[Senate Hearing 111-180]
[From the U.S. Government Publishing Office]
S. Hrg. 111-180
BOON OR BANE? EXAMINING THE VALUE OF LONG-TERM CARE INSURANCE
=======================================================================
HEARING
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC
__________
WEDNESDAY, JUNE 3, 2009
__________
Serial No. 111-7
Printed for the use of the Special Committee on Aging
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
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SPECIAL COMMITTEE ON AGING
HERB KOHL, Wisconsin, Chairman
RON WYDEN, Oregon MEL MARTINEZ, Florida
BLANCHE L. LINCOLN, Arkansas RICHARD SHELBY, Alabama
EVAN BAYH, Indiana SUSAN COLLINS, Maine
BILL NELSON, Florida BOB CORKER, Tennessee
ROBERT P. CASEY, Jr., Pennsylvania ORRIN HATCH, Utah
CLAIRE McCASKILL, Missouri SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island LINDSEY GRAHAM, South Carolina
MARK UDALL, Colorado
MICHAEL BENNET, Colorado
KIRSTEN GILLIBRAND, New York
ARLEN SPECTER, Pennsylvania
Debra Whitman, Majority Staff Director
Michael Bassett, Ranking Member Staff Director
(ii)
C O N T E N T S
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Page
Opening Statement of Senator Herb Kohl........................... 1
Opening Statement of Senator Mel Martinez........................ 2
Panel I
Statement of Diane Rowland, Sc.D., Executive Vice President,
Henry J. Kaiser Family Foundation, Executive Director, Kaiser
Commission on Medicaid and the Uninsured, Washington, DC....... 5
Statement of Sean Dilweg, Insurance Commissioner, Wisconsin
Insurance Commission, Madison, WI.............................. 21
Statement of Carol Cutter, Chief Deputy Commissioner, Health and
Legislative Affairs, Indiana Department of Insurance,
Indianapolis, IN............................................... 43
Statement of Thomas Stinson, President, Genworth Long-Term Care,
Genworth Financial, Richmond, VA............................... 48
Statement of Bonnie Burns, Training and Policy Specialist,
California Health Advocates, Scotts Valley, CA................. 63
APPENDIX
Sean Dilweg Responses to Senator Mel Martinez Questions.......... 99
Carol Cutter Responses to Senator Mel Martinez Questions......... 101
Letter from Genworth Financial................................... 103
Letter from HCR Manor Care....................................... 106
(iii)
BOON OR BANE EXAMINING THE VALUE OF LONG-TERM CARE INSURANCE
---------- --
WEDNESDAY, JUNE 3, 2009
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The Committee met, pursuant to notice, at 2 p.m. in room
SH-216, Hart Senate Office Building, Hon. Herb Kohl (chairman
of the committee) presiding.
Present: Senators Kohl [presiding], and Martinez.
OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN
The Chairman. Good afternoon, and we thank you all for
being with us today.
In March, this committee heard from experts, including
Senator Kennedy, who all agree that reforming our long-term
care system is a necessary part of reforming the entire
healthcare system.
With America aging at an unprecedented rate, and with the
high and rising costs of caring for a loved one, the financing
of long-term care must be addressed if we are going to get
healthcare costs under control.
Today we're going to examine one way families can finance
their long-term care costs, namely through long-term care
insurance. We all know that long-term care is expensive, with
the cost of an average nursing home now nearly $70,000 a year.
However, according to the Congressional Research Service,
most Americans do not realize that Medicare offers only limited
home health services, and Medicaid will not cover long-term
care costs unless household savings are nearly entirely
depleted.
States share the responsibility of providing Medicaid
funding for long-term care with the Federal Government and are
also looking for ways to reduce their expenses. As of today, 43
States are in the process of launching Partnership programs
which provide incentives to consumers who purchase private
long-term care insurance.
But in the rush to ease the burden of long-term care costs
on State budgets, we fear that some key concerns are being
overlooked. We have a duty to make sure that these policies--
which may span decades--are financially viable. Several long-
term care insurance providers have applied for TARP funds in
recent months, raising questions about their solvency.
In addition, many insurance companies have been raising
their policyholders' monthly premiums, which can be devastating
for older persons who are living on fixed incomes.
The committee is aware of instances in which Americans
living on modest, or fixed, incomes who have held policies for
many years, have seen premium rates double when a company
encounters financial difficulties. For such consumers, the
choices are stark, and very limited. They can either dig
deeper, and pay the increased premiums, or let their policy
lapse, leaving them with no coverage if they ever need care.
Last year I was joined by several Senate and House
colleagues in releasing a GAO report on whether adequate
consumer protections are in place for those who purchase long-
term care insurance. The report found that rate increases are
common throughout the industry, and that consumer protections
are not even.
While some States have adopted requirements that keep rates
relatively stable, some have not; leaving consumers--in many
cases--unprotected. This afternoon, we will discuss how we can
best protect these policyholders. We need to ensure that
premium increases are kept to a minimum, insurance agents
receive adequate training, and complaints and appeals are
addressed in a timely manner.
We should also make it easier for consumers to accurately
compare policies from different insurance carriers,
particularly with regard to what benefits are covered, and
whether the plan offers inflation protection. States should
also have to approve materials used to market Partnership
policies.
Today I will introduce, with Senator Wyden, the Confidence
in Long-Term Care Insurance Act of 2009, which calls for many
of these improvements. It's estimated that two out of three
Americans who reach the age of 65 will need some long-term care
services and support at some point to assist with day-to-day
activities, and which can enable them to maintain a high-
quality and independent life.
Long-term care insurance is an appropriate product for many
who wish to plan for a secure retirement. But until we can
guarantee that consumers have adequate information and
protections, and ensure that premiums will not skyrocket down
the road, long-term care insurance is not ready to be a major
part of the healthcare reform solution.
So, we thank all of today's witnesses to being here.
We look forward to your testimony, and we now turn to the
ranking member for his comments.
Senator Martinez.
OPENING STATEMENT OF SENATOR MEL MARTINEZ, RANKING MEMBER
Senator Martinez. Mr. Chairman, thank you very much, and
good afternoon to you, and I want to thank all of the panel
members for being here with us today.
Of many factors that Americans consider when planning their
personal and financial future--their income, health, housing
security, leisure time and emergencies--the one factor that's
often overlooked is the plan for long-term care.
Currently the number of seniors requiring long-term care is
on the rise. The Department of Health and Human Services
estimates that today about 9 million men and women over the age
of 65 are in need of long-term care. By 2020, that number will
be close to 12 million, underscoring the need for more personal
and public resources dedicated to providing seniors with long-
term care options.
The common barrier is cost. In Florida, for example, a
private room in a nursing home costs more than $70,000 per
year, and a home health aide costs more than $40,000 per year.
These expenses could cause a person to quickly deplete their
finances, and become dependent on Medicaid.
Many seniors rely on family for their care. Oftentimes
these caregivers are baby boomers, including those with
children, who have been hit hard by recession. As a result, it
has become increasingly difficult for them to afford the
expenses associated with providing care.
Many are surprised to learn that Medicare only pays for
very limited long-term care services. Medicaid is the largest
source of public financing for long-term care. But with family
and public funding sources stretched, due to the economic
downturn, Congress must look to other options.
Personal planning, like purchasing long-term care insurance
policies, offers a viable way to save seniors' assets and
reduce the burden on States and the Federal Government.
Presently, only about 10 percent of seniors have chosen to
purchase this kind of financial backstop. To encourage more
Americans to purchase long-term care insurance, the Federal
Government--in 1996--joined States in the Long-Term Planning
Partnership Program. The program offers enhanced long-term care
insurance products in conjunction with Medicaid as a form of
re-insurance. This approach offers protection for consumers,
while also saving the State money. This model is promising, and
may become an integral part of building our nation's long-term
care system.
But the Partnership Program in long-term care insurance, in
general, is a relatively recent innovation, and it's still
virtually unknown to most Americans.
But as this industry continues to evolve, States should
determine whether private long-term care insurance is
sufficient to help each individual afford long-term care. State
insurance commissioners are in an important position to protect
policyholders, and make sure premiums are fair, and will
translate into future benefits. In my view, this is an issue
that should continue to be addressed at the State level.
Today we'll be hearing from our panelists on the benefits
and challenges facing long-term care insurance policyholders,
and providers.
So, I look forward to hearing the testimony from all of the
witnesses, Mr. Chairman. I thank you for calling this hearing
and very timely issue.
I also should let you know that I have a second hearing
that's started in about--or will start--in a few minutes, so I
may have to excuse myself at some point, but it's very good to
see all of you, and thank you for being here.
The Chairman. Thank you very much, Senator Martinez.
