[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
LONG-TERM CARE INSURANCE: ARE CONSUMERS PROTECTED FOR THE LONG TERM?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
----------
JULY 24, 2008
----------
Serial No. 110-140
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
LONG-TERM CARE INSURANCE: ARE CONSUMERS PROTECTED FOR THE LONG TERM?
LONG-TERM CARE INSURANCE: ARE CONSUMERS PROTECTED FOR THE LONG TERM?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
JULY 24, 2008
__________
Serial No. 110-140
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
?
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58-423 WASHINGTON : 2008
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COMMITTEE ON ENERGY AND COMMERCE
JOHN D. DINGELL, Michigan, Chairman
HENRY A. WAXMAN, California JOE BARTON, Texas
EDWARD J. MARKEY, Massachusetts Ranking Member
RICK BOUCHER, Virginia RALPH M. HALL, Texas
EDOLPHUS TOWNS, New York FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey CLIFF STEARNS, Florida
BART GORDON, Tennessee NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois ED WHITFIELD, Kentucky
ANNA G. ESHOO, California BARBARA CUBIN, Wyoming
BART STUPAK, Michigan JOHN SHIMKUS, Illinois
ELIOT L. ENGEL, New York HEATHER WILSON, New Mexico
GENE GREEN, Texas JOHN SHADEGG, Arizona
DIANA DeGETTE, Colorado CHARLES W. ``CHIP'' PICKERING,
Vice Chair Mississippi
LOIS CAPPS, California VITO FOSSELLA, New York
MIKE DOYLE, Pennsylvania ROY BLUNT, Missouri
JANE HARMAN, California STEVE BUYER, Indiana
TOM ALLEN, Maine GEORGE RADANOVICH, California
JAN SCHAKOWSKY, Illinois JOSEPH R. PITTS, Pennsylvania
HILDA L. SOLIS, California MARY BONO MACK, California
CHARLES A. GONZALEZ, Texas GREG WALDEN, Oregon
JAY INSLEE, Washington LEE TERRY, Nebraska
TAMMY BALDWIN, Wisconsin MIKE FERGUSON, New Jersey
MIKE ROSS, Arkansas MIKE ROGERS, Michigan
DARLENE HOOLEY, Oregon SUE WILKINS MYRICK, North Carolina
ANTHONY D. WEINER, New York JOHN SULLIVAN, Oklahoma
JIM MATHESON, Utah TIM MURPHY, Pennsylvania
G.K. BUTTERFIELD, North Carolina MICHAEL C. BURGESS, Texas
CHARLIE MELANCON, Louisiana MARSHA BLACKBURN, Tennessee
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
______
Professional Staff
Dennis B. Fitzgibbons, Chief of Staff
Gregg A. Rothschild, Chief Counsel
Sharon E. Davis, Chief Clerk
David L. Cavicke, Minority Staff Director
7_____
Subcommittee on Oversight and Investigations
BART STUPAK, Michigan, Chairman
DIANA DeGETTE, Colorado JOHN SHIMKUS, Illinois
CHARLIE MELANCON, Louisiana Ranking Member
Vice Chairman ED WHITFIELD, Kentucky
HENRY A. WAXMAN, California GREG WALDEN, Oregon
GENE GREEN, Texas TIM MURPHY, Pennsylvania
MIKE DOYLE, Pennsylvania MICHAEL C. BURGESS, Texas
JAN SCHAKOWSKY, Illinois MARSHA BLACKBURN, Tennessee
JAY INSLEE, Washington JOE BARTON, Texas (ex officio)
JOHN D. DINGELL, Michigan (ex
officio)
(ii)
C O N T E N T S
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Page
Hon. Bart Stupak, a Representative in Congress from the State of
Michigan, opening statement.................................... 1
Hon. John Shimkus, a Representative in Congress from the State of
Illinois, opening statement.................................... 3
Hon. Jan Schakowsky, a Representative in Congress from the State
of Illinois, opening statement................................. 5
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 6
Hon. John D. Dingell, a Representative in Congress from the State
of Michigan, opening statement................................. 8
Hon. Michael C. Burgess, a Representative in Congress from the
State of Texas, opening statement.............................. 9
Witnesses
Bonnie Burns, Training and Policy Specialist, California Health
Advocates...................................................... 12
Prepared statement........................................... 14
Jack E. Vogelsong, Chief, Pennsylvania Department of Aging,
Division of Long-term Living................................... 32
Prepared statement........................................... 33
Marc Cohen, Ph.D., President LifePlans, Inc...................... 38
Prepared statement........................................... 40
John E. Dicken, Director, Health Care Division, U.S. Government
Accountability Office.......................................... 53
Prepared statement........................................... 55
Al Bode, Charles City, Iowa...................................... 78
Prepared statement........................................... 80
Mike Kreidler, Commissioner, Office of the Insurance
Commissioner, State of Washington.............................. 114
Prepared statement........................................... 115
Eric Dinallo, Superintendent, New York State Insurance Department 118
Prepared statement........................................... 121
Kevin McCarty, Commissoner of Insurance, State of Florida........ 136
Prepared statement........................................... 138
Sean Dilweg, Commissioner of Insurance, State of Wisconsin....... 156
Prepared statement........................................... 236
Answers to submitted questions............................... 159
Thomas ``Buck'' Stinson, President, Glenworth Long Term Care..... 198
Prepared statement........................................... 201
Thomas Samoluk, Vice President and Counsel, Government Affairs,
John Hancock Life Insurance Company............................ 214
Prepared statement........................................... 216
John Wells, Senior Vice President, Long Term Care, Conseco, Inc.. 235
Prepared statement........................................... 237
Cameron Waite, Executive Vice President, Strategic Operations,
Penn Treaty Network America.................................... 248
Prepared statement........................................... 250
Submitted Material
Chart entitled ``State Long-Term Care Partnership Program
Progress'', Center for Health Care Strategies, Inc............. 269
Glossary of terms for hearing.................................... 270
Subcommittee exhibit binder...................................... 273
LONG-TERM CARE INSURANCE: ARE CONSUMERS PROTECTED FOR THE LONG TERM?
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THURSDAY, JULY 24, 2008
House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:02 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Bart
Stupak (chairman) presiding.
Members present: Representatives Stupak, Melancon, Doyle,
Schakowsky, Inslee, Dingell (ex officio), Shimkus, Walden,
Murphy, Burgess, and Barton (ex officio).
Also present: Representative Pomeroy.
Staff present: Scott Schloegel, Kristine Blackwood, Michael
Heaney, Angela Davis, Kyle Chapman, John Sopko, Alan Slobodin,
Peter Spencer, and Whitney Drew.
OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Stupak. This meeting will come to order.
Today we have a hearing entitled ``Long-Term Care
Insurance: Are Consumers Protected for the Long Term?''
Each member will be recognized for a 5-minute opening
statement. I will begin.
One of the greatest challenges facing Americans as they
plan for retirement is dealing with the risk of becoming
seriously disabled and having to rely on family members or paid
caregivers for assistance with their basic daily activities
such as eating, bathing, dressing, going to the bathroom, and
even getting out of bed or a chair. While we all hope to live
out our days happy, healthy, and independent in our own homes,
the possibility that we will require assistance from others is
all too real.
Some studies predict that over two-thirds of all Americans
over the age of 65 will require long-term care services at some
point in their lives. This year alone, over 9 million Americans
will use long-term care services. By 2020, the number is
expected to increase to 12 million.
The costs of long-term care can be staggering. The average
cost for 1 year of nursing home care is currently about
$70,000. Assistance in a person's own home can be less costly
but still averages about $20,000 per year. For those struggling
with Alzheimer's, the costs of care may be catastrophic.
Most American families are unable to bear these high costs
for even a short time. More Americans are buying private long-
term care insurance as a way to deal with these expenses if
they become seriously disabled or chronically ill. The Medicaid
Long-Term Care Partnership Program, which Congress expanded in
2005, seeks ways to encourage long-term care insurance
purchases so that the States can spread out the financial
burden of long-term care with their citizens.
The Partnership program has also played an important role
of encouraging States to adopt the provisions of the National
Association of Insurance Commissioners Model Act.
A key question for this committee is how to persuade States
to implement the National Association of Insurance
Commissioners,' NAIC, model laws and regulations more
completely. In an effort to encourage this process, Congress
may look to the partnership and Health Insurance Portability
and Accountability Act, HIPAA, as leverage to improve consumer
protection on a national basis.
Today's hearing will focus largely on the current state of
affairs for consumers who have long-term care policies and
whether they are adequately protected from unfair insurance
denials when they need to use their policies or unfair premium
increases.
This is the second hearing that the subcommittee has held
on long-term care delivery and financing. Our last long-term
care hearing focused on nursing home quality of care. Today's
hearing is in fact the first hearing that the subcommittee has
held on long-term care insurance in 18 years.
Much has changed in the past 18 years. More than 7 million
Americans now hold a long-term care insurance policy. The
nursing-home-only policies of the past have been replaced by
broader and more flexible policies that will cover in-home
services and assisted living facilities.
Still, it is not always easy for individuals and families
to decide whether to purchase long-term care insurance.
Premiums can be very expensive, totaling several thousand
dollars every year. Many people may not qualify, especially
when they attempt to purchase the insurance late in life. The
dizzying array of insurance choices can make it difficult for
consumers to know which policy is best for them.
Part of the challenge for consumers is the changing nature
of long-term care services themselves. Today, assisted living
and home care are common alternatives to staying in a nursing
home. These options did not exist when many people bought their
policies 15 to 20 years ago. We can only imagine how long-term
care insurance may be different in the future. How will we
guarantee that people who purchase long-term care insurance
today will receive the services they purchased 20 years from
now when they ultimately need it?
For many consumers, long-term care insurance has played a
vital role in their ability to pay for care. For others,
however, it has fallen short. Insurance companies may raise
insurance premiums after a person has been paying into the
system for several years. These unexpected increases may be
passed on at a time when people are retired and living on a
fixed income, paying for gas, groceries, home heat, or other
essential items. Policyholders may find themselves with a
difficult choice of paying more out of their fixed incomes or
accepting lower benefits that will not cover the cost of the
care.
Even after consumers have faithfully paid their premiums
for years, they may find that their claims are denied without
any explanation. Efforts to complain or appeal the denial of
benefits may be difficult, if not impossible. All too often,
insurance companies build walls of red tape to keep their
customers from appealing unjust denials, even though their
success on appeals remains great. These problems emerge just at
the time when people are most vulnerable and least able to
advocate for themselves. Without a strong family network to
help them, many people may simply give up and pay for care out
of their pocket when they should not have to. Others end up
turning to the Medicaid program for assistance.
Today's hearing will examine the challenges faced by
consumers, the States, the Federal Government and long-term
care industry in making sure that long-term care insurance
lives up to its promise. On our first panel, we will hear from
witnesses reflecting a variety of perspectives including
consumer advocates, family members and industry leaders. We
will also hear from the Government Accountability Office, which
will be reporting its findings into how well consumers are
protected under the current system. The GAO's report is a
culmination of work undertaken at the request of Chairman
Dingell, Ranking Member Barton, as well as Senators Kohl,
Grassley, Clinton, Dorgan, Klobuchar, and Obama.
On our second panel, we will welcome the insurance
commissioners of four States who have been leaders in long-term
care insurance. The National Association of Insurance
Commissioners represented today by Wisconsin Insurance
Commissioner Sean Dilweg has played a vital role in development
standards to protect consumers.
Our third and final panel we will hear from four of the
biggest long-term care insurance providers, two of which have
been subject to serious and troubling complaints. We look
forward to hearing from these two companies, Penn Treaty and
Conseco, on what steps they are taking to correct these
problems and how they will improve the customer service
provided to policyholders. Congress owes it to the consumers,
State regulators, and industry to make sure that Congress is
doing all that we can to ensure that consumers can place their
full trust in the important long-term care health insurance
that they have purchased.
Mr. Stupak. With that, I next turn to my friend and
colleague, Mr. Shimkus, for his opening statement, please.
OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Shimkus. Thank you Mr. Chairman.
Just over 2 months ago, we began this committee oversight
into long-term care issues with a look at nursing home quality
of care safeguards. As I noted at the time, long-term care is
an intensely personal concern for many people because when
entrusting our most vulnerable citizens, our loved ones, to the
care of strangers, there is a fundamental need to know they are
in good hands.
The question posed by today's hearing examines a related
concern, which is to ensure our most vulnerable citizens who
have purchased long-term care insurance are in good hands
financially should they need to pay for long-term care at the
time they need it. Home-based care can run an average of
$15,000 per year and more, assisted living averages $36,000 per
year and more, and nursing home care runs $76,000 a year, much
more in some urban areas, all of which costs may double in 25
years. As these cost estimates suggest, long-term care can be
financially devastating and so it is wise to plan ahead for
long-term care costs and wise public policy to encourage such
planning. People who have planned ahead and purchased insurance
should be commended. They should be assured of the financial
reliability of the firms with which they contract. They should
be assured that contractual promises of insurance companies
will be met and met in a timely manner.
We will hear this morning about problems some insurers have
had maintaining their financial viability which has resulted in
rate increases. We will hear about confusing marketing and
unexplainable claims handling, delays. and denials. The impact
of this will be discussed by Ms. Burns of the California Health
Advocates and Mr. Bode, who will recount the heart-wrenching
and expensive delays getting claims paid for his mother, who is
in a nursing home with dementia. Spotlighting the problems with
rate setting and claims handling helps expose issues that
should be addressed by the industry and state regulators and it
is important that we probe these issues this morning.
We should be mindful that by all accounts the long-term
insurance industry is considered relatively young and evolving
rapidly. Premiums collected have grown from $16 billion 10
years ago to $110 billion last year. This industry experienced
explosive growth from the 1980s during which proper pricing and
oversight of the pricing in the early years suffered from lack
of claims experience. At the same time, regulators and
consumers were on a steep learning curve. Given this dynamic
situation, it is important we put the problems, serious as they
are for some individuals, in context. Despite the troubling
reports, available data show long-term care insurance delivers
on its promises. In 2006, of some 720,000 claims filed, roughly
96 percent of all the claims were paid and paid in a timely
manner. So we should be careful about painting the industry
with too broad a brush. This is not to minimize the situation
for those with claim problems. According to the National
Association of Insurance Commissioners, an average of 70
percent of claims complaints States receive are overturned in
favor of consumers, a pattern of error not typically found in
other lines of health-related insurance, the NAIC has noted.
This is not acceptable and this situation should be improved.
Fortunately, we have a range of knowledgeable witnesses
this morning who can speak to all aspects of this situation.
The Government Accountability Office reports uneven regulatory
oversight of rate setting and claims handling by the States. I
look forward to discussing this with the four State insurance
commissioners with us this morning. I also look forward to
discussing the role federal standards have in raising the
quality of the products consumers buy. Long-term care
partnership plans, which were expanded under the Deficit
Reduction Act, appear to provide one avenue for more-uniform
standards. Are there other steps Congress and States should
take to ensure that the plans people pay for today will provide
the benefits they need 20 years from now?
And finally, it is critical that we hear from the four
insurers today. Penn Treaty and Conseco were singled out last
year in the New York Times article that prompted this
subcommittee's inquiry and more recently Conseco reached a
settlement with State insurance regulators following a multi-
State market conduct examination. Both have an opportunity to
provide their perspective on these matters and all four can
help us understand what the industry can do to address the
legitimate problems that we have identified.
Thank you, Mr. Chairman. This promises to be a very
informative hearing.
Mr. Stupak. Thank you, Mr. Shimkus.
Ms. Schakowsky for an opening statement.
OPENING STATEMENT OF HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Ms. Schakowsky. Thank you very much, Mr. Chairman. I
appreciate your holding this hearing on an issue that will
become more and more critical as the Baby Boom generation
retires, as Americans live longer and as the number of options
for long-term care services grows.
As the former executive director of the Illinois State
Council of Senior Citizens, I have been concerned about a lack
of a national long-term care policy for a very long time. I
guess it is about 20 years or so that I have been looking into
this issue. One of the reasons I wanted to join this committee
is to help craft that policy. While Medicaid remains a central
component in providing long-term care for the elderly and
people with disabilities, it is clear that long-term care
insurance will play a role in meeting those needs. In my State
of Illinois, there are over 250,000 long-term care policies,
and I am one of them, so I know the importance of this issue,
and as more and more Americans buy long-term care insurance
policies, we need to consider how Congress can act to make sure
that consumers are protected.
Today as we discuss this issue and the future, I believe it
is necessary that we ask several questions. What role should
the Federal Government play in promoting long-term care
insurance, and if we do so, how do we ensure that we are
promoting a quality product? How do we make sure that the
product that consumers purchase today is there to provide the
services that they need in the future? How can we make sure
that consumers have adequate information about how long-term
care insurance, whether is the right option for them, and if
so, how to select among the various insurance products? How do
we make sure that premiums are adequate for solvency purposes
and stable for consumers? Is there a need to address
underwriting, marketing, consumer appeals, and other practices?
As our witnesses will tell us today, we face particular
challenges in answering those questions. We are dealing with an
insurance product where policyholders may pay premiums for
decades before long-term care services are needed. We should
also expect that insurance products and long-term care services
will change even more over the next several decades. This means
that we need to be both forward thinking in how we approach
this problem and also that regulatory responses will need to be
ongoing and responsive to change in a timely manner.
I know that the National Association of Insurance
Commissioners has already issued a series of model regulations
on long-term care insurance and I appreciate its effort to
expand coverage of home- and community-based services to deal
with lapses in premium payments and to look at the needs for
inflation adjustments.
I look forward to hearing more from the witnesses and all
of you, and again, Mr. Chairman, I thank you for holding such
an important and informative hearing.
Mr. Stupak. Thank you.
Next Mr. Barton for opening statement, please.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Thank you, Chairman Stupak and Ranking Member
Shimkus for this hearing. I think long-term healthcare is
arguably the most important healthcare issue that is seldom
mentioned. It has huge potential. On the upside, it is
something that we have been trying to encourage at the
congressional level for a number of years. It is obviously
something that needs to be looked at closely. I want to thank
you for making sure that we have a comprehensive set of
witnesses, a very balanced number of panels. I want to thank in
advance our commissioners from the various States that are
here. I think their testimony will be illuminating.
This is a big issue. It is a big problem. It is an
essential financial tool for people who seek to plan what can
be the crushing costs of assisted daily living in their later
life. We are told that there are 7 million Americans who have a
long-term health policy and we hope that that number will
increase. Unfortunately, we are also told that there are
probably 12 million Americans who need a long-term health
policy who are already at age 65 or older. It is obvious that
as our population ages, more and more people are going to need
long-term healthcare. The question is, how will we pay for that
care? I think everyone knows that today Medicaid, which is
supposed to be for low-income medical assistance, that two-
thirds of the Medicaid budgets in most States go to paying for
the care of our senior citizens in nursing homes. That is not
what Medicaid was intended for. Think what we could do if we
could come up with a comprehensive long-term healthcare policy
for America that all Americans over 65 actually use, how much
money that would free up for Medicaid.
If we are going to have a long-term healthcare system that
is based on private insurance, we have to have trust in that
system. Keeping your word is essential in everybody's lives.
Insurance isn't government welfare like the Medicaid program
is. Insurance is a binding, legally enforceable contract for
service between two parties. One party buys the service, the
other party delivers the service. If we are going to encourage
people to get long-term healthcare insurance, they must be able
to trust that at a date certain somewhere in the distant
future, if they need that service, if they need that coverage,
the insurer will make good on that contract's promise. Anything
else is a scam. This distinguishes between policies from other
government sources of long-term healthcare financing, namely
Medicaid, which can change at the discretion of the Congress or
the States and, as we all know, frequently does.
People must be able to count on their long-term healthcare
insurance, yet we have read story after story and we will hear
testimony today that sometimes the insurer fails to deliver to
their customer. Some firms lowball their initial policy premium
in order to sell them and then raise the rates so steeply that
policyholders lose their coverage. They simply can't afford to
pay for it. Or the insurer routinely uses prefabricated
objections, fine print and intentionally convoluted policy
provisions to deny the care that the people thought they were
buying when they began to pay for their long-term healthcare
policy years ago. Some people have complained about these
problems and gotten help but many more people have simply been
wronged and haven't done or don't know what to do about it.
We should shine some light on these bad practices, and
again, Mr. Chairman and Ranking Member Shimkus, I am very, very
pleased that you are doing this hearing today, to shine that
light. If Congress is going to encourage growth of this market,
we should make sure that the long-term healthcare insurance
system really works like we intend it to and the people who buy
it know they are going to get it when they need it. Bad
practices, and we have some in the private sector here who are
going to tell us that those bad practices are extremely rare.
If that is the case, we need to take immediate action at the
private level and at the State level to eliminate and punish
those bad practices. Nobody wants to be the person who is
swindled by a long-term healthcare policy.
Insurers should be held accountable for their actions. We
can rely on competition in the marketplace to make good
companies with good practices the ultimate winners but it is
also our job at the congressional level to protect the
interests of the consumers. This is principally and properly
done through State regulation. As I said earlier in my opening
statement, we are very pleased to have several State insurance
commissioners here before the subcommittee today. Yet I am told
that the GAO will report today about the uneven regulatory
oversight provided by the States. This is something that we
need to work on and cooperate with the States to make sure that
it is better.
We should also identify what Congress can or should be
doing to propel more-uniform consumer protection standards.
Congress has already been encouraging long-term healthcare
insurance for a number of years, most recently through certain
provisions of the Deficit Reduction Act that was passed several
years ago when I was chairman of this very full committee.
Finally, we need to be aware of unintended consequences.
Complexities of long-term healthcare insurance invite
unintended consequences through the sort of over-regulation
that reduces flexibility, innovation and consumer choice. We
don't need to solve an old problem by creating a new problem.
With that, again, thank you, Mr. Chairman and Ranking
Member Shimkus. This is an important hearing and I am very,
very appreciative that you are doing it.
Mr. Stupak. Thank you, Mr. Barton.
Mr. Dingell for an opening statement, please.
OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Dingell. Mr. Chairman, good morning. Thank you for
holding today's hearing on this very important topic. This is a
continuation of a long inquiry by this committee in the
practices in the insurance industry serving our senior
citizens. The need for long-term care may indeed be one of the
most terrifying events confronting many older Americans and
their families today. Nearly 10 million Americans will need
long-term care services this year. By 2020, that number is
expected to increase to 12 million, and it can only be
anticipated that it will grow. According to some estimates,
more than two-thirds of individuals aged 65 and older will
require long-term care services at some point in their lives.
The cost of long-term care could be catastrophic for
Americans and for their families. Care in a nursing home for a
year could cost tens of thousands of dollars a year and in some
cases even more than that. Even care provided in one's own home
can amount to hundreds of dollars per day and thousands of
dollars per year. Because of these crushing costs, few
Americans have sufficient resources to pay for long-term care
for an extended period.
Unfortunately, many middle-class Americans find themselves
forced to become nearly destitute in order to qualify for
Medicaid payments. As a result, our seriously strained Medicaid
programs have already become a safety net not only for the poor
but also for a middle class destituted by the costs.
Private long-term care insurance cannot only play a
critical role in relieving the financial burden on the
government as well as the individual. Long-term care insurance
pays for individuals to receive care in nursing homes, assisted
living facilities and in their own homes. Policyholders
generally pay for such insurance over a relatively long period
starting when they are younger and healthier and collecting
benefits later when they are less healthy and more financially
vulnerable.
This hearing will demonstrate that more Americans should
consider such protections if they can afford to do so and
qualify for coverage. However, we must ensure that they are
protected from unscrupulous and unethical conduct by some
insurance companies and their salespeople.
Last year the New York Times published troubling results of
an investigation into the practices of some long-term care
insurance companies. The conclusion drawn from their research
as well as other stories of insurance companies repeatedly
raising their rates and unfairly denying claims is troubling.
Equally disturbing are allegations of callous treatment by
insurance companies of their policyholders who by definition
are seriously disabled or cognitively impaired. Such behavior
must stop, and I know that you and the members of this
committee will join me in seeing to it that it does stop, even
if we have to regulate this industry on the federal level to
ensure that that happens.
Clearly, we do not wish to tarnish the entire industry
because of the bad acts of a few. I am certain that the
majority of the companies providing long-term care insurance
are doing so fairly and honorably. Likewise, I am certain that
State regulators who are chiefly empowered with policing this
industry are doing an excellent job in protecting their
constituents.
That said, the industry and the regulators must be held to
the highest standard for this type of insurance product because
its entire purpose is to serve the most vulnerable among us at
the most vulnerable time in their lives.
I want to thank all of our witnesses for being here,
especially the Government Accountability Office personnel and
the four insurance commissioners who will be testifying about
their excellent investigations of the issues before us today. I
look forward to their testimony and hearing from all of our
other witnesses, and I thank you, Mr. Chairman.
Mr. Stupak. Thank you, Mr. Dingell.
Mr. Burgess for an opening statement.
OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF TEXAS
Mr. Burgess. Thank you, Mr. Chairman. I appreciate the
recognition. I also want to thank our panelists and experts for
being here today. It looks like we have assembled a great
panel. I am looking forward to what they have to tell us.
