[Senate Hearing 112-520]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 112-520

     THE FUTURE OF LONG-TERM CARE: SAVING MONEY BY SERVING SENIORS

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

                                HEARING

                               BEFORE THE

                       SPECIAL COMMITTEE ON AGING

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS


                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             APRIL 18, 2012

                               __________

                           Serial No. 112-15

         Printed for the use of the Special Committee on Aging









         Available via the World Wide Web: http://www.fdsys.gov

                                _____

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                       SPECIAL COMMITTEE ON AGING

                     HERB KOHL, Wisconsin, Chairman

RON WYDEN, Oregon                    BOB CORKER, Tennessee
BILL NELSON, Florida                 SUSAN COLLINS, Maine
BOB CASEY, Pennsylvania              ORRIN HATCH, Utah
CLAIRE McCASKILL, Missouri           MARK KIRK III, Illnois
SHELDON WHITEHOUSE, Rhode Island     DEAN HELLER, Nevada
MARK UDALL, Colorado                 JERRY MORAN, Kansas
MICHAEL BENNET, Colorado             RONALD H. JOHNSON, Wisconsin
KRISTEN GILLIBRAND, New York         RICHARD SHELBY, Alabama
JOE MANCHIN III, West Virginia       LINDSEY GRAHAM, South Carolina
RICHARD BLUMENTHAL, Connecticut      SAXBY CHAMBLISS, Georgia
                              ----------                              
                 Chad Metzler, Majority Staff Director
             Michael Bassett, Ranking Member Staff Director














                                CONTENTS

                              ----------                              

                                                                   Page

Opening Statement of Senator Herb Kohl...........................     1
Statement of Senator Bob Corker..................................     2

                           PANEL OF WITNESSES

John O'Brien, Director of Healthcare and Insurance, Office of 
  Personnel Management, Washington, DC...........................     2
Loren Colman, Assistant Commissioner, Minnesota Department of 
  Human Services, St. Paul, MN...................................     5
Judy Feder, Professor of Public Policy and Former Dean, 
  Georgetown Public Policy Institute, Georgetown University, 
  Washington, DC.................................................     7
Bruce Chernof, President and CEO, SCAN Foundation, Long Beach, CA     9
Douglas Holtz-Eakin, President, American Action Forum, Washington 
  DC.............................................................    11

                                APPENDIX
                   Witness Statements for the Record

John O'Brien, Director of Healthcare and Insurance, Office of 
  Personnel Management, Washington, DC...........................    28
Loren Colman, Assistant Commissioner, Minnesota Department of 
  Human Service, St. Paul, MN....................................    35
Judy Feder, Professor of Public Policy and Former Dean, 
  Georgetown Public Policy Institute, Georgetown University, 
  Washington, DC.................................................    40
Bruce Chernof, President and CEO, The SCAN Foundation, Long 
  Beach, CA......................................................    51
Douglas Holtz-Eakin, President, American Action Forum, 
  Washington, DC.................................................    70

                        Relevant Witness Reports

The Importance of Federal Financing to the Nation's Long-Term 
  Care Safety Net, Georgetown University.........................    79
Raising Expectations: A State Scorecard on Long-Term Services and 
  Supports for Older Adults, People with Physical Disabilities 
  and Family Caregivers, the SCAN Foundation.....................    97

             Additional Statements Submitted for the Record

CARF International, Washington, DC...............................   133
Center for Medicare Advocacy, Washington, DC.....................   137
National Center for Assisted Living, Washington, DC..............   142

 
     THE FUTURE OF LONG-TERM CARE: SAVING MONEY BY SERVING SENIORS

                              ----------                              


                       WEDNESDAY, APRIL 18, 2012

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:03 p.m. in Room 
216, Hart Senate Office Building, Hon. Herb Kohl, chairman of 
the committee, presiding.
    Present: Senators Kohl [presiding], Whitehouse, Udall, 
Manchin, and Corker.

        OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN

    The Chairman. Good afternoon to everyone, and thank you so 
much for being here. Today we're looking at the question of how 
best to provide and finance long-term care services for the 
millions of Americans who need them, while also balancing our 
debt, our deficits, and our overall financial picture.
    As we look ahead, we're going to have to do more with less. 
We all know that. In fact, we must find better and more 
efficient ways to provide care because the money simply will 
not be there.
    We're here today to talk about some of the ways to save 
money without doing material damage to long-term care. The 
costs of long-term care services, more than $300 billion a 
year, are already massive for both taxpayers and families, and 
left unchecked, this burden will continue to grow as our 
rapidly aging population requires more long-term care.
    Medicaid alone projects $1.9 trillion in long-term care 
costs over the next 10 years, with an annual average cost 
increase of 6.6 percent, and we are seeing similar increasing 
cost trends for Medicare and in some sectors of the long-term 
care insurance industry.
    Unfortunately, there is no easy answer. While our two 
largest publicly-financed health care programs, Medicaid and 
Medicare, currently pay for the bulk of long-term care, they 
are limited in scope, and private long-term care insurance has 
the potential to play a larger role, but the market is facing 
challenges, and some consumers have been skeptical about 
purchasing a policy that is both worth the cost and represents 
a secure and sound investment.
    To help us meet this challenge, our witnesses will discuss 
some promising strategies for improving services while at the 
same time restraining costs. Particularly, I look forward to 
hearing about the savings we would achieve by reducing 
unnecessary hospitalizations, by delaying or avoiding 
institutionalization, and by increasing the use of home and 
community-based services. As we will hear today, these 
solutions have already achieved some success and could be 
expanded across the country.
    As we work to develop policies that enable seniors of all 
incomes to plan for and access long-term care, we will need the 
best ideas, and we will need to work together in a bipartisan 
manner. So we look forward to today's hearing, to the testimony 
and the ideas that we will hear from our witnesses.
    And now the witnesses. Mr. John O'Brien is Director of 
Healthcare and Insurance for the U.S. Office of Personnel 
Management, where he oversees the Federal Employees Health 
Benefit Program; and more importantly for this hearing, the 
Federal Long Term Care Insurance Program. This program is the 
largest private long-term care insurance program in the 
country.
    Mr. Loren Colman is Assistant Commissioner of the Minnesota 
Department of Human Services. With more than 25 years of 
experience with long-term care facilities, Mr. Colman oversees 
a host of programs for older adults and is a leading force 
behind Minnesota's Transform 2010 program, which is designed to 
help the state prepare for retirement of the Baby Boomer 
generation.
    Dr. Holtz-Eakin is President of the American Action Forum. 
He was Chief Economist with the Council of Economic Advisors 
from 2001 to 2002, and he served as a Director of the 
Congressional Budget Office from 2003 to 2005.
    Professor Judy Fader has had a long and distinguished 
academic career, serving as Dean of the Georgetown Public 
Policy Institute in Washington, D.C. from 1999 to 2008. Today, 
she is a professor at Georgetown University, a Fellow at the 
Urban Institute, and an elected member of the Institute of 
Medicine.
    We also have Dr. Bruce Chernof with us today. He is the 
President and CEO of the SCAN Foundation, based in Long Beach, 
California, an organization that is dedicated both to research 
and to dissemination of knowledge that improves the health of 
older adults. Dr. Chernof also served as Director and Chief 
Medical Officer for the Los Angeles County Department of Health 
Services.
    We thank you all for being here. And before we go to your 
testimony, we will hear from the distinguished Ranking Member 
of this committee, Senator Corker.

                STATEMENT OF SENATOR BOB CORKER

    Senator Corker. Mr. Chairman, thank you. I know you had a 
conflict until 10:00. I came at the perfect time. I don't give 
opening comments much. I thank you for calling the hearing, and 
I look forward to listening to our witnesses. So thank you so 
much, I appreciate it.
    The Chairman. Thank you.
    All right.
    Mr. O'Brien.