I will introduce our witnesses today. First we will be
hearing from Dr. Diane Rowland. She's the Executive Vice
President of the Kaiser Family Foundation, and the Executive
Director of the Kaiser Commission on Medicaid and the
Uninsured.
Dr. Rowland is also an adjunct professor in the Department
of Health Policy and Management at Johns Hopkins University's
School of Public Health. She is a noted authority on health
policy, Medicare and Medicaid, and health care for poor and
disadvantaged populations.
Next we will be hearing from Sean Dilweg, the Insurance
Commissioner for the State of Wisconsin.
Commissioner Dilweg is also an active member of the
National Association of Insurance Commissioners, where he is
chair of their Consumer Affairs Committee, and Senior Issues
Task Force.
Prior to this appointment as Insurance Commissioner, Mr.
Dilweg served as the Executive Assistant to the Secretary of
the Wisconsin Department of Administration. We welcome you here
today, sir.
Our third witness will be Carol Cutter, the Chief Deputy
Commissioner of the Indiana Insurance Department.
In that role, she oversees the Indiana Long Term Care
Partnership Program, the Indiana CHP program for Medicare
recipients, the Indiana small employer voluntary reinsurance
pool program, the mandate benefit task force. Prior to joining
the Indiana Insurance Department, Ms. Cutter spent 30 years in
the insurance industry.
Our fourth witness today will be Thomas Stinson, the
President of the Insurance Products Retirement and Protection
for Genworth, the nation's largest provider of long-term care
insurance policies. He is responsible for product development
and the management of Genworth's life, long-term care, and
annuity products.
Mr. Stinson previously served as President of Genworth's
long-term care business, and as President of GE Financial's
Personal Financial Services organization. He currently serves
on the Board of America's Health Insurance Plans, and the
National Commission for Quality Long-Term Care.
Finally, we'll be hearing from Bonnie Burns, the training
and policy specialist for California Health Advocates. She has
more than 25 years of experience in Medicare, Medicaid
Supplement Insurance, and long-term care insurance. She has
served as a consumer representative with the National
Association of Insurance Commissioners. In addition, Ms. Burns
has served on Advisory Committees of the California Department
of Aging, Department of Insurance, as well as the several
advocacy organizations that address long-term care insurance
issues. We welcome you here today.
We'll delighted to take your testimony, and we'll start
with you, Diane Rowland.
STATEMENT OF DIANE ROWLAND, SC.D., EXECUTIVE VICE PRESIDENT,
HENRY J. KAISER FAMILY FOUNDATION, EXECUTIVE DIRECTOR, KAISER
COMMISSION ON MEDICAID AND THE UNINSURED, WASHINGTON, DC
Dr. Rowland. Thank you, Chairman Kohl, and Senator
Martinez, for this opportunity to be with you today to
participate in this hearing on long-term care. My testimony
today will focus on how our nation currently finances long-term
care services, and the key challenges to building a broader
role for private health insurance in that market.
I think it's particularly important to note that over 10
million Americans, or almost 5 percent of our adult population,
need long-term care services and supports to assist them in
their daily activities.
Although the majority of the individuals who receive long-
term care services are aged 65 and above--and I know that is
the focus of this Special Committee on Aging--42 percent of the
individuals needing long-term care are people with disabilities
and chronic illness under age 65. I think we need to bear that
in mind as we look for solutions, since they are so much as
part of our long-term care challenge.
Many people who need long-term care rely primarily on
unpaid help from family and friends in the community, but
paying for long-term care services is expensive, and can
quickly exhaust lifetime savings, especially if institutional
care is required. With nursing home care averaging $70,000 a
year, assisted living facilities averaging $36,000 per year,
and home health services averaging $29 per hour, very few
people can afford these services for very long. The cost of
these services often exceeds individuals' ability to pay for
their care.
While most long-term care services and support, including
extended stays in nursing home, are not covered--as you've
noted--by Medicare, few people have private health insurance to
help pay for their nursing home stays.
Medicare does, in fact, help to fill the gaps for many of
the elderly and people with disabilities who need long-term
care, but as we all know, to qualify for assistance,
individuals must have limited income, and meet stringent assets
tests.
Unlike insurance for healthcare services, private insurance
for long-term care is still a very limited option for financing
care. Private long-term care insurance is primarily offered
through the individual market, and has been offered only as a
limited part of employer-sponsored insurance. When it has been
offered by employees, the take-up rates have been exceedingly
low.
Insurance carriers say they have sold about 10 million
long-term care insurance policies since 1987. Of the 6 to 7
million of these that remain current, the industry sold about 4
million through individual agents, and slightly more than 2
million through employers or group coverage--quite a different
picture than that within our healthcare system.
In assessing the potential, therefore, for broader
application of private long-term care insurance in the
financing mix for long-term care, it is important to highlight
questions such as, how adequate is the coverage from these
policies? How well does the market work? What protections are
in place for consumers, and what transparency is offered?
We have reviewed many of these questions and challenges
around coverage and financing of long-term care in a report
which we released today, and have included with our testimony,
called Closing the Long-Term Care Funding Gap, the Challenge of
Private Long-Term Care Insurance, and we've submitted that for
the record.
Our principal findings in this report continue to focus on
key challenges as we move forward to try and broaden this
market.
One, cost is a significant barrier for expanding the role
of private long term care insurance. Many who will ultimately
need long-term care insurance don't have the resources to pay
the premiums, especially over a lifetime.
Health risks can deny consumers the coverage that they
need. Before purchasing insurance, most consumers must undergo
a detailed health screening and evaluation to determine their
insurability and risk rating. For people with disabilities,
this makes this coverage out of the question.
Buyers also face very complex product design issues that
are very difficult for them to fathom and to make realistic
judgments about where they ought to be getting their care, or
how. So, broader transparency and more help in figuring out the
differences between policies and the pros and cons for
individuals are required.
A significant problem is the time lag between the purchase
and use of benefits, and the kind of coverage that people are
picking when they would be signing up for the coverage. So, we
really need to look at how to make good decisions 20 to 30
years before the purchased insurance product is used.
Finally, we don't have much of an employer-based market,
here, although that offers promise. As we look at employer-
based coverage for health insurance being scaled back and as we
look at the erosion of retiree benefits, we have some real
challenges in trying to build more of such coverage into the
employer-based market.
So, as the Nation faces a growing elderly population, the
potential for substantial increase in people in need of
assistance with long-term care, it is important that we move
now to address how to structure and pay for the long-term care
services that will be required.
If long-term care insurance is to become more available and
utilized, the limitations of the current private long-term care
insurance market should be examined and addressed as part of
creating a broader market.
Many of the concerns that have led to the current health
reform efforts, focusing on the need for regulation and changes
in the individual health insurance market, apply equally to the
current long-term care insurance market--most notably its high
administrative costs, unaffordable premiums, exclusions based
on health status, its complexity and lack of comparability
across plans.
With revisions to these plans, private long-term care
insurance could play a broader role in the long-term care
financing mix. However, given the substantial role already
played by Medicaid, and the limited applicability of long-term
care insurance for the non-elderly disability population, the
potential for private long-term care insurance, even reformed,
to finance our future long-term care needs should not be
overstated.
Thank you very much for your time and your consideration.
[The prepared statement of Dr. Rowland follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you so much.
Now, we'll hear from Sean Dilweg.
STATEMENT OF SEAN DILWEG, INSURANCE COMMISSIONER, WISCONSIN
INSURANCE COMMISSION, MADISON, WI
Mr. Dilweg. Thank you, Chairman Kohl and Ranking Member
Martinez. Thank you for the opportunity to testify concerning
the regulation of long-term care insurance. I appreciate you
holding this hearing today in an effort to highlight the long-
term care insurance and the complex issues related to it.
Long-term care insurance has proven to be a very
challenging product to regulate. Setting this product apart
from other lines of insurance is the span between the purchase
of long-term care insurance and when that person actually needs
coverage for the services.
Products currently for sale will provide coverage for
services in most cases 10 to 15 years down the road. Regulators
are in the unique position of reacting to decisions consumers
and industry made 15 years ago, while also facing the challenge
of ensuring policies purchased today provide meaningful
coverage in the next 15 years.
State regulators have three main priorities in regulating
these products. First, ensuring the solvency of the companies
offering the long-term care policies so that companies can pay
the claims for the policies they have sold.
Second, ensuring that sufficient consumer protections are
in place so that the premiums are relatively stable over the
life of the policy, and consumers receive the benefits promised
to them in a timely manner.
Third, ensuring that all long-term care insurance sales are
done in an appropriate and suitable manner.
