FOUNDING DIRECTOR, 
           CENTER ON AN AGING SOCIETY, WASHINGTON, DC

    Mr. Friedland. Good morning, Senator, Chairman Smith. Thank 
you for the opportunity to appear here and submit testimony for 
the record.
    I am Robert Friedland, a researcher and a professor at 
Georgetown University.
    Most people are not prepared for long-term care, but it 
seems that perhaps not enough people know it or are doing 
something about it. In one survey, 63 percent identified either 
with the statement, ``I really haven't given any thought to how 
I would pay for long-term care,'' or ``I don't have a plan to 
pay for long-term care because I don't expect I will need it.''
    It is worth noting the similarity with retirement planning. 
For example, in a different survey, 58 percent of workers age 
45 or older said that they had not tried to calculate how much 
money they would need to have saved by the time they retired. 
Yet 67 percent of workers expressed confidence that they would 
have enough to live comfortably in retirement.
    Everyone knows they should eat right, exercise regularly, 
and save for retirement. Yet nearly half the population is 
overweight, does not exercise regularly, and does not regularly 
save for retirement. Only 65 percent of workers with an 
employer-sponsored plan participate. Virtually all workers can 
contribute to an individual retirement account, and yet less 
than 10 percent do.
    While, fortunately, participation rates increase with age 
and income, far too many workers withdraw funds when they 
change jobs, and most IRA participants were already saving, 
simply transferring their taxable savings to tax advantaged 
accounts.
    So despite the encouragement and the incentives, much 
stands in our way, even for goals to which we aspire. Nobody 
aspires to physical dependency. Nobody is looking forward to 
needing long-term care. So why should we expect people to be 
better prepared for the things in life that we seek to avoid 
than for the things to which we aspire? Thank goodness for 
Social Security.
    It troubles me deeply that far too many people end up with 
so little in savings. Social Security ensures that they will 
not be poor, but their inability to effectively build on this 
base has kept them from living well.
    It is a mixture of private insurance, employer efforts, the 
discipline to save, and social insurance that helps pool the 
financial risks of many of life's contingencies, that is, 
contingencies other than long-term care. For these 
contingencies, it is the social insurance that sets the terms 
for the private market.
    Since most long-term care is provided by family, financed 
out of pocket, or supplemented by Medicaid, the payer of last 
resort, the long-term care system is fragmented, inefficient, 
inequitable, and, in most places, inadequate.
    In 15 years, there could be dramatic increases in the size 
of the long-term care population. There will be dramatic 
declines in family size and in the rate of growth in the labor 
force. Whether you are rich or poor, have private insurance or 
Medicaid, access to needed long-term care will be dearer than 
it is today.
    This is likely to be true even if everyone has purchased 
long-term care insurance. In fact, as the proportion of the 
population with insurance increases, the price of care is 
likely to increase faster than the supply of services, 
resulting in the possibility of making access worse for 
everyone.
    We witness this market force in health care, but long-term 
care insurance has a fundamentally different role in the market 
than does health insurance. Health insurance covers medically 
necessary care. Long-term care insurance is merely a fixed-
dollar benefit, chosen by the consumer decades earlier.
    Health insurers have financial incentives to work toward a 
more effective and efficient health care system. No such 
similar market forces are at work with long-term care 
insurance. There is nobody in charge within the system the way 
physicians are in our health care system.
    Because we use public resources to encourage long-term care 
insurance, it is incumbent on us to work toward developing a 
more effective delivery system and a more effective structure 
in which long-term care insurance can insure the risks we face.
    While I wish we could encourage people to save more for 
retirement--and I commend you for putting your efforts in that 
direction--and I wish more people would insure more of the 
insurable risks, simply encouraging more people to purchase 
long-term care insurance is not sufficient to improve the 
delivery of long-term care.
    Premiums paid today will do nothing for the system. We need 
to address the organization, delivery, and financing of care 
now if we are to ensure that insurance will be even more 
effective in the future when insurance claims are paid.