It is no great secret that we all age, and in fact recent
polls have shown that a vast majority of Americans would rather
age than accept the alternative. So we are going to continue to
age. The 9 million Americans over 65 that may need some type of
long-term care in the next year are a diverse group and, as
such, they will benefit from a wide range of options. So we are
here today to essentially answer two questions: do public
programs and private insurers offer the type of coverage from
which older Americans will benefit and is the market affordably
meeting that need in a way that ensures adequate consumer
protection? Does it deliver what it promises to deliver?
We should keep in mind as we try to answer these questions
that it is also important not to unnecessarily alarm or
discourage consumers who are still trying to learn about long-
term care insurance and whether long-term care insurance is a
good investment for them and their family, and I use the word
``investment'' on purpose because I do think that long-term
care insurance and the planning for long-term care insurance
should factor in a family's overall financial planning. I think
it actually has a place there.
The country is growing in the number of seniors. It would
appear the demand for long-term care insurance seems to be
growing, and according to the National Association of Insurance
Carriers, NAIC, in 2007 long-term care insurers paid out more
than $4 billion in claims to policyholders. Furthermore,
according to the Assistant Secretary of Planning and Evaluation
at HHS, approximately 6 to 7 million individuals have long-term
care policies.
Now, in the interest of full disclosure, I have a long-term
care policy that I bought back when I was just a regular guy,
long before I ever thought of running for Congress, and I did
so for the reason most of us do the things we do in our lives
that are correct, my mother told me to do it, and I can't take
full credit for it because then my wife actually did the
research and invited folks into our home to talk to us about
it, and we purchased a policy with what was then GE Capital,
which is now Genworth, and it is a premium that needs to be
paid every year. We have just sort of factored that into our
family finances, and as such, it provides a significant amount
of protection and, I will just add, peace of mind because I am
part of what is called the Sandwich Generation, where we end up
taking care of parents on one end and children on the other,
and while that is an obligation which I happily undertook, I
also understand that not everyone is correctly set up to do
that.
There has been big growth in the market, and as a
consequence, there have been some growing pains and I am
hopeful today that we can learn from some of the past false
starts and look forward to how the industry has matured and how
States have responded to this growing consumer option, and
Congress, in fact, this committee, has been proactive on this
issue and it should be noted. In fact, I saw Earl Pomeroy come
into the room. He is on the Ways and Means Committee and he and
I worked very hard on an issue called long-term care
partnerships, and we were able to get that language included in
the Deficit Reduction Act that came through this committee back
in 2005 and extend long-term care partnership programs to all
50 States, and the program has started in many States and it in
fact has been very successful, and in fact, I am actively
working on my guys in Texas to make sure that they understand
this before their next legislative session.
Furthermore, recently the Department of Health and Human
Services has approved several Medicaid State plan amendments
allowing States to establish partnership programs in their
States. This program will have the dual benefit of promoting
long-term care insurance and lessening the major cost driver
facing State Medicaid programs, which is providing long-term
care. The Medicaid Long-Term Care Insurance Partnership Program
has certain consumer protections contained therein, and I also
understand this has been a catalyst for States to adopt the
National Association of Insurance Carriers models for some of
their State laws.
So the real issue for me is a matter of just knowledge of
the products that are available. Instead of alarming and
confusing the consumer about long-term care insurance, we
should focus our efforts on education, education of the public
as far as the need for long-term care insurance and what their
options are. Many people are surprised to learn that Medicare
doesn't include everything pertaining to long-term care and
elderly Americans shouldn't have to rely on either
impoverishing themselves or going through lengthy legal
maneuvers that border on fraud in order to appear impoverished
in order to receive Medicaid long-term care services.
Long-term care insurance is again an investment and I
believe should be part of the long-term financial planning for
families just as we encourage them to do advance directives. I
can think of no more loving gesture of a parent to their adult
children than to adequately provide for their care if they
become injured and disabled over a long period of time.
Thank you, Mr. Chairman. I certainly look forward to the
testimony of our panelists today, and I will yield back the
balance of my time.
Mr. Stupak. I thank the gentleman.
It is good to recognize my friend and former state
insurance commissioner from the State of North Dakota, Mr.
Pomeroy, who has a great interest in this. In fact, didn't you
try to do a model policy when you were state commissioner for
long-term care for the nation?
Mr. Pomeroy. Mr. Chairman, in 1985, I was tasked by the
National Association of Insurance Commissioners to chair their
first minimum standards committee for long-term care insurance.
It was fascinating to me, and the hearing you will be having
this morning, how some of those issues are still with us. Thank
you very much for having this hearing and allowing me to
observe and hear the testimony with you this morning.
Mr. Stupak. I appreciate your presence here, and I know we
have had an opportunity to talk, and as I mentioned in my
opening statement, it has been 18 years since we have had a
hearing on long-term care in this Subcommittee on Oversight and
Investigations. So 18 years, and I know you came in with me 16
years ago, so it took us a while but we got here.
Mr. Pomeroy. I might have been a witness at that hearing. I
prefer this side of the dais, believe me, Mr. Chairman.
Mr. Stupak. It is good to see you.
Mr. Doyle, did you have an opening statement?
Mr. Doyle. No, Mr. Chairman, I will waive.
Mr. Stupak. I think that concludes opening statements of
our members, so our first panel of witnesses has been seated.
Let me introduce them: Ms. Bonnie Burns, who is a Training and
Policy Specialist at California Health Advocates; Mr. Jack E.
Vogelsong, who is the Chief of the Pennsylvania Department of
Aging, Division of Long-Term Living; Dr. Marc Cohen, who is the
President of LifePlans Incorporated; Mr. John Dicken, who is
the Director of the Health Care Division at the U.S. Government
Accountability Office, GAO; and Mr. Al Bode of Charles City,
Iowa, who will be testifying here this morning also. So welcome
to our witnesses.
It is the policy of this subcommittee to take all testimony
under oath. Please be advised that you have a right under the
Rules of the House to be advised by counsel during your
testimony. Do any of you wish to be represented by counsel at
this time? Everyone is nodding their heads no, so I will take
that as a no. Therefore, I will ask you to please rise and
raise your right hand to take the oath.
[Witnesses sworn.]
Mr. Stupak. Let the record reflect that the witnesses
replied in the affirmative. They are now under oath. We will
begin with an opening statement. We will limit the opening
statements to 5 minutes. If you have a longer statement for
inclusion in the record, we will submit it in the record in its
totality.
So with that, we will start with you, Mrs. Burns, if you
would begin with an opening statement.
STATEMENT OF BONNIE BURNS, TRAINING AND POLICY SPECIALIST,
CALIFORNIA HEALTH ADVOCATES
Ms. Burns. Thank you, Chairman Stupak, Ranking Member
Shimkus, and members of the Committee for inviting me to
testify here today. It has been almost 20 years since I have
been asked to speak about this topic before a congressional
committee and I am very appreciative that Congress is taking a
renewed interest in this subject.
California Health Advocates is a nonprofit organization
dedicated to education and advocacy efforts on behalf of
California Medicare beneficiaries and their families. We
provide training, technology support, and expert assistance to
the California SHIP on a variety of topics including long-term
care insurance.
Long-term care is a completely unpredictable event.
Consumers cannot easily predict in advance what is going to
cause their need for care, what kind of care they need, whether
they will require institutional care or whether they can be
cared for at home. This uncertainty makes buying the right set
of long-term care insurance benefits very difficult. Very
little is known about how well this insurance works for those
who purchase it or whether these products adequately address
the personal goals of those who buy it and the public goal of
offsetting Medicaid costs.
Some consumers who bought a policy have been faced with
staggering increases in premiums they promised to pay as
illustrated by a 2007 request by one company for a 73 percent
rate increase. It will take decades to discover if similar rate
increase will occur on newer policies. We do know, however,
that claims have been denied. Six policyholders or their
families have contacted me about a denied claim within just the
last 5 months, an unusual number in such a short period of
time. One couple, Mr. and Mrs. M, paid $98,000 in premiums over
the last 20 years for their Continental Casualty Company
policies. The company refuses to honor the alternate plan of
care for services needed by Mrs. M. The company insists that
the alternate plan of care is completely at the option and
discretion of the company, and Mr. M adamantly refuses to send
his wife away to a nursing home where their benefits would most
certainly be paid.
Each of the individuals who contacted me had a different
claims issue and provides a glimpse into the difficulties
consumers have trying to claim benefits under a densely worded
legal contract sold years earlier. Most insurance departments
cannot help when there is a dispute about contract language,
leaving the courts as the consumer's only resource. Much more
work needs to be done to ensure that the static promises that
consumers buy today from insurance companies are honored years
or even decades later in an evolving marketplace for long-term
care services.
States that enter into partnership arrangements under the
provisions of the DRA have additional duties and
responsibilities to their residents. It will be years or even
decades before States will see any effect on their Medicaid
programs while companies and agents have an immediate marketing
and sales opportunity under the sponsorship of State
government. Insurance policies sanctioned by the State must be
high-quality products sold by well-trained agents who have a
basic understanding of the interaction between a State Medicaid
program and a commercial insurance product and who can fairly
represent a partnership product to an appropriate purchaser.
Our written testimony includes much more detail on these
issues and a number of suggestions for improving long-term care
insurance including requiring notification by companies and
agents of the availability of free counseling with local
contact information for the federally funded CHIP programs and
standardizing various elements of long-term care policies to
limit consumer confusion. It would be irresponsible of States
or the Federal Government to provide tax breaks and other
taxpayer-funded incentives to buy a long-term care insurance
product only to discover decades later that coverage is not
available when needed and the impact on State programs is not
achieved. It is also important to note that it should not
depend on the State a person lives in whether or not they have
a high-quality product.
I appreciate the opportunity to testify on this important
topic today and I would be happy to answer any questions the
Committee might have.
[The prepared statement of Ms. Burns follows:]
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Ms. Schakowsky [presiding]. Thank you, Ms. Burns. Chairman
Stupak had to briefly leave to testify at another committee and
I will be chairing for the moment.
Mr. Vogelsong.
STATEMENT OF JACK E. VOGELSONG, CHIEF, PENNSYLVANIA DEPARTMENT
OF AGING, DIVISION OF LONG-TERM LIVING
Mr. Vogelsong. Chairman Stupak, Congressman Barton, and
Congressman Shimkus and distinguished members of the committee,
thank you for the opportunity to testify today on the important
issue of long-term care insurance and consumer protection. My
name is Jack Vogelsong and I am currently the Chief of the
Division of Long-term Living Public Education and Outreach of
the Pennsylvania Department of Aging.
When Governor Edward G. Rendell took office in 2003, he
outlined several strategic priorities that would serve to guide
his administration. One of these important priorities was to
reform Pennsylvania's long-term living system. By the year
2020, one in four Pennsylvanians will be over the age of 60 and
more than half of those individuals will need long-term living
services at some point in their lifetime. When asked, 90
percent of our residents indicated that they would prefer to
receive services in their homes and in their communities. In
addition to the consumer preference, institutional care is
nearly twice as expensive as providing services to an
individual in their home and community. Despite these
compelling facts, when Governor Rendell took office, 80 percent
of long-term care was delivered in our institutional settings
and only 20 percent of our services were provided in home and
community-based services. The Rendell administration recognized
therefore that balancing the long-term living delivery system
to enable more individuals to remain in their home was both an
ethically and fiscally responsible approach.
To this end, the governor convened the Long Term Living
Council. This council introduced a number of reforming issues
including the creation of the new Division of Long-Term Living
Public Education and Outreach. Our goal is to ensure that the
residents of Pennsylvania know how to access our services and a
major priority is to assist individuals to take appropriate
planning action for the possibility of needing their own long-
term care services at some time in their life.
Prior to assuming this position, I served for over 12 years
as the director of Pennsylvania's State Health Insurance
Assistance Program, known as SHIP. In Pennsylvania, we are
known as the APPRISE program. SHIPs provide information to
consumers about the appropriateness of long-term care insurance
and assist consumers in matching their projected financial
goals with policies. Also, SHIPs are contacted when consumers
have complaints. Our network is delivered through the 52 area
agencies on aging and we have over 500 volunteers. Ninety-seven
of those individuals have completed 3 days of training and have
passed a certification exam specifically on long-term care
insurance and other financial matters related to long-term
living.
Often, consumers have called upon me to evaluate their
existing policies and to determine if their coverage matched
their goals. In several cases, I was asked to intervene on
consumers' behalf to obtain payment from the insurer when the
consumer believed he or she was entitled to payment of claims
or services received. As my role as the former SHIP director,
my experience in claims processing problems, I generally served
as interpreter between the consumer and the insurance company.
There are a lot of language issues. People do not communicate.
They do not understand. There are a variety of reasons why
there are claims problems. Certain carriers have deliberately
delayed strategies to make payment on legitimate claims by
requiring repeated documentation. In some cases, caregivers
only come to the knowledge that their parent or the person that
they are caring for had a policy 6, 8 months after the person
started receiving care and they have to backtrack and collect
all the claims information and submit it to the insurer, and in
many cases, we intervene with them in helping get that
information from the provider. In most cases the claims were
the result of the policy not providing reimbursement because
the policyholder was not receiving services in the appropriate
long-term care setting. If there is one single piece of advice
that I can give a consumer with a claims issue it is to contact
their state insurance department.
In a recent survey for the Commonwealth, the Penn State
Center for Survey Research telephone interviewed 2,630
individuals age 50 and older. The study surveyed these
individuals to determine their current health status,
involvement with needing long-term care services, insurance
coverage and plans.
Ms. Schakowsky. Mr. Vogelsong, I just wanted to warn you,
you have 48 seconds, so I wanted to make sure you can say what
the most important things are in your testimony.
Mr. Vogelsong. Thank you. Let me get to my recommendations
then. We recommend that when an insurance agent sells a policy,
that the out-of-pocket costs, the difference between what the
policy pays and what the daily costs of a nursing home are be
given to them in a dollar amount and not a percentage figure,
that the elimination period or the deductible period also be
given as a dollar amount and not a number of days. As long as
the insurance industry pursues the public sector for tax
incentives, we expect the insurance industry to act in the
highest ethical standards and require that they enforce market
contact of their independent agents. We also request that the
insurance companies come to some standard of excellence. We all
hear of the so-called good companies and the bad companies. We
think the public should know who those good companies and bad
companies are. We also recommend that Congress do two things.
We participated in the Own Your Future campaign. Sixteen
percent of the 1.6 million people in Pennsylvania that received
a letter from Governor Rendell requested the planning kit. We
think this is probably one of the most effective things the
Federal Government can do is to continue to support that
effort. Thank you.
[The prepared statement of Mr. Vogelsong follows:]
Statement of Jack Vogelsong
Chairman Stupak, Congressman Barton, Congressman Shimkus,
and distinguished members of the Committee, thank you for the
opportunity to testify today on the important issues of long
term care insurance and consumer protections. My name is Jack
Vogelsong, Chief of the Division of the Long Term Living Public
Education and Outreach, housed at the Pennsylvania Department
of Aging.
When Governor Edward G. Rendell took office in 2003, he
outlined several strategic priorities that would serve to guide
his administration. One of these important priorities was to
reform Pennsylvania's long term living system. By the year
2020, one in four Pennsylvanians will be over the age of 60,
and more than half of all individuals will need long term care
at some point during their lifetime. When asked, nearly 90% of
individuals indicate that they would prefer to receive long
term care in their homes and communities rather than in an
institutional setting. In addition to the issue of consumer
preference, institutional care is nearly twice as expensive to
provide as home and community based services. Despite these
compelling facts, when the Governor took office, 80% of long
term care was delivered in institutional settings, only 20% of
long term care was provided in home, and community based
settings. The Rendell administration recognized, therefore,
that balancing the long term living system to enable more
individuals to remain in their homes and communities was both
the ethically and fiscally responsible approach. To this end,
the Governor convened the Long Term Living Council, a cabinet-
level body charged with creating a long term living strategic
reform plan.
The Council introduced a number of reform initiatives,
including the creation of a new division of Long Term Living
Public Education and Outreach housed in the Department of
Aging. The division represents the Council's acknowledgment
that, for its long term living reform initiatives to be
successful, it is essential to raise public awareness about the
availability of long term living services and the need to plan
for one's long term living future. The division was created in
March of 2008 signaling the administration's commitment to its
long term living reform strategy. It targets individuals living
with disabilities, older adults, their families, and loved ones
and assists them to plan effectively and to navigate the
complexities of the long term living system.
Prior to assuming my current position, I served for over 12
years as the Director of Pennsylvania's State Health Insurance
Assistance Program (SHIP), better known in Pennsylvania as the
APPRISE. The availability of the SHIP Network to assist
consumers is expressed in the National Association of Insurance
Commissioners publication ``A Shopper's Guide to Long Term Care
Insurance, The Department of Health and Human Services National
Clearinghouse for Long term Care Information,'' and in most
states, insurance agents are required to provide information to
the consumer at the time of sale. SHIPs provide information to
consumers about the appropriateness of long term care insurance
and, if appropriate, assist consumers in matching their
projected long term living needs and preferences with a policy.
Also, SHIPs are contacted when consumers have complaints about
claims processing and eligibility for benefits under their
policy.
In Pennsylvania, our APPRISE network includes staff in the
52 Area Agencies on Aging (AAAs) and nearly 500 volunteers. As
Pennsylvania's former SHIP director, I have personally
counseled hundreds of people to determine the appropriateness
of long term care insurance on a case-by-case basis. As part of
this counseling, I assisted consumers in clarifying their
financial goals for an insurance product and educated them on
the long term care delivery system to ensure that the policy
they selected would provide coverage consistent with their
service preference, should they ever need those services. These
decisions are challenging indeed for a consumer who, most
likely, is decades away from the time during which they might
need care.
Often, consumers called on me to help them evaluate their
existing policies and determine if their coverage matched their
goals. In several cases, I was asked to intervene on the
consumer's behalf to obtain payment from the insurer when the
consumer believed he or she was entitled to payment of claims
for services received.
As the former SHIP director, my experiences with resolving
claims issues on behalf of the policyholder have revealed the
following:
Certain carriers have employed strategies to delay
payment of legitimate claims by asking for repeated
documentation for services provided, and in one occasion
refused to send the required claim forms to the policyholder.
In some cases, a caregiver acting on behalf of the
policyholder only became aware of the existence of the policy
months after they began receiving services and had difficulty
obtaining the required provider documentation to submit the
claim.
In most cases, the claims issues were a result of
the policy not providing reimbursement because the policyholder
was not receiving services in the appropriate long term care
setting.
If there were one single piece of advice that I can give a
consumer with a claims issue it would be to contact their state
Insurance Department for assistance.
In a recent survey for the Commonwealth, the Penn State
Center for Survey Research conducted 2,630 interviews with
individuals age 50 and older. The study surveyed these
individuals to determine their current health status, their
involvement with people needing long term living services,
income, education, insurance coverage, their plans and
preparation for long term living services and their knowledge
of services. To summarize these findings, the survey determined
that the majority of people (56.7%) do not believe that they
will ever need long term care services; most (94.1%) believed
that Medicare would provide payment for their long term care
services. Notably, 19% of the respondents said that they had
private long term care insurance, even though the market
penetration for long term care insurance in Pennsylvania is
believed to be less than 8%. Of respondents who reported having
long term care insurance, 44.8% did not know whether their
policy included coverage for Adult Daily Living Services.
Moreover, the vast majority (92.1%) of respondents said
that they would prefer to remain in their own home and have
family members involved with their care should they ever need
services. In fact, 11% of the respondents indicated that they
are providing long term living supportive services for an
individual living in their home. The respondents providing
support indicated that, in the prior week, they provided an
average of 28.5 hours of care.
Based on my experience, I believe that many consumers are
ill prepared to make an informed decision to purchase long term
care insurance that meets their financial goals and allows them
to receive the types of services they prefer.
What is Pennsylvania doing?
We are enacting strong consumer protections through
legislation. As I mentioned earlier, consumers lack the basic
information on public and private funding options for long term
living services. In addition they are unfamiliar with their
probability of needing services, the cost and types of services
that they would have available to them should they ever need
care. Inaccurate and incomplete information prevents consumers
from making informed decisions and makes them vulnerable to the
actions of certain agents. We do not condone actions by agents
that present half of the story and utilize scare tactics to
create a sense of fear in individuals in order to sell long
term care insurance. The notion of ``scare them, then sell
them'' does not belong in the market place. The result is that
consumers are sold policies that are often ill-suited to their
financial and service needs.
To safeguard consumers from these and other tactics on July
17, 2007, Governor Rendell signed into law Act 40 establishing
the Long Term Care Partnership (LTCP). Act 40 contains strong
consumer protections, including a requirement that makes it
illegal to sell long term care policies that will pay claims
only for nursing home care. Act 40 now requires that all long
term care policies in Pennsylvania offer comprehensive coverage
that allows consumers to choose the service delivery method -
nursing home, home care or other similar care--that best meets
their needs. Additional protections under Act 40 include:
Insurance agents must complete a certified
training,
Minimum standards for inflation protection,
the ability to exchange existing policies for
Partnership Policies, and
an increase in the guaranty fund of $300,000 to
protect consumers against loss if an insurance company becomes
insolvent (a significant improvement over the prior limit of
$100,000 that likely covered less than 1.5 years of services).
To date the Pennsylvania Insurance Department has approved
partnership policies for five Long Term Care (LTC) companies
and is working with other companies to approve additional
policies.
We are enacting strong consumer protections through
responsive complaint investigations. The Pennsylvania Insurance
Department relies heavily on complaint data, collaboration with
other regulators and state agencies to drive their back-end
regulatory functions and to develop legislative fixes when
problems arise. A staff of experts that is sensitive to the
needs of the consumer handles every complaint the Department
receives. Complaints are used to develop action plans when
problems arise and market conduct exams are utilized. For
example, the Department recently collaborated with other state
Insurance Departments to review the claims practices of the
Conseco Senior Health Insurance Company. As a result, Conseco
Senior Health developed stronger internal controls, replaced
key management, implemented systems improvements, enhanced its
employee training, and made other structural changes to benefit
the policy holder. Similar market conduct exams are underway
for other LTC insurance carriers. When a complaint is filed
with the Insurance Department, every effort is made to
expeditiously resolve it to the consumer's satisfaction. While
the Department's Consumer Services Bureau and Consumer Liaison
have conducted numerous public outreach events, including
presentations to senior centers, more outreach is needed to
ensure that consumers are aware of services available to them.
The Pennsylvania Insurance Department has three regional
Consumer Service offices focused on addressing the needs of
insurance consumers. The Department's Office of Consumer
Liaison developed training and outreach events focusing on the
insurance needs of our citizens specifically targeting people
interested in senior products such as long term care insurance.
We are raising public awareness via ``Own Your Future''. On
March 26, 2008, Governor Rendell launched the state's new ``Own
Your Future'' campaign and urged Pennsylvanians to begin
planning ahead to better meet their future long term care
needs. The ``Own Your Future'' long term care awareness
campaign is a joint federal-state initiative to increase
awareness among the American public about the importance of
planning for future long term care needs. Pennsylvania and Ohio
were selected to participate in the campaign in 2008, joining
16 states that participated in previous rounds.
As part of Pennsylvania's ``Own Your Future'' outreach
effort, 1.6 million state residents ranging in age from 45 to
65 received letters from Governor Rendell encouraging them to
order a free planning kit produced by the U.S. Department of
Health and Human Services. The kit offers information about
planning for the future in areas including finances, legal
services, and housing, health care and long term care
insurance. Pennsylvania also contributed $1 million toward a
comprehensive media buy to help supplement Governor Rendell's
mailing. Included in the media buy were television and radio
spots, along with internet and newspaper advertising. As of
July 11, 2008, nearly 16% of the people who received Governor
Rendell's letter have requested the ``Own Your Future''
planning kit. This is more than twice the expected response
rate based on previous ``Own Your Future'' campaigns. Ohio's
``Own Your Future'' campaign has seen a similarly high response
rate. We believe this trend reflects a growing interest by the
American public in this issue. The time is right to promote
education on long term living planning.
While we were pleased to see the insurance industry
redouble our efforts by actively participating in the ``Own
Your Future'' campaign by mailings and other methods, we also
noted practices that confused the public and steered them to a
product that may not have been in their best interest.
Pennsylvania has and will continue to report these instances to
its Department of Insurance for investigation.
We are raising public awareness via public events: The
Pennsylvania Departments of Aging and Insurance will be
sponsoring a series of information and assistance events across
the Commonwealth to assist consumers to better prepare their
future planning. These events will assist consumers to review
their existing insurance coverage, examine their policy
benefits and limitations, and become educated on the role of
the Insurance Department in complaint resolution.
The State SHIP program currently has 79 APPRISE counselors
trained to assist individuals in the selection of long term
care insurance. These counselors have completed a 3-day course
and passed an exam. Counselors are required to attend annual
recertification training and pass a recertification exam. These
counselors will also host public seminars to educate consumers
about financing options and dispel the myths that Medicare
provides payment for long term care services.