The first, solvency, is one of the most important
responsibilities of the State insurance regulator; it's to
ensure the solvency of the company that is doing business in
the market. Over many years, State insurance regulation has
developed a solvency regulatory system grounded in each of the
States, and coordinated through the National Association of
Insurance Commissioners. This has served insurance consumers
well.
It is my responsibility, as the insurance regulator of
Wisconsin, to ensure insurance consumers are protected from
poor business decisions made by those few companies so that
obligations under their insurance contracts are fulfilled. This
preventative approach to regulation--early detection of
potential financial difficulty--is by far the best way to
achieve this goal.
So, to that end, State insurance regulators have developed
a very sophisticated financial analysis system, along with an
insurance company financial database that is second to none.
Many of the problems we see today are the result of older
long-term care policies sold when there were insufficient
regulations in place to address these problems. Today, the
regulatory structure of long-term care insurance has evolved,
and the market seems to have stabilized. The newer long-term
care policies are sold at a more realistic, and thereby more
suitable, price.
In identifying the stabilization of premium, some insurers
in the nineties priced primarily for market share, and offered
the least expensive policies available. However, when claims
started to come in beyond what they priced for, these insurers
had to raise their prices to cover the claims.
In some instances, significant price increases were
imposed. In fact, some insurers dropped out of the market
entirely by selling their business to other long-term care
insurers, while others simply stopped issuing new policies.
Finally, a few companies became financially hazardous, and more
drastic regulatory action was taken to protect the
policyholders.
Recognizing the problem of underpricing early on, State
insurance regulators, working through the NAIC, developed rate
stability standards and protections against premium increases.
Examples include requiring insurers to actuarially certify that
the rates they file will not--under moderate conditions--
increase over the life of an insurance policy. If premiums rise
above a given level based on the age of policyholders, for a
majority of policyholders, the company is required to file a
plan for improving the administration and claims processing.
If an insurance commissioner believes that a rising rate
spiral exists, he or she may require a company to offer
policyholders affected by the premium increase the option to
replace their existing policies with comparable ones being
sold.
As a last resort, the Commissioner can determine that a
company has persistently filed inadequate initial premium rates
and may ban the company from the long-term care insurance
marketplace for up to five years.
The question of suitability has always been an issue with
these products. In response to suitability concerns, many
States in the NAIC developed suitability standards, and
processes, to minimize unsuitable sales of long-term care
insurance policies. In the State of Wisconsin and with many
other States, we always emphasize never to buy long-term care
insurance in a vacuum. It should be part of a much larger look
at your retirement needs.
As we move forward, State regulators will continue to
carefully monitor the market. Just last year, the Senior Issues
Task Force at NAIC did a data call of 83 percent of the market,
which included 23 of the largest individual long-term care
insurers. This survey indicated that the long-term care
insurance market has shown some growth, especially with regard
to comprehensive coverage products that provide insurance for
both institutional and non-institutionally based care.
The data also showed that claims handling problems--
although increasing in absolute numbers--currently do not
appear to be statistically significant. We did convene a
subgroup that is working on an independent review model that
would provide the consumer with a very good tool--when they
face claim problems--that triggers an independent review of the
claim before them.
As we look at the other issues surrounding long-term care
insurance, we feel--I feel--that the Federal Government can
play a role. You have control over the tax-qualified long-term
care insurance policies, and there is also the Long-Term Care
Insurance Partnership Program.
As I look at the bill that you've introduced today, I think
it's appropriate that the Secretary of Treasury, and the
Secretary of the Department of Health and Human Services review
all subsequent amendments to the NAIC long-term care insurance
models to determine whether they should be required for tax-
qualified and partnership policies. I appreciate that your bill
sets forth a process for accomplishing a number of these goals.
You also recognize the value of State regulatory authority
over long-term care insurance as well as the significant impact
of NAIC models developed in collaboration with all of the
interested parties.
I know the NAIC will look forward to reviewing your
proposal much more closely as it moves forward. Thank you for
the time.
[The prepared statement of Mr. Dilweg follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you very much, Mr. Dilweg. We'd like to
hear now from Ms. Cutter.
STATEMENT OF CAROL CUTTER, CHIEF DEPUTY COMMISSIONER, HEALTH
AND LEGISLATIVE AFFAIRS, INDIANA DEPARTMENT OF INSURANCE,
INDIANAPOLIS, IN
Ms. Cutter. Thank you, Chairman Kohl and Ranking Member
Martinez. I appreciate the opportunity to speak today about
regulation of long-term care insurance in terms of what
Indiana's experience has been.
As you know, Indiana was one of the original four
Partnership States that were established back in the early
nineties to allow folks to buy long-term care policies and
protect their assets from Medicaid recovery if they did exhaust
the benefits of their policies.
That was implemented under then-Governor Evan Bayh who, I
understand, is a member of your committee. Obviously, there was
a need for some self-responsibility for those persons who could
afford to take care of their own expenses for either long-term
care at home, or in an assisted living facility, or in a
facility of some sort.
I believe that's why we had that program implemented, was
to encourage folks to do that, knowing that those who can't
afford to protect themselves against those sorts of expenses
are the ones who should have access to the Medicaid funding
that the Federal Government does provide.
In Indiana, our Partnership experience has been very good.
During the 16 years that we've sold these policies, we've
written over 45,000 of them. We've only had about 72 complaints
during that 16 years, either on a rate increase, or on a claim
issue of some sort.
I'm sure there's all types of anecdotal information out
that you've already heard about problems that folks have had
with claims with long-term care. But I want to assure you, at
least in Indiana, our long-term care claims are not as serious
in terms of consumer complaints, as many of the other types of
insurance products that we sell in the State, like auto
insurance or homeowners' insurance.
So, we believe that relative to the marketplace there,
we're doing a really good job. Obviously we would like to
encourage self-responsibility in Indiana. We're going to
conduct a massive marketing campaign this fall for consumer
awareness, because we believe that private insurance is a
tremendous option to have in terms of allowing people to
protect themselves from these--they can be very terrible--
expenses to which you've already alluded.
In general, Indiana supports the long-term care model
regulation that the NAIC has developed. There are multiple
features of that model that we believe would be helpful in
terms of disclosure requirements, possible standardization,
standards for marketing, that sort of thing.
But there is a concern that we have about the rate
stabilization piece that comes from our health actuary, who has
had multiple years of experience with health insurance products
of all types, actually worked here at the Federal level back in
the seventies for what was then called the Health care
Financing Administration, and is now at CMS. He was the
director of the division for actuarial creation of Part A and
Part B of Medicare.
He served in several other departments of insurance, and
he's worked for private consulting firms like Deloitte, so I
value his expertise and his counsel on this particular piece of
the model as it concerns rate stabilization.
Currently, in Indiana--as in most States that follow any
sort of standards that have been established by the NAIC--we
have what is called a 60 percent loss ratio standard.
This means that before an insurer, such as Genworth, can
come to us and ask for a rate increase, they have to prove to
us that they have spent 60 cents, or more, out of every dollar
that they've collected in premium for claims over the lifetime
period of that policy, however many years that policy form
itself has been sold. Until they do that, they can't even ask
for a rate increase.
A lot of the actuarial information that we're getting from
carriers now is what we call very highly assumptive driven. For
instance, they could say, ``We've had this particular policy on
the marketplace for the last 12 years. We are now at a 79
percent loss ratio, which means we qualify to ask for a rate
increase, because we're over the 60 percent threshold. Based
upon that 79 percent loss ratio, we predict that over the next
20 years, or the next 10 years, or the next 15 years, we're
going to have similar loss ratios, because of that same
percentage increase in terms of claims that we're going to pay
out. Therefore, we deserve to have a larger rate increase.''
Our concern is, that under NAIC's rate stabilization model,
Indiana's ability to control that would be taken away. There is
an exceptional increase provision in here that says if I, as an
insurer, can actuarially prove to you, the Department of
Insurance, that we have a 70 percent loss ratio, then with
those certain attestations, I'm automatically going to be
allowed to have that.
We very carefully scrutinize our rates that come into our
Department--for all of our products--but particularly for long-
term care. We hold carriers--if they have been sitting for four
or five years and have had incurred claims that put them into a
deficit ratio on their dollars, then our question to them is,
why didn't you do something about it sooner? We don't allow
them, necessarily, to have the 40 or--well, we never approved a
40 percent increase, we just don't do it--because we believe
the consumer needs to be protected so that they can continue to
have the protection of that product, and we're not going to
benefit the company because of any mismanagement or poor
decisions on their part in terms of pricing.
It's our opinion that, under this model, we would lose the
ability to behave that way, and that concerns us.
Thank you, Senator.
[The prepared statement of Ms. Cutter follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you so much, Ms. Cutter.
Mr. Stinson.