     STATEMENT OF JOHN O'BRIEN, DIRECTOR OF HEALTHCARE AND 
   INSURANCE, OFFICE OF PERSONNEL MANAGEMENT, WASHINGTON, DC

    Mr. O'Brien. Chairman Kohl, Ranking Member Corker, members 
of the committee, thank you for the opportunity to testify 
today on long-term care insurance. The Office of Personnel 
Management oversees numerous benefit programs, including long-
term care insurance for Federal employees, annuitants, and 
family members.
    Long-term care is divided into people who need help with 
activities of daily living or who need supervision due to 
severe cognitive impairment. It can be provided at home, in an 
adult daycare center, assisted living facility, or nursing 
home. Most health insurance plans, including the Federal Health 
Benefits Program, do not provide coverage for long-term care 
services. This unmet need led to the creation of the Federal 
Long-Term Care Insurance Program.
    Long-term care insurance is an important benefit because 
people are living longer, and the likelihood of needing long-
term care services increases with age. After age 65, Americans 
have a 70 percent chance of needing some form of long-term care 
during their lives. Long-term care is also provided to people 
under age 65 who need help taking care of themselves due to 
diseases, chronic conditions, injury, developmental 
disabilities, or severe mental illness.
    Long-term care insurance is also important because services 
can be very expensive for the average American family. In 2011, 
the average cost of a semi-private room in a nursing home was 
over $75,000, and the average cost of home care was roughly 
$31,000.
    In 2000, Congress passed the Long-Term Care Security Act, 
which authorized OPM to contract with qualified carriers to 
provide long-term care coverage for Federal employees, U.S. 
Postal employees, members of the uniformed services, annuitants 
and their qualified family members. In March 2002, OPM 
introduced the long-term care program to the Federal workforce.
    This is the 10th year for the program, and it is the 
largest employer-sponsored long-term care program in the 
country. The long-term care program is a 100 percent employee-
paid benefit. Through the long-term care program, the Federal 
Government uses its leverage in the marketplace to offer 
private, long-term care insurance to Federal employees and 
their qualified family members.
    The initial contract to provide long-term care insurance 
for Federal employees was with Long Term Care Partners, a joint 
venture of John Hancock and Metropolitan Life. The benefit 
became available to Federal employees in 2002, and by February 
2003, 187,000 individuals were enrolled. By the end of the 
initial 7-year contract term, enrollment had increased to 
approximately 224,000 enrollees.
    At the end of the initial contract term in 2009, OPM 
awarded a second contract to John Hancock. As part of the new 
contract, John Hancock added a new benefit option with 
increased home health care reimbursement, new benefit periods, 
higher daily benefit amounts, and increased payment limits for 
informal care provided by family members.
    The long-term care program provides coverage for nursing 
home stays, assisted living facilities, hospice stays, home 
care, and other services. In addition to Federal civilian and 
uniformed service employees, other qualified family members who 
are eligible to apply for the coverage include spouses, same-
sex domestic partners, surviving spouses, members of the 
uniformed services, parents, and adult children.
    Although enrollees can customize the benefit, the vast 
majority, over 99 percent, opt for one of four pre-packaged 
options. The pre-packaged plans offer variations in the daily 
benefit amount, the benefit period, the maximum lifetime 
benefit amount, waiting periods, and inflation protection 
options. The package includes comprehensive care coordination, 
portability of coverage, international benefits with no war 
exclusions, and guaranteed renewability. Enrollees can change 
their coverage options as their needs change and have a variety 
of premium payment options.
    Since the new contract offered new covered options that 
were not previously available, in 2011 OPM held an open season 
for the long-term care program. I should note that an 
individual can enroll in the long-term care program at any 
time. But outside of an open enrollment period or within 60 
days of their hiring as an employee, they are subject to full 
medical underwriting.
    What we have referred to as ``open season'' allows 
employees and their spouses to apply with abbreviated 
underwriting, which means applicants answer fewer questions 
about their medical history. I should also note that during the 
2011 open season, same-sex domestic partners of Federal 
employees had the option to apply with abbreviated 
underwriting. This inclusion of same-sex domestic partners 
followed President Obama's June 2010 memorandum directing 
agencies to extend benefits to same-sex domestic partners of 
Federal employees, consistent with existing law.
    Educational efforts for the 2011 open season began in fall 
of 2010. OPM, along with Long Term Care Partners, worked to 
increase awareness about the benefits of long-term care 
insurance for the Federal workforce. Direct mail, email 
campaigns, workshops, webinars, advertisements, payroll 
notices, and other tools educated the Federal workforce about 
long-term care insurance. Additional information was available 
on the Federal long-term care website, including the ability to 
apply for coverage online. Clarity and transparency were top 
priorities of the educational campaign, and care was taken to 
assure that benefits and features of the long-term care product 
were clearly understood.
    The educational efforts were very successful at increasing 
awareness among the eligible population that the program is a 
valuable and cost-effective way to protect against the high 
costs of long-term care. The success of the effort was borne 
out by the numbers. We received over 45,000 applications during 
the 2011 open season, and total program enrollment increased 20 
percent, from 224,000 to approximately 270,000 members.
    As the long-term care insurance market continues to evolve, 
we believe the Federal long-term care program is well 
positioned to offer a variety of benefit choices with 
relatively low cost to enrollees. OPM is working to maintain 
the long-term viability of the program by pursuing policies 
that will protect current and future enrollees. For example, we 
are interested in pursuing participation in state/Federal long-
term care partnerships which provide asset protection as an 
incentive for enrollment. We are also continuing to assess plan 
benefit options to ensure that they are attractive to 
enrollees.
    Long-term care insurance provides a cost-effective way for 
individuals making average incomes, like most Federal 
employees, to protect themselves against the financial 
catastrophe that a long-term illness or injury can cause. The 
long-term care insurance market is still relatively young and 
uncertain, and OPM will need to closely monitor the market to 
make certain the program meets the current and future needs of 
the Federal family. Our goal is to provide enrollees with 
insurance protection, mitigate their potential costs for long-
term care services.
    Thank you for the opportunity to testify today and I am 
happy to address any questions you may have.
    The Chairman. Thank you, Mr. O'Brien.
    Mr. Colman.