    Thank you for holding this hearing, and thank you for 
allowing me to comment.
    [The prepared statement of Mr. Friedland follows:]
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    The Chairman. Thank you, Robert. You have some wonderful 
insights.
    I agree with your testimony that saving for long-term care 
is not efficient and may not be sufficient. But I guess I am 
wondering how can we incentivize young people to get into 
programs or policies that are inexpensive to them now?
    Mr. Friedland. Let me speak to the savings part. I think we 
have realized or I should say there is a collective opinion in 
public policy efforts moving forward to automatically enroll 
people in 401(k) plans. So, I am hopeful that those kinds of 
legislation will pass, and that will make a huge difference.
    This is, as OPM spoke, this is a hard sell. OPM does all 
the right things, and of course, the numbers are quite 
impressive. But it is such a small percentage of that 
population, the 20 million that are eligible.
    I think the Government has a role in education, in making 
that point. I think when you use tax incentives, you do send a 
very clear signal that it is important.
    The Chairman. Well, I share your comments about Social 
Security, too, as being sort of the bedrock of people in 
retirement and eliminating elder poverty, frankly, in our 
country.
    But I think it is important for us as part of the education 
in Government to note the very real arithmetic that awaits us 
because of the demographics of our country. These great social 
safety net programs of Medicare, Social Security, Medicaid, in 
a quarter century, they are going to be the only programs left 
in the Federal Government on the current course.
    Now lest anyone be alarmed, I don't think we will get to 
that point when we destroy the rest of the Federal Government 
over these three programs. I only say this that I have that 
confidence because I think, ultimately, Republicans and 
Democrats, when they are forced by the budgetary demands that 
are simply inescapable, that we will come together as Americans 
and figure this out.
    But that is going to entail some very, very hard and 
painful choices, which makes all the more important why we need 
to do what we can to help people to plan outside of Government 
for their futures. I doubt you would disagree with that.
    Mr. Friedland. I don't disagree.
    The Chairman. Any comment, any suggestions how we solve all 
of these issues?
    Mr. Friedland. Well, unfortunately, it will take some 
investment, I think, and I know how hard that is to do. It 
would be, in my mind, if we could begin to reorganize where the 
risks are in much the same way we have done in other sectors, 
where the public sector takes on a different part of the risk, 
making it easier for the private sector to insure that risk.
    I would love to see a day in which private insurance covers 
the care that we need when we need long-term care, instead of 
having to choose a $200 a day benefit and hoping that the 
inflation will be right so that when we get to making a claim, 
the $200 a day benefit is now worth $400 and that the cost is 
only $400.
    What happens when the cost is $600 or $800, and we haven't 
put it in our plan, there is not enough in our savings to cover 
that gap? We have got a policy that doesn't cover what we need, 
and we are not rich enough to cover the gap.
    So, to do that, we need to circumvent the risk in a way so 
that the insurers could actually insure the risk and not just 
the dollar amount.
    The Chairman. Well, you know what I have said and what I 
think you are agreeing with, Robert, is while the demographic 
tsunami is approaching, we don't want to alarm people. This 
doesn't affect people on Social Security now, on Medicare now, 
on Medicaid now.
    What this affects is people of my age and my children and 
grandchildren. Your grandchild, Joanne, who faces just a 
crushing kind of burden in the cost of Government because of 
the size of our generation and the relative smallness in size 
of their generation.
    So we have got big issues, but I have always taken pride in 
the fact that America has risen to its challenges, and I think 
we will again when the economics require us in Congress to deal 
with it. But the point of this hearing is to deal with it and 
to use the megaphone of this Committee to call out to Americans 
to plan, to be prepared on their own, in addition to the 
programs that the Government provides.
    Let me just, in conclusion, thank each of you for taking 
your time and sharing your stories and your insights and your 
programs. We commend them all, and we thank you for adding 
measurably to the public record.
    With that, we are adjourned.
    [Whereupon, at 11:20 a.m., the Committee was adjourned.]
                            A P P E N D I X