STATEMENT OF THOMAS STINSON, PRESIDENT, GENWORTH LONG-TERM
CARE, GENWORTH FINANCIAL, RICHMOND, VA
Mr. Stinson. Thank you, Chairman Kohl and Senator Martinez,
for giving me the opportunity to testify today on behalf of
Genworth Financial.
Genworth provides retirement income, life, long-term care,
and mortgage insurance coverage to over 15 million customers in
25 countries. As one of the pioneers of long-term care
insurance, we have become a leader in the industry, providing
services to over 1.3 million policy holders.
Today, I'd like to speak to you on the following four
topics of interest to the committee. Our insurance offerings,
including the State Long Term Care Partnership Program; our
framework for financial stability; Genworth's views on the
intersection of healthcare reform and long-term care financing;
and last, some brief comments on our support the legislation
proposed by the Chairman.
Long-term care insurance is important for several reasons.
It generally provides peace of mind to policyholders and their
families. For many Americans, it also represents a critical
part of a sound retirement plan, providing quality care and
care coordination services, and preserving funding sources for
future family needs.
The public/private State partnerships for long-term care
are a joint solution, positioning private insurance as the
primary payer of long-term care expenses. This program is
helping consumers receive needed care, and at the same time
allowing States to achieve cost savings to alleviate the
already strained Medicaid system.
In fact, the fundamental premise of the Partnership Program
works--2009 data indicate that only 1 in 1,000 Partnership-
qualified policyholders exhausted the full benefits of their
insurance policy, and accessed Medicaid. That means private
insurance can be used to preserve and protect the viability of
Medicaid.
As these Partnership Programs have now expanded to 30
additional States, we know that most purchasers are from
middle-income families. This portion of the population is
unlikely to have the considerable assets necessary to self-
finance their long-term care needs, but wants to maintain a
modest level of assets while receiving quality services.
In addition to the State Partnership Programs, we are proud
to participate in the ``Own Your Future'' public awareness
campaign. The campaign helps to educate millions of Americans
about the importance of advance planning for their own long-
term care needs. We strongly encourage this committee to
continue the support of this very important public education
and awareness campaign.
Next I would like to discuss the risk management framework
that Genworth uses to maintain our financial viability. As the
largest and oldest long-term care insurer in America, we take
seriously our responsibility to remain strong financially, and
to fulfill our commitment to our policyholders. We do so by
managing our company within a responsible risk management
framework.
In fact, it has allowed us to pay out over $6.5 billion in
long-term care claims for care in nursing homes, assisted
living facilities, and in the home. Genworth pays over 95
percent of all of the long-term care insurance claims
submitted.
Turning to the intersection of healthcare reform and long-
term care financing we believe it is essential that we
differentiate acute care from long-term care. Studies show that
every American will need acute care during their lifetime,
while only half of Americans will need some form of long-term
care. So, in exploring policy solutions, a universal solution
may be appropriate for acute care, while we believe a more
targeted approach would be more prudent for long-term care.
For example, wealthy and many middle-class Americans can
either self-finance or purchase private long-term care
insurance. Meanwhile, the most vulnerable will be protected by
Medicaid. This leaves a fourth, or tip-over portion of the
population; they are the segment of the population that has
limited income, and thus generally can not include long-term
care planning in their overall retirement strategy.
But they can be reached by a targeted program similar to
the State Partnership Program, helping them avoid spending down
their assets and tipping into Medicaid.
Finally, Mr. Chairman, we commend you on proposing the
``Confidence in Long Term Care Act of 2009,'' legislation that
supports consistency of oversight, transparency of information,
and ensures the protection of our senior population will
provide greater confidence and encourage families to
proactively plan for their long-term care needs.
We stand ready to work with you as it moves forward in
Committee. Thank you very much.
[The prepared statement of Mr. Stinson follows:]
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The Chairman. Thank you very much, Mr. Stinson.
Finally, Bonnie Burns.
STATEMENT OF BONNIE BURNS, TRAINING AND POLICY SPECIALIST,
CALIFORNIA HEALTH ADVOCATES, SCOTTS VALLEY, CA
Ms. Burns. Thank you, Chairman Kohl, and thank you, Ranking
Member Martinez, for giving me the opportunity to testify at
this hearing today. We appreciate the committee's interest in
protecting consumers, and increasing the quality of long-term
care insurance products.
As you noted, Senator Kohl, long-term care is
unpredictable, expensive, uncoordinated, and not integrated
with the healthcare system. As part of health care reform we
would like to recommend that seniors, elders and people with
disabilities, should have a seamless transition to long-term
care services, coordination with medical care, and a support
system to help them find and access the services that are best
suited to their needs.
Long-term care insurance pays for a very expensive kind of
care that over half of all people 65 and older may need at some
point during their lifetime. So, it's not unreasonable to
expect that insurance coverage for this kind of care would be
expensive as well.
However, competition for this product often depends more on
the size of a premium than on the actual benefits, because
these products are so difficult to compare with each other.
Many policymakers believe that if long-term care insurance were
more widely spread, it would result in substantial Medicaid
savings, but we won't know if that's true for many years. In
the meantime, Medicaid savings will be part of every marketing
effort to sell this type of product.
Long-term care insurance is a niche product; poor people
can't afford it, and don't need it, while higher income people
can afford to transfer their risk to an insurance company if
they are in good health. But the middle class is most at risk
for spending down to Medicaid, and those individuals may pay
more in total premiums than they have in non-housing assets, or
than the benefits that they will receive. They may buy
insufficient benefits and build into a policy a larger co-
payment amount than they expect as the cost of care increases.
Failing to buy inflation protection will compound this
problem, leaving a consumer with only a small amount of their
future care covered by an insurance payment. Buying an
insufficient benefit, and failing to buy inflation protection,
are decisions that are made when the policy is purchased, and
often trades off the cost of those benefits for an affordable
premium.
Whether a policy will perform as expected decades later,
depends on the quality of the product purchased, whether the
policy benefits can keep up with inflation, or lose value each
year, whether the premiums consumers initially agreed to pay
remain stable over several decades, and whether the individual
still has those benefits decades later when care is needed. If
the goal is to have more people buy a commercial product to pay
for long-term care and relieve pressure on State Medicaid
programs, then the benefits must cover a substantial amount of
the cost of care when it's needed.
A long-term care insurance policy is not without its own
risks. Recently a flurry of rate increases have been imposed,
including a pending rate increase for the long-term care
insurance program for the Federal family, and even by companies
that had never imposed one before.
Here are two examples: Mr. B.'s premium jumped from $1,874
annually, to $4,050. He has paid just short of $31,000 in
premiums during the last 11 years and he's now 80 years old.
Mrs. C. is also 80. She saw her annual premium jump to
$7,453.56. She has paid the company $47,309 in premiums during
the last 11 years. It remains to be seen whether the NAIC's
rate stability requirements will result in less premium
volatility in the future for consumers buying these products
today.
In the meantime, long-term care insurance policies will
continue to be marketed as level-premium products, with agents
telling consumers that their premiums can't be increased based
on their own age or health. While this is true, this misleads
consumers about the potential for future rate increases when a
company's claims experience is worse than expected, or their
investment goals are not met.
A Partnership program, in theory, allows consumers to
shelter certain amounts of their personal assets from the State
Medicaid program by buying a long-term care insurance policy
that protects one dollar of assets for each dollar of insurance
benefits paid out.
A 2007 report found that Partnership policies were mostly
purchased by upper-middle income and higher-income people who
were less likely to qualify for Medicaid. The majority of those
purchasers had assets greater than $350,000 and annual incomes
of $60,000 or more.
Insurance companies and their sales agents clearly have a
compelling and valuable marketing advantage with the
Partnership program. An insurance policy endorsed by the State
makes it instantly both more attractive and credible. Sales
opportunities for these products begin immediately while the
effect, if any, on State Medicaid programs will not be known
for many years.
Substantial numbers of older consumers can not qualify for
coverage because of their health, or they can't afford long-
term care insurance. Convinced that the high premium cost is
the greatest barrier to buying long-term care insurance,
companies often offer less expensive base policies to working-
age consumers in the group market with the cost of inflation
protection pushed out into future years through a guaranteed
future purchase option.
Seventy-two percent of group purchasers select a future
purchase option, an option that provides guaranteed
insurability to exercise this option later at higher attained-
age rates. This is also a limited option that can only be
rejected a few times before the offer expires completely.
Alarmingly, only 37 percent of the future purchase options
that were extended in 2008 to people with group coverage were
accepted, yet this option leaves consumers at risk of steadily
building an unaffordable co-payment liability that will come
due when they need care.