 STATEMENT OF LOREN COLMAN, ASSISTANT COMMISSIONER, MINNESOTA 
           DEPARTMENT OF HUMAN SERVICES, ST. PAUL, MN

    Mr. Colman. Thank you, Mr. Chair, and members of the 
committee. On behalf of Commissioner Jesson, I thank you for 
this opportunity to share with the committee the efforts that 
Minnesota is making to provide the best possible long-term care 
system for older adults and persons with disabilities.
    Minnesota has a strong infrastructure, built over many 
years, of long-term care services and supports for older adults 
and people with disabilities. Last fall we were very proud and 
gratified to see the quality of Minnesota's long-term care 
system recognized by the AARP and the SCAN Foundation.
    Minnesota ranked number one among all states in the first-
ever AARP Scoreboard on Long-Term Care Services and Supports 
for Older Adults, People with Disabilities and Family 
Caregivers. The report validates the direction that Minnesota 
has been moving for the past 25 years, to reduce reliance on 
institutional care and encourage access to services in home and 
community-based settings. It acknowledges Minnesota's efforts 
in providing comprehensive phone and web-based information and 
referral resources for seniors and their families and people 
with disabilities, as well as providing evidence-based support 
for family caregivers.
    Not that long ago, most people that were served by Medicaid 
in Minnesota received long-term care services in an 
institution. Over time, we've developed the supports needed to 
serve people in their own homes and communities. Today, 63 
percent of the older adults receiving Medicaid long-term care 
services get that care in their home or in community settings, 
and 95 percent of persons with disabilities receiving medical 
assistance long-term care services are in community settings.
    We are also proud of Minnesota's system of nursing 
facilities as the state and facilities have worked in 
partnership toward improved quality and care. Several years ago 
we launched a Nursing Facility Report Card to give consumers 
and family members access to comparative information on quality 
and consumer satisfaction. We have promoted innovation in care 
through performance incentive payments. The median length of 
stay in Minnesota nursing facilities is now less than 30 days 
as services become rehabilitative in nature. Successful 
collaborations with the industry have contributed to right-
sizing the number and distribution of nursing facilities in the 
state.
    In Minnesota, a healthy synergy results from having the 
policy areas for aging and adult services, disability services, 
nursing facility rates and policy, and the Minnesota Board on 
Aging consolidated into the part of the Department of Human 
Services that I oversee.
    We have worked very hard over the years to ensure a solid 
alignment of services delivered under Medicaid and the Older 
Americans Act. These services, on a continuum, become the 
critical safety net that seniors use as they become more frail. 
By aligning them much more closely in how seniors transition 
among each service, we ensure that the system works in a more 
cost-conscious manner and delivers care better to seniors and 
their caregivers.
    The Older Americans Act is a critical resource in our long-
term care system and supports. The Senior LinkAge phone line, 
which annually serves 89,000 older Minnesotans and their 
families, and the complementary Disability Linkage Line and 
Minnesotahelp.info website, are valuable foundations to our 
services.
    These services comprise a statewide virtual call center 
that allows for a single toll-free access with routing to local 
communities. Trained professionals answer questions about all 
types of insurance and Medicare products, including our state's 
long-term care partnership policies and other long-term care 
options. They are well positioned to answer inquiries from 
people seeking to understand the basics and options about 
housing and other long-term care services as they age.
    Under new legislation, these counselors also are involved 
in expanding long-term care consultation that helps individuals 
considering assisted living to become fully informed consumers. 
We have found that good information as early as possible can 
also delay the need for more expensive services or the need to 
access Medicaid.
    Linkage Line Services have expanded under Lt. Governor 
Yvonne Prettner Solon to be a ``one stop shop'' for seniors and 
their families for direct contact with all state agencies on 
issues that they may have with any area of our state 
government.
    Similar to many states, Minnesota is significantly 
challenged in meeting the anticipated demand for long-term care 
services and supports, especially as Boomers age. We are 
currently working on a request for a Medicaid waiver that would 
redesign the program to offer benefits based on the need of the 
individual, so that they get the right levels of services based 
on their needs, from lower needs to higher needs.
    We know that the preference of most older Minnesotans is to 
remain in their home. We want to further empower older 
Minnesotans to make those choices by making home and community-
based services the norm in Minnesota and institutional care the 
exception.
    As Minnesota has worked successfully to rebalance our long-
term care system, we also have had our eye on the coming age 
wave. And now, we are on the verge of launching the ``Own Your 
Future'' campaign in Minnesota to encourage people to plan, 
especially those in the 40 to 65-year-old range. We're building 
on what other states have done in partnership with the federal 
government, and we're adding some new elements:
    A public awareness campaign that includes marketing via the 
Web using contemporary messaging such as Internet ads;
    Development of more affordable products for middle-income 
people;
    Better alignment of the incentives within Medicaid to 
support private financing of long-term care. The Long Term Care 
Partnership is a start, but it's not the end;
    Targeted outreach to employers as a credible source of 
information about long-term care and financing options. 
Employers benefit from offering workers a sense of control and 
peace of mind that a long-term care plan can provide.
    The Minnesota business community has expressed a strong 
interest in working with us.
    Our goal for ``Own Your Future'' is not only to raise 
awareness of the financial risk of not preparing for long-term 
care needs. We want to improve the quality of life for 
Minnesotans in their later years by increasing the number of 
those who have taken action to own their future and maintain 
choices. I can provide more details on the campaign if time 
allows today.
    Thank you for the opportunity to testify.
    The Chairman. Thank you very much, Mr. Colman.
    Professor Feder.