                              ----------                              


                Prepared Statement of Senator Herb Kohl

    Thank you, Mr. Chairman. Americans are living longer than 
ever thanks to tremendous advances in medicine. But this 
longevity also means that as people age, many will need long-
term care in the future, whether it's provided at home, in an 
assisted living facility, or in a nursing home.
    As a nation, we need to develop a comprehensive long-term 
care policy to care for the 10 million people who need long-
term care today and the millions more who will need care in the 
coming years. It is an important but complicated issue that the 
Committee should explore, so I thank the Chairman for holding 
this hearing, as well as the witnesses who are here today to 
educate us.
    It's worth noting that today, the majority of long-term 
care is actually provided free through family or friends. 
Caregiving can take a tremendous financial and emotional toll 
on families. Many older family members who care for a loved one 
often are forced to miss work or find they simply cannot 
continue working at all--placing their own economic well-being 
in jeopardy. They deserve some help, and that is why I have 
proposed legislation to provide a tax credit for older workers 
to help cover the costs of caring for chronically ill seniors.
    Of course, we know that aside from family caregiving, 
Medicaid is the largest payor and greatest safety net for long-
term care services. Medicaid provides care for millions of 
elderly and individuals with disabilities that need assistance 
with basic activities of daily living. It is critical that we 
preserve and strengthen this important program.
    However, we know that public financing is not the only 
answer to the long term care dilemma. We will also need to find 
new ways to encourage Americans to anticipate and plan for 
their future long-term care needs. As we will hear today, some 
families are turning to long term insurance, which I support as 
an option that can be helpful under the right circumstances. 
Unfortunately, for the millions of low and modest income 
families that are already finding it difficult to secure food, 
housing, transportation, and health care, along with saving for 
their retirement, long-term care insurance is unaffordable 
today. But it's clear that with standardized policies and 
consumer protections, long-term care insurance can be a good 
and clear option for some families, and we should work to make 
it available and affordable.
    To help alleviate some of the costs of long-term care and 
long-term care insurance, I am a cosponsor of S. 602, the 
Ronald Reagan Alzheimer's Breakthrough Act. The bill would 
provide a tax credit for individuals certified as having long-
term care needs and for whom the taxpayer is acting as a 
caregiver, as well as a tax deduction for long-term care 
insurance. I hope the Congress will make this a priority and 
pass this legislation soon.
    I strongly believe we need to develop a coherent long-term 
care policy that will enable seniors of all incomes to plan for 
and access long-term care, if and when they need it. I applaud 
Chairman Smith for having this hearing and look forward to 
hearing from our witnesses on how we can develop a better plan 
for the future.
                                ------                                


           Questions from Senator Lincoln for Robert Danbeck

    Question. What additional tools are available to 
individuals for whom long term care insurance is not an option? 
What additional tools should be available to them?
    Answer. We cannot comment on additional tools available 
outside of the programs we manage. The Federal Long Term Care 
Insurance Program gives applicants who are not approved for 
long term care insurance an opportunity to purchase a service 
package. This non-insurance package provides access to care 
coordination to help the individual plan for addressing his/her 
long term care needs. It also provides access to a discounted 
network of long term care providers and services. The Program's 
care coordinators are registered nurses experienced in long 
term care situations who can help determine the appropriate 
long term care setting and provide information on additional 
resources that may be available in the community.
    Question. How can we better support and assist our nation's 
caregivers who provide such critical long-term services and 
supports to millions of Americans? What is the government's 
role?
    Answer. We cannot comment on sources of support for 
caregivers outside of the programs we manage.
    Upon request, the Federal Long Term Care Insurance Program 
provides care coordination services for non-enrolled qualified 
relatives of enrollees, which assists our enrollees when they 
are also caregivers.
    The Federal Employees Health Benefits Program also provides 
caregiver support to enrollees. FEHB plans often include 
benefits for visiting home health providers who can serve as a 
respite for the caregiver. FEHB enrollees have access to mental 
health care for anxiety, stress reduction and depression that 
can accompany an enrollee's role as caregiver. FEHB plans also 
provide hospice care, including palliative and supportive care 
to terminally ill patients and their caregivers. Hospice 
programs can provide periodic respite for caregivers and 
bereavement support to help the grieving family and caregiver 
deal with the loss.
    Enrollees in some FEHB plans can receive support and 
respite from their caregiving duties through plan ``care 
support programs'' that include interactions with nurses to 
make sure patients are taking their medications, visiting the 
physician when appropriate, receiving answers to medical 
questions, etc. FEHB case management services coordinate health 
care services by facilitating access and utilization of 
available community based resources and services. FEHB disease 
management programs provide education, monitoring, 
intervention, counseling and support for enrollees with chronic 
conditions, working with the enrollee and his/her caregiver 
directly.
    Under the Family and Medical Leave Act of 1993 (FMLA), most 
Federal employees are entitled to a total of up to 12 workweeks 
of unpaid leave during any 12-month period to take care of 
their spouse, child or parent who has a serious health 
condition. This can help relieve caregiver stress when that 
care must be performed in addition to job responsibilities.
                                ------                                