The Federal Government established a regulatory floor of
standards and consumer protections, first with HIPPA, and then
in the Deficit Reduction Act (DRA) for the Partnership
policies. Federal law could go further by requiring NAIC to
periodically review and incorporate the strongest standards and
consumer protections that are found in any State. Federal law
could establish a working group composed of regulators,
industry and consumer groups to incorporate those standards
into the NAIC models, and require a periodic Federal review to
decide when recent the NAIC standards should be incorporated
into Federal law. Such a process would capture the best of
State laws and enhance Federal law. I understand you've done
some of that in the bill that you're introducing today.
It's important to remember that long-term care insurance is
an investment not just in the product, but in the company
selling it. Making sure that adequate consumer protections are
in place will help ensure that insurance companies and their
products live up to their promises in the future.
Thank you for the opportunity to testify today on this
important topic.
[The prepared statement of Ms. Burns follows:]
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The Chairman. Thank you very much, Ms. Burns.
Dr. Rowland, what guarantee do consumers have that a long-
term care insurance policy purchased today will indeed deliver
the benefits for them 20 or 30 years from now?
Dr. Rowland. Well, I think you hit on, perhaps, the most
serious question in someone's decision to buy a long-term care
policy--and the ability to deliver on those benefits. The
guarantees of what our healthcare system--what our long-term
care system are going to look like in 20 or 30 years--are not
there. We don't know what kind of technologies will be
available, and what kind of other options individuals may want
to use, for their long-term care benefits.
So, I think one of the challenges, here, is really this
time lag between when you decide to purchase a long-term care
policy, and when you might use it. I think the guarantees are
extremely limited, and that's where consumer protection is
going to be very important.
The Chairman. So, I hear you saying that there really are
no concrete guarantees that--
Dr. Rowland. Well, no guarantees that the policies
purchased today will meet your needs when you need them, 20 to
30 years down the road.
Especially, there are problems if individuals can't
continue to pay their premiums. They may pay premiums for 10 or
12 years, and then have income limits and other problems that
prevent them from continuing, so that by the time they need
long-term care services, that policy may no longer be
guaranteeing them anything.
The Chairman. Do--anybody on the panel disagree with that?
I mean, it's a pretty basic question and we hear Dr. Rowland
with a very skeptical kind of an answer. What about you, Mr.
Dilweg?
Mr. Dilweg. I think it raises the major point, as Dr.
Rowland said. The issue, though, is, are there abilities to
look at new benefits throughout the life of the policy? The
problem that we're having with some of the older policies is
that they primarily were just locked into nursing home care,
and as we know, that has changed significantly. So, are those
options there? How do the various cost factors factor in?
But, I do think it shows, really, the shortcoming of the
product; we continually emphasize that you should not make this
decision in a vacuum. You might be better off, not necessarily
in the past four months, with a mutual fund, with money in
savings, or some other investment vehicles that may treat you
better in the future. So, do not make this decision in a
vacuum, and we continually emphasize that.
The Chairman. Mr. Stinson?
Mr. Stinson. Yeah, just a couple of other points I'd like
to add to the commentary.
One is, obviously, I have a contractual obligation to the
policyholder to fulfill all of the benefits that are in that
contract. As Mr. Dilweg pointed out, the policies that we sell
today provide significantly more flexibility in terms of how
the benefits can be paid and where they can be paid. Policies I
sold from the mid-seventies to the mid-eighties were nursing
home-only policies. As the care environment has evolved, that's
where you've got some of the friction from the older policy
owners. But the policies I sell today have tremendous
flexibility in terms of how those benefits can be applied to
the consumer.
One of the other things that I'd like to point out is the
fact that our persistency on this product is incredibly high,
meaning the number of policyholders that retain the policy and
don't voluntarily lapse it, compared to life insurance or
annuity contracts is about 1 percent, so the persistency is 99
percent of the people on the annual basis retain this coverage
and pay it until, either they die, or they need benefits.
The Chairman. So you--to be pretty stark about it, or to be
pretty optimistic about it--you don't entirely agree with Dr.
Rowland?
Mr. Stinson. I do not, with regard to the policies that
we're selling today. Again, I have a contractual obligation to
the policyholders. I think the training that's provided today
to our agents that are selling the contracts, is well
explained. We have NAIC obligations to provide disclosures on
what the policies do and don't cover, and in terms of my
responsibilities, again, tremendous flexibility within the
contracts to allow the consumer--as the care environment
develops over the next 20, 30 years, to be able to use that
policy within that context.
The Chairman. So you regard the long-term care insurance
policies that you're selling today as a reasonable, pretty good
buy for the people who are buying them?
Mr. Stinson. I do.
The Chairman. Well, what about it, folks? The man looks
like a man of integrity.
Ms. Burns. Senator Kohl, if I might?
Mr. Stinson. My mother owns a policy.
The Chairman. All right, Ms. Burns, do you want to make a
comment?
Ms. Burns. I did. Part of the problem with this product is
the difficulty with definitions, and in looking forward and
trying to figure out how a policy would adapt to future
changes, is one of those issues.
For instance, some companies sell something called an
Alternate Plan of Care, which is totally undefined in a policy
and yet leaves the impression with consumers that they'll be
able to bargain with the company for various benefits, later
that are not covered in the policy.
We've had a number, of cases in our state involving that
particular benefit, and the inability to use it. It's
completely within the discretion of the company to decide what
that benefit is, and whether or not they're going to allow it
to be used.
I think standardized definitions of many of the features of
a policy might go a long way to helping consumers get the
benefits that they need. But it is a difficult prospect to
think about how to make one of these policies adapt to future
needs and future technology.
The Chairman. Is that a fair statement, Mr. Stinson?
Mr. Stinson. Yeah, I would add that--the flexibility that
was provided in this alternative plan of care--if the
policyholder presents their claim in any one of the defined
terms within the contract, I'm obligated to pay that claim.
We added these alternative plans of care, because the
evolving care environment. There was no such thing as a, you
know, residential care facility 20, 30 years ago. That's some
of the problems that we ran into.
So, I have specific definitions of where I must apply the
benefits of the policy. Nursing home definition, assisted
living facilities, and the care that I can provide in the home.
As I look forward 20 to 30 years from now, those things
that I can think of in defining the contract, I can't
necessarily predict everything, so the insurance companies have
provided this flexibility of an ``alternative plan of care''
that says, if something is on the horizon that I can't define
today, we want the insured to have the ability to get access to
the benefits of the policy.
Ms. Burns. I wouldn't disagree with that, but I do think
that this is company specific. There are some companies who are
better at doing what they do than other companies. I think part
of this is a problem between the various ways that companies
look at this product and these benefits. In addition state
regulators have some effect on this issue.
The industry is not homogeneous. They don't, all of them,
do the same thing in the same way. Some companies are better
than others, some companies are worse than others.
The Chairman. OK.
Mr. Dilweg.
Mr. Dilweg. I think it raises another point where this
really, has become more of an individual product. It's a very
complicated product, and the key is making sure the agents are
educated. I think standardizing language also helps the
individual navigate between the various companies and would be
a good step.
So, just the delivery of the product as it runs through the
agents where you have the individual trying to make the
decision on their own and may want to look outside of the
agent. It's important to recognize how it is delivered.
The Chairman. Ms. Cutter.
Ms. Cutter. Thank you, Senator. A couple of comments. There
are things in these contracts, and to Mr. Stinson's point, an
insurance policy is a legal contract. That company is bound by
law to provide the benefits that are stipulated within that
contract. What happens if--to Commissioner Dilweg's point
earlier, when he talked about financial solvency--it's each
State's responsibility to monitor, very closely, and scrutinize
financial solvency of each of the domestic companies that are
within their borders.
We have had a couple of situations--not in Indiana,
although the holding company was in Indiana, but the actual
base company was in Pennsylvania--that sold a lot of long-term
care coverage and didn't price it well.
One of the things that Bonnie referred to earlier that I,
as an agent, absolutely object to is a particular company
that's been so problematic and sold what are called ``five-year
rate guarantee'' policies. They went in and told consumers,
``Your rates aren't going to change for five years,'' and they
didn't. They held to that promise.
The problem is, I've spoken to thousands of people over the
years and I can tell you, if you say ``guarantee'' to an
individual, that's all that stays in their head. They aren't
going to remember that five years from now that's going to
change. So, when the change occurs, they believe they've been
wronged or harmed, because they believed that it was guaranteed
forever.
There is no insurance product in the marketplace--no car
insurance, no homeowners' insurance, no term life insurance, no
health insurance--that can say to you it's not ever going to go
up. They can't say that. So, consequently, long-term care is no
different in that regard, and that's why I think the ability
for States to really scrutinize these rate increases, or the
initial rates, that are submitted by companies is just a
critical, critical step in terms of trying to force them to be
more responsible in their initial submission of rates, in terms
of them being adequate.