STATEMENT OF JUDY FEDER, PROFESSOR OF PUBLIC POLICY AND FORMER 
     DEAN, GEORGETOWN PUBLIC POLICY INSTITUTE, GEORGETOWN 
                   UNIVERSITY, WASHINGTON, DC

    Dr. Feder. Chairman Kohl, Ranking Member Corker, I am 
delighted to be with you today to discuss the--thank you.
    I still am delighted to be with you today to discuss ways 
to improve the quality and efficiency of services for people 
who need long-term care.
    Chairman Kohl, you started by asking about ways we can 
reduce unnecessary hospitalizations for this population, and 
that is the focus of my testimony. I specifically want to 
explain why it is so important that the Medicare program give 
top priority in delivery reform initiatives to people, 
beneficiaries, who need long-term care, and that those 
initiatives extend care coordination beyond medical care to 
include the coordination of long-term care services.
    The data that I present in my testimony, developed with the 
support from the SCAN Foundation, will tell you why this is so 
important, and I'm hoping that you have my testimony in front 
of you. But if you don't, I'm going to tell you what to look 
for in the data, when you have that, when you look at the 
pictures.
    The first slide that we show you, Figure 1, shows that 
despite the fact that we are focusing so much on people with 
chronic conditions as a source of high Medicare spending, when 
we look at the data, it is not the people with chronic 
conditions alone who are driving high Medicare spending. It is 
people whose chronic conditions create the need for long-term 
services and supports. In fact, what we show you in the first 
figure is that it is the 15 percent of Medicare beneficiaries 
with chronic conditions and long-term care needs who account 
for close to a third of all Medicare spending.
    The second figure brings this down to per-capita spending, 
per-beneficiary spending, and it shows us how disproportionate 
that spending is. Average per-person spending for enrollees 
with chronic conditions and functional limitations, average 
spending is at least double the average for enrollees with 
chronic conditions only. Medicare spends almost $16,000 per 
beneficiary for functionally impaired beneficiaries and much 
less for everybody else.
    The third figure in my testimony shows us that this 
pattern--higher spending for chronically ill people who have 
functional limitations relative to chronically ill people who 
don't--holds true no matter how many chronic conditions people 
have. So even the per-capita spending for people who have as 
many as five chronic conditions is lower than for a beneficiary 
with only one chronic condition but also long-term care needs. 
So again, it's long-term care that's driving high spending.
    The result is that it is beneficiaries with long-term care 
needs who rank among the highest Medicare spenders, and you can 
see that in Figure 4. Nearly half the beneficiaries in the top 
20 percent of Medicare spenders, and 61 percent of the top 5 
percent of spenders need long-term care along with having 
chronic conditions.
    Now, where is the extra spending going? That takes us to 
the hospitalizations. The data show us that enrollees who need 
long-term care are much more likely than other beneficiaries to 
be using hospitals, to have hospital stays, and to use hospital 
emergency departments.
    We also find that it is higher hospital and post-hospital 
spending in skilled nursing facilities, short-term spending in 
skilled nursing facilities and by home health agencies, that is 
the largest source of the extra spending that I've described to 
you for people with long-term care needs.
    The good news is that using new authorities in the 
Affordable Care Act, the Center for Medicare and Medicaid 
Services is promoting delivery innovations that, through care 
coordination, aim to reduce precisely this kind of excessive 
hospital, and with it post-hospital, service use. But past 
experience tells us that without effective targeting to 
beneficiaries most at risk of inappropriate and high-cost 
hospital use, such as the long-term care users I've been 