The Division of Long Term Living Public Education and
Outreach will continue to build on the success of the ``Own
Your Future'' campaign through public seminars, training of
health care providers, development of publications and the
expansion of the Commonwealth's long term living web site. The
Division will also promote the expansion of home and community
based services and programs that empower consumers to remain in
their homes and receive support services through formal and
informal caregivers. We will also encourage individuals to
consider their housing options to ensure that their homes are
conducive to their aging in place. In the survey recently
conducted by the Penn State Center for Survey Research, nearly
half of the respondents indicated that they lived in two or
more story housing. Narrow hallways and doorways, steep stairs
and the absence of safety features such as access ramps, grab
bars, raised toilet seats, and levered door knobs can make it
difficult to remain in their homes. Although in some cases
modification can be made to the home, in other cases people
will be encouraged to use lifestyle considerations including
relocation to Continuing Care Communities as well as other
housing options.
We are raising public awareness via Web-based tools. In the
fall of 2008, a web based decision tool will go live that will
ask consumers a series of questions about their finances,
health status, and personal care preferences. Based on their
responses they will be provided written guidance for planning
ahead, tips for selecting a long term care insurance policy,
and private and public options to finance services.
At this time, I would like to move into the recommendations
portion of my testimony.
Recommendations for States to Consider:
1. Insurance agents should be required to provide a written
statement to consumers that discloses:
a. The monthly out-of-pocket cost for nursing home care
when selling a policy with a daily benefit of less than 80% of
the average daily cost of nursing home care in the consumers'
target market.
b. The out-of-pocket costs borne by the consumer to meet
the policy's deductible or elimination period.
c. As the long term insurance industry pursues the public
sector for tax incentives and the long term partnership, it
should concurrently ensure that their agents perform to the
highest ethical standards.
2. Enact safeguards in the long term care insurance market
similar to the safeguards adopted in the Medicare Private Fee-
for-Service market when marketing abuses arose there. These
include:
a. Hold insurers accountable for the market misconduct of
their independent agents.
b. Require that all market materials be reviewed and
approved by the state Insurance Department.
c. Require insurers or their agents to provide a schedule
of their upcoming public information seminars to respective
state insurance departments in advance of the events to enable
investigators to monitor and ensure the accuracy of the
information presented.
3. Afford State Insurance Departments adjudicatory
authority for claims disputes that permit direct penalties for
single violations rather than depending on a pattern of
practice under the Unfair Insurance Practices Act. By providing
single occurrences with fines of $5,000 per violation and
$10,000 for each willful violation, cease and desist order
license suspension or revocation, and restitution. Single
incident fines would provide significant incentive for insurer
to investigate the claim issues of their policyholder
appropriately.
4. Require insurers to provide written claims payment
information on a regular and periodic basis to their
policyholders as they age and whenever policyholders contact
the insurer seeking information when they become eligible for
benefits.
5. Require that insurers uniformly advise their clients at
the time a claim is denied or a policy cancelled that they have
the option to contact their State Insurance Department to file
a complaint. All claim disclosures should identify the
Insurance Department as a claims resolution resource for the
policyholder or his/her representative.
6. Require that the industry adopt uniform billing codes
for long term care services to expedite the claims processing
process.
7. Require the insurance industry to develop a standard of
excellence in customer services.
8. Require the insurance carrier at the time they issue a
policy to contact the policyholder to ascertain whether they
were fairly and ethically treated by the agent and to determine
the appropriateness of the product for them.
9. The industry should adopt performance measures to assure
that policyholders fully understand the policy features.
10. The insurance industry should support consumer directed
models that allow consumers to pay family members to provide
care. While we recognize the hesitancy of the industry to adopt
consumer directed approaches, this is an important approach in
light of the projected workforce shortages in the long term
living industry.
11. Congress and the Administration should continue to fund
the ``Own Your Future'' campaign on the federal level, and, if
possible, increase the speed that it engages additional states
in the project.
12. The Centers for Medicare and Medicaid Services should
be apportioned the resources to continue to train and support
SHIP programs. Perhaps no other initiative has done more to
ensure a uniform level of service and quality of providing
individual assistance to consumers and unbiased information to
consumers.
Recommendations for Congress to consider:
There may be a role for Congress to clarify provisions of
the Deficit Reduction Act to improve consistent application of
the DRA's Long Term Care Partnership program by the states.
1. Congress should define the levels of inflation
protection, which are currently only generally described.
2. Congress could standardize producer training
requirements to facilitate consistency among the states.
3. Finally, Congress could standardize the reciprocity
requirements between and among states; such standardization
would enhance the ``Own Your Future'' campaign efforts by
making LTCP policies more portable.
Conclusion:
On behalf of Governor Edward G. Rendell and Secretary of
Aging, Nora Dowd Eisenhower, I would like to thank the
Committee, for inviting me to share Pennsylvania's experiences,
remedies and recommendations on how to raise public awareness
and protect our most vulnerable constituents. I would be glad
to answer any questions at this time.
----------
Ms. Schakowsky. Thank you.
Dr. Cohen.
STATEMENT OF MARC COHEN, PH.D., PRESIDENT, LIFEPLANS, INC.
Mr. Cohen. Thank you, Madam Chairman and distinguished
members of the committee. I am Marc Cohen, President of
LifePlans, a Boston-based long-term care research, consulting,
and products offering company. Our company has been conducting
research on issues related to long-term care financing and
private insurance for over 20 years. I appreciate the
opportunity today to testify in this important issue.
Today I would like to present findings from more than a
decade of research about how long-term care insurance is
influencing the lives of claimants and their families and how
companies are servicing claims. I want to acknowledge the
support for these studies by the Department of Health and Human
Services, Office of Disability, Aging and Long-Term Care
Policy, and the Robert Wood Johnson Foundation. My testimony
will focus on three broad areas: one, the impact of private
long-term care insurance on claimants and their families; two,
how families evaluate their experience with the insurance
company at the time that they file their claim; and three,
industry-wide claim approval and denial rates.
We conducted personal interviews with an industry-wide
random sample of more than 2,500 policyholders making initial
or ongoing claims on their long-term care insurance policies to
address these areas. Here is what we found. First, the vast
majority of new claimants indicated that policy benefits were
meeting their care needs. Moreover, they did not feel that
policy coverage definitions encumbered their choice of
providers. In fact, more than 90 percent of claimants felt that
the contract definitions provided the necessary flexibility to
enable them to exercise their service choices. Second, the
insurance pays a significant percentage of the daily costs of
care, which in part explains why so many individuals were
satisfied with their policy. More than 75 percent of claimants
reported that their policies were paying for most of their care
at any given point in time. One month of benefits, which can
total $3,000 to $4,000, often exceeds a full year of premium
costs.
Third, having long-term care insurance allows disabled
elders to remain in their homes and to delay or avoid using
institutional services. When asked, about half of family
caregivers and claimants who are receiving home care benefits
felt that in the absence of their policy, they would have to
seek institutional alternatives, would not be able to afford
current service levels, would receive fewer hours of care and
would have to rely more on family supports. Moreover, two-
thirds of the family caregivers who were interviewed claimed
that the presence of insurance-financed benefits has reduced
caregiver stress. It has also enabled working caregivers to
remain longer in the labor force.
There have recently been a number of newspaper articles
that have raised important questions about the claims payment
practices of companies. As part of our broader research effort
and prior to the publication of these studies, we explored
these issues related to the interaction between the
policyholder and their insurance company at claim time. Here is
what we found. First, the majority of policyholders, 77
percent, did not find it difficult to file a claim. Those who
found the process challenging reported that it took longer than
expected to obtain benefits and that they had issues
understanding and completing certain claims forms. Second, the
vast majority of all individuals filing a claim, 94 percent,
did not have any disagreements with their insurance company
that were not resolved satisfactorily. This includes
individuals who are approved for claim payment and those who
were denied.
There is controversy around the issue of claim denial
rates. Until recently, there has been no independently provided
empirical evidence to validate denial rates. Over a 2\1/2\-year
period, we tracked 1,500 policyholders who had started or were
just about to start using long-term care services. Here is what
we found, and there is a slide available that summarizes this.
Of those who filed an initial claim, 96 percent were approved
and 4 percent were denied. Within 1 year, however, roughly half
of these initial denials were approved for benefit payments.
That means that the industry-wide adjusted denial rate over a
1-year period was actually closer to 2 percent. Most of those
initially denied were not disabled enough to meet benefit
eligibility triggers or had not met their policy elimination
period or were using services not covered under their policy.
In summary, the findings from these studies suggest that on
an aggregate basis, policyholders are satisfied with their
insurance at the time that they need it most, that policy
benefits are helping people live independently in the
community, that choice is not being limited, that the policies
are benefiting family caregivers, that the interactions between
policyholders and insurers is generally satisfactory, and that
claim denial rates are less than 5 percent and diminish over
time.
Again, I appreciate the opportunity to testify and would be
happy to answer any questions the committee might have.
[The prepared statement of Mr. Cohen follows:]
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Ms. Schakowsky. Thank you.
Now we will hear from Mr. Dicken.
STATEMENT OF JOHN E. DICKEN, DIRECTOR, HEALTH CARE DIVISION,
U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Dicken. Madam Chair, Ranking Member Shimkus and members
of the subcommittee, I am pleased to be here today as the
subcommittee discusses oversight of long-term care insurance.
Nationally, public and private spending for long-term care
exceeds $200 billion without about half of these expenditures
paid for by Medicaid. Many individuals become eligible for
Medicaid as a result of depleting their assets to pay for
nursing home or other long-term care expenses that Medicare and
private health insurance generally do not cover. A small share
of long-term care expenditures, less than 10 percent, is paid
by private insurance.
As the number of elderly Americans continues to grow,
particularly with the aging of the Baby Boom generation, the
increasing demand for long-term care services will likely
strain State and federal resources. Some policymakers have
suggested that increasing the use of long-term care insurance
may be a means of reducing the share of long-term care services
financed by Medicaid. Effective oversight of long-term care
insurance is key to fostering the consumer confidence necessary
to encourage a larger role for long-term care insurance.
My remarks today briefly highlight several key points from
my written statement, which is based primarily on our recent
report entitled ``Long-Term Care Insurance: Oversight of Rate
Setting and Claims Settlement Practices.'' This report provides
information from the National Association of Insurance
Commissioners as well as case studies of 10 States' oversight
of rate setting and claims settlement practices.
As you know, oversight of long-term care insurance is
primarily a State responsibility. We found that many States
have made efforts to improve oversight of rate setting, though
some consumers remain more likely to experience rate increases
than others. NAIC estimates that since 2000, more than half of
States have adopted new rate-setting standards. States have
adopted new standards generally moved from a single standard
that was intended to prevent premium rates from being set too
high to more comprehensive standards intended to enhance rate
stability and provide other protections for consumers.
Regulators in most of the 10 States we reviewed said that they
think these more comprehensive standards will be effective but
that more time is needed to know how well the standards will
work.
Although a growing number of consumers will be protected by
the more comprehensive standards going forward, many consumers
have policies not protected by these standards. This is because
the consumers live in States that have not adopted the new
standards or because they bought policies issued prior to the
implementation of these standards. Further, consumers'
likelihood of experiencing a rate increase also may depend on
the company from which they bought their policy. We identified
examples of companies that had increased premiums multiple
times with increases ranging from 30 to 70 percent. In
contrast, other companies had fewer and more modest premium
increases. Also, consumers in some states may be more likely to
experience rate increases than those in other States. For
example, for one policy, a company requested a 50 percent
increase in 46 States including the District of Columbia. One-
quarter of these States either did not approve the increase or
approved less than the 50 percent requested. The remaining
States approved the full amount requested, though some States
phased in the increase over multiple years.
Let me turn to another focus of State oversight, insurers'
claim settlement practices. Regulators in the 10 States we
reviewed oversee claim settlement practices by monitoring
consumer complaints and also conducting examinations in an
effort to ensure that companies are complying with claim
settlement standards. These standards largely focus on timely
investigation and payment of claims and prompt communication
with consumers but the standards adopted and how States define
timeliness vary.
Some States are considering adopting additional protections
related to claim settlement. For example, regulators in several
States said that their States were considering an independent
review process for consumers appealing claims denials.
Regulators indicated that such an additional protection may be
useful as they lack authority to resolve complaints where, for
example, the company and consumer disagree on a factual matter.
In closing, despite State oversight efforts, some consumers
remain more likely to experience rate increases than others.
Consumers may face more risk of a rate increase, depending on
when they purchase their policy, from which company their
policy was purchased and which State is reviewing a proposed
rate increase. Further, as long-term care insurance policies
mature and consumers increasingly begin claiming benefits,
regulators expect the number of complaints regarding claim
settlement practices could increase.
Madam Chair, this concludes my statement. I would be happy
to answer any questions you or other members of the
subcommittee may have.
[The prepared statement of Mr. Dicken follows:]
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Ms. Schakowsky. Thank you.
Mr. Bode. Is it Bode or Bode?
Mr. Bode. Bode.
STATEMENT OF AL BODE, CHARLES CITY, IOWA
Mr. Bode. My name is Al Bode and I am a retired Spanish
teacher from Charles City, Iowa. I am the son of someone who
resided in an assisted living facility and is currently in a
nursing home. I would like to thank Chairman Stupak, Ranking
Member Shimkus, Acting Chair Schakowsky, and the Committee for
this opportunity to speak to you regarding my mom's
experiences.
My parents, Floyd and Marjorie Bode, retired from farming
in the mid-1980s. Dad felt that he and Mom should not burden
their five children in terms of future care and purchased
assisted living/nursing home insurance through Conseco. He
faithfully paid the ever-rising premiums but died in September
2006 without ever using the insurance. However, Mom, through
her guardian, my sister, Jan Christensen, continued to make the
payments and live in her own home.
Mom fell and hit her head on the left side in August 2006.
She was hospitalized, and it became apparent that she had
received a severe injury. My sister, a career nurse of more
than 40 years, took her back to her home in Iowa City. Mom was
evaluated at the University of Iowa Hospitals and Clinics and
her diagnosis included the fact that her distal common carotid
artery on the left side was completely blocked. It is the left
side that affects short-term memory. The Conseco agent that my
sister contacted went over the three areas that Mom would need
to qualify for assisted living and said she would have to have
dementia, that is, cognitive impairment, be unable to do two or
more ADLs, activities of daily living, or that being there
would be medically necessary. It was clear that Mom would need
continual monitoring at Huskamp Haven, an assisted living
facility in Algona, Iowa. Mom was evaluated and judged to be
suffering from cognitive impairment by doctors and specialists
in Iowa City and Algona.
In December, Conseco told my sister they had denied the
claim for Mom for medically necessary reasons or not being able
to do her own activities of daily living. They told her they
were still working on the cognitive impairment reason. Realize
that poor treatment of elderly by insurance companies also
affects their families if they are lucky enough to still have
family around. My sister was diagnosed with follicular non-
Hodgkin's lymphoma cancer in 2003 and had to be as much
concerned with her own battle to go on living as with the care
of her mom. She would be here today to share her travails with
you first hand were it not for an impending stem cell
transplant treatment that will hopefully prolong her life.
For the next 6 months, my sister and my cousin, Ann, an
attorney in California, received excuse after excuse for not
honoring the judgment of various doctors regarding Mom and
spending literally hours on hold in calls to Conseco. It was
unnecessary elder abuse to force Mom to continue to endure
numerous tests for dementia. We felt there was no choice but to
ask an attorney to file a lawsuit in order to receive the
benefits due our mom. In June 2007, word came that Conseco
would refund over-collected premiums, almost 5 months after
doing so, and begin paying back bills, coincidentally or not,
around the time we filed the lawsuit. Sporadic payments were
then followed by unexplained lapses. The lawsuit was settled
this spring, which ensures Mom's bills will continue to be paid
and paid on time. It took over 20 months to get to this point.
Mom has five college-educated children who banded together
to come to her aid. We have all learned that her situation is
sadly all too frequent and not the exception. We are concerned
as well for those who continue to be denied benefits without
even an explanation from their company and for those whose
mental or physical condition renders their ability to
communicate with their company impossible. We are especially
concerned for those who lack my mom's resources in terms of
family and financial support and for whom assisted living will
never be a reality.
We appreciate this opportunity to address concerns on
behalf of this Nation's most vulnerable population. Thank you.
[The prepared statement of Mr. Bode follows:]
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Mr. Stupak. Thank you.
That completes the opening statements. We will go to
questions. We are going to go for 5 minutes and we will try to
move this along. Let me apologize to this panel. I had to run
up and testify at the Resources Committee on a matter before my
district of great importance on a national marine sanctuary, so
I ask for your forgiveness for being a little bit late in
returning and missing some of your statements, but we have read
them and I do have a few questions.
Ms. Burns, since I started with you with opening, I am
going to ask you the first question. You noted in your
testimony that premium rate increases may be particularly
devastating for people. Are there particular companies that you
have noticed to have been worse than others in calling for
these increases?
Ms. Burns. There have been a number of companies that have
had rate increase and cumulative rate increases but the two
companies that come to mind who have been the most prominent
have been Conseco and Penn Treaty.
Mr. Stupak. Why do you think that these companies had
difficulties with their rates, trying to establish a rate that
is fair to the consumer and the company?
Ms. Burns. Well, I think that you have to recognize that
there was and still is a lot of competition in the long-term
care insurance marketplace. I think some companies may have
underpriced their policies in an effort to gain market share,
and in other cases, companies may not have had the data that
they needed to accurately price policies. But in the 1980s and
1990s, there was a great deal of competition based on price,
and today, most competition still is based on price because it
is so difficult for consumers to compare these products.
Mr. Stupak. Thank you.
Mr. Vogelsong, if I may, as you know, the Penn Treaty
American Corporation is headquartered in the Commonwealth of
Pennsylvania. Our committee staff has learned that Pennsylvania
is currently undertaking a--I am going to quote now--``market
conduct examination'' of Penn Treaty. How would you summarize
your personal experiences interacting either with the
policyholders from Penn Treaty or with the company itself?
Mr. Vogelsong. Well, Penn Treaty has the highest number of
claims complaints in Pennsylvania. They represent probably 30
to 40 percent of the claims complaints that the Pennsylvania
Department of Insurance receives, and we receive numerous
complaints from consumers.
Mr. Stupak. Just in the area of long-term care or you mean
of all?
Mr. Vogelsong. Yes, long-term care.
Mr. Stupak. But Pennsylvania is one of the lead States in
directing the market conduct examination, an interstate
settlement agreement with Conseco. What have been your personal
experiences in interacting with either the policyholders from
Conseco or the company itself?
Mr. Vogelsong. Well, Conseco certainly was probably one of
the few cases that I as an intermediary had to refer to the
Insurance Department. The individual that we had contact us
wanted to file a claim under a policy for her mother and they
refused to actually send a claim form. So it was considered an
inquiry, so we had to actually find an agent that had a copy of
it to submit it, and then when the claim was denied, then filed
the complaint.
Mr. Stupak. So with the policy you don't get a claim form
as a general rule, I take it?
Mr. Vogelsong. No. One of the recommendations I have is
that there is more explanation and regular communication with
policyholders throughout the term of the policy on how to file
claims and what their rights are. That should be done on a
regular and frequent basis.
Mr. Stupak. Dr. Cohen, you noted that buyers of long-term
care insurance are getting younger on average. Surely this
trend indicates success for both the industry and for public
policy. What would you say are the primary sources of this
success? Are people just more aware of the needs or----
Mr. Cohen. I think people are more aware of the needs. I
think that over the last decade, if you look at trends in
product, the products are far more attractive than they were in
the past. For example, there has been reference made to how
confusing products are. Ten years ago, we did a survey that
showed that half of the--50 percent of the people who chose not
to buy long-term care insurance said that it was just too
confusing. In 2005, that number had fallen to 14 percent. So I
think there is much better knowledge, better products for
consumers to choose from.
Mr. Stupak. Mr. Dicken, if I can ask you, in your written
testimony, you noted that two of the companies in your study
have substantially increased the premiums in the past 10 to 20
years. One company has requested many rate increases of 30 to
50 percent while another company requested an increase on one
policy form totaling 70 percent. Would you say that these
increases are usual or unusual in the industry? Do these
companies stand out or are they sort of the norm within the
industry?
Mr. Dicken. I think our statement noted that there were
different practices we saw across the industry where there were
a number of companies, and what we heard from regulators is
mostly companies that had sold older, closed books of business
that were no longer being marketed that were facing these
higher premium increases of 30 or 50 or 70 percent.
Mr. Stupak. Is this sort of the norm or is it just more of
the old policies coming up and trying to modernize them? Is
that where you are seeing these big increase requests?
Mr. Dicken. I wouldn't say it is the norm. I think we have
seen multiple companies with these older policies that have had
increases but it certainly varied across companies.
Mr. Stupak. Thank you.
Mr. Bode, if I may, a couple quick questions for you.
Thanks for being here and sharing the experience of your family
as one of the examples of how the system is broken. Ultimately,
your family was able to obtain a satisfactory settlement from
Conseco, I take it, and if you had not had a strong family
network, you mentioned family, that all have degrees, and
supporting your mother; do you think she would have been able
to successfully deal with the company?
Mr. Bode. There is no doubt in our mind that she would
never have been able to have solved the riddle with Conseco.
Remember, she had dementia, she had cognitive impairment. There
is no way that she knew what her insurance policy offered her.
There is no way that she could have begun to communicate with
Conseco, and given the corporate, what we perceive as the
corporate model for Conseco of waiting on the phone for 20 to
40 minutes, you can't ask an 89-year-old woman to wait on the
phone for 20 to 40 minutes, promises to call back that were
broken time and time again, the multiple requests for the same
information. She had to go through at least five different
examinations to prove she was cognitively impaired. Would she
have been able to do that without family? No.
Mr. Stupak. Well, you said cognitive impairment, then yet
in your testimony you said at one point that Conseco relied on
the tests of a mini-mental test rather than the diagnosis of
your mother's physician. What difficulties did the use of this
test create in trying to get reimbursed for----
Mr. Bode. The mini-mental test was simply a test that was
given to her at the assisted living in which she was assisted
by the nurse in her answers so it was even a false test to
begin with, and they referred to that early on, but beyond
that, they seemed to never receive the doctor's testimony, et
cetera, and kept losing it, and it was constantly talking to
different people. My cousin, the attorney, asked several times
for the name of the most senior person in the claims
department, never got a response. She also asked who made the
final decision to deny the claim. No response. She asked who
reviewed the appeal and again they denied the claim. No
response. And we are talking over a 3- to 4-month period. We
had to file a lawsuit, and this was beyond what my sister had
tried to do.
Mr. Stupak. Thank you.
Mr. Shimkus for questions.
Mr. Shimkus. Thank you, Mr. Chairman.
Mr. Bode, thank you for being here. I would like to start
with you and just follow up on the chairman. The timeline in
your written testimony, there is a lengthy timeline which we
all are very frustrated with, in which you waited 45 business
days to see if the original claim had been accepted. After
that, the wait was an additional 20 business days to review
your appeal, and then a month later when Conseco finally
acknowledged receipt of your appeal, it noted that it would
take an additional 20 to 30 business days before you would have
a response. What do you believe was the reason for this delay?
Mr. Bode. Well, first of all, we felt that those delays,
the amount of time, were arbitrary and were being made up as
they went along because they were never voiced in advance. For
example, my sister filed in October. She asked in December and
then they said well, there is a 45-day wait. Now she has to
wait until January without recourse, more calls, being put on
hold, more denials.
Mr. Shimkus. This whole insurance debate--insurance is
regulated and granted authority by the State. There is always a
debate of what the federal role is. I was visiting with
constituents on Monday and one constituent was pretty upset
when they called a federal agency and let the phone ring 52
times until they hung up. And we all have that. We all do those
constituent service issues whether it is Medicare or Medicaid,
Social Security disability issues, and we act as the SHIP guy
or--did you ever in this time frame, tell me what was the
response to an appeal to the State insurance commission.
Mr. Bode. OK. We did appeal to the State insurance
commission and we got a response back. The response was, they
denied the claim. We knew that. We knew they denied the claim.
Wasn't that a heck of a good response?
Mr. Shimkus. So they didn't actively say we need to hear
your case, we need to do due diligence and fight on your
behalf?
Mr. Bode. Iowa is the only State in this Nation that lacks
a private cause of action for consumer fraud with regard to
insurance. We are the only one, OK? So Conseco has chosen to
make this runaround a part of their business model because if
they can make it hard enough to get a claim paid, they won't
have to pay as many claims. There is no consequence for doing
so in Iowa.
Mr. Shimkus. So you are pretty confident that they didn't
give you any assistance?
Mr. Bode. Yes.
Mr. Shimkus. Did you follow up with the State SHIP at all?
Mr. Bode. At that point, no. We weren't aware of SHIP, and
in fact, we felt the best route was to go through our cousin,
an attorney, because we felt that we needed some sort of legal
guidance on this, and when she couldn't do it, well, you know.
The five of us plus an attorney, what are we going to do?