           Questons from Senator Lincoln for Joanne Vidinsky

    Question. Long-Term care insurance is a useful way for some 
individuals to plan and pay for future long-term care needs. 
However, not everyone can afford long-term care insurance and 
some people cannot qualify for it due to pre-existing 
conditions. Individuals need more options to plan and pay for 
their care. What additional tools are available to individuals 
for whom long-term care is not an option? What other additional 
tools should be available to them.
    Answer. Unfortunately, most older people in this country 
cannot afford the average annual cost of $76,219 for nursing 
home care (Genworth Cost of Care Study, 2006) out of their own 
savings. The majority of older people must rely on the 
governmental Medicaid benefits to help them meet their long 
term care needs, when informal caregiving is no longer enough. 
Medicaid requires impoverishment of its beneficiaries. There 
are very few options for those who cannot pay their way, other 
than to rely on Medicaid.
    Creative solutions like the Long Term Care Partnership 
Program and public education to help people plan for their long 
term care needs are an essential part of any solution to the 
challenge of long term care financing. It is important that 
states and the federal government move as quickly as possible 
to implement these programs, recently passed as part of the 
Deficit Reduction Act, nationwide.
    While education and incentives to purchase insurance are 
important steps, we need to think beyond the current long term 
care system because it does not work for millions of people who 
cannot access or afford insurance or are forced into poverty in 
order to get any help from the government. The Alzheimer's 
Association believes that the crisis in long term care, fueled 
by a large and rapidly aging population, requires action now. 
Congress should initiate a national dialogue immediately to 
reach consensus on a viable solution to the long term care 
financing problem. The exact form of the solution is not clear, 
though it is clear that current budgetary constraints make it 
difficult to discuss additional governmental expenditures at 
this time.
    The Alzheimer's Association envisions a public/private 
partnership for long term care financing that assists people 
before they are broken by the costs and consequences of their 
long term care needs. The partnership should ensure that those 
with few financial resources have access to a means-tested 
safety net, that people who can plan ahead for their long term 
care costs are encouraged to do so, and that there is a public 
sector program that provides a stable base of support and wraps 
around private benefits. It is important for private sector and 
public sector benefits to complement one another, with proper 
incentives and regulations to ensure affordable, meaningful 
protection.
    Question. One of the largest sources of private long-term 
care financing in this country is the informal, unpaid care 
provided by family and friends. Family caregivers are the 
backbone of long-term care in this country, yet they face 
significant physical, emotional, and financial burdens. How can 
we better support and assist our nation's caregivers who 
provide such critical long-term services and supports to 
millions of Americans? What is the government's role?
    Answer. Typically, people with dementia live about 8-10 
years from the time of diagnosis until death. Caregivers 
provide most of the support for their loved ones and in recent 
years, caregiver efforts have increased. However, the informal 
caregiving system is fragile and becoming more so because of: 
1) the ever increasing complexity of the health and long term 
care system; 2) the fact that people are living longer with 
chronic conditions, including dementia; and 3) the erosion of 
Medicaid over time. Congress should strengthen Medicare, 
Medicaid, and Administration on Aging programs to support 
family caregivers.
    The Alzheimer's Association has an extensive caregiver 
policy agenda. We urge Congress to take action on the key 
elements of this agenda, listed below.
    1. Create a Medicare chronic care management benefit to pay 
physicians and other practitioners to coordinate patients' care 
with other practitioners and with caregivers. This would help 
