[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]




                               BEFORE THE


                                 OF THE

                        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





                               BEFORE THE


                                 OF THE

                        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


58-423                    WASHINGTON : 2008
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                  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
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


              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 


                             C O N T E N T S

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


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



                        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.


    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 
    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 
    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.


    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.


    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.


    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.


    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 
    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 
    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.


    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 
    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 
    So with that, we will start with you, Mrs. Burns, if you 
would begin with an opening statement.


    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.


    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 
    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 
    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 
     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 
     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 
    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 
     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 
    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 
    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 
    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 
    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 
    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 
    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.
    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.


    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 
    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 
    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.


    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 
    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.


    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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, 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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.


    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 
    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 
    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


    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.
    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 

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 
    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 

                          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 
    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 
    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.

                      INSURANCE DEPARTMENT

    Mr. Dinallo. Thank you, Mr. Chairman, and Ranking Member 
    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.


    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 
    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 
    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.


    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 
    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.
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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. 
    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 
    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 
    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 
    So but it does really trigger off the State licensing 
standards, which differ, as you know, throughout all the 
    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 
    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 
    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?

                           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 
    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.


    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 
    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 
    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 
    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 
    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.

                         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 
    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.


    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 
    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 
    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, 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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. 
    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 
    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 
    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 
    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 
    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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