Mr. Shimkus. Let me go, because I have the Illinois SHIP
thing here, and my first real experience was when we passed
Medicare D and I used SHIP a lot to help educate. I wanted to
be on the front of this change. They were very helpful, the
area agency on aging. What I found in this process was that
before I got involved with Medicare D, there was really no--the
agencies set up to deal with senior issues didn't really know
each other and didn't really communicate as much, from my
perspective, once we passed Medicare D because seniors were
going to all these different places and these agencies
initially had to start talking to each other, and we relied on
them in my congressional office. After time I had an event, I
had a SHIP person present and the local area agency on aging
was also supportive, and I sing their praises.
Mr. Vogelsong, had this happened in Pennsylvania and Mr.
Bode would have come to you, how would you have--what would the
Pennsylvania SHIP have done?
Mr. Vogelsong. Well, in terms of an advocate, I can't do a
regulatory but what we try to do is begin a very clear tracking
of it so that if you do have to take a formal complaint, you
have documented things, and I am sure Mr. Bode did that. It
would then be referred to the insurance department for action.
Currently, Pennsylvania is looking at action of applying
existing law that they could have enforced this. We would have
tracked it to see if we could resolve it, built the case and
documented the steps taken and then referred to the insurance
department.
Mr. Shimkus. And my last question is to segue to Dr. Cohen,
a very compelling testimony. No one wants to have our family
members who entered into a contractual agreement to have
services paid for based upon an insurance product. I don't want
my parents to have to go through that. I don't want to put the
burden on my children. But Mr. Bode in essence stated that his
is more the rule, not the exception. I think your testimony on
your research would be the counterargument.
Mr. Cohen. Right. As you say, that is a very difficult
situation. I think he questioned is that representative of the
industry as a whole, and at least the empirical research that
we have conducted suggests that it is not at all, and Ms. Burns
talked about the fact that within the last, I think, 6 months,
she herself has had six people contact her. Probably over that
time period, there have been 35,000 to 40,000 new claims
opening. The question is, when you take it in the aggregate,
what is a reasonable or what is a large number or a small
number? When I make the statement that in fact 94 percent of
all people don't have disagreements that aren't resolved
satisfactorily or 97 percent of all claimants, how do we view
that? I suppose if I took a random sample of Medicare
beneficiaries or Medicaid beneficiaries and was before the
committee and said 94 percent of the people were satisfied,
what would the response be? Would people think that that is a
pretty good thing or not? And clearly I think there is a lot of
additional work that can be done. My guess is, if you ask the
third panel about where some of the largest investments that
they are currently making right now in the running of their own
businesses, they are probably going to point to investments in
new claim systems, management approaches and so on.
Mr. Shimkus. My time is expired. Thank you, Mr. Chairman.
Mr. Stupak. Thank you.
Mr. Doyle for questions, please.
Mr. Doyle. Thank you, Mr. Chairman.
Welcome to all the panelists. Mr. Vogelsong, welcome. Mr.
Vogelsong, I applaud Pennsylvania for its efforts to find ways
for more people to receive long-term care services in their own
homes. In your opinion, what have been some of the barriers
that have kept people from making that transition in the past
and how are you in Pennsylvania attempting to overcome those
barriers?
Mr. Vogelsong. In part, Pennsylvania, as you are aware, has
a large rural population, and one of the transitions requires
that you be able to provide a broad range of home- and
community-based services, and sometimes those service delivery
systems just not have developed. So for example, adult daycare
services, that is one of the initiatives, to begin opening and
providing for adult daycare and bringing things in. Part of it
has been with the payment system, so we are initiating several
new programs that would make it easier for the consumer to
access those services.
Mr. Doyle. Thank you. Also, in your personal counseling of
people who are considering buying long-term care insurance,
tell me, what have been some of the biggest concerns that
people have had and what have been some of the biggest
misunderstandings that people have had when they want to do
this?
Mr. Vogelsong. One of the biggest misunderstandings, and we
just did a survey and we had similar results, is that 90
percent of the people believe Medicare pays for their long-term
care, and if they have that perception, they are not going to
play at all. They think they are taken care of. Surprisingly,
20 percent of the people in that survey indicated that they
believe they already had private long-term care insurance. We
know the market penetration is closer to 8 percent or 7
percent. And there is a lot of misunderstanding in around the
cost. Some of the cases that are brought up that are
extremely--there is a sense of distrust. I think the industry
really needs to set up some sort of standards so that people
develop more of a confidence in the industry and that should be
far more transparent to the public.
Mr. Doyle. Is there an easy way for families that are
considering purchasing long-term care insurance to go online
and compare companies and policy definitions, to make sure they
are looking at apples-to-apples kind of coverage and then look
at the cost of the policies? Is there some way that makes it
easier for consumers to do that when they are shopping?
Mr. Vogelsong. Well, the Pennsylvania Insurance Department
has the rates filed. We are currently in the development of a
Web site where we ask a whole host of questions and then they
get a personalized response relating to the cost of care in
their area, benefit features based on personal preferences
about their care. We simplified it in Pennsylvania. The
governor has required now that all long-term care insurance
policies in Pennsylvania are comprehensive policies, providing
for both nursing home care and home care. That is the only kind
of policy that can now be sold in Pennsylvania.
Mr. Doyle. And I am curious, typically on the average, how
much are we talking about when a family starts to shop on long-
term care insurance, what kind of number are you looking at
just on the average?
Mr. Vogelsong. It varies according to your age. A 50-year-
old probably could find a comprehensive product with a 3-year
benefit period for probably about $1,200 to $1,500. It seems to
go about----
Mr. Doyle. Annually?
Mr. Vogelsong. Annually. It seems to go up for the next 15
years in 5-year increments of another $500 for every 5 years
you get older. So by the time you are 70, you are looking at an
extremely expensive product.
Mr. Doyle. Thank you very much.
Mr. Chairman, I am done. Thanks.
Mr. Stupak. Thank you, Mr. Doyle.
Mr. Murphy for questions, please.
Mr. Murphy. Thank you, Mr. Chairman.
Welcome, Mr. Vogelsong. I have a question in the process of
dealing with consumer issues, which may have to do with
coverage and denial of benefits, et cetera, but I want to get
into something also about the rate increase issue because that
is an area that I have concerns about or that I hear about
where someone signs up for a plan, signs up when he is 40-some
years old, paying certain rates and now is seeing huge jumps,
saying that he belongs to a class of people which are getting
older, which amazes me that someone didn't figure that out when
he was signing up for long-term care insurance and one day he
might get older or than a whole class of people born as Baby
Boomers might get older, and yet I have to wonder that perhaps
that was part of the thought all along to sell someone
something cheap and then later on, oh, we just discovered you
are in a class of people that ages with time. Now, I am
thinking here, when insurance works, it really is a wonderful
thing. It really is a bright light in the darkness for someone
who has it. But when it fails, it is a nightmare for families,
as talked about today by one of our panelists here. Now, I am
wondering what can be done for consumers when they are finding
themselves in a class of people that suddenly has rate
increases, and as these things go on, as what you are seeing in
Pennsylvania, and I open this up to other panelists as well, as
we are seeing this, as the rate increase come up, do we find
people who find themselves suddenly in a class of people who
can no longer afford the long-term care health insurance that
they bought early on, and therefore are out of it and now are
in a class of people who have funded long-term care insurance
that they never can obtain?
Mr. Vogelsong. Let me just comment on two things. I think
there are provisions, new provisions that allow people to go
into a different class of a policy or transfer within the
company. What we are starting to see and have started to see a
lot of people beginning to inquire about dropping their policy
because they are severely impacted because of their high cost
of energy, they are on a fixed income. This is discretionary.
They are seeing their heating bills go last year from $1,200 to
$2,600 a year. They are looking at dropping their policies. So
we will be traveling across the State this fall to meet with
policyholders to go over a whole host of issues about what they
can do instead of just totally dropping the policy and
reconfiguring. But I think Bonnie is probably more familiar
with the NAIC standards in terms of the book of business of the
class of business and----
Ms. Burns. Yes. In California about 8 or 9 years ago we
enacted a reform that would allow a policyholder to go to the
company and negotiate a lower premium, both following a rate
increase or when their own personal circumstances might mean
they would have to drop the policy. And so we enacted that
reform some time ago. We call it buying down the benefits if
they have the benefits to buy down. If they have a 1- or a 2-
year policy, there may not be anywhere for them to go. The NAIC
enacted that same provision within the last few years.
But there have been class action lawsuits based on some of
these increases, and as a result, the settlement in those class
actions have sometimes allowed consumers to keep benefits equal
to the premiums that they have paid the company and then lapse
their policy. And there are some issues around that, but those
are two ways in which people could retain some residual
benefits and either have a lower premium or no premium.
And so those are some ways to help people who are faced
with one of those rate increases.
Mr. Murphy. When States review these insurance rates, my
assumption would be that the States would have looked at long
ago the anticipation that as people age that they would be more
likely to use their long-term care insurance. Was there some
slipup in the States reviewing these rate increases, the rate,
the initial rates 10, 20 years ago that contributed to this?
Ms. Burns. I think maybe that assumes some facts not in
evidence, because States have varying authority over rate
setting. Whether or not they even have the right to review
rates, how those rates are approved, it varies across the
States, and not every State has an actuary on their staff or
has actuaries who are knowledgeable about long-term care
insurance.
Mr. Murphy. You are saying the States may not have that?
Ms. Burns. And so States may not have those kinds of
resources, and since we are looking at rate increases on some
of these older policies, that might have even been more true in
the 1980s.
Mr. Murphy. A few seconds. Dr. Cohen, can you comment on
this, too, with regard to, as you report some high satisfaction
rates, but when it comes to some of these issues of rate
increases, are there some analyses that you know of that----
Mr. Cohen. Well, we looked primarily at claimants but I do
want to clarify one issue. When long-term care insurance
companies price policies, they price them to be level funded,
meaning that if you buy them at age 70, the expectation is that
the premium will remain level throughout your lifetime.
So it is not true that the policies are priced or states
have slipped up and all of a sudden every year the premium goes
up. If it turns out to be the case that some of the underlying
assumptions that were made in the pricing of those policies
were incorrect and the premium is deficient, then a company
will come in and ask for a rate increase.
Now, on the issue of empirical research, we haven't delved
into that issue very much, but with a number of companies we
looked at what happened when rate increases were put into
effect. One of the surprising things, and this may relate to
the fact that companies are making some offers to individuals,
is that few people ended up dropping their policies. There was
an expectation that if you raised the rates, all of a sudden
you would have a lot of people just not being able to afford
it, but I think that there are some mechanisms that have
already been put in place that enable people to keep some level
of their coverage. And so you don't see those high lapse rates.
Mr. Murphy. Thank you. Mr. Chairman, that may be something
we might want to follow up on in the future.
No more questions. Thank you.
Mr. Stupak. We are going to go another round here. I know
Ms. Schakowsky is trying to come down. She was in a hearing,
and she is on her way down. But let me ask a couple questions
before she gets here.
Ms. Burns, you listened to Dr. Cohen's testimony and even
some of the answers to Mr. Shimkus, which I thought were some
good questions there, that the overwhelming majority of long-
term care claimants report being satisfied with their policy.
In light of these findings why should we, Congress, believe
that consumer protection for this product is an important
public policy question?
Ms. Burns. Well, even if only 6 percent are unsatisfied,
that is a very large number of people across the spectrum of
the policies that are in force. And I would also like to
comment on the satisfaction----
Mr. Stupak. Right.
Ms. Burns [continuing]. Versus dissatisfaction. Some
companies are able to explain to people why they are not paying
a claim in a way that satisfies the person as to why that claim
isn't being paid. And in my testimony I identified the six
people who have contacted me very recently, but those are the
people whose claims I was unable to get the companies to
reconsider. That does not include all of the people for whom I
have been able to resolve their particular issue by going to
the company and asking them to reconsider their position.
And much of the dispute around claims is within the details
of the language of the policy. It is not so simple as----
Mr. Stupak. Right.
Ms. Burns [continuing]. I get $160 a day or not. It has to
do with how a company is interpreting the provisions of that
particular product.
Mr. Stupak. Sure. And that all states, and not all policies
are uniform or the same, and you have these market differences.
So is it market differences, or is there a real failure that
you are to protect the consumer?
Ms. Burns. Well, I think that the NAIC model has set some
minimum standards----
Mr. Stupak. Right.
Ms. Burns [continuing]. Which some states haven't adopted.
But those are minimums, and some states like ours have gone
beyond it in certain ways. But there are details within those
policies that the NAIC model does not deal with, one of which
is what is the definition of a person's home. If you have a
benefit to pay home care, and you are not living in your own
home, but you are living----
Mr. Stupak. Right.
Ms. Burns [continuing]. In the home of another person, will
a company pay benefits there?
Mr. Stupak. OK. Well, like Mr. Bode's experience when he
contacted the State Insurance Commissioner, it is like in a lot
of things that we deal with insurance in this Committee, it
almost seems like it is the quality or the ability of the
Insurance Commissioner Office, every state is a little
different, some are appointed, some are elected. I know we have
the later panel up, but I am sure who is driving the regulatory
of the insurance industry in that state probably has a lot to
do with what kind of response you receive.
Ms. Burns. Well, in California our Insurance Commissioner
has no authority with a disputed claim. If there is a dispute
between the company and the insured person about the payment of
a claim, our Commissioner has no authority to make the company
pay that claim or to even investigate that claim.
Mr. Stupak. Mr. Dicken, let me ask you this question. You
noted that the regulation of long-term care insurance is
largely the province of the states. How much of a difference do
you think that HIPAA that I mentioned in my earlier, in my
opening statement, and the Medicaid Long-Term Care Partnership
have had on the regulatory standards in these states?
In other words, are states following up on it, going
through with it?
Mr. Dicken. Sure. At this point most of the new long-term
care insurance policies sold, probably about 90 percent, are
now tax qualified with meeting the HIPAA provisions. I think
one of the newer developments is that many states are now
looking into the partnership programs, and DRA did require that
those require certain of the NAIC model standards, including
some but not all of the standards on rate setting.
So when we looked at about 24 states that had expressed
interest in partnership programs, seven of those had not yet
adopted some of those additional standards that would now be
required for partnership policies.
Mr. Stupak. OK. Well, thanks. Ms. Schakowsky is here and
ready for questions. Let me turn it to her for questions,
please.
Ms. Schakowsky. Thank you. There is a couple of hearings
going on at the same time, and that is why I have been dashing
from one to another. I apologize upfront if the question has
already been asked, and my staff can then just tell me that. My
staff will fill me in.
I wanted to ask Mr. Vogelsong, it is my understanding that
some companies market door-to-door. Do you allow that in
Pennsylvania?
Mr. Vogelsong. Yes. They are allowed door-to-door, but it
is certainly discouraged. There are marketing guidelines, but
there is nothing stopping an agent from making cold calls.
Ms. Schakowsky. Can you give us an example of a marketing
regulation that would protect consumers that you do have?
Mr. Vogelsong. Insurance, an agent that sells insurance
needs to identify themselves as an agent. They can't talk about
themselves as solely being a certified senior advisor or some
other term. When they are doing business as an agent they need
to identify themselves as agents, and I think that is where we
certainly run into problems. The consumer views them as a kind
of a helping person and trusted person, but the person is
really functioning as an insurance agent, trying to----
Ms. Schakowsky. Let me ask Ms. Burns. What do you think
about door-to-door marketing?
Ms. Burns. Well, that certainly does go on, as well as what
are called cold leads. You know, those cards that fall out of a
lot of publications, if you want more information, send us your
name and address and somebody will contact you. And that is one
way that agents get people's names and addresses and show up at
the door.
Ms. Schakowsky. No. I understand, but I wouldn't show up at
the door, but that is because someone has requested that
information. There are a number of product lines for the
elderly where actually door-to-door solicitation, that kind of
thing is not allowed, and I am wondering if you think, have
found any problems with door-to-door solicitation of insurance,
unsolicited ones.
Ms. Burns. Oh, yes, and I think most of the states that
would be true. I think the only place that that is prohibited
is in, with the new MA plans.
Ms. Schakowsky. Where it is prohibited?
Ms. Burns. With the Medicare Advantage regulations would
prohibit door-to-door solicitation. That doesn't mean it
doesn't happen, because it does happen.
Ms. Schakowsky. I know. I am trying to understand if you
think that that is a legitimate way then for long-term care
insurance companies to sell their product.
Ms. Burns. No. I don't.
Ms. Schakowsky. But Mr. Vogelsong, it is permitted in----
Mr. Vogelsong. There is no prohibition against it. It is,
but it generally probably wasteful time for an agent because of
the expense of the product, but you could be assured that if
somebody does that, they are probably not somebody you want to
buy from.
Ms. Schakowsky. I wanted to ask you, Ms. Burns, is the NAIC
standard of 30-day right to return with full refund an adequate
standard in your view?
Ms. Burns. Yes, it is. I think it needs clarification
because often the 30 days--an agent will tell a person that the
30 days started the day the agent came to their door, when, in
fact, the 30 days is meant to apply at the time that the person
receives their policy and is able to review it. So I think
there are some improvements that could be made in that
particular protection.
Ms. Schakowsky. One more question for you, Ms. Burns. I
assume that you agree that not every person should buy long-
term care insurance based on their own financial situation, and
are we doing a good enough job not just in giving consumers
information on the policies themselves, but why or why not
buying a policy may be right for them?
Ms. Burns. Well, I think we could do a lot more on
suitability standards. The NAIC has a personal worksheet that
people are supposed to get as part of the solicitation, which
is supposed to be used to identify people who would not be
appropriate purchasers to the company. And I think that, while
that is a very good effort on the part of the NAIC, there is
certainly some improvement that could be made in how those
standards apply, what standards companies use, and how they
enforce that. Because I have certainly seen cases in which that
personal worksheet was nowhere in the papers the person had.
They never saw it, never filled it out. I have seen cases of
people on Medicaid who have been sold a long-term care policy
and presumably the company should have had a copy of that
personal worksheet with the data that would have alerted them
to the fact that they were not an appropriate purchaser.
Ms. Schakowsky. I see. Thank you very much. Thank you for
your advocacy.
Ms. Burns. Thank you.
Mr. Stupak. Mr. Shimkus, did you have some follow-up
questions before we move along?
Mr. Shimkus. Yes. Thank you, Mr. Chairman.
The, we have already kind of connected the dots based upon
the jurisdiction debate, and we are involved in HIPAA, which
has some connections to this debate. We have the long-term care
partnership through the DRA that connects us to this debate,
the NAIC standards which follow. We are making an initial
assumption that that is, NAIC standards help, I think, but in--
Mr. Dicken, in your report on page 35, we note that Texas and
New York haven't fully implemented the NAIC standards, but they
have fewer than 100 complaints in 2006, where my State,
Illinois, and Florida have implemented, and they have over 100
complaints.
So can you, what do you draw from that analysis?
Mr. Dicken. Well, I think it is difficult to look at trends
in complaints, that many times complaints in states that there
may be relatively few on a product line, some that may be fewer
than 100, some of that was data that we had received and in
trying to select some of the states to look at at different
experiences.
What we have seen from complaints from five states that
were able to provide complaints to us was that the overall
number of complaints fluctuate from year to year, but an
increasing share of the complaints were focused on some claim
settlement issues. I think that is consistent with what NAIC
found in their data call on 23 large insurance companies.
Mr. Shimkus. And I do think Ms. Burns is correct, too, when
we try to do just an evaluation based on complaints. We get
complaints all the time. And then people handle that
differently. Some push it to the max, some people walk away,
and some never respond. But I do know that for the business and
industry, testimony here, news articles would not be helpful in
them selling that product in the future, brand name
identification stuff is really key to any product, whether it
is insurance product or a beverage or something. Brand name is
important.
Who wants to speak real briefly, because we talked about
education aspects in this with my colleague from Illinois, on
this own your future aspect and campaign and has it been
helpful?
Mr. Vogelsong.
Mr. Vogelsong. We are probably in our fifth month of the
Own Your Future Campaign. Originally I was probably skeptical
of this a few years ago, but our response has been over 16
percent of the people that received the first letter, we are
only in the first phase of it, ordered the planning tool kit,
and we just absolutely think that is phenomenal. Prior to when
we started the program we thought 8 percent would be a success
based on what previous states experienced. Ohio has seen the
same level of success.
So we are getting the information out and changing some of
the people's beliefs about who is going to pay for it, the need
to plan, and that is not just long-term care insurance. It is
just talking to family members about some of your preferences,
rearranging your home or making decisions about where you live.
Quite frankly, we added $1 million to the thing for a media
buy. I think it is probably one of the most successful things I
have been around in the last 15 years that I have been with the
government.
And it is having a double effect. We just in Pittsburgh had
a long-term educational seminar, and typically we would plan
for about 100 to 120 people to be there. It was at the
Sheraton. We had over 450 people attend that session, and I
think it was attributed to the publicity around the Own Your
Future Campaign.
Mr. Shimkus. And Dr. Cohen, do you want to add, but as you
respond to that, what do you see in the evolution of people
buying and having interests and who they are and that. If you
want to add that. Answer whoever you want to input, but if you
would add that to your discussion, I would appreciate it.
Mr. Cohen. Sure. Thank you. I would like to echo that. When
we looked over the last 10 to 15 years about what are some of
the barriers to purchasing long-term care insurance, you always
have the issue of cost right up there for a lot of people. But
then when you go beyond that you find out, as I think a number
of members have already pointed out, that there is confusion
about coverages, people, we looked, we did a study of non-
buyers, and we asked them what the cost of long-term care were
in their communities. And we actually had data and were able to
show that they grossly underestimated the cost.
So if you think something is going to be covered, if you
think the liability isn't that great, then you are less likely
to insure against that risk. And I think the Own Your Future
Campaign is getting objective information into the hands of
consumers so that they can mark more-informed decisions. And I
think it is a great, great example of a really good policy and
a good investment.
With respect to what is happening, I think, in the future,
some of the most important trends relate to what is happening
to the average age of buyers, and I think somebody made the
observation that, in fact, this ought to be part of an
investment planning strategy retirement planning strategy, and
I think that is what we are seeing.
Back 15 years ago the average age of a buyer was 69, 70.
Now it is below age 60. So people are thinking and planning
ahead. It makes the insurance much more affordable at those
ages as well.
So I think that certainly as the strains on the public
financing system increase, there is going to be a growing
realization for those who can afford the policy and for whom it
is suitable with respect to income and assets, that there is a
viable product out there.
And I think that we are seeing that actually more quickly
than I might have anticipated, especially the age decline.
Mr. Shimkus. Thank you very much. I just e-mailed my staff
and said this Own Your Own Future Campaign might be a good
thing for us as members to help get the word out and coordinate
with the area Agencies on Aging and folks to help educate. That
is part of our role here is to help educate our constituents.
So thank you.
Mr. Stupak. Next, Vice-Chair of this Subcommittee, Mr.
Melancon. Questions, please.
Mr. Melancon. Thank you, Mr. Chairman. I appreciate it, and
I apologize for my tardiness. I started off with a fender
bender this morning, so it is not a good day. But I won't take
it out on anybody. I promise you.
I, and I tell the story of myself, I used to be in the
insurance business for a little over 20 years, and at one point
in my life I decided I needed to get disability insurance and
found out from the insurance companies, they told me that your
biggest problem is that lawyers and doctors abuse it so much
that the cost was prohibitive.
So the next option was long-term care, at which time I
realized I really needed to be kind to my children and make
sure they put me in a home that would take care of me. And I am
still continuing to be very nice to my children, and I, in
fact, am trying to be nice to my grandson right now, too, just
in the event that I live longer than I expected.
Healthcare products, and Ms. Burns, maybe you can help me
with this, I bought my long-term care from a company that does
life primarily but does, there are some that do life and
health. Is the long-term care policy a life and health product?
Is it required that it be sold by a licensed company that is
regulated?
Ms. Burns. Well, I can speak to that for California, and in
California a long-term care policy is lumped in with other
health types of products, although some life insurance policies
do have what is called an accelerated death benefit, which pays
for long-term care, in which case that would be a life
insurance product and regulated as such.
So I don't know what other states, how those states deal
with that.
Mr. Melancon. Then maybe Mr. Dicken might have some
knowledge of across the board in the country.
Mr. Dicken. Yes. Certainly states have specific
requirements for long-term care insurance in many ways. It is a
different, unique product, having futures both of life, having
the long tale, where it is many years before people between,
starting to buy their coverage until they may be taking claims
on it. And so there are many specific requirements.
Mr. Melancon. There are variations across the board.
Mr. Dicken. Yes.
Mr. Melancon. Mr. Bode, how much has your parents paid in
their policy before your mother got sick and needed to start--
--
Mr. Bode. Approximately $72,000.
Mr. Melancon. And do you remember how many years that was?
Mr. Bode. Gosh, probably at least 20 years.
Mr. Melancon. Yes.
Mr. Bode. I can honestly tell you that the premiums that
they were paying in 2005, when my father was still alive, a
month before his death, was $319 a month. It rose to $354 a
month in January, 2006, 4 months after his death, and by a year
later it was up to $442.62, and those represent escalations of
11 percent followed by 25 percent for a widow, and that was
taking well over half when combined with Medicare. Well over
half of her income was being spent on insurance, and that is
why it took the five of us to come together financially to help
her pay for her stay at assisted living.