ensure that patients with dementia receive optimal care and 
help caregivers and beneficiaries navigate the complex health 
and long term care systems. The benefit would be particularly 
useful in helping family caregivers manage when their loved 
ones have multiple chronic conditions, such as heart disease 
and diabetes, in addition to dementia. In addition, such a 
benefit could help connect beneficiaries to community services, 
a connection that has been proven to help keep beneficiaries 
with dementia out of emergency rooms and hospitals.
    2. Require Medicare to reimburse physicians who spend time 
counseling family caregivers when the patient is not also 
present. Currently, Medicare will not do so. This situation 
diminishes the quality of communication between the caregiver 
and physician and can be detrimental to patient safety and 
care, as well as to caregiver confidence and wellbeing.
    3. Expand the Medicaid hardship waiver provisions so that 
they apply to caregivers and ensure that the criteria for 
granting waivers address the burden caregivers face if their 
loved ones cannot get needed institutional care. Currently, 
hardship waivers of asset penalties are only available if the 
individual seeking Medicaid nursing home coverage would lose 
access to ``medical care, food clothing, shelter or other 
necessities of life.''
    4. Amend the Medicaid home equity limit to protect 
caregivers by adopting the protections in current law related 
to liens and estate recovery. These protections enable siblings 
or adult children to remain in the home if they lived in it and 
provided care that allowed the Medicaid beneficiary to remain 
at home longer. Currently, the new limit on home equity only 
applies to individuals. But it could deprive a caregiver of a 
place to live. Take the example of two sisters, one of whom is 
a home owner with dementia and the other who lives with and 
takes care of her. The home equity limit would apply and the 
sister could become homeless as a result.
    5. Encourage states to provide more support to caregivers 
by creating an increased federal Medicaid match for states that 
assess caregiver need and provide caregivers with respite 
services.
    6. Continue to authorize and fund the Alzheimer's Disease 
Demonstration Grants to States Program. Since 1992, Congress 
has funded this program to encourage states to develop and test 
innovative ways to support people with Alzheimer's disease and 
other dementias and their family caregivers. States have used 
these funds to create adult day services ad respite care 
programs, provide dementia-specific caregiver training, and 
link families to existing community services that may help 
them. Many states have used funds from this program to find 
ways to support culturally diverse, and geographically isolated 
families that are coping with dementia.
    7. Add family caregivers of people under age 60 with 
Alzheimer's disease and other dementias to the family 
caregivers who can receive services funded through the 
Administration on Aging's National Family Caregiver Support 
Program (NFCSP). The NFCSP provides funds to serve family 
caregivers of people aged 60 and older and grandparents taking 
care of grandchildren. Some family caregivers are taking care 
of a person with Alzheimer's disease or another dementia who is 
under age 60. Results of a national telephone survey conducted 
by the National Alliance for Caregiving show that 15% of the 
family caregivers of people with Alzheimer's disease and other 
dementias were taking of a person age 50-65. The precise number 
of people with Alzheimer's disease and other dementias that is 
under age 60 is not known, but it is likely that 5%-8% are 
under age 60, with some as young as age 38.
    8. Add family caregiver assessment as a service that states 
must provide with National Family Caregiver Support Program 
funds. The NFCSP does not require or encourage family caregiver 
assessment as part of any of the five services states must 
provide through the program, even though an assessment to 
determine the characteristics, needs, capability, and 
preferences of the family caregiver would seem to be important 
for the success of each of the five required services.
                                ------                                