One of the things that our actuary says to me all the time
is, ``A long-term care policy is what is known as an indemnity
policy, which means as an insurance company, I'm going to pay
you this when this happens.'' So, if you go into a facility, or
you need care--and my husband and I are covered under a long-
term care policy that I bought 10 years ago, it's $200 a month,
it's not expensive, and it covers us for three years, and it's
got an inflation-protection rider on it, and we started out at
$150 a day. Well, right now, in Indiana, the average nursing
home cost is $110 dollars a day. So, I'm already ahead of the
game, thank goodness, because of the way these products are
designed.
But the point being that, as I go forward into the future,
with the inflation protection in that product, I know that I'm
going to be able to keep up with--and I hate to admit it, but
it's not a Partnership product, so I don't have asset
protection--but I know that I have the ability, at least, for
two or three years--because it is a three-year payout--to
protect us and be independent in our decisions about what kind
of care we're going to receive, and where we're going to
receive it. I think that's critical as a part of the insurance
world, in terms of how consumers can help make these decisions
for themselves, and not always look to you folks to be handing
out dollars for them, because they haven't maybe been quite as
responsible for themselves as they should have been.
The Chairman. Well, that brings up the next question to the
panel, do you believe that long-term care is fundamentally an
insurable kind of a product, an activity, or do you believe it
is more appropriate to cover these services through a societal
program, like Social Security or Medicare?
Mr. Stinson.
Mr. Stinson. I believe it is an insurable event that
insurance companies can predict. Our actuaries are basically
looking at two variables, here, instead of just mortality on
life insurance contracts--they are tracking mortality and
morbidity. We believe that the morbidity patterns are
insurable. We can pool the risk, and have an efficient
insurance model that ultimately, everyone is paying premiums
in.
Again, about half the people that buy our products
ultimately will use the products, but we believe it is an
insurable event and there are actuarial models that can predict
the morbidity trends, as well as the mortality trends.
The Chairman. Yes, Dr. Rowland?
Dr. Rowland. Well, I certainly believe that there is a role
for private insurance, and for trying to provide that for
individuals.
But, I think--and maybe I studied the health insurance side
of our health care system too long--that there are always going
to be individuals for whom this kind of an option is not
affordable, and not available.
So, I think that the partnership that now exists between
Medicaid and private insurance is probably more appropriately a
partnership that could exist between Medicare and private
insurance where, at least, some basic benefits were provided.
Individuals would have that protection through the social
insurance mode, and then could supplement that, or add to it
with private insurance. That may be a more appropriate model
for how to go.
The Chairman. Mr. Dilweg.
Mr. Dilweg. I would agree that there's definitely an
insurable interest, an insurable event that you can define,
triggers that can be defined. In the end, I think, by having
some sort of partnership, you have a more efficient use of
money, and a spreading of the risk, by treating part of long-
term care as insurable.
The Chairman. Ms. Burns.
Ms. Burns. I agree that there's a role for long-term care
insurance. I'm not sure we know how big that role is yet. There
are a number of issues involved around this topic. One is, the
benefits people buy when they first buy coverage, and whether
or not they're trading off the cost for benefits that are not
going to be sufficient later.
This is particularly crucial in the group market, for
working-aged people who buy a future purchase that allows them
to buy option inflation later, at an increased cost. As time
goes on, that cost becomes greater and greater, and they may
then not take exercise that option, and then eventually lose
it.
So, it's an issue of, not just about what people purchase,
initially but whether it's suitable for them, or not, and
whether it will do what they expect it to do, years or decades
later. It's everything that happens between purchase and use.
As I said before, companies are not homogeneous, they do
different things, and they do them in different ways. So,
someone may buy a product that was a perfectly affordable for
them when they were 60 years old, and when they are 75, it may
not be. They may, then, be forced to drop it.
So, there are a number of things that happen along the way,
making it a complex topic. I think that there are a lot of
these pieces we don't quite know, yet, and that there's still a
lot of work to be done.
But helping people compare these products--apples to
apples, and not apples to peaches--would certainly help by
standardizing some of the language within the policy, so that
people have a better grasp of what they're buying, and they're
not buying just based on price.
We buy based on price for almost everything else we
purchase. So, it's not unreasonable to think that people would
do that with long-term care insurance. Buying the lowest priced
policy--at least in the recent past--has been buying a rate
increase later that some people couldn't afford to pay.
The Chairman. All right, which leads us, maybe, to the next
question.
Mr. Dilweg, how did policies sold during the eighties and
nineties differ from policies sold today? Why did they price
their policies so low at that time? Do you see any danger in
underpricing today in the group market?
Mr. Dilweg. I think Mr. Stinson addressed this, as well, I
think we both spoke to it. There really were problems, in a
sense, insurers were trying to buy up the market and under
pricing the product. Some were locked into just nursing home
care, you did not have a lot of the changes that have been made
at the NAIC as far as how products should look--the
flexibility, the attempt to try and get stability.
I do think it's important that a lot of changes we've made
since 2000 be reflected in the Partnership plans through Health
and Human services. Really, what your bill is attempting to do,
I think, is a very good step to making sure that that flows
through both Medicaid and the tax-qualified entities, as well.
So, I think there's been a lot of progress, and I think
you're going to see just as much progress 10 years from now, in
the regulation of these products.
The Chairman. Mr. Dilweg, what are some of the high-priced
sales tactics that occur in selling long-term care insurance?
Mr. Dilweg. I think what we saw--and, it almost reminds me
of our conversations on Medicare Advantage, Senator--as you
introduce a new product, you have the agents--and this goes
back a ways--but you have the agent really wanting the person
to sign on the dotted line before they leave the house, not
properly identifying what a guarantee is, things like that
which may come back to haunt the individual.
I think we've tried to spend a lot of time on agent
education. These are very complicated products, and we need to
continue to do that. But one suggestion here today, really, a
standardization of definitions, I think, would be very helpful.
Then someone can compare Genworth to Prudential, to whomever
else.
When you think about long-term care, you think about
healthcare, but it's not typically healthcare companies who
sell these. It's typically life insurance companies that sell
these. So, it's really a--when you think of the companies that
sell these, it's a unique product in how it's lodged in the
corporate structure, as well.
Mr. Stinson. Just a couple of remarks on the--
The Chairman. Mr. Stinson.
Mr. Stinson [continuing]. On the--you'd asked the question
on the rates of yesteryear and what the insurance companies are
doing today.
Two perspectives, one is, when the companies were filing
the products, say, 15, 20 years ago, there was generally, I
think, at the State level, the sensitivity to overcharging
seniors for protection products. That has changed. Today when
we're working with the State Departments, there's much more
focus, State by State, on rate stability. Meaning, make sure
you're charging appropriate rates for this type of coverage
over the long term. Commissioner Dilweg, I think, addressed the
rate stability component of that.
The training requirements, and one of the things that's
suggested in the bill, which we support, again, expansion of
the NAIC model regulations, as well as the Partnership plans.
Partnership plans, typically, at the State level, come with
additional training requirements for our agents.
So, when we introduce a Partnership plan into a State, the
agents typically have another 4 to 8 hours of training, and
they understand, then that training requires them to understand
the intersection of Medicaid, Medicare, and long-term care in
the private market.
So, again, the expansion of those training programs, we
think, is a good thing, as well as the adoption of the model
regulation and the Partnership Program. Again, from a rate
stability perspective, our focus today, very much, is on future
rate stability.
The increases, perhaps, that Bonnie mentioned--one of the
things that I'd like to point out is from an insurance
company's perspective, if I'm forced to raise rates 30, 40, 50
percent, it's very difficult for me to stay in the market. I
think you'll find that most of the insurers that are selling
products today are not in that category of doubling rates on
their insured block.
This is a relatively young product, it's only been around
for 35 years. There was a sorting out, a number of carriers
have left the market. Those who are actively selling a product
today are not interested in raising rates on their consumers.
The Chairman. Ms. Burns.
Ms. Burns. I wanted to speak to the issue of the
Partnership for a moment, because we had our experience with
that program in California early on, as one of the four
original States, and we saw a lot of marketing issues around
that product until we imposed some pretty serious training
requirements.
The NAIC model training requirements are half of what we
require in California. We require an 8-hour training on long-
term care first, and another 8 hours for Partnership, because
we think that the combination of a private commercial product
with a State's public benefits program is a pretty serious
issue, and needs to be carefully explained to consumers. The
documents that agents use need to be drafted by the States'
Medicaid program and not documents that agents and companies
design themselves.