But that was two escalations; 11 percent, followed by 25
percent within a 2-year period of time.
Mr. Melancon. If I remember correctly, mine escalates every
year to keep up with the inflation costs or the monthly costs
in the event that I am put into a nursing home and need long-
term care. And if I remember correctly, there is a clause in
there if I don't take it, then that is it. I don't get to come
back and pick up later. Do you just, was that also----
Mr. Bode. Well, if you don't pay the insurance, it is gone.
Mr. Melancon. No, but I meant, if I don't opt to pay the
escalated costs, then I lock in, if I remember correctly, I
lock in at the rate where I last took that escalation clause,
and that is it. I don't----
Mr. Bode. No. There is, as far, to my best knowledge there
is no agreement to that kind of acceptance of the lower costs
without the escalation.
Mr. Melancon. Ms. Burns, maybe you know the answer. Is
that, in fact----
Ms. Burns. I think what you are talking about is that
periodically you have the right to increase your daily benefit.
Mr. Melancon. Every year.
Ms. Burns. It is an inflation protection.
Mr. Melancon. Right.
Ms. Burns. And that is the premium increase that you are
being charged----
Mr. Melancon. Right.
Ms. Burns [continuing]. If you exercise it, and then if you
don't exercise it a certain number of times, then you lose the
right to it completely.
Mr. Melancon. Yes.
Ms. Burns. So you are only being charged, it sounds like,
for the increase in the daily costs that you are buying.
Mr. Melancon. Yes. So that my kids can put me in a nice
place. And hopefully just won't leave me there. Yes.
Ms. Burns. I wanted to just clarify one thing that we
talked about earlier, and I think it had to do with long-term
care services and communities and awareness. I would just like
to point out to all of you that we don't really have a long-
term care system. Everyone who needs long-term care constructs
their own system out of whatever patchwork of services are
available in their community.
And there is a real good, a real big disconnect between the
services that are available to people and the way that an
insurance company describes what they will pay for. So and
assisted living is probably a pretty good example of that,
because assisted living is licensed or certified differently
across the States, and when an insurance company product
describes assisted living, they describe what they will pay
for, which may be very different than what is being provided
within that State.
Mr. Melancon. Some policies will give you home care, some
policies only for nursing home or assisted living. Is that
correct?
Ms. Burns. That is true, but if it is there, if you buy an
assisted living benefit and you know what you think assisted
living means, when you get to the point of filing a claim, the
company may then say to you, well assisted living is a
particular facility with a certain number of beds, ten beds. I
have a case like that right now when Genworth, where a person
has a policy that pays assisted living benefits. She is in a
facility in California. Our license begins at six beds. So she
is getting assisted living under a State-licensed assisted
living facility at, in six beds. And the company won't pay
because the facility doesn't have ten beds.
So there is a disconnect between were those services
available in a community and the way they may be described in
an insurance policy, and no two companies have the same
definitions for these things. So it is, that is one of the
problems with claims is how those things are described and what
people are getting and what they think they bought.
Mr. Melancon. What they think they bought is usually the
case. I keep hearing reference the NAIC, the Insurance
Commissioners, and I was, as a State Legislator I was in
involved in a group called NCOIL, and I was just wondering if
any of your advocacy groups have been involved, because those
are the guys, state Legislators, that do model legislation to
try and get as much across the country, state-by-state to
adopt. And of course, they get some variances when they bring
them to each state because of the laws there that pertain.
Has there been any involvement in any of the groups, your
group or----
Ms. Burns. I actually testified at an NCOIL meeting in
February, I think, about these issues, and the NAIC sets a
minimum standard, and it is, from my perspective as an advocate
I appreciate a minimum standard, because I can talk to my state
about that minimum standard from a national organization. But I
want the flexibility to be able to go beyond that if I can
convince our State Legislature that we need to do more or
something better than what the NAIC did. And, in fact, that is
exactly what we have done in California. New York has done
that; Florida has done that.
But there are a lot of states that haven't adopted many
provisions that are in the model. So it isn't a national model
until you folks make it one by giving some federal benefit to
is.
Mr. Melancon. I thank you, and I just looked up, Mr.
Chairman. I apologize. I really ran over my time. Since I have
none to yield back----
Mr. Stupak. No wonder why they tried to run you over.
Mr. Melancon. I am operating on Louisiana time today, so I
still have some more time.
Mr. Stupak. Mr. Pomeroy, Mr. Shimkus and I were just
talking. Do you have a question or two of this panel before we
dismiss them? They were a great panel, and basically you have
sat here. It is unusual, but since you are from Ways and Means,
and you have a long history here. I would like to see if you
had a question.
Mr. Pomeroy. I so appreciate the offer, and I might have of
the next panel.
I would just observe for this panel, Bonnie Burns, it is
great to hear your testimony once again. In my time as an
Insurance Regulator I did not meet a consumer advocate that was
more technically informed than Bonnie Burns. She knows, when
she goes to work with an insurance company on a claim, she
knows the policy better than the person probably representing
the insurance company. She also, though, understands the public
policy ramifications of some of the way policies are written
and some of the way claims are adjusted. So she is just a
tremendous resource.
The way states, I think, learn from one another in
regulating insurance is to have some, the kind of leadership
that a Californian will have under the guidance of advocacy of
Bonnie Burns and the others. And then the other states evaluate
whether they have just killed the marketplace or whether it
actually works and whether the premiums are affordable, and if
the market works, well, then other states, I think, will be
inclined to follow the best practices with stronger consumer
standards in those states. Maybe the NAIC should then revisit
the model as has been referenced in your own testimony later.
Now, in light of the partnership legislation that Mr.
Burgess talked about earlier, we have put a distinct federal
interest out there, and so while normally we defer to states
with their regulations, there is certainly precedent for the
Federal Government through legislation picking up standards
that has been developed statewide and imposing them nationally.
Again, as someone who was very involved in this partnership
legislation, I want to make sure that when we are basically
saying Medicaid is going to accept higher, we are going to give
spend-down relief for long-term care insurance, that this long-
term care insurance is a completely legitimate line of
coverage, doing what consumers and what the public has a right
to expect.
So maybe we should look at whether the standards are high
enough and whether there are other state examples we ought to
incorporate nationally.
Thank you, Mr. Chairman. I yield back.
Mr. Stupak. Thank you, Mr. Pomeroy, and thank you to this
panel on behalf of all of us up here. Thank you. It was a very
good panel. Thank you for being here, and you are excused.
I would now call up our second panel of witnesses to come
forward. On our second panel we have the Honorable Sean Dilweg,
who is the Commissioner of Insurance for the State of
Wisconsin, and as I mentioned in my opening statement, we
worked with a number of Senators, and Senator Kohl speaks
highly of your work, Mr. Dilweg, and asked that you be part of
this panel. So we are glad to have you here. The Honorable
Kevin McCarty, who is the Commissioner of Insurance for the
State of Florida, is here. The Honorable Eric Dinallo, who is
the Superintendent of the New York State Insurance Department,
and the Honorable Mike Kreidler, who is the Commissioner of the
Office of the Insurance Commissioner for the State of
Washington, a former member of this Committee when he served in
Congress in the early 1990s. Good to see you back, Mike.
And it is the policy of this subcommittee to take all
testimony under oath. Please be advised that witnesses have the
right under the Rules of the House to be advised by counsel
during their testimony. Do any of you gentleman wish to be
represented by counsel?
Everyone is saying, indicating no. So, therefore, I am
going to ask you to please rise and raise your right hand to
take the oath.
[Witnesses sworn.]
Mr. Stupak. Witnesses, let the record reflect the witnesses
replied in the affirmative. You are now under oath. We will
begin our opening statement. Please limit it to 5 minutes. If
you have a longer statement, we will include it and make it
part of the record.
Mike, since you are the old veteran here, I will let you,
we will go with you. How is that? We are going to start off
with testimony, please.
STATEMENT OF MIKE KREIDLER, COMMISSIONER, OFFICE OF THE
INSURANCE COMMISSIONER, STATE OF WASHINGTON
Mr. Kreidler. Thank you, Mr. Chairman, and the Ranking
Member, Mr. Shimkus, and Committee members. It is my pleasure
to be here and to be able to speak to this very important
topic.
I am the elected Insurance Commissioner of the State of
Washington, not Wisconsin. I don't want to supercede Sean down
the row here.
We learn from the past about long-term care insurance, and
in the State of Washington we have a long history. Going back
to 1986, when I was a State Senator we wound up passing a long-
term care insurance act in small part because of the work that
the NAIC had done at that time and introduced some very
important consumer protection requirements.
We thought we were well prepared. We never imagined how
much the product nor the long-term care industry would change
over the next 22 years when that legislation was enacted. The
delivery system has evolved rather considerably during that
period of time.
At the time most people got their health, got their long-
term care, thought of long-term care, and the policy would
cover it in skilled nursing homes. It was also going to cover
people who were going to be very sick and that most people
would be, continue to be cared through the informal care system
of long-term care, which is through family members and
neighbors and friends that play an important part in the
informal system.
We also were not prepared for how much longer people would
continue to live and also that they would live longer with
chronic disease. We also saw a rather dramatic increase and
change in the products that were out or the care delivery
system as it evolved with assisted living to adult family
homes, something that was not a part of what we were looking at
when we were enacting that legislation.
The original long-term care policies were priced based on
those assumptions. Unfortunately, we found out that that was
difficult to predict. We are also stuck with that same problem
today of knowing what the system will look like 25 to 30 years
from now when the individuals purchasing today may be accessing
their or making claims on their long-term care policies.
There were problems with pricing in the past. When it first
emerged, we thought not too many consumers would buy it. A lot
of consumers wound up buying long-term care policies as the
products first came onto the market. Companies and regulators
looked at assumptions as to how it should be priced, and those
assumptions were that not too many people would buy it, that if
they bought it, they would follow much like a life insurance
model that they would actually not keep the policies. A number
of people would surrender them and that meant that not that
many would wind up using them. Those assumptions were wrong.
The new long-term care products are priced much more
accurately, and consequently, are much more expensive. We also
wrestle with the issue of suitability. Washington State, we
were one of the early States to be a partnership State back in
1995, and we are in the process of being, renewing our
partnership role in the State of Washington.
Behind the push, obviously, to address this issue is the
fact that consumers are living longer, more people are winding
up needing long-term care services, and the States are being
heavily impacted with their Medicaid budgets. Personally, I
support partnership and giving people more choices.
Long-term care is an issue for virtually everyone, but
there is a challenge from many people. In fact, few can really
afford long-term care insurance, because it is an expensive
product.
How can consumers be protected in the future? Recently we
adopted the NAIC Model Act, and are in the process of
implementing it currently, but even with those protections it
still may not be enough because of the difficulty of making
predictions as to what the long-term care delivery system will
look like and how it will evolve in the future when you have to
look out that far.
In closing, let me say that we have a crisis with funding.
It is only going to get worse. Our population is aging, and
people are living longer, longer than we had imagined
previously, and that trend is likely to continue. We are
extremely difficult to predict what that care will look like in
the future. We are weary of looking at long-term care insurance
to fund all of our long-term care needs. It clearly is a part
of the solution but only a part of the solution.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Kreidler follows:]
Statement of Mike Kreidler
Summary
The testimony of Washington State Insurance Commissioner
Mike Kreidler focuses on Washington State's experience with
long-term care insurance regulation from 1986 to the present.
Washington State developed its own unique set of long-term care
insurance laws that differed from the National Association of
Insurance Commissioners' (NAIC) model laws and yet long-term
care insurance policyholders in Washington experiences many of
the same problems reported by other states.
Emphasis is given to the problems encountered in regulating
a new product with no prior experience in establishing the
appropriate premium rates for this particular line of coverage.
In addition, Commissioner Kreidler discusses problems with the
evolution of the long-term care delivery system, and the
failure of certain long-term care insurance policies to provide
benefits for newer types of long-term care services.
The type and number of consumer complaints are examined
with reference to the inter-state cooperation through the
NAIC's multi-state Market Conduct Exam process. The
Commissioner also discusses the suitability of sales to certain
low-income individuals.
Commissioner Kreidler encourages Congress to learn from
Washington State's experience, and not to view private long-
term care insurance as the solution to the growing problem of
government funding of long-term care services.
Testimony
Good morning Chairman Stupak, Ranking Member Shimkus, and
members of the Committee. Thank you for the opportunity to
testify today on the issue of whether long-term care insurance
consumers are protected for the long-term. My name is Mike
Kreidler, and I am the Insurance Commissioner for the State of
Washington and a former member of Congress. I am testifying
today on behalf of Washington State as it is my belief that our
experience in regulating long-term care insurance and the
lessons learned in our state over the past 22 years will be
helpful to you as you plot the course for future regulation of
this product.
My primary mission as an insurance regulator is consumer
protection. It is my duty and the duty of my office to make
sure that policyholders are treated fairly. And if they're not,
we have laws in place to hold the insurance companies
accountable. At the same time, it is critically important that
the insurance companies we oversee remain financially sound in
order to pay the claims of the consumers we protect. The
importance of this crucial oversight can not be understated as
this Committee focuses on the problems related to the cost of
long-term care insurance and the impact of rate increases on
consumers.
Washington state's experiences with long-term care insurance regulation
In the mid 1980s, Washington State was on the cutting edge
of regulating long-term care insurance. Our public policymakers
recognized that products being marketed as ``Skilled Nursing
Facility Insurance'' were woefully inadequate and failed to
provide benefits for custodial long-term care. Consumers often
did not realize until it was too late, that benefit limitations
or ``gatekeepers'' such as prior hospitalization clauses and
requirements that the benefits were only for ``skilled'' care
meant that most claims submitted for custodial services would
not be paid under those policies.
As a result of these problems, the Washington State
Legislature passed comprehensive laws in 1986 to govern the
content and sales practices of long-term care insurance
products. The laws and rules were adopted a year before the
NAIC model Act and Rule and although there were similarities
between the two sets of laws in many areas, there were some
differences. In particular, Washington's laws differed in the
area of rating requirements and permitted exclusions. At the
time our laws were developed, they were considered progressive
with strong consumer protections. We put into place stringent
rating requirements and the products and rates were reviewed by
individuals with expertise in the area of long-term care
services and the delivery system as they existed in 1986.
Exclusions for all mental illnesses, not just ``organic'' brain
disorders, were prohibited. Inappropriate sales to low-income
individuals who were eligible for Medicaid were prohibited.
Companies could not condition the receipt of nursing home care
on a three-day prior hospitalization.
In spite of all of this good work, the public policymakers
never imagined how the long-term care service delivery system
would evolve over the next 22 years and how consumers would
respond to this relatively new product. In addition, the
remarkable period of low interest rates of the `90s and
advances in health care that prolonged the life of many seniors
all influenced the price of long-term care insurance products.
Given the theme of today's hearing, I'll address some of
the lessons learned in our state with the hope that you will
learn from our past to inform the future of long-term care
insurance regulation.
Premium Price Increases for Long-term Care Insurance:
The majority of consumer complaints my office receives
about long-term care insurance are about the double-digit rate
increase they receive on products they purchased in the late
`80s and early to mid `90s. Consumers who receive these double-
digit rate increases every few years do not understand how the
rate increases could be justified. Unfortunately, many can no
longer afford the premiums.
Adding to their frustration, consumers often misunderstand
the level of authority my office has over long-term care
insurance rates. Many believe that my office has the authority
to either ``set rates'' or disapprove rate increases even if
the rate increase is justified. When faced with repeat double-
digit increases, they do not want to hear how rates must be
sufficient to ensure the ongoing financial viability of the
company.
From the very beginning of long-term care insurance
regulation, Washington put into place very strong rules
governing pricing of these products. The guiding statutory
principle for our rate review authority is that rates may not
be ``excessive, inadequate, or unfairly discriminatory.'' All
initial rates and rate changes must be submitted to my office
and may not be used until they are approved. Unfortunately, the
first generation of long-term care policies were simply priced
too low, and in some cases, significantly so.
Because these products were new to the market, actuaries
for companies and the actuaries for insurance regulators were
forced to make assumptions in setting the premiums. They needed
to estimate how long people would keep their policies in force,
what the interest rate of return would be on their reserves,
and the future cost of long-term care services. And, I can say
with regret but confidence that no one, neither the companies
nor the regulators reviewing the rates got it right.
With the advantage of hindsight, we've learned that people
buying long-term care insurance bought it for the long-haul.
They did not drop their coverage at the frequency originally
estimated by the actuaries. And as people live longer with
chronic illnesses, they're also using their benefits at higher
rates than anticipated. In addition, interest rates on the
companies' reserves dropped to historic lows and stayed there
for a long period of time leaving the earned income on the
reserves well below what was needed. We're now faced with
granting justified rate increases on products that were
significantly underpriced.
Although the NAIC model for long-term care insurance has
attempted to address this area of concern by establishing rate
stability requirements, all policymakers-state and federal law
makers-should be concerned about how vastly different the world
could be 25 to 30 years from now when the typical 50 year old
that purchases long-term care insurance requires the services.
Last year, the Washington State Legislature adopted the
NAIC Model Act. My office is in the process of adopting the
Model Rule for products issued as of January 2009. It is my
hope and belief that the consumer protections and rate
stability provisions in these Model laws will help ensure that
consumers are better protected against underpriced long-term
care products. Unfortunately, we may not know if we've been
successful until 10 to 15 years from now.
Benefit design and covered services
In Washington State, we learned another valuable lesson
around the area of benefits or plan designs. The first few
generations of long-term care insurance products were not
designed to modify benefits overtime to keep up with the
dynamic changes in the delivery system. In fact, because these
products are ``guaranteed renewable,'' companies could not
modify the benefit structure. Most early generation long-term
care products provided for nursing facility care and some
limited home health care services, but they specifically
excluded other types of services. The early generation products
do not cover new delivery systems such as assisted living
facilities, adult day care centers and other community-based
services. Many consumers are not aware that the types of
services they desire are not eligible for benefits under their
policies until it is too late.
Long-term care policies must be flexible enough that the
benefits adapt as the delivery system evolves. However,
companies will likely charge more for this flexibility because
it is difficult to rate the unknown.
Consumer Complaints and Market Oversight
Washington State has relatively few consumer complaints
regarding how claims are settled. With the exception of a few
companies that have faced financial difficulty, most long-term
care claims are settled promptly. And most of the complaints we
receive regarding claim denials are appropriate under the terms
of the policy.
That we've received a limited number of complaints
regarding claim denials may be due in part to the fact that
very few claims are ever made in the early years of a long-term
care policy. Individuals who buy long-term care insurance
undergo strict health underwriting. This process screens out
consumers with chronic illnesses that may lead to the need for
long-term care services. As a result, unless there is a sudden
and unexpected illness or accident, it is unlikely that the
policyholders will require long-term care services for many
years after buying their policy.
Other complaints we receive regarding claim denials deal
specifically with a particular provider type not being covered
under the policy. We hear from consumers who are upset that the
products they purchased many years ago will not cover new types
of long-term care services, especially community-based care and
alternatives to nursing home services. Unfortunately, there is
little we can do regarding coverage of benefits for the older
generation of policies. The insurance contracts cannot be
modified after the issue date because they are guaranteed
renewable. The initial pricing assumptions did not take into
account the changes in utilization that would occur if
additional services were provided under the policy.
Claim payment delays, however, are a serious problem. We
deal directly with companies on a case-by-case basis to make
sure that claims are paid appropriately. We also report the
information to the NAIC's complaint database and, if
appropriate, to the Market Analysis Working Group (MAWG) for
consideration for a possible multi-state Market Conduct
Examination.
Suitability of Sales
There is an old adage among long-term care insurance agents
that ``long-term care insurance is bought, not sold.'' In other
words, unlike other types of insurance that people purchase
such as life, auto and homeowners insurance, long-term care
insurance is something that few individuals understand or
purchase without persuasion by an insurance agent. Many
individuals are unaware that Medicare does not pay for long-
term care services. The role of educating individuals on the
financing of long-term care services often falls to insurance
agents. Although our state mandates specific educational
requirements for agents selling long-term care insurance, it is
important to note that this product needs to be evaluated as
part an overall financial planning strategy. It is not for
everyone.
From the very early days of long-term care insurance
regulation, Washington State prohibited the sale of these
products to Medicaid-eligible individuals. In addition, many
affluent individuals tend to consider long-term care insurance
as part of their estate planning and often utilize other
financial products and services to fund their long-term care
needs.
These and other factors leave a limited market of middle-
class individuals who may consider buying long-term care
insurance. It is critically important that we focus on the
suitability of long-term care insurance to fund an individual's
long-term care needs.
In closing, I hope that you will find my perspective useful
in evaluating the future of private and public financing of
long-term care services. Although this product may serve the
needs of certain individuals, it is not the solution to our
long-term care funding crisis.
----------
Mr. Stupak. Thank you, Mr. Kreidler.
Next from the Honorable Eric Dinallo, Superintendent, New
York State Insurance Department. Sir, if you would, please.
STATEMENT OF ERIC DINALLO, SUPERINTENDENT, NEW YORK STATE
INSURANCE DEPARTMENT
Mr. Dinallo. Thank you, Mr. Chairman, and Ranking Member
Shimkus.
Mr. Stupak. You have to press that button there.
Mr. Dinallo. I have to press the button, or you don't hear
me thanking you. I apologize.
Mr. Stupak. No problem.
Mr. Dinallo. I believe that New York has succeeded in its
early implementation of long-term care insurance. While the
product is still relatively new and the development continues,
I am here to discuss some of the elements that we believe
contributed to this and why continued promotion and expansion
is essential and how to improve our program.
The early results, I think, are because of, I would say
building the product well from the ground up, and that goes to
strong consumer protection. We have, I am going to talk about
claims oversight, what we have in called prior approval and a
real emphasis on solvency and the approval forms process.
In consumer protection, we have done, I think, a pretty
good job in the claims payment area. We have three primary
tools to oversee claims adjudication. First, the Health
Department reviews each and every partnership claim that is
denied, and as the claim volume increases in the future, this
may not be possible, but for now it has been very helpful in
keeping everyone sort of on the same page and informing us.
Second, the Insurance Department conducts regular market
conduct exams and reviewing the claims practice payment of all
the insurers.
Third, the Insurance Department investigates each complaint
received from consumers demanding that the insurer remedy any
problems identified.
Thus, while we receive some complaints of delayed claims
processing, the claims have not been widespread, and we have
acted to remedy any improprieties that we found.
The rate setting is probably the most important area. New
York has prior approval of rates for long-term care insurers
and our actuaries, which are sort of an oblique and pessimistic
bunch, have ensured that the rates are not set too high, but
also most importantly, I think that they are not set too low. I
think whenever there is someone who comes into a market as a
market entrance the tendency is always to try to price very,
very low, and that leads to sort of a death spiral and adverse
selection as prices get spiked back up.
It is important when you are selling promises as opposed to
selling widgets that you price it appropriately at the front
end so you can ensure for solvency, and I think some of what I
heard on the earlier panel about difficulty in claims
processing, a lot of disagreements have to do with companies
that may have under-priced at the beginning, and they are
trying to skid out to a better outcome. And I think it is
really important that States and the actuaries do, in fact, not
let people price too low as well as too high.
We monitor the solvency as I said, and our policy forms, we
have a staff of attorneys that really try to make the policy
forms simple and consumer friendly. There is always a tendency
to want to go for universal policy forms across the country,
but I think that New York has done a good job in keeping them
easier for people to understand.
The second big area is promotion of long-term care
insurance. Again, if you are selling fishing rods, you can sort
of sell them and then go out of business, and the fishing rod
is out there and hopefully it works pretty well and all, but
once you are selling a liability, you have to keep people
coming into the system. Ponzi Scheme is an impolite word, but
in a sense if you don't keep people coming into the programs,
you are going to have a big problem down the line. So New York
has invested a lot of resources in having a real outreach
program. We have, I think that the legislature has put about $2
million into us establishing offices in every county of the
State to conduct individualized counseling to consumers as well
as public information sessions, and I think that is one of the
most important aspects.
Finally, Governor Patterson has recently proposed a law
that I think would improve our system, and here are the three
improvements in that law.
It would allow income protection as well as what we already
have now, which is the total asset protection for New York
State Partnership Plans.
Number two, require external appeals for long-term
insurance claim denials. This would allow third parties who are
not employed by the long-term care insurer to review claim
denials to ensure objectivity and compliance with the
applicable laws. I heard someone say earlier in the panel that
in California, I think it might have been, they can't really do
anything once there has been an adjudication. Similarly, we
could maybe put some emphasis, but we need an external appeal
process. We have it in other areas. We don't have it in long-
term care.
And finally, require long-term care insurers to comply with
the Product Pay Law, which requires insurers to pay claims
within 45 days or deny or pend claims within 30 days and fines
that are commensurate with that. So a fining process around
late claims.
Thank you very much. I have an expert staff sitting behind
me for any of the difficult questions I saw coming up from the
last panel. It has been a pleasure.