           Questions from Senator Lincoln for Malcolm Cheung

    Question. Long-Term care is a useful way for some 
individuals to plan and pay for future long-term care needs. 
However, not everyone can afford long-term care insurance and 
some people cannot qualify for it due to pre-existing 
conditions. Individuals need more options to plan and pay for 
their care. What additional tools are available to individuals 
for whom long-term care is not an option? What other additional 
tools should be available to them.
    Answer. One way to reduce the changes of not being able to 
afford or qualify for long-term care insurance is to encourage 
Americans to consider purchasing this insurance when they are 
still relatively young (ages 35 to 50). Premiums are 
significantly lower at the younger issue ages, and the chronic 
medical conditions that may disqualify an individual from 
private long-term care insurance coverage are much less likely 
to occur when one is relatively young. Additional tax 
incentives that would encourage working age individuals to 
consider purchasing long-term care insurance would help 
increase awareness of the need to plan for potential long-term 
care expenses while still young. Such incentives would include 
allowing employees for pay for long-term care insurance on a 
pre-tax basis through an employer-sponsored cafeteria plan or 
Flexible Spending Account.
    For those who currently find themselves in the situation of 
not being able to afford long-term care insurance, 
consideration should be given to purchasing a policy with less 
rich benefits. Significant premium reductions can be achieved 
by reducing daily or lifetime maximum benefit limits, electing 
a less rich form of inflation protection, or lengthening the 
waiting period. When reducing benefits, the consumer needs to 
be aware that the benefits provided by the long-term care 
insurance policy may ultimately not be adequate to fully fund 
their long-term care expenses, and that they may need to 
supplement insurance payments with other sources of income, 
their own savings, or assistance from family members.
    For those who cannot qualify for long-term care insurance 
due to a pre-existing health problem, there are several 
potential options. If the health problem is one state still 
allows the individual to work full time, many employers offer 
group long-term care insurance coverage to their actively-at-
work employees on a guaranteed issue basis without requiring 
any health history, or on a simplified issue basis with a very 
limited number of health questions. There are also some long-
term care insurers who specialize in substandard long-term care 
risks. Substandard policies may provide only limited benefits 
and would cost more than standard coverage, but they may be a 
viable alternative for those who may be impaired health risks, 
but not uninsurable.
    For those who can't afford or qualify for coverage, one 
additional option would be to take advantage of the geriatric 
care management and provider information and referral services 
that are available today in the marketplace. Although this 
option would not directly reimburse someone for the costs of 
long-term care services received, it would provide those 
needing care with valuable information about, and potential 
discounts from, local long-term care providers and how best to 
utilize these providers.
    Question. One of the largest sources of private long-term 
care financing in this country is the informal, unpaid care 
provided by family and friends. Family caregivers are the 
backbone of long-term care in this country, yet they face 
significant physical, emotional, and financial burdens. How can 
we better support and assist our nation's caregivers who 
provide such critical long-term services and supports to 
millions of Americans? What is the government's role?
    Answer. One way we can better support our nation's informal 
caregivers would be to provide a tax credit to help them absorb 
the sometimes substantial costs of providing long-term care for 
a family member. Senator Lincoln should be commended for 
including such a credit in S. 1244, which she introduced last 
year with Senator Grassley.
    Increasing public awareness of the need to plan for long-
term care expenses and the value of long-term care insurance, 
and providing additional tax incentives for the purchase of 
private insurance will help promote the expansion of the long-
term care insurance market. Long-term care insurance provides 
those needing care with the financial means to utilize formal 
caregivers, so that the burden on informal caregivers can be 
moderated.
    In addition to the high cost of formal caregivers, another 
reason informal caregiving is so common is because the supply 
of formal caregivers, especially home health aides, is very 
limited in some geographics areas, and the quality of the care 
can be inconsistent. Anything government (either Federal or 
State) can do to promote caregiving as a profession, and to 
establish and enforce quality and training standards for 
caregivers, would likely encourage greater use of formal 
caregivers, thereby relieving some of the burden borne by 
informal caregivers.

                                 
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