That is one of my concerns about the expansion of the
Partnership Program across the States. There's not a lot of
consistency between the States about how information about the
State Medicaid Program is being handled. I think that promises
are being made in the Partnership States that are never going
to be kept, because the agents themselves don't understand the
integration between a commercial product and the State Medicaid
program. They don't understand, how those programs work, so
they're not able to explain them well to the people that
they're selling insurance to.
Another issue is people who live in an area that borders
another State. Agents may be selling in both States with a
Medicaid program that is different in each States. As you know,
Medicaid is not consistent across the country, it's different
in every single State. Our concern is how that's being
explained to consumers and what they will know about how
Medicaid works in their own State, and what they will know if
they move to another State, where Medicaid may be different.
Having asset protection through a Partnership Program does
not mean that you will not have to meet the eligibility
requirements in the State that you live in when you apply for
Medicaid.
Many people are misled about how the eligibility for a
State Medicaid program interacts with asset protection.
The Chairman. Yes, anybody else on that issue?
Yes, Ms. Cutter?
Ms. Cutter. Yes, Senator. I would just like to reinforce a
little bit of what Bonnie had said about training. I think
you'll find that in the four original Partnership States, we
have been extremely serious in terms of agent training. We
have, first of all, you have to go to 40 hours of classroom
training in Indiana in order to get an insurance license, at
all, to sell accident and health products.
In addition to that, we have an 8-hour requirement for
long-term care, an additional seven hours for Partnership,
specifically. Every two years, that individual has to have five
hours for Partnership long-term care, specifically. We don't
authorize agents out of State to sell Partnership products to
anybody in Indiana. You have to live in Indiana and come to
Indiana and be a resident of Indiana to sell Partnership
products in Indiana.
I would assert that our agent training in that regard, and
the communication that those agents take very seriously with
their consumers--if the DRA, Deficit Reduction Act--which is
expanding the Partnership products in the other States.
As long as they maintain similar standards, I think, to the
original four states, I think those communication issues--to
Bonnie's point--you know, when there some disclosure processes
that are standardized, would be helpful.
We do not allow any agent to deliver any long-term care
advertising material that we haven't approved at our Department
of Insurance.
The Chairman. Another question for you, Ms. Burns.
In your testimony you said that no specific roadmap exists
to help patients and caregivers navigate the challenges of
long-term care insurance. In your judgment, would a website
that provided comprehensive information abut policies and their
features be useful to consumers and organizations like yours?
Ms. Burns. I think such a website would, help people
navigate the long-term care system in a State, as well as help
them to sort out some of the differences between long-term care
insurance products.
The Chairman. OK.
Any other comments on this subject? It's been very
illuminating hearing, you all have provided a lot of
information. Mr. Stinson, go ahead?
Mr. Stinson. Yes, Senator, just building on your
``Compare'' website, the idea in the bill, which I think is
great. You know, Bonnie mentioned, some companies do it right,
some companies may not. We wholeheartedly endorse transparency.
I think putting information out there about claims-paying
ability, and our claims history, and rate stability and those
things, I think, is a good thing for consumers. I think it
would give them an air of confidence, I think it would instill
more of a practiced approach to thinking about senior planning,
as opposed to just wading in, and having a lot of the anecdotal
information that you find in the press, and then scaring people
away from even thinking about it.
So, I think the suggestions in the bill, and the proposals,
are very solid, in terms of having that transparency available
for consumers.
The Chairman. Yes, Dr. Rowland?
Dr. Rowland. Senator, I would also say that I know Senator
Wyden was very involved in helping to get the standards set for
Medigap policies, and for the marketing of Medigap policies. I
think one of the instructive ways one could look at this is to
look at, the standardization of some of the choices one has
around Medigap now, and the way in which that has worked to
help consumers to make more informed choice based on things
other than just price. Medigap regulation's would be a good
example to continue to look at, especially, in developing a
website.
The Chairman. Thank you, yes. I agree with that.
Well, thank you all for being here today, you'd shed a lot
of light on a very important topic, and thank you for your time
in imparting your knowledge to us.
Thank you so much.
[Whereupon, at 3:12 p.m., the hearing was adjourned.]
A P P E N D I X
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Sean Dilweg Responses to Senator Mel Martinez Questions
Question 1. What percentage of seniors in your state would
need to have long-term care insurance to make a substantial
impact on state long-term care financing? Do you support
increasing the number of seniors with long-term care insurance?
If so, how do you propose increasing the number of seniors with
long-term care insurance to reach that threshold?
Answer. We could not find an analysis of the number of
long-term care insurance policies that would be needed in
Wisconsin in order to have a substantial impact on state long-
term care financing.
I am not opposed in an increasing number of long-term care
insurance policyholders in Wisconsin so long as the policies
are sold in a proper manner and are suitable, affordable and
meet the needs of the individuals who purchased them. As I
stated in my testimony, long-term care insurance should only be
purchased as part of an overall financial plan where the
person's financial situation is thoroughly assessed and all
options in funding a person's long-term care needs are
considered.
Question 2. What does Wisconsin see as the primary barriers
to seniors for purchasing long-term care insurance?
Answer. The cost for long-term care insurance can be
substantial, especially if it is purchased at older ages.
Question 3. The Kaiser Family Foundation report on long-
term care insurance found that premium cost is the biggest
obstacle to purchasing long-term care insurance, how do you
propose lowering the cost of premiums so that more people buy
long-term care insurance?
Answer. I do not see an insurance regulator's role as
lowering premium, if the premium accurately reflects the
expected cost and especially if the lowered premium result in
unsuitable sale and adverse solvency issues for the market. The
premiums charged with any insurance product should reflect the
risk that is being assumed by the insurer. The greater and
higher cost of the risk, the greater the premium to the
policyholders to spread that risk and cost. People who cannot
afford to pay the cost of long-term care insurance premiums
should not purchase the coverage in the first place. A properly
rated long-term care insurance product has what I believe to be
a built-in suitability standard; the cost of the premium. The
problem comes when an under priced product is sold that needs a
substantial rate increase after it is sold. There will likely
be many people who bought the product at its initial price who
can no longer afford the policy at its new price. The current
NAIC model attempts to address this problem by requiring the
insurance company's actuary to certify that the rates have been
developed so that they will not increase over the life of
policy under moderately adverse conditions.
Question 4. Has the state of Wisconsin adopted the National
Association of Insurance Commissioners (NAIC) most recent model
law and all updates? Are there any NAIC recommendations,
provisions, updates, rules, models, or other language that the
state of Wisconsin has declined or failed to adopt? If so, why?
Answer. Yes. We have incorporated all of the NAIC's long-
term care insurance model provisions in our regulations. We
have made a few changes to the NAIC provisions in our law that
we believe have resulted in stronger consumer protections.
Question 5. Is there empirical evidence to show that the
NAIC long-term care insurance Model, which has been adopted by
several states, has actually held long-term care insurance
rates down or leveled them off?
Answer. I am not aware of any such data or study. It is
important to note that most of the premium rate increases we
are experiencing today are from policies that were issued prior
to any rate stability provisions in the NAIC model.
Question 6. Does this Model allow states to continue with
their own actuarial reviews using the current 60% loss ratio
standard?
Answer. Since the rate stability provisions contained in
the current model are only advisory, states are free to use any
standard in performing their rate reviews. The NAIC model
contemplates no loss ratio at the initial filing. However, if
rates are increased and the increase is not an exceptional
increase, then the premiums collected prior to the rate
increase must meet a 58% loss ratio test and any premium
collected under the increased rates must meet an 85% loss ratio
test.
Question 7. Does the NAIC know that each and every state
currently conducts an actuarial review of all long-term care
insurance rates before approval?
Answer. I am not aware that the NAIC has information that
indicates all states conduct actuarial reviews of all long-term
insurance rates before approval.
Question 8. Does this long-term care insurance Model
regulation allow states to examine long-term care insurance
rates for future assumptive driven actuarial data?
Answer. I am not familiar with the term ``future assumptive
driven actuarial data.'' In any event, the Model does not
prohibit a state from reviewing any data in connection with a
long-term care insurance rate filing.
Question 9. If so, does the regulation allow states to
disregard those assumptions?
Answer. Not applicable.
Question 10. How does the ``exceptional'' increase standard
protect consumers from future rate increases?
Answer. The theory behind the current premium rate
stabilization standards contained in the NAIC model is putting
the company on record through an actuarial certification that
the premium rates were developed so that there would not be a
need for a rate increase over the life of the policy under
moderately adverse conditions. This certification process was
designed so that long-term care insurers would properly price
their products at their introduction. Unless the company can
demonstrate that a rate increase is needed as result of
exceptional circumstances, a state can take punitive action on
that company for the rate increase filing as outlined in the
model.
