[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



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                               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

                              ----------                              
                                                                   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:]

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    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

                              ----------                              


        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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