[The prepared statement of Mr. Dinallo follows:]
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Mr. Stupak. Thank you, and thank you for your testimony.
The Honorable Kevin McCarty, Commissioner of Insurance,
State of Florida. Sir, if you would, please, opening statement.
You have to pull one of those mikes up to you and press
that green button so we can all hear you.
STATEMENT OF KEVIN MCCARTY, COMMISSIONER OF INSURANCE, STATE OF
FLORIDA
Mr. McCarty. Good afternoon, Mr. Chairman, Ranking Member.
My name is Kevin McCarty, and I am the Insurance Commissioner
of the Office of Insurance Regulation for the State of Florida.
First of all, I want to thank you for the invitation to attend
today to address this very important public policy question,
long-term care insurance, are consumers protected, in fact, for
the long term?
The short answer in my mind and for the State of Florida is
the answer is yes. Florida, like other States, has historically
experienced a lot of challenges in regulating this new
industry. We have responded by implementing what I think is one
of the more rigorous regulatory standards to protect our
seniors from unfair pricing, unfair trade practices, and unfair
discrimination, while at the same time fostering a competitive
marketplace.
Florida, like the nation, has an aging population, which
combined with certain economic indicators has created a greater
demand for long-term care products. These products can be
important for the financial and the health needs of our
citizens, which in turn, puts a lot of pressure on policy
makers to ensure a viable long-term care marketplace and to
protect the individual rights of our aging population.
Unfortunately, long-term care insurance was initially
under-priced in our State and around the country. Our 2003
rating reforms that were adopted in Florida were very much
modeled after the NAIC regulations, which my colleague from
Wisconsin will go into much more detail. These initial
regulations helped tremendously in Florida to stabilize the
cost of long-term care in our marketplace.
But we still experience significant problems. Our office
then conducted a comprehensive study of the industry in 2005,
and 2006, with a number of findings, three of which I would
like to highlight.
Consumers with policies that were issued before 2003 had
very little protections from spiraling and sizable rate
increases.
Number two, there were continued incidences and allegations
of rescissions of contracts based upon inappropriate use of the
fraud exceptions to the contestability period.
And lastly, while Florida had a rate law which required
pulling within a company, companies could often circumvent that
law by establishing rating blocks through establishment of
affiliate companies.
To address these findings, Florida passed and adopted a
sweeping reform in April of 2006. This bill helped make long-
term care insurance predictable, affordable, available, and
more marketable. These reforms exceeded the standards contained
in the NAIC model regulation. As Ms. Burns established in many
cases those are the minimum standards.
The legislation requires that any contestability period in
a policy that is being sold in Florida could be no longer than
2 years. After that 2-year period the policy can be canceled
only for non-payment of premium. This protects Floridians from
any post-event underwriting.
In addition, under the 2006 reforms insurers must pull the
experience of all affiliated companies, not just experience
with an individual company. This reduces the development of
death spirals within the affiliates. Death spirals is when
blocks of businesses are closed and the experience
deteriorates, the healthy people leave, the loss ratio
continues to go up, and it causes more and more rate increases.
Florida continues to work with other States in combination
to address market conduct issues on a multi-State level. A
targeted examination of Bankers' Life and Conseco Senior was
led by the State of Pennsylvania and joined by a number of
States, including Florida. The focus of the examination was
complaint handling and claims handling. In the case of Bankers,
looked into their inappropriate marketing activities. After
extensive negotiations regarding these, the companies agreed to
a corrective action plan, implementing changes to the
companies' claim handling practices and standards to ensure
that they pay timely, appropriately, and consistent with State
laws, rules, and regulations.
They also agreed to establish a compliance plan for
marketing activities to ensure that producers comply with
appropriate standards of the law.
You can get a complete summary of the findings and findings
in the agreements as part of my written testimony.
In conclusion, Florida is not unique in dealing with the
changing demographics. The population of the United States is
aging, and health costs are increasing. We all know that.
Florida will continue to be a national leader and help in
developing standards to protect our seniors and to guarantee
that consumers long-term care insurance does protect them, in
fact, for the long term.
Thank you, Mr. Chairman and members.
[The prepared statement of Mr. McCarty follows:]
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Mr. Stupak. Thank you, and next the Honorable Sean Dilweg
from the State of Wisconsin, and as I said earlier, Senator
Kohl had asked that you be part of this panel. We have been
working closely with the Senate, and we are taking the lead on
these hearings, but we work closely with them. They highly
recommended you and look forward to your testimony.
STATEMENT OF SEAN DILWEG, COMMISSIONER OF INSURANCE, STATE OF
WISCONSIN
Mr. Dilweg. Thank you, Chairman Stupak. I have spent a
number of winters in your district skiing, so I do see your
district often. Thank you Ranking Member Shimkus and
Congressman Pomeroy for being here.
I am testifying before you today on behalf of the National
Association of Insurance Commissioners in my role with NAIC,
not just a Commissioner from the State of Wisconsin, but as
Chairman of the Senior Issues Task Force I interact a lot with
my Senator Herb Kohl and am very happy to be here to talk
today.
The primary objective of insurance regulators is to protect
the consumers of all lines of insurance, including long-term
care insurance and to ensure that the markets function
appropriately and efficiently. Today I will highlight how the
regulation of long-term insurance has evolved over the past 20
years, which has been touched on by some of my fellow
Commissioners, the NAIC's role in this process, the role of the
Federal Government, and what we are seeing for the future in
regulating this market.
I submitted lengthy written testimony that I know my staff,
Gunther Rockowasso, worked closely with Mr. Pomeroy 18 years
ago, worked on extensively. So I have him here for backup.
As you know, long-term care insurance began as a supplement
to limit nursing home benefits provided under Medicare. So it
is relatively unique. Industry came to us as we looked at
regulating it as a stand-alone insurance policy. Regulators
currently are in a position of having to react to decisions
consumers and industry made 15 years ago while also facing the
challenge of ensuring policies purchased today provide
meaningful coverage over the next 20 years.
Looking back to the '70s and '80s, there was much concern
about health insurance sales to elderly, including the sale of
long-term care insurance. Many policies were sold to seniors
through agents using high-pressure sales tactics, either
endorsed or ignored by their insurance companies.
Mr. Stupak. You may want to wait a minute here. There are
about three or four bells.
Mr. Dilweg. Def-com.
Mr. Stupak. There you go. It is not quite that bad.
Mr. Dilweg. Just let me know. So many of the premiums
charged for these early policies were inappropriately low to
make the initial sale more affordable. Unfortunately, these low
initial premiums resulted in substantial premium increases to
policies in later years exactly at the time they needed
coverage the most.
During the debates at NAIC, the insurance industry argued
that initial premiums for these earlier policies were based on
the best assumptions available at the time in a very new
market. Some regulators, however, warned industry that some of
their assumptions were not realistic. We argued that companies
charged low initial premiums to build their books of business
while fully expecting to raise future premiums when claim
activity we expected to increase.
The result of this practice years later has given rise to
several regulatory concerns. First with initial premiums priced
low, the suitability of some of the sales was called into
question. Regulators concerned with these low initial premiums
masked the affordability of these products for many consumers.
We questioned whether suitability was even part of the
marketing and sales process.
Second, insurers overestimated the lapse rate in developing
the initial premiums. This means more people kept their
policies than anticipated.
Finally, this practice has resulted in a solvency issue for
some companies, especially those whose only business was long-
term care insurance. Some insurers have experienced negative
financial results so that State regulators financial staff has
become involved with the companies.
Consequently, the number of insurers writing long-term care
insurance has decreased over the last several years. There are
fewer long-term care insurers today than there were 10 years
ago. That is because the demand for long-term care insurance is
not as anticipated in the early years of the product.
Over the years the NAIC sought several revisions to the
rate stability provisions to what we have today. In the early
'90s in response to increasing premiums we actually developed a
rate cap. They gave a specific hard cap that companies had to
abide by. This was a model proposed but not adopted by State
Legislatures throughout the country.
Today a long-term care insurer is required to include an
actuary certification in its initial rate filing, certifying
that rates are not expected to increase over the life of the
policy under moderately-adverse conditions. This is a back and
forth between the actuaries at the, at my staff and my staffs
throughout the country and the companies.
Should an insurer increase its rates under this regulatory
structure, the rate increase must meet an 85 percent loss
ratio, and the initial rates must meet a 58 percent loss ratio.
Until the insurer files a rate increase, there are no loss
ratio requirements for these products.
In addition, the insurer is required to provide disclosures
to its customer on its rate history.
Under this new rate stability structure that many of the
new long-term care insurance polices are written under, it is
too early to know whether it will adequately address the
problems associated with inadequate initial premiums. But I am
confident it will go a long way in addressing problems and
enforcing insurers to change inadequate first year premiums.
One of the major concerns State Regulators have had about
this product was its suitability. Bonnie Burns spoke to some of
that earlier. Therefore, the NAIC adopted suitability standards
as a part of its Model Act and regulation. These requirements
developed in conjunction with consumer advocates and industry
resulted in a suitability process that helps ensure long-term
care insurance sales were, in fact, suitable.
For example, the standards require that all long-term care
insurers develop their own suitability.
NAIC long-term care insurance models also provide a number
of valuable consumer protections unique to this type of policy.
They include an unintentional lapse provision, the offer of
inflation protection, and a requirement that ensures provide a
contingent, non-forfeiture benefit to those policies, to those
policyholders who did not purchase it. These are just some of
the examples that I have outlined more extensively in my
written testimony on how we have responded to issues in the
long-term care insurance market.
Many of the States have adopted key provisions of these
models. Some of the States use the models verbatim. When we
look throughout the States, we have 49 that use some of, some
version of NAIC's long-term care insurance models. With the
recent activity in the New York Times and from Senator Grassley
and others, we decided to also move forward with a data call
that pulled in 80 percent of the market looking at 23 long-term
care insurers. We did a 58-point data call that found very
similar to Dr. Cohen, but although claims in raw numbers had
grown, they were not claims for problems. They were not
statistically significant at the time.
But in looking at the claims issues that we have been
confronting, at the NAIC Senior Issues Task Force we are moving
ahead with examining an external independent review requirement
to look at the triggers that triggers these claims and will be
working through that issue over the next 6 months. The decision
of an independent review organization would be finding on the
insurer and the claimant. Currently claimants who believe their
claims have been unjustly denied have the recourse of filing a
grievance with their insurer. The independent review feature
would give claimants another independent resource in solving
their claim problems.
Other ideas to look at would be a basket of benefits that
could be looked at across all insurance companies or looking at
a commonality of terms so that consumers could compare products
in a more thoughtful manner.
There is also, as spoken before, the Partnership Program
and HIPAA model that should examine some of the new NAIC
models. Some of the rate stability models that we have have not
been adopted under the Partnership Program through the DRA. So
I would encourage that we examine that at a federal level.
Chairman Stupak, Ranking Member Shimkus, and members of the
Subcommittee and Congressman Pomeroy, I appreciate testifying
before you this morning, and I look forward to responding to
any of your questions, and as always, we are a resource here
for you as well.
[The prepared statement of Mr. Dilweg follows:]
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Mr. Stupak. Well, thank you, and thank you to this panel
for your testimony. As you indicated, it is not Def-com, but we
do have votes on the floor. We have four of them, so I am going
to ask you to come back at one clock, and Subcommittee will
stand in recess until one o'clock, and hopefully we are done
with our votes, and we can get going right into questions at
one o'clock.
Thank you.
[Recess.]
Mr. Stupak. The hearing will come back to order. When we
left off, when we recessed, we just completed the testimony of
our insurance commissioner panel. So we will begin with
questions.
Mr. McCarty, if I may, a couple questions. Florida played a
leading role in the Interstate Settlement Agreement with
Conseco. What were some of the practices on the part of Conseco
that you found troubling? How much confidence do you have that
these practices will cease and that the company will become a
strong providers of long-term care insurance?
Mr. McCarty. Thank you, Mr. Chairman. There are two
companies that were subject to the multi-state investigation.
Bankers Insurance Company, which was largely being reviewed for
their marketing practices, and then the Conseco Senior
Products, which were concerned about their claims handling and
the prompt payment of claims. We believe that we have entered
into a multi-state agreement that addresses both companies in a
very comprehensive manner.
First of all, the company was fined $2.3 million. They were
instructed as part of the agreement to implement a very costly
system for claims handling, claims payment, prompt pay. They
are subject to ongoing monitoring system and will be subject to
a $10 million fine if they fail to meet any of the benchmarks
that have been established in the multi-state agreement.
With regard to the marketing practices for Bankers, we set
up for, processed for how they changed their marketing
practices, penalties with regard to producers that do not
follow those benchmarks in a similar situation with that
company as well, if they fail to meet those benchmarks will be
subject to a fine. We believe that the settlement agreement is
comprehensive and will require ongoing monitoring and believe
that the company will comply with the State laws and
regulations.
Mr. Stupak. And Bankers, you mentioned Bankers, that is
really a sub of Conseco. Isn't that a Conseco Senior Health?
Mr. McCarty. It is part of the Conseco Group. Yes.
Mr. Stupak. Conseco Inc. OK.
Penn Treaty raised its premiums in various states a number
of times on its older policies. We have heard from witnesses in
our first panel, the GAO and others, that it is possible for a
company to raise rates or frequently to have higher levels than
other states that do not have strong rate stabilization laws.
How is that fair? I am trying to get these rates things,
because it is an older policy you just automatically justify an
increased rate? In New York you mentioned you had a pre-
approval for price increases. Do you want to comment on that?
Mr. Dinallo. Sure. In New York in this area we have what is
called prior approval, which means that the Department has to--
it means what it says--priorly approve the rates requested by
the companies. Here I think that was very effective because as
I said before, companies will sometimes come in and in order to
get market share, they may, in fact, try to price too low, and
especially in conditions where you are building a book and you
are not exactly sure what the uptake is going to be, and you
may have solvency issues. It is almost as incumbent on the
regulator to demand, it is hard to say, but higher pricing than
lower pricing so that you don't have the death spiral that the
Commissioner described before and or adverse selection issues.
Mr. Stupak. Do the rest of you have a prior approval
process for rates so you don't have that problem? Mr. Dilweg?
Mr. Dilweg. I think both Commissioner Kreidler and I, also,
we do not have the rate filing or the rate approval process,
but we do have other tools that recently does put us on tenuous
ground if we were to be challenged. That is an issue, and I
think Mike would speak to that as well. But in practice we are
able to reduce, we just had recently a 70 percent increase
request that we reduced to 20 percent.
So we need to use other tools that we have in our statutes
to get at some of these issues.
Mr. Stupak. Mike, did you want to add anything?
Mr. Kreidler. Mr. Chairman, I would add that we do have
prior approval in our state, too, so that we are going to take
a look at those rates to make sure that they are not excessive,
insufficient, or unfairly discriminatory. And we have some
really broad authority to look at it from those perspectives
before we allow a rate to be imposed.
Mr. Stupak. Have any of you had a company come forward, a
new entry into your market or into your state and say, we would
like to sell long-term insurance, and you have not allowed
them? Has that ever happened? Mr. McCarty.
Mr. McCarty. We have companies who apply for a license, get
licensed in terms of selling long-term care. We have prevented
companies from putting products in the commerce stream that did
not meet the standard. As my colleague----
Mr. Stupak. But that would be a State standard. Right?
Mr. McCarty. Right. Our State standard in terms of we are
concerned and share the concern, most of the problems have not
been that the products have come into the commerce stream
overpriced. They have been underpriced.
Mr. Stupak. Underpriced.
Mr. McCarty. And as one of the things that Superintendent
Dinallo was referring to, is we have denied people from putting
those, under-pricing the marketplace for fear of what we have
experienced in the '90s, which was they underestimated, either
by mistake or deliberately in order to get market share, and
then have very significant rate increases. The way to address
that upfront is to make sure that the actual assumptions that
are going into it contemplate the future expected loss ratios
from that business.
Mr. Stupak. Mr. Dinallo, is there tension between publicly-
held corporations that owe duties to their stockholders and the
need for long-term care insurers to hold large reserves? It
almost seems like a built-up conflict because you have a duty
to your shareholders, and most of these companies are publicly
traded, are they not?
Mr. Dinallo. That is a very stringent question. When you
are dealing with long-term risk in the insurance industry,
whether it is bond insurers or life insurance, long-term care,
workers' compensation would be another one, there is a sort of
philosophical issue between publicly-traded companies and what
are commonly called mutuals in the life insurance area or just
privately held. Privately-held companies have more of a
latitude to post up bigger reserves and have higher surplus or
cushion because they don't have the pull of the judiciary duty
issues with their publicly-traded shareholders.
And I would say that a CEO of a publicly-traded company who
proudly said that he had or she had very large reserves and
surplus would promptly get fired if they were not fulfilling
their fiduciary duties, and it is all about return on equity.
You have to constantly justify return on equity.
So there is an issue there. It is different than short-
term, short-tailed risk. Yes.
Mr. Stupak. Let me ask you one more. My time is up, but
just one more quick one. Why hasn't New York adopted the NAIC
model? Now, I know you mentioned the income protection,
external deals, the third party, and fine process, but why
don't you access this model which----
Mr. Dinallo. Well, I think we do, there are pieces of the
model that were best practices that we did adopt, but there are
others, for instance, the prior approval would be an example
where were have prior approval. We think that is best practices
here. The other is that I believe, I am going to read here. It
says, the model requires actuarial certification that is under
``moderately adverse conditions for premium increases that are
not anticipated.''
So that to me is not a very high standard as I kind of made
a joke. Our actuaries are a bunch of tough cookies is the
polite phrasing, and I would say that one of the reasons that
people have had success in New York and some have not opened in
New York is because the actuaries have required a much more
stringent standard than that for reserving and surplus
requirements.
Mr. Stupak. Thank you. My time is up. Mr. Shimkus for
questions, please.
Mr. Shimkus. Thank you, Mr. Chairman.
This, the Energy and Commerce Committee as our former
colleague knows, has a broad jurisdiction. We have reduced that
in the last couple of years where we, the financial service
aspect and all that insurance stuff is in another jurisdiction.
But it brings up this whole debate. Two issues. One, as we
deal as members of Congress, and I did it on Monday, with the
whole potpourri of federal programs and federal issues, of
battling of bureaucracy on Medicare, Medicaid, Social Security,
you name it, all the alphabet soups of federal programs, and it
is difficult.
The last thing I want is for another venue for my
constituents to come through me, which I think we have got to
be very, very careful when we are trying to address this issue
and the movement--I apologize. It is my wife. I never hang up
on her, but I just did. So I am in trouble. She is the only one
who calls.
But we really have to have an issue, this debate about
going too far and this whole federal charter, the federal
assumption of the role of Oversight over--if we start with one
insurance product, there will be an argument that we should go
in multiple. And there is the national debate on federal
charter for products.
So let me ask you all, we know the problem, there are some
people--there are a couple problems. Actuary problem,
difficulty of defining what the product will be in the future
that you have to pay. The other thing we need to talk about in
actuary, a lot of this money, the corporate money that is set
aside to hopefully make sure they make these payments are
invested, and what have you had? We have had two big drops in
the stock market since I have been watching it at this level,
and the tech boom, which it went bust, that caused a whole
different evaluation of what the assets on hand were to pay
future benefits. And right now, we are experiencing again
crises.
So where you individually see this marriage between what we
can do without assuming this as one of the grows of another, a
federal bureaucracy, which I would oppose? Why don't we just go
across the panel.
Mr. Dilweg. Yes. Thank you, Congressman Shimkus. I think,
when I look at some models that have worked, you look at how
the HIPAA model was put together, that was really a connection
between ourselves, NAIC, and then the feds, how the Medigap
models were put together, that really the, I think it was
Medicare Choice was occurring very similar problems to what
Medicare Advantage has seen. I think you do have a route here
through the Partnership Plans where there is a direct
interaction between the standards that Partnership needs to put
in place that really overlays the states. We just joined the
Partnership Program last year and are in the process of putting
those standards in place. As I mentioned before, they don't get
into the rate stability issues that our model laws contemplated
in 2006. They did, however, pick up on the agent training,
agent licensing issues that we are putting in place.
And so I think there could be urging of the Federal HSS to
look at those overlays and interact with us. I guess I look
more towards those type of minimum floor and directing us at
the time certain to come back with you with agreed-to
standards, that type of thing.
Having navigated the NAIC now for only a year and a half, I
have discovered that it is always nice to give us a date
certain to get something done. So----
Mr. Shimkus. Mr. McCarty.
Mr. McCarty. Yes. And I would just like to go back to what
you said, Congressman, with regard to the volatility in the
equities market. The state regulation of insurance is very
conservative as it relates to equities investments. Therefore,
it is unlikely that the volatility will affect the American
insurance companies like it would, for instance, in Europe
where they don't have the same kind of conservative accounting
treatment we have here.
I would agree with my colleague that there are a lot of
things that can be done through the qualified plans that
represent 90 percent or more of the policies that are issued
today. Looking at some of the things the NAIC has done and
maybe addressing that in the HIPAA law.
And I also agree with your comment with regard to if we
start getting into this, where does it begin, where does it
end, the nose-under-the-tent concept. And we have historically,
the NAIC have been reluctant for the Federal Government to
intervene in the rating process. We certainly in New York,
California, a number of other states, feel very comfortable and
confident in our regulatory framework that we have put together
for our seniors and our State specifically. And if the Congress
does do anything, we would start with do no harm in terms of
the great regulatory structures that are out there and the best
practices that are being engaged today.
And that if you do anything, set a minimum standard and
preempt what some of the other states are doing.
Thank you, sir.
Mr. Dinallo. I would say there are three or four ideas I
would have for this. Over-archingly, I would try to do things
that would encourage participation in the product. I think it
is a good product. It is set for takeoff, but it is necessary
to get more participants to keep it solvent and functioning. I
think Congress could consider tax treatment for the premiums
that are paid, which is always a way to get people involved in
a fairly neutral, helpful way.
The second would be with the intersection of Medicaid
obviously through the Partnership Program, and you are tweaking
and constantly thinking about that.
The third is what Commissioner Dilweg said earlier, which
is maybe it would help to have clear--you are dealing with a
certain population here for which the free market maybe isn't
exactly the right way to go, by which I mean the free market of
all the states with different policy forms. Maybe some clear
minimum standards and some definitions of what--I saw in the
first panel a lot of discussion about some very clear
definitions.
And the last would be urge you, whatever report you issue
or whatever you say, to just be careful of not scaring people
away from the product, because after the New York Times article
and what is kind of swirling around, that you are in
potentially sort of tenuous territory here, where what it
actually needs is an injection of participants, not a flight of
participants.
And finally, I think the states to the extent they are a
laboratory for ideas and change, are kind of executing on that
right now. It is a new product. You are seeing our federalism
actually kind of at its best in one sense, which is a lot of
different states trying to get it right on behalf of the
country, and you are surely going to see what are the best
standards that come out of that, and then urge you to consider
adopting some of them.
Thank you.
Mr. Kreidler. Congressman, I would like to take a slightly
different tactic. There is an interstate compact that has been
created among the 30 states now for life, annuity, and long-
term care products. I think it is safe to assume that as the
long-term care products which are developing standards, you
will actually see most long-term care companies wanting to file
that way because they can enter 30 markets immediately. And
that you are actually raising the standard nationally on
average by virtue of having the standards that have been
created for those products.
What Congress could do is, and I am a compacting state so
it is real easy for me to say what to do, and I recommended it
to my legislature and they overwhelmingly supported it, is that
you effectively establish a requirement for the states to join
the Interstate Compact or be a part of it. If you do so, you
certainly raise the standard of long-term care products, and
you would make it easier for products to enter the market on a
national basis without the encumbrances of going from one state
to another.
Mr. Shimkus. Great. Thank you very much.
Thank you, Mr. Chairman.
Mr. Stupak. Mr. Inslee for questions.
Mr. Inslee. Thank you. Welcome my friend, Mike Kreidler,
here, and Mike, you, I didn't get to hear your testimony, but I
read it, and there is one line in there that caught my
attention. You were talking about the need for stability in
pricing, and you were referring to that need for establishing
rate stability requirements, and you said all policymakers,
state and federal lawmakers should be concerned about how
vastly different the world will be 25 to 30 years from now when
the typical 50-year old that purchases long-term care insurance
requires its services.
Tell me what we should be worried about in a nutshell.
Mr. Kreidler. Thank you, Mr. Inslee. In fact, I think we
should, and we are currently all worried about it because it is
so difficult right now to predict what the products will look
like, but even more so what the long-term care services will be
that are provided 25 to 30 years from now when the policy is
bought today.
When we passed legislation back in 1986, in the State of
Washington, it was based on assumptions here that turned out to
be wrong. Actuaries have a tendency, in fact, it is not a
tendency, it is a fact, to look in the rearview mirror to see
what they should predict for the future. In the case of long-
term care, there was nothing behind them, so the assumptions
that were used were wrong, and that is why those early products
turned out to be a lot more expensive than was initially
predicted.
But the part that we are still stuck with even into the
future right now, what is the long-term care industry going to
look like? We have seen such dramatic changes in the last 20
plus years, will we see those kind of changes in the future,
and what impact would that have on how we have rated the
products today when we are trying to look that far into the
future.