Question 11. What changes need to be made to this long-term
care insurance Model to better provide consumer protections for
both policy contract requirements and rates?
Answer. I think we need to closely monitor the effect of
the current rate stabilization provisions on rate filings. If
we get a high number of rate filings under these provisions,
they will need to be modified in order to achieve the stability
in long-term care premium costs that we all want to see. We
also need to determine whether minimum, best practice standards
need to be developed for claims handling. Long-term care
insurers are becoming increasingly more active in developing,
implementing and monitoring a plan of care for their
policyholders on claim. Insurers assist their policyholders in
finding long-term care services and making sure that their
claims are being properly handled. This results in an inherent
conflict between claim levels and profits. We need to monitor
the evolution of these practices and be prepared to codify
minimum standards in order to protect those claimants from
unscrupulous claim handling activity.
Question 12. How do you see the increased group market for
long-term care insurance affecting consumers?
Answer. The group long-term care insurance market segment
is the fastest growing segment of the market. This is primarily
in the employer group market where the employer offers long-
term care insurance coverage to its employees, dependents and,
in some cases, family members such as parents. In most of these
circumstances, it is my understanding that the employer does
not contribute to the premium for long-term care insurance, it
merely provides a facility for employees to purchase the
coverage. I see this positively. Employers will usually screen
coverage they are making available to their employees quite
closely to ensure that it is meaningful coverage from a
reputable carrier. In addition, there may be a premium break in
group policies on premise that administration costs are lower
for the insurer, thus reducing the premium to the customer.
Question 13. Over the next 20 years, the number of
Americans over 65 years old with Alzheimer's will increase by
more than 50 percent. Because Alzheimer's is one of the few
diseases requiring 24 hour care, how do you see the increased
prevalence of this disease affecting long-term care insurance
companies?
Answer. Long-term care insurance policies are currently
prohibited from excluding Alzheimer's disease from coverage. I
assume that insurers have access to the same information we all
do concerning the expected prevalence of the disease into the
future and would include this as a factor in setting their
premium rates. For those companies who fail to account for a
factor such as this may run into financial trouble if they
underestimated the cost in rate setting. Premium costs to
policyholders could likely go up.
Question 14. How does the state of Wisconsin coordinate the
state Medicaid office and state insurance commissioner's office
with the long-term care insurance company when a Partnership
policyholder exhausts his policy's benefits?
Answer. We do not coordinate with the State Medicaid office
when a Partnership policyholder exhausts his policy's benefits.
We have coordinated and will continue to coordinate with the
State Medicaid office with respect to Partnership policy form
approval and agent training standards and implementation. When
a Partnership policyholder exhausts the benefits under the
policy, the long-term care insurer is required to provide the
policyholder with a statement indicating the amount of claim
payments made under the policy as proof of asset protection
when the person applies for Medicaid eligibility. That is a
transaction between the person and the State Medicaid office.
My office does not have a role in that transaction except if
the consumer is having difficulty securing the statement from
the insurer verifying the amount of claims paid under the
policy.
------
Carol Cutter Responses to Senator Mel Martinez Questions
Question 1. Has the state of Indiana adopted the National
Association of Insurance Commissioners (NAIC) most recent model
law and any updates? Are there any NAIC recommendations,
provisions, updates, rules, models, or other language that the
state of Indiana has declined or failed to adopt? If so, why?
Answer. Indiana has not adopted the most recent model law
for LTC that was updated in 2006. Indiana's primary concern
with that model is the `rate stabilization requirement
contained in that update. It is the considered opinion of our
actuaries that the language in this model prohibits the
Department from applying the same scrutiny and control over
requested rate increases that we currently have.
Question 2. Is there empirical evidence to show that the
NAIC long-term care insurance Model, which has been adopted by
several states, has actually held long-term care insurance
rates down or leveled them off?
Answer. Not that has been presented to our satisfaction.
Actually we have comments from several other states' actuaries
questioning the effectiveness of the rate stabilization feature
of the model that those states have adopted.
Question 3. Does this Model allow states to continue with
their own actuarial reviews using the current 60% loss ratio
standard?
Answer. There is a difference of opinion among the states
who have adopted this model, on this issue. Some actuaries have
said `no, the state cannot', and other have said `we're not
sure, but we intend to continue with the 60% until advised to
the contrary'. Indiana's opinion is that we cannot until the
loss ratio meets or exceeds the 70% `exceptional' level as
described in the model.
Question 4 . Does the NAIC know that each and every state
currently conducts an actuarial review of all long-term care
insurance rates before approval?
Answer. We don't believe that the NAIC can answer with any
certainty whether each and every state does conduct an
actuarial review. Many states don't require filing of rates and
forms at all, so our conclusion is that there must be numerous
states that don't or can't conduct an actuarial review.
Question 5. Does this long-term care insurance Model
regulation allow states to examine long-term care insurance
rates for future assumptive driven actuarial data?
Answer. Not in our opinion. From the language in the model,
it appears that all the insurer must do, once reaching the 70%
exceptional loss ratio, is to attest that they have met the
requirements of the model and are applying rate increases as
allowed under that provision.
Question 6. If so, does the regulation allow states to
disregard those assumptions?
Answer. We cannot find any language allowing states to
disregard those assumptions.
Question 7. How does the `exceptional' increase standard
protect consumers from future rate increases?
Answer. In our opinion it does not protect consumers from
future rate increases.
Question 8. What changes need to be made to this long-term
care insurance Model to better provide consumer protections for
both policy contract requirements and rates?
Answer. For contract forms, some type of standardization
might be acceptable. Tighter standards for rate increases based
on non-assumptive actuarial presentations, with some at least
annual percentage cap that the carrier could impose--say 40% as
an example, in any one year.
Question 9. What sort of federal requirements do you
recommend to help state insurance commissioners negotiate the
best rates for policyholders?
Answer. Since insurers predicate their rate structures on
their own in-force blocks of business, the experience of those
blocks as well as the market place for LTC in general, it would
be difficult to suggest any federal laws or regulations that
would not handcuff the insurers and ultimately eliminate the
LTC market altogether.
Question 10. What percentage of seniors in your state would
need to have long-term care insurance to make a substantial
impact on state long-term care financing? Do you support
increasing the number of seniors with long-term care insurance?
If so, how do you propose increasing the number of seniors with
long-term care insurance to reach that threshold?
Answer. Even 40% would make a difference of millions of
dollars in protecting our citizens from self-imposed
impoverishment and Medicaid funds that need to be available for
the truly poor population of our state. We do support
increasing the number of seniors with LTC protection and are
preparing a massive awareness campaign that begins this fall,
to initiate that awareness.
Question 11. What does Wisconsin see as the primary
barriers to seniors for purchasing long-term care insurance?
Answer. Indiana can't speak for Wisconsin.
Question 12. The Kaiser Family Foundation report on long-
term care insurance found that premium cost is the biggest
obstacle to purchasing long-term care insurance, how do you
propose lowering the cost of premiums so that more people buy
long-term care insurance?
Answer. Cost can be addressed through more flexible benefit
designs, shorter benefit durations (one year versus lifetime),
and other coverage-based improvements. Group plans will also be
more affordable than individual plans.
Question 13. How do you see the increased group market for
long-term care insurance affecting consumers?
Answer. The group market will help tremendously in
improving LTC coverage, because it will be offered through the
employer market and typically be sold on a `guarantee issue'
basis rather than having to meet a variety of medical questions
for approval. It also allows employees to cover parents and/or
grandparents who are currently insured, all at group rates.
Question 14. Over the next 20 years, the number of
Americans over 65 years old with Alzheimer's will increase by
more than 50 percent. Because Alzheimer's is one of the few
diseases requiring 24 hour care, how do you see the increased
prevalence of this disease affecting long-term care insurance
companies?
Answer. This is where the assisted-living and home care
benefits can be most helpful. Most Alzheimer's patients that
I've been in personal contact with are mobile, able to bathe,
toilet, and generally feed themselves with some reminders or
assistance. This means total 24 hour facility care, especially
with some of the pharmaceutical advances in treating this
disease, will be less necessary.
Question 15. How does the state of Indiana coordinate the
state Medicaid office and state insurance commissioner's office
with the long-term care insurance company when a Partnership
policyholder exhausts his policy's benefits?
Answer. Indiana's Medicaid office has a designated recovery
agent that works with our Partnership division even before the
policy has completely exhausted, so that there is already a
plan in place for the policyholder once exhaustion occurs.
Question 16. Why should or shouldn't Congress enact more
federal requirements for the long-term care partnership
program?
Answer. The most likely are that Congress can affect in LTC
policies that would be beneficial to potential purchasers,
agents, and companies alike would be to `standardize' the
benefit plans as has been done with Medicare Supplements.
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