Mr. Inslee. I hope after this hearing you can come to 403
Cannon and tell me more about the future some time this
afternoon. I would like to talk about that. Thanks.
Mr. Stupak. Mr. Walden for questions.
Mr. Walden. Thank you, Mr. Chairman. Mr. Kreidler, I want
to follow up with you because I take interest in the compact,
and I wonder is Oregon part of that compact, those 30 States?
Mr. Kreidler. To the best of my knowledge they are not
currently a full member of the compact, but I believe they are
in some degree of compliance with it, but I would have to defer
to somebody else to know whether they had actually fulfilled
that. I know there was some initial moves on their part to
become at least partially qualified.
Mr. Walden. Because I remember when I was in the State
Legislature, we just touched on this issue in the late '80s and
early '90s, and it always made sense to me if you could design
the right product----
Mr. Kreidler. Yes.
Mr. Walden [continuing]. And I know as my parents have aged
and passed on now and my wife's mother passed on, we have all
sort of said, oh, my gosh, what happens if. And it seems to me
that I think it was the gentleman from New York said, let us
not be chasing people away, but we have to make sure the
product works. And your comments trouble me again because you
say we don't know what it is going to look like 30 years from
now, and we don't.
So what advice do you give to somebody today about the
worthiness of investing in these products? It looks to me like
it still makes sense from a financial planning standpoint, but
you know, we heard from the first panel about mishaps that have
occurred to put it lightly, and we all want to guard against
that from happening.
Mr. Kreidler. Congressman, we are going to clearly be
challenged, whether it is at the federal level or at the State
level in trying to have a perfect match as to what rates should
be charged when that policy is sold as to what, in fact, will
be the ultimate payout and what responsibilities we have. So,
because you are building it on what you are predicting on what
we know today will be the case tomorrow. And quite frankly, we
don't know, and that is one of the uncertainties that you have
in the long-term care market. You just plain can't make that
hard prediction, and it has made the pricing of long-term care
insurance products that much more difficult and challenging but
certainly something that offers value to people, certainly some
people, not all people if you are low income, obviously you
probably shouldn't be buying it. And that is a suitability
issue, and if you have a lot of income, there may be other
types of products that are out there that might substitute for
long-term care insurance.
Mr. Walden. All right. And but your recommendation is that
Congress, if it is to adopt a nationwide standard, should first
look to the good work of the States and especially the 30
States that are in the compact for the floor, for the minimum,
and then not override State's authority in this area?
Mr. Kreidler. States will still have authority for consumer
protection, but this would be one way of raising the standard
nationally by having the long-term care standards that are
adopted as part of the compact, and by virtue of that you are
going to be in a position then to make sure that you have made
sure that the products that are out there are going to be ones
that are going to be better suited for the market.
Mr. Walden. On the next panel we are going to hear from
some providers, some of whom have virtually no complaints and
some that have, don't have quite that record, and a lot of that
may be from the past. I guess the question I would have from
you all, you are the regulators. Right? Of these policies and
plans. Correct? In your States. And so what assurance do we
have that your compatriots in the regulatory bodies around the
country are now taking the steps necessary to ensure that at
least the kinds of problems that were identified in the New
York Times' story aren't recurring today?
Mr. Dilweg. I think, Congressman Walden, we felt the data
call was really an important first step to get----
Mr. Walden. Right.
Mr. Dilweg [continuing]. A market look, what is happening
in 80 percent of the market. Here it has been 18 years since
these products are out there. To put it in perspective from
just the State of Wisconsin, I have 145,000 policyholders in
long-term care. I only get south of 100 complaints a year. So
that fits a profile of it is working.
Mr. Walden. All right.
Mr. Dilweg. And I think----
Mr. Walden. I wish I only got that many complaints.
Mr. Dilweg. But I do think there are some clear challenges
on how these claims are triggered. You are with a company for
15 years, and you start triggering claims and really digging
into the suitability. I think Commissioner Kreidler mentioned
it, but one thing we always urge consumers, do not make this
decision in a vacuum.
Mr. Walden. Right.
Mr. Dilweg. When someone shows up on your doorstep, talk to
your accountant, there are other financial tools out there.
Mr. Walden. Could I hear from the other members, and I have
only got a minute left in my time but--for this topic. What
assurance?
Mr. McCarty. Well, and, again, I think we go back to the
comprehensive market investigation that was conducted on
Conseco. We have a number of tools available, individually as
states and collectively through the National Association,
through our Market Analysis Working Group, where individual
states can note, can identify potential practices and notify
the rest of the states so we can set up a multi-state like was
done with Conseco.
Mr. Walden. Right.
Mr. McCarty. And they are on a very strict monitoring plan
at this time. As I said, they have a $10 million fine that will
kick in for failure to meet benchmarks for both companies.
Everyone in the regulatory community is keenly aware of the
business practices of those two companies, Penn Treaty and
Conseco, and I can assure you we will be vigilant and diligent
in protecting the consumers and monitoring them on a collective
basis.
Mr. Walden. OK. Sir.
Mr. Dinallo. I think you are in a very new product, a young
market here, so I don't think it is entirely embarrassing that
to some extent there was a learning curve in the New York
Times' article and others----
Mr. Walden. Right.
Mr. Dinallo [continuing]. Brought this to bear. I have only
been in the position for 18 months, but in the last 18 months I
can assure you that the consciousness around this product and
the consumer protection issues and the market conduct exams and
the NAIC committees are really ramped up tremendously. And I
think that could sound like we are reactive, but here I think
from all the states together it just seems to me that that is
kind of indicia of a new product and marketing formation.
Mr. Walden. All right. And I know my time has--Mr.
Kreidler.
Mr. Kreidler. The complaints that we get and the New York
Times' article, it is one of those things where when you fully
comply, it showed the State of Washington with a significant
number of complaints. I think it was because we were vigorous
in making sure we registered all of our complaints. So
sometimes you get penalized for doing that.
Mr. Walden. Right. No good deed goes unpunished.
Mr. Kreidler. Exactly. The thing that I saw or see is that
the complaints that we get aren't on companies paying on
policies, and it is one of making sure that, or it is the issue
raised by the rate increases. That is the one that by far is
the most painful for me, and some of those early companies
were, quite frankly, we didn't understand the assumptions, and
they weren't applied. We have learned a lot, as Commissioner
Dinallo just pointed out.
Mr. Walden. All right. Thank you. You have been most
generous, Mr. Chairman. Thank you to our panelists. Appreciate
it.
Mr. Stupak. Let me just ask two quick questions if I may,
and anyone who wants to answer it, go ahead.
It is my understanding there are only two states, Florida
and California, that have a provision that you can only look
back 2 years to deny a claim. Is that right, Mr. McCarty?
Mr. McCarty. To the best of my knowledge that is correct.
Mr. Stupak. OK. Well, without this 2-year limit, don't you
really sort of have an open-ended opportunity for a company to
look back to deny a claim that can go all the way back, and as
we saw with some of the other folks, some of these people are
older, they may be suffering from some dementia. The NAIC has
not included any kind of a rule, look back rule in their
provisions or in its model.
Why not? What can we do to encourage that all states adopt
this type of rule?
Mr. McCarty. Well, this is certainly in the subject of a
spirited debate among regulators. First of all, I think the
industry makes a compelling argument that in no case should you
allow for fraud to be perpetrated in the issuance of a policy
or in the payment of a claim.
The counter-veiling side of that, however, is these folks
who buy into these contracts and they go into claim, they are
generally in poor physical health and have, not of sound mind
and are in no position----
Mr. Stupak. To argue. Yes.
Mr. McCarty [continuing]. To provide that evidence. Florida
has been very successful in pursuing that. Unfortunately, I
think there is, I think it is a reasonable debate to have. I
think reasonable men and women can differ as to whether or not,
what is the most important public policy issue with regard to
payment of claims, whether or not we should use our resources
and bear out fraud wherever it is, but in a case of a senior
product such as long-term care, we believe that the better
public policy issue is to err on the side of someone who is in
their 80s or 90s filing a claim would be very difficult for
them to go to Court and make a case as to what they knew at the
time they entered into the contract.
That would be my preference, and I think this is going to
be an ongoing debate as this issue evolves.
Mr. Stupak. Let me ask you one more. It seems like the
older policies when we first did this long-term care insurance
was supposed to wrap around Medicare benefits, you had that 3-
day hospital stay. Now people go to their doctor or elsewhere
and the doctor is saying, no, that is it. You are going right
to assisted living. And these policies don't kick in.
So how can we address that? That is the complaint I get the
most. Well, I only was at the hospital overnight, and the
doctor won't let me go home, and the family is saying I
shouldn't go home because I have fallen too many times. But I
have this 3-day rule.
So how do we address that, Mr. Dilweg?
Mr. Dilweg. And I think we have raised it somewhat with the
independent review. I find the independent review is very--it
works very well currently under what is medically necessary
under health insurance. Almost all States have an independent
review that says, well, no, this is medically necessary.
So I think we are looking at how to implement that in a
long-term care policy setting, but you raise some issues. It is
not just a physician now making this decision. It could be a
variety of different people. So how do we wrap around the issue
and make it work, and that is really what we are embarking on
right now?
Mr. Stupak. Mr. Pomeroy, do you have a question or two?
Mr. Pomeroy. Mr. Chairman, it is very kind of you to give
me the courtesy of asking a question. I got a couple.
First of all, I just want to express my appreciation to
this panel. The grasp, the sophisticated grasp at the
Commissioner level of coverage has been very evident in the
testimony each of you have offered. I just think about NAIC.
You have come a long way, baby, when it comes to long-term care
insurance.
A nursing home event in a person's life is a catastrophic
financial event. Insurance industry responds to those points of
risk by trying to create products that can allay the risk
through an insurance mechanism.
So, this was a fine theoretical exercise we all undertook,
and we talked about how regulation has evolved. I think we
should also note the industry has put an awful lot of
innovation and work and risk, a good deal of financial capital,
especially those that want to get it right, and that is not
universal, to meet this need. I am very pleased that baby
boomers have a better means to protect themselves as a result
of all this good work.
A couple of questions. One, I think it was Bonnie Burns who
mentioned they require now coverage of lesser degrees of care.
I guess it was one thing that has changed since looking 20, Jay
Inslee talks about looking 25 years out. Care has evolved. It
was institutional when I was an Insurance Commissioner. Now it
is largely non-institutional but still EDL triggered and all
the rest of it.
Do most States require now coverages to cover more than the
institutionalized nursing home?
Mr. Dilweg. I think what you are seeing, Congressman
Pomeroy, is evolution in the benefits as well. I think one of
the problems was claims were coming in that were only for
nursing home care, but as we institute our Partnership Plan in
Wisconsin, you do get into the reciprocal questions of your
policy was bought in California; you are looking at the state,
now not insurance issues but the State Health Department
definitions of licensed facilities or licensed assisted living.
And so there is a whole ongoing reciprocal discussion that we
go through, an exercise that we have to go through if that
policy then, they trigger it in Wisconsin, how do we match up
to California. And that is my Department of Health and Family
Services.
So but it does really trigger off the State licensing
standards, which differ, as you know, throughout all the
States.
Mr. Pomeroy. Is there an evolution of product to a cash
benefit so even if you are paying care in the home or something
that you have got a better array of protection given the kind
of medical services you need?
Mr. McCarty. You are absolutely right, Congressman. There
has been an evolution away from having traditional nursing home
care to other sites who are being, delivering those services,
including home health services, and the most recent iteration
of the model does require services other than nursing home. And
you are seeing the marketplace respond in that way by offering
a number of products out there, including home healthcare.
Mr. Pomeroy. Good. On the notion we tinkered with non-
forfeiture benefit, in light of the tremendously pre-funded
dimension of this premium, but on the other hand that really
drew, drove affordability questions, stripping away the
coverage for people who needed it but could no longer afford
it. This business of in case of significant rate increase, you
are going to have a partial paid out benefit, or you are
getting a chance to go back in and negotiate down the coverage
that you have in order to stabilize rates. I think these are
very interesting concepts.
Have other states tried what California tried here, and
what is the experience?
Mr. Dilweg. It is our requirement in Wisconsin, it is
something that I think is a very unique benefit to long-term
care. Even if you did not opt into the non-forfeiture benefit,
you have the opportunity to get even your full payment back
upfront. So it is a model that we could easily give back to
you, how many states have adopted that fully.
Mr. Pomeroy. Have you found rate shock in your State as a
result of this protection?
Mr. Dilweg. I haven't seen any different rate activity
because of this.
Mr. Pomeroy. I have a question for the New York
Commissioner on partnership, New York being one of the four
states that had the partnership experienced through the '90s. I
am wondering if your, it is our hope that we are going to save
some Medicaid dollars, even while we develop means for people
to protect themselves.
Are you seeing after 10 years in the New York Partnership
experience any data that is going to be of interest to us?
Mr. Dinallo. Well, I think that it is starting, and I think
that it will get more so as more people participate in the
program. I know the GAO report was slightly skeptical about
what the savings would be, but our Department of Health people
and the Insurance Department respectfully, we don't really
disagree. We just disagree about the future, I think. I think
as you get more people into the program and New York is
committed to spend millions of dollars a year to try to promote
and recruit people into the program, you will see savings to
the Medicaid Program.
I think it is definitely an economics of scale issue that
is important to reach before you see those savings.
Mr. Pomeroy. Just one closing comment. Commissioner
Kreidler and I, in light of our prior work experience, each has
responsibilities. I need to help Congress understand insurance
commissioners, but he has the tougher job, help the insurance
commissioners understand Congress.
Thank you very much. I commend the panel again.
Mr. Stupak. Well, thank you.
Mr. Shimkus, any more questions?
Well, thank you, and thank you to this panel, and thank you
very much for what you do on behalf of your constituents and
all of our constituents.
Thank you.
On our third panel of witnesses we have Mr. Thomas M.
``Buck'' Stinson, who is President of Genworth Long Term Care
at Genworth Financial; Mr. Thomas E. Samoluk, who is Vice-
President and Counsel for Government Affairs at John Hancock;
Mr. John Wells, who is Senior Vice-President for Long-Term Care
at Conseco; and Mr. Cameron B. Waite, who is Executive Vice
President for Strategic Operations at Penn Treaty Network of
America.
Gentleman, it is the policy of this Subcommittee to take
all testimony under oath. Please be advised witnesses have the
right under the Rules of the House to be advised by counsel
during their testimony. Do you wish to be represented by
counsel?
Mr. Waite. I have counsel here.
Mr. Stupak. OK.
Mr. Waite. Just in the back.
Mr. Stupak. We will go for no right now, but if you want to
talk to counsel before you answer a question, please; we will
just ask you to identify counsel at that time and then we will
move forward.
OK. So indicating you do not wish to be represented by
counsel, at this time I am going to ask you to please rise,
raise you right hand, and take the oath.
[Witnesses sworn.]
Mr. Stupak. Let the record reflect the witnesses replied in
the affirmative. They are now under oath.
We will begin with an opening statement. You have 5
minutes. A longer one will be submitted for the record.
Mr. Stinson, on my left, we will start with you, sir. Would
you want to begin with your opening statement?
STATEMENT OF THOMAS ``BUCK'' STINSON, PRESIDENT, GENWORTH LONG
TERM CARE
Mr. Stinson. Thank you, Mr. Stupak, members of the
Committee. Thank you for extending an invitation to Genworth
Financial to testify at today's hearing.
My name is Buck Stinson. I am the President of Genworth
Financial's Long-Term Care Insurance business. Genworth
Financial provides retirement income, life, long-term care, and
mortgage insurance products to more than 15 million customers
in 25 countries. Our organization helped to pioneer long-term
care insurance back in 1974, and today we are the largest, most
experienced long-term care insurance provider in the country.
We currently provide service to over 1.3 million policyholders
and pay approximately $3 million per day in long-term care
benefits.
Over the last 34 years Genworth has paid a combined total
of $5.6 billion in claim benefits. In addition, we are very
proud of the fact that we recently became the exclusive
provider of long-term care insurance products to AARP members.
Long-term care insurance is important for four reasons.
First it generally provides peace of mind in a time of shifting
and uncertain economic burdens. Second, it represents a
critical part of a sound retirement plan, protecting assets,
and preserving funding sources for future family needs.
Third, it can serve to increase the number of care options
available to policyholders and their families. And finally,
care coordination and other information resources provide value
beyond the payment of financial benefits.
We also know that this insurance has helped to protect
Medicaid dollars for those who need it most. Long-term care
insurance has evolved from nursing home coverage in the '70s
and '80s to providing care across all settings today.
Only 75 percent of our initial claims were filed for
services in policyholders' homes. The issue of how
policyholders claims were processed and paid is of interest to
this Committee. You should know that over 95 percent of our
claims are approved. Claims are turned down only if they aren't
covered in the policy. No one person at Genworth can deny a
claim. If a claim is denied, a secondary review of the denial
is conducted by a specialist who has not been previously
involved in the claim, and a policyholder can contest the
decision through an appeals process.
Appeals are often reviewed by our chief medical officer,
who is a physician and helps to ensure that all claim decisions
are accurate and appropriate. As the largest provider of this
important insurance, we appreciate our responsibility in
remaining strong financially and in the way we manage our
company. Our business growth tragedy involves originating our
own policies versus acquiring blocks. This has helped to
preserve the continuity of our risk management disciplines.
Our 34 years of experience provides unique insights for
predicting morbidity and mortality trends, and we take a
conservative approach toward these risk factors to provide for
stability over the long term.
Our experience has shown extremely high retention rates
from our policyholders, higher than originally anticipated.
This higher persistency was the primary driver of our decision
to recently request our first rate increase in 34 years, an
amount of 8 to 12 percent on policies introduced up through
1997, which would increase the average policyholders' payments
by less than $20 a month.
We are confident that our current policies will adequately
provide for the long-term care needs of policyholders 20 to 30
years from now. The policies we sell today include coverage for
a wide array of care providers including formal and informal
homecare and flexible definitions of assisted care facilities
to accommodate the change in care delivery environment.
Additionally, our policies contain an alternate care
benefit that allows for payment of services not specifically
covered within the policy benefit language. Examples include
in-home safety devices, community-based services, and medical
response devices. In terms of how Federal and State governments
could support broader adoption and penetration of private long-
term care insurance policies, consistency matters. Whether it
be a broader adoption of the NAIC model regulations at the
State level or consistency through a federal charter. Either
approach would be helpful from both a consumer and public
policy standpoint.
In closing, I would like to underscore to this committee
that this is a very important insurance product that is a
critical part of the public and private solution to America's
long-term care dilemma. We appreciate our obligations to market
and administer this product appropriately, knowing that our
customers have provided us with precious dollars on the promise
that we will uphold our commitments.
Thank you for inviting me to testify this morning. I would
be pleased to answer any questions that you might have.
[The prepared statement of Mr. Stinson follows:]
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Mr. Stupak. Thank you.
Mr. Samoluk. Am I saying that right?
Mr. Samoluk. Samoluk.
Mr. Stupak. Samoluk. All right. You are the Vice-President
and General Counsel for Government Affairs at John Hancock.
Your testimony, please, sir.
STATEMENT OF THOMAS SAMOLUK, VICE PRESIDENT AND COUNSEL,
GOVERNMENT AFFAIRS, JOHN HANCOCK LIFE INSURANCE COMPANY
Mr. Samoluk. Thank you, Mr. Chairman, and my thanks to
Ranking Member Shimkus for being here on what we view as an
important hearing. I am Tom Samoluk, Vice-President for
Government Relations at John Hancock Life Insurance Company. As
one of the largest insurers in both the group and individual
long-term care insurance markets, we are pleased to have the
opportunity to be here today.
I would like to take the opportunity to thank Congressman
Pomeroy for his leadership on the Cafeteria Bill as well as in
the last Congress, his leadership on the Partnership
Legislation. Thank you, Congressman.
John Hancock was chartered in 1862. We have been writing
LTC insurance since 1987, and any product we sell must be
worthy of our brand and reflect our reputation in the
marketplace.
Private insurance will play an increasingly important role
as a source of funding for long-term care needs in the coming
years. We will continue to develop products that meet consumer
needs and deliver on our promise at claim time. Our commitment
to protecting the interests of our more than one million in
force LTC insurance policyholders and all future policyholders
is unequivocal.
The laws and regulations governing the industry at the
federal and State level have kept pace for the benefit of
consumers and the marketplace. Our company actively supports
the current NAIC model, LTC Insurance Act, and regulation. In
fact, John Hancock has demonstrated a history of proactively
meeting new NAIC consumer protections throughout the nation in
advance of their ultimate State adoption, and I give you an
example.
We have already begun the process of launching an
independent third-party review for newly-issued policies in
advance of NAIC or States requiring us to do so. Under our
provision the decision of the independent third party is
binding on us, John Hancock, but not on the policyholder, and
we pay the entire cost.
We have chosen to proactively implement this enhancement
now to give our policyholders additional peace of mind. Our
goal is to continue to deliver the highest level of service and
advice at the time of claim.
The following facts briefly tell our claim story. We have
paid more than $8.1 billion in LTC insurance claims to over
40,000 policyholders since 1987. In 2007, alone more than
17,000 policyholders received benefits, and we paid more than
$375 million in LTC claims. We currently hold more than $8.1
billion in LTC insurance reserves to pay for current and future
claims. We survey 100 percent of our claimants following
benefit eligibility determination, and this year to date the
vast majority of those who responded rated their overall level
of satisfaction with our performance as very satisfied or
satisfied.
But the statistics I have given you are only part of the
story. Our claims process ensures and delivers a superior
policyholder experience. Customer advocacy is absolutely
central to our claims model. Policyholders and their family
members are assisted throughout the claims process by skilled,
licensed healthcare practitioners to ensure that they optimize
all the available services and benefits offered by the
coverage.
Product design has evolved to reflect the change in long-
term care delivery environment and the changing needs of
consumers as we have heard today. John Hancock has been a
leader in innovative product design.
We also believe that the Federal Government can, in fact,
expand its role to encourage more individuals to protect
themselves with private long-term care insurance and to reduce
the drain on Federal and State Medicaid budgets.
We look forward to the enactment of Congressman Pomeroy's
bill on the Cafeteria Plan, and that also relates to flexible
spending accounts. We believe that consumers would be better
served with an operational interstate compact and ultimately an
optional federal charter that would allow for uniform policies
without variations from State to State.
At John Hancock it is our mission to ensure that our long-
term care insurance policyholders are, in fact, protected for
the long term. We are committed to maintaining and justifying
consumer confidence in this increasingly important retirement
protection product.
Mr. Chairman and Mr. Shimkus, we thank you for the
opportunity to appear today and would be glad to answer any
questions that the panel has.
[The prepared statement of Mr. Samoluk follows:]
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Mr. Stupak. Thank you.
Mr. Wells, your statement if you would, please, on behalf
of Conseco Insurance, long-term care at Conseco Incorporated.
STATEMENT OF JOHN WELLS, SENIOR VICE PRESIDENT, LONG TERM CARE,
CONSECO, INC.
Mr. Wells. Thank you, sir. Good afternoon, Chairman Stupak
and Ranking Member Shimkus. My name is John Wells. I have over
25 years of diversified experience in the insurance industry
with companies like Chubb, Jefferson Pilot, and Mutual of
Omaha. Since December of 2006, I have been Senior Vice
President for Long-Term Care at Conseco. I appreciate the
opportunity to talk with you today to discuss the important
issue of long-term care insurance for Americans.
As one of the largest providers of long-term care
insurance, Conseco's mission is to be a leading provider of
financial security for life, health, and retirement needs of
our middle class Americans. These policies are vital in an
aging America. As this Committee knows, skyrocketing medical
and long-term care costs are placing a growing burden on
consumers as well as on taxpayers who publicly finance
protection programs such as Medicaid and Medicare.
Americans are rightly concerned about whether their
accumulated savings will adequately cover their possible needs
for long-term care. With the baby boomer generation rapidly
reaching retirement age, Americans living longer, corporate
retirement benefits being curtailed, and public finance
programs under stress, consumers should be encouraged to take
initiative to plan for their own futures.
This is especially true for America's middle class, those
who are not eligible for Medicaid but cannot afford to fully
pay for their long-term care needs. Their untenable choice is
to spend down their assets, sacrificing their financial legacy
before turning to government assistance.
To meet this urgent need, Conseco has developed a wide
range of products to give consumers the peace of mind that
their needs for long-term care will be met. We fully understand
that we can only serve this need if consumers know us to be
reliable partners.
In short, we must demonstrate every day the value of this
product and earn the trust of consumers. The facts show that
their trust would be well-placed. Conseco today has nearly
600,000 active long-term care policyholders. We pay claims to
between 24,000 and 25,000 policyholders a month for a total of
three-quarters of a billion dollars per year.
Although we pay over 98 percent of submitted claims, there
are instances in which we make mistakes. Some of these mistakes
are caused by problems with systems and processes, some involve
human error. We take full responsibility for our mistakes, and
I assure you we have been working diligently over the past 18
months to improve our claims handling to serve our customers
better.
We are seeing very positive results in both service levels
and claim accuracy and remain committed to the course we set in
late 2006, to achieve industry best practices throughout our
operation. We have also stepped up our training procedures for
field personnel and call centers alike to do a better job of
selling the right policies in the right way and to ensure that
once sold these policies are administered in a timely and
correct manner.
Let me be clear, let me be very clear that Conseco is
committed to being part of the solution to what otherwise could
be a crisis in long-term care as the population ages. To that
end we are interested in working with this committee and our
regulators to find ways to assure that Americans can live their
lives in dignity, supported by a private healthcare insurance
system that provides what they need at a cost they can afford.
Thank you again for the opportunity to testify on our views
on this important issue of long-term care insurance in our
nation. We appreciate the critical oversight this committee
provides and look forward to continuing to work with you. I
would be happy to respond to your questions.
[The prepared statement of Mr. Wells follows:]
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Mr. Stupak. Thank you.
Mr. Waite, you are Executive Vice President for Strategic
Operations at Penn Treaty Network America. Your opening
statement, please, sir.
STATEMENT OF CAMERON WAITE, EXECUTIVE VICE PRESIDENT, STRATEGIC
OPERATIONS, PENN TREATY NETWORK AMERICA
Mr. Waite. Thank you. Good afternoon, Mr. Chairman and also
Ranking Member Shimkus.
Mr. Stupak. Is that mike on?
Mr. Waite. I believe it is.
Mr. Stupak. Can you pull it closer?
Mr. Waite. Sure.
Mr. Stupak. There you go. Thanks.
Mr. Waite. And also to Mr. Pomeroy. We are happy to see you
here. As you said, my name is Cameron Waite. I am Executive
Vice President of Penn Treaty American Corporation, and we,
too, are pleased to participate in this hearing today.
Penn Treaty has been an innovator, a specialist, and a
provider of long-term care insurance in the United States for
over 35 years. We serve approximately 150,000 policyholders,
and our policies are sold in 43 States, and we administer
policies in all 50 States and the District of Columbia.
Penn Treaty provides multiple products and the broadest
spectrum of long-term care insurance selections in order to
meet consumers' needs. Penn Treaty has a very strong claims
paying record for our policyholders. Our reputation in this
regard has led us to remain competitive in a market that is
dominated by mega-insurers. Over the last 3 decades we have
paid $2 billion in claims to our policyholders, having paid
$194 million in claims in 2007, alone. We have seen a radical
decline in terms of claims denials with only less than 5
percent of claim submissions having been denied for any reason
over the past several years.
We find that our policyholders are satisfied with their
long-term care insurance, as evidenced by the fact that while
the industry average of claims-related complaints has actually
been steadily increasing over recent years, our policyholder
complaints have declined by over 60 percent over the past
several years.
Penn Treaty has taken steps such that our outstanding
litigation is at an all-time low. The company is very pleased
with the recent market reviews by State insurance regulators,
including Pennsylvania, which was mentioned this morning, which
has been completed several weeks ago. We take the findings of
which from these, and we use them as a learning tool in order
to look at further areas of improvements on what we can do
better.
As a pioneer in the long-term care industry Penn Treaty has
noted emerging trends and has always honored its commitments.
For example, since the early 1990s, Penn Treaty has paid all
its assisted living facility claims under its existing
policies, which didn't even exist when these policies were
originally issued.
Penn Treaty is unique among most long-term care insurance
providers in that we have an older block of long-term care
insurance policies. Not older ages, but rather older policies
themselves that are becoming eligible for claims in large
numbers. We have made substantial improvements in our claims
handling practices and in dealing with the challenges presented
by an older block of policies. These older policies have had
claims that have not conformed with actuarial projections
because assumptions regarding lapse rates, mortality, morbidity
have all evolved.
Additionally, in response to industry issues including
those noted by the Subcommittee, the company continues to
implement and improve best practices with respect to claims
handling. Some steps taken over the last several years include
adopting the most rigid of State requirements for claim payment
timing following eligibility determination. We currently pay 98
percent of all nationwide claims within 15 days. More than 99
percent of all claims within 30 days.
We have implemented a robust audit program for claim
payments which generate secondary review in over 10 percent of
all transactions. We have automated system improvements in
order to safeguard against errors in payments. We substantially
improved the caliber of our claims examiners and the training
programs that we have implemented. We strengthened our overall
customer support area in order to accurately answer policy-
related questions.
And finally, in the event of an unlikely claim denial, we
provide the very specific reason in writing to the policyholder
as to why that claim was denied, offering the opportunity to
provide more information and provide an instruction on their
right to appeal if they disagree with our decision.
We remain very sympathetic to the needs of our customers
holding older policies, especially those that have been
impacted by premium rate increases and have taken numerous and
very difficult steps over the last few years to make sure that
all policyholders are protected for the future.
These include offering options to mitigate the impact rate
increases. We have established over $1 billion in reserves for
future claim payments. In addition, the company has purchased
100 percent reinsurance with a global reinsure to protect all
policies written prior to 2002, and most policies written since
that time.
Look into the future and the need for long-term care
insurance is more and more evident every day. Our over 250
employees are dedicated and passionate about the value they
bring to our American seniors. We have done much to better
serve our policyholders, and we recognize that there is more to
do. We are confident that Penn Treaty will continue to be a key
player in this business and have worked through the inevitable
issues noted as the industry has expanded.
Again, we appreciate the opportunity to appear before the
Subcommittee and would welcome any questions.
[The prepared statement of Mr. Waite follows:]
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Mr. Stupak. Well, thank you, and we are going to have some
votes but let us see if we can get our questions in before we
have the series of votes coming up.
Mr. Waite, you just said that you pay 98 percent of the
claims yet all the data we have seen nationally on long-term
care rates are just around 4 percent. So it should say you are
probably actually better than the other companies. So I guess I
am a little confused on how you come up with that. Everything
they show us it is about 4 percent. You are saying you are
paying 98 percent, so that would be about 2 percent in
rejection.
Mr. Waite. Just to clarify, Mr. Chairman, our denial rate
has been less than 5 percent, which is right in the range of--
--
Mr. Stupak. OK.
Mr. Waite [continuing]. What you are saying. The 98 percent
that I referred to is once the claim eligibility is actually
able to be achieved. At that point in time----
Mr. Stupak. So the hurdle is to get over the claims
eligibility. Right?
Mr. Waite. Well, we don't find it to be a hurdle. We
actually are looking, we typically see eligibility decisions
that can be made anywhere from 24 hours to approximately 12
days. At that time we make the decision. Once that information
is in, we will be able to move forward with our claim decision
typically within 24 to 48 hours.
Mr. Stupak. Well, let me ask you this. John Hancock
testified here today and other companies; they have adopted a
procedure of independent third-party review of denied claims.
Does your company do that? Will you commit to doing that?
Mr. Waite. We actually admire John Hancock for doing that.
We believe that is very proactive. We, too, have supported that
effort with the NAIC. I will note that one of the challenges--
--
Mr. Stupak. Yes, but do you do it in your company? Do you
have third-party review?
Mr. Waite. We do not, and the reason we do not yet is
because the states haven't formulated a plan where it can
equitably be put in place. We are very much in support of it,
however.
Mr. Stupak. Well, how many states have to have this plan
before you will do it? I would think if it is a good practice,
you would want to do it.
Mr. Waite. It is an excellent practice, Mr. Chairman. We do
believe, however, that it is much more important for the
company to be able to give the opportunity for internal appeal
and make the correct decision, no matter what that is, prior to
whatever to it ever even needing to get to that point.
Mr. Stupak. Mr. Wells, let me ask you the same question. Do
you have a third-party review of denied claims?
Mr. Wells. No, sir, we do not.
Mr. Stupak. Will you commit to doing one?
Mr. Wells. We are in the process of working with an
industry association. This is a complex issue, we believe,
because of the number of disparate policies, but we are
supporting the industry and working with the industry to
ultimately arrive at a conclusion. We do also have appeal
process that a policyholder can go through to appeal, and we
have a panel now we have implemented since early, mid 2007. It
includes a medical director and others.
So we are making changes to more proactively adjudicate
claims.
Mr. Stupak. Well, you both testified it is a good idea, and
you support other people doing it, but you are not doing it
yourself. And Mr. Wells, I am a little concerned because the
New York Times article that came out last year reported that
current and former employees of your company had testified
under oath that they were not allowed to call policyholders
when they needed more information to make a claim. So if you
don't have third-party review, if that is true that when people
call they can't get information on how to go about making a
claim or the information they need to make a claim, how is your
company--it is just not making sense here.
Mr. Wells. Right. Well, we do send claim forms out, and we
are absolutely supportive of having the claim reviewed. What we
have done since----
Mr. Stupak. But this is just people asking for information
so they can make the claim.
Mr. Wells. Absolutely.
Mr. Stupak. That is what the New York Times article said,
and our previous witness said when he had your company,
Conseco, too, he said, he just asked where he had to get
information.
Mr. Wells. Right.
Mr. Stupak. And the Commissioners had to----
Mr. Wells. Yes, sir. Could I comment on that?
Mr. Stupak. Yes. Sure. He had to call someone else to even
get a claim form for you guys.
Mr. Wells. Well, prior to 2007 we had a very cumbersome
process. Our systems, I think Mark Cohen testified in the first
panel, part of the issues were some of the processes and
systems that long-term care has because of claim systems.
Claims are still very new because the industry is very new.
Putting in claims systems and processes, which we have been
doing, user-friendly claim systems and processes, which we have
been doing since mid-2007, we have completely revamped that
process as a result of----
Mr. Stupak. But to completely revamp, why wouldn't you put
in a third-party review if you think it is such a good idea? If
you made all these changes, why wouldn't you put that critical
change in there?
Mr. Wells. And that is under consideration at this point
working with our third party. But we have now done customer
reach-out. Before we were having claims come in and in some
cases they do get stuck. We are now completely doing a customer
reach-out program when a claim comes in to call the consumer to
make sure we have got all the information to let them know
where the claim is. That has been implemented in mid-2007.
So we have completely revamped that and are working with
the other states to make sure that we are in compliance with
claim timeliness and processing.
Mr. Stupak. Now, I asked the question earlier of the other
panel, and I will go right to Mr. Shimkus in a minute, but let
me ask this. You are all publicly-held corporations, and you
have responsibilities to your shareholders, yet you have to
keep reserve. So is this such a good model to be offering long-
term care? Where is the responsibility? To the shareholder or
to the client who holds a long-term care contract?
Anyone want to comment on that? Some sites suggest that
maybe a mutual company might be a better company to hold these
long-term care contracts.
Mr. Stinson.
Mr. Stinson. Chairman, yes. I will comment, because I think
you have framed it as there is a friction between holding
reserves and----
Mr. Stupak. Tension. Sure.
Mr. Stinson [continuing]. Facing into Wall Street, which
represents as a proxy for our shareholders, I would argue that,
in fact, there is a lot of pressure from our shareholders to
make sure that we do have adequate reserves.
Mr. Stupak. Right.
Mr. Stinson. So there is as much tension from our
shareholders and our investors and making sure that we are
sound financially and that we are adequately reserved to take
claims in the future as regulators.
Mr. Stupak. What amount of reserves should you hold as a
rule of thumb? Is there a rule of thumb?
Mr. Stinson. Yes. Our, it is statutorily required to have
adequate reserves based on actuarial assumptions, and that is
governed by each of the States that you sited in.
Mr. Stupak. And you offer in all 50 states, right?
Mr. Stinson. Yes.
Mr. Stupak. OK. Ms. Samoluk, do you want to answer any of
it?
Mr. Samoluk. I would agree with what Mr. Stinson said
there. We at John Hancock have been selling products, life
insurance and annuities with a long tail for a long time, and
we have been able to find that balance between ensuring that
you have the reserves, which, as was mentioned, are statutorily
required. We also meet the fiduciary obligation to our
shareholders.
Mr. Stupak. OK. My time is up. Mr. Shimkus, questions.
Mr. Shimkus. Thank you, Mr. Chairman.
I am going to go back for Mr. Samoluk on, you said the word
that I asked in the previous panel. So you support an optional
Federal charter? And that would be one way. A second way would
be to make sure the States are developing into compacts. Is
that how I heard your opening statement?
Mr. Samoluk. Right. We are supportive of the interstate
compact and look forward to that being operational. And with
regard to the optional federal charter, we think that many of
the regulators, the regulators in the states where we have
domiciled companies, do a terrific job, but there is uneven
regulation around the country. And we think that for the sake
of consumers, the industry, the marketplace that an optional
federal charter, and, again, it is, it would be an optional
type of situation, would even out the regulation of the
industry.
Mr. Shimkus. And that is the only reason why I followed up
with that is because when we had the Insurance Commissioners
there, that is the elephant in the room sometimes when we get
in talks about insurance issues here at the national level, and
many of you were sitting on that panel, so I just wanted to
follow up on that.
In your respective companies, where is your capital being
invested now as far as is it data information services or
obviously we have issues? Where are you investing to have those
products really appealing to the consumers?
Mr. Stinson.
Mr. Stinson. Yes. I think we learned early on that one of
our key investments is going to have to be in our claims
organization, and for our long-term care business we have a
dedicated organization of over 250 benefit analysts that do
nothing but long-term care claims, benefit adjudication. We
have invested in systems to make sure that we understand as the
policies have changed over time, that the adjudication can be
appropriately applied there.
So a big part of our capital is invested in our claims
administration because that is really the moment of truth for
us. In terms of how we price for stability going long-term, we
do take a relatively conservative assumption around morbidity
and mortality trends, as well as investment yields, and we have
dropped our persistency assumption down to 1 percent. So there
is not much between one and zero.
Mr. Shimkus. Mr. Samoluk.
Mr. Samoluk. I think that we would similarly say we are
conservative in our, and prudent in our investment activity.
On where we are putting in the money, in the claims process
I think in general one frustration that consumers have is that
when they call up a vendor or the company with which they are
doing business, they don't get a human being. They are passed
from press five, press seven, to get whatever the service is.
One of the things we put a lot of emphasis on are highly-
trained care coordinators so when, at the onset of the claims
process, via an 800 number provided in the policy, the
policyholder or their family member is going to talk to a
licensed healthcare practitioner, either a nurse, licensed
nurse or a social worker, and they are likely to be on the
phone with that person for 30 minutes, if not more, to run
through all the benefits, their policy, and that begins the
process.
And we think that is important with the frustrations that I
think many of us feel. We think that is important to establish
that type of consumer-friendly approach at a very difficult
time for policyholders and or their families.
Mr. Shimkus. I only have 1 minute left, and there are votes
on the floor. Let me ask this question. How do we handle, how
do we deal with the senior citizen who moves across state
lines, definitional changes so when they would call to make a
claim, and we will just go to Mr. Wells and Mr. Waite, when
they call to make a claim but now they are in a different
state, the state may have a different definition as to what is
covered, how would that happen? What would we do?
Mr. Wells. Right. Well, when a policyholder moves across
state lines, they obviously still have the same contract that
they had before they moved. Our service standards are based on
the state in which they reside, the claims process, timeliness,
or processing and what have you, but which is centralized in
one location in terms of call center and handling phone calls
promptly, turn around times, and what have you.
Mr. Shimkus. Does that cause a little bit more disruption?
We all were here in the morning with Mr. Bode making the--no
one wants to have a Mr. Bode as a constituent who is
complaining or as a client.
Mr. Wells. Absolutely. What we have done is invested more,
similar to my cohorts to my right, in people processing
systems, people on the phone, more people on the phone to
handle calls, better trained people, because we have heard
throughout the day the complexity of this product. Having
people better understand the product on the front end and
proactive at the time they need it, at claim time and
proactively calling out is one way to handle that whole area I
think.
The other thing is to make sure that they have all the
claim forms. That was mentioned earlier. Making sure they have
the claim forms, and we also have hired a team of nurses to
make sure that the care is appropriate, to make sure that the
care is utilized, the contract is not exhausted, to make sure
that the care is there when they need it. And so we have hired
teams of nurses to work with our policyholders.
Mr. Shimkus. Thank you. And just briefly, Mr. Waite, if you
want to add.
Mr. Waite. Sure. Yes, Mr. Shimkus. Our policies also are
designed to be completely portable. What we have done is
because we recognize that various states may have different
requirements for timeliness of payment, we have adopted the
most rigid of requirements so that we have uniformity, so that
our policyholders do not suffer as a result of whether they
move or not, even if they have been issued a policy in one
state versus a policyholder in another state. Because the
investments that we made in our claims personnel and our claims
systems and also by the way our actuarial resources, because
this older block of business is really becoming the troublesome
area in long-term care. New business has done very, very well,
and I think all of our members will recognize the value that
the NAIC has given to us.
Mr. Stupak. Thank you. Mr. Walden for questions.
Mr. Walden. Yes, and I will try and be pretty quick here,
Mr. Chairman, because I know we have votes.
So, Mr. Waite, I would be curious to know if the other
members of the panel agree, are all of you writing your plans
to the highest standards that are out there that States have,
or does it matter? There are obviously these NAIC model code
requirements and all. Are you writing your plans to those
levels?
Mr. Waite. We are.
Mr. Wells. In terms of claims management?
Mr. Walden. Yes.
Mr. Wells. We are writing within the State requirements and
in some----
Mr. Walden. State by state or----
Mr. Wells. Which vary by state. And where the states may
not have standards, we adhere to the State of Domicile, which
is Pennsylvania, which is the sixth most rigid standard State.
Mr. Walden. All right. Sir.
Mr. Samoluk. Yes, Congressman. We adhere to those NIA
standards throughout the country, whether they have been
adopted or not.
Mr. Walden. All right. Mr. Stinson.
Mr. Stinson. Yes. The same.
Mr. Walden. OK. So you adhere to those model standards, and
Mr. Waite, you indicated you do as well?
Mr. Waite. Yes, we do. As a matter of fact, one thing that
is very important about it is that prior to states actually
adopting the Model Act, there is, there was a lot of thought
put into the, by the actuarial community about how to deal with
premium rate increases in the future or to potentially avoid
them.
Mr. Walden. Right.
Mr. Waite. The Model Act embedded a requirement to have a
margin for moderately-adverse experience that inevitably can
come along. We have adopted that since day one every before any
states actually put that in or elected it because today only
about 25 states have even adopted the Model Act, as you know.
We have adopted that pricing network across all 50 states.
Mr. Walden. So do you believe that the insurance industry
can meet the projected needs of the senior population in the
years to come? We heard from the Insurance Commissioners some
question about this is such a new product, and there is much in
the rearview mirror. Are you all comfortable that you can price
this in a way that when I am at that age, which, well, that
won't be that far, I guess, but when others are that are
younger that the funds will be there to take care of what was
promised?
Mr. Waite.
Mr. Waite. I think probably I can help that because I think
on the new pricing for new policies and in our case we define
that from 2002, forward, the pricing standards have been very
good for that. The protections for consumers have been very
good based upon the NAIC's work as the Commissioners spoke to
earlier.
The difficulty arises based upon the old blocks of
business, and we understand this better than anybody because we
were one of the first out there. The evolution of the industry,
the ability to monitor what is happening with new trends, the
payment of assisted living facilities.
Mr. Walden. Right.
Mr. Waite. It used to be that a claim could go 2\1/2\
years. Today it can go 20 years. That was never contemplated
and to the extent a company like ours honors that as part of
the policy, that becomes very problematic.
Mr. Walden. And I know we have to wrap this up. Do you all
agree with that? Do you all share the same view?
Mr. Wells. We agree.
Mr. Stinson. I will just add I think it is----
Mr. Walden. I am not sure your mike is on.
Mr. Stinson. It is on. I will just move it closer.
Mr. Walden. There you go. Thank you.
Mr. Stinson. I think it is important for the Committee to
understand the single largest driver of the financial
performance on those older blocks dealt with one assumption,
which was the voluntary lapse expectation.
Mr. Walden. What does that mean?
Mr. Stinson. Meaning the assumption that we build in that
says consumers are going to voluntarily stop paying premiums.
Mr. Walden. I see.
Mr. Stinson. Which would terminate the policy. In the
products that were built in the '70s and '80s, that expectation
was for our business around 5 percent. The actual experience we
have seen is only 1 percent.
Mr. Walden. Wow.
Mr. Stinson. And so the products that we sell and have sold
for the last 5 to 10 years really have radically dropped that
rate. The product we sell today has a 1 percent voluntary lapse
rate assumption.
Mr. Walden. How does that compare just real quickly to life
insurance policies? What is the voluntary drop rate there?
Mr. Stinson. Health insurance would be 10, 15 percent or
higher.
Mr. Walden. OK. And life insurance?
Mr. Stinson. Life insurance would probably be as well high,
single digits.
Mr. Walden. OK. Thank you very much, Mr. Chairman, and I
want to thank our panelists.
Mr. Stupak. Let me just follow up on that. If your
retention rate was 99 percent, only 1 percent drop, and then
does that justify large increases in premiums then to bring
those more expensive, older policies to be able to pay them?
Mr. Waite, your company asked for a 73 percent increase on
one. I think, Mr. Wells, you guys had 30 to 50 percent. It
seems like, since you have a larger retention rate, you have to
make up the money because you were under-priced to begin with.
Right?
Mr. Wells. That is part of the issue. The older, on the
older policies where the lapse rate that was being discussed is
lower, there are claims, more claims. So since the claims in
the future are higher, that drives some of the pricing issues
that we have had as an industry.
Mr. Stupak. Well, if you don't get your increase, let us
say it goes up 20 percent, if your rate goes up, pumps like 20
percent, do people start dropping off then? Is that one of the
reasons----
Mr. Wells. That could be one result that policyholders
because of the increases are dropping off.
Mr. Stupak. Mr. Pomeroy, do you have a quick question? We
only have a few minutes left on the floor, and we will----
Mr. Pomeroy. Right. I will be quick, and thank you again
for your courtesy.
Mr. Wells, what percentage of the book, what percentage of
business on your books was acquired through acquisition versus
direct writing?
Mr. Wells. We have right now with Conseco about 150,000
policies, and with Bankers about 350,000 policies in force.
Mr. Pomeroy. So what percentage did you write? What
percentage did you buy books of business from other writers?
Mr. Wells. With Conseco Senior those were all acquisitions.
Bankers is the organically grown block.
Mr. Pomeroy. So you have about three-to-one ratio of
policies acquired versus policies written.
Mr. Wells. Policies acquired one-to-three, three-to-one.
Bankers. The organically grown business is three to----
Mr. Pomeroy. And you just spent all this time talking about
the identified problems with the older books of business, but
you were acquiring through acquisition, these older books, as
recently as the last few years. Isn't that correct?
Mr. Wells. Right. We----
Mr. Pomeroy. What was the business plan? How in the world
were you going to make that work when everyone knew these were
bad books of business?
Mr. Wells. Well, there were some problems identified
actuarially as the business----
Mr. Pomeroy. Did you just fail to do due diligence, or was
it your intention to simply bring into the mother ship some of
the same flawed practices of rating and claims denial you saw
with these little companies you were buying up?
Mr. Wells. No, sir. That was not our intent.
Mr. Pomeroy. Did you enter a consent agreement with the
Commissioners for $10 million contingent fine?
Mr. Wells. Well, sir, the fine with the multi-state exam
was 2.3 million for 42 states that is now entered into the
agreement. If we don't perform claims and complaint handling
appropriately, the back end fine could be $10 million.
Mr. Pomeroy. So you paid $2.4 million. It could go up to
$10 if you don't dramatically change the identified conduct?
Mr. Wells. Absolutely and----
Mr. Pomeroy. I would say that I have never in my experience
heard of fines approaching this level. I believe that you have
disgraced, your company has disgraced the whole notion of long-
term care insurance and a lot of good work a lot of people have
tried to do. I feel a sense of personal embarrassment that the
regulations that I helped develop allowed a company like yours
to operate in the way that it did. I would hope that my
successors in office, these Insurance Commissioners, have
identified the problems and are working with you to make it
right.
This study group that you talk about, I talked to them in
May of '07. Here we are in the summer of '08, and you are still
contemplating third-party claims examination. All the rest of
it to me is still a very long way to go to write an
extraordinarily unacceptable company track record relative to
this business.
I am sorry our time is up. You deserve a chance to respond.
Certainly can put one in the record, but the Chairman and I
have to run and vote.
I yield back, Mr. Chairman. Thank you.
Mr. Stupak. Well, thank you, Mr. Pomeroy, and thanks to the
witnesses. We could keep you on hold for 40 minutes, but that
probably wouldn't solve anything here. So we have four votes,
and two of them are 15 minutes, so we would be at least 40, 45
minutes.
So I am going to let you go. Thank you very much for being
here. We may follow up with some written questions. That
concludes all the questioning. I want to thank all of our
witnesses for coming today and for your testimony.
I ask unanimous consent that the hearing record will remain
open for 30 days for additional questions for the record.
Without objection, the record will remain open.
I ask unanimous consent that the contents of our document
binder be entered in the record.
Without objection, the documents will be entered into the
record.
That concludes our hearing. Without objection, this meeting
of the subcommittee is adjourned.
[Whereupon, at 2:35 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
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