describing, the coordination is not likely to produce 
significant savings. That's why it's so important that Medicare 
target its innovations to people with chronic conditions and 
functional limitations and coordinate the full range of their 
service needs.
    Although limited in number, programs that do this exist all 
around the country, but are small in number, and they have 
shown promise in reducing hospital use, nursing home 
admissions, and cost for selected patient groups, while 
improving the quality of care. CMS can build on these 
organizations' experiences by encouraging interventions that 
accommodate the various sizes and capacity of primary care 
physician practices, and by improving upon, but not replacing, 
the fee-for-service payment system, by paying monthly amounts 
per enrolled patient sufficient to support care coordination 
and other currently uncovered care management services, and by 
holding participating providers accountable for savings that 
offset the costs of coordination.
    Dual eligibles, beneficiaries served by both Medicare and 
Medicaid, represent about half of the beneficiaries that I've 
been talking about. But despite the potential I've shown you 
for Medicare savings from coordinating Medicare-financed care, 
to date policymakers have focused overwhelmingly on states and 
Medicaid rather than Medicare as primarily responsible for 
improving care to dual eligibles. The absence of Medicare 
leadership is particularly odd given that 80 percent of the 
dollars that are spent on dual eligibles--and you can see this 
in Figure 7--80 percent of the dollars spent on dual eligibles 
are Federal dollars, more than two-thirds of which flow through 
the Medicare program.
    To improve care and reduce costs for Medicare-Medicaid 
beneficiaries, dual eligibles, along with the roughly equal 
number of Medicare-only beneficiaries who need long-term care, 
it is essential that Medicare exert its leadership rather than 
simply shift responsibility to the states. And a major way they 
can do that is, as I've described, is to give priority in 
delivery reform to people who need long-term care and to 
coordinating their long-term care, as well as their medical 
services.
    Thank you.
    The Chairman. Thank you very much.
    Dr. Chernof.

STATEMENT OF BRUCE CHERNOF, PRESIDENT AND CEO, SCAN FOUNDATION, 
                         LONG BEACH, CA

    Dr. Chernof. Thank you, Chairman Kohl, Ranking Member 
Corker, for the opportunity to testify at this critical hearing 
today. My name is Dr. Bruce Chernof, and I serve as the 
President and CEO of the SCAN Foundation, an independent, non-
profit foundation devoted to creating a sustainable continuum 
of quality care for all seniors.
    We envision a society where seniors receive integrated 
medical care and supportive services in a setting most 
appropriate to their needs and with the greatest likelihood of 
contributing to a healthy and independent life.
    Americans today are living longer than in previous 
generations, often with chronic conditions and functional 
impairment at older ages, which increases the number of people 
who will need long-term services and supports. Most Americans 
are not aware of the high likelihood of needing long-term 
services and supports at some point in their lives, and have 
few tools to plan for this reality. The cost of this care is 
substantial, impacting both family financial resources and the 
ability for family caregivers to engage in the labor market. 
When individuals and families have exhausted their personal 
resources and can no longer shoulder these costs on their own, 
they have to depend on Medicaid for help. Those who qualify for 
Medicaid long-term services and supports generally need this 
assistance for the rest of their lives.
    Medicaid is fundamental to the current financing and 
delivery of long-term services and supports for low-income 
Americans. It's the largest purchaser of long-term services and 
supports, and it is the backdrop for all vulnerable older 
Americans who need this level of care after spending their 
resources.
    Medicaid has evolved over the years from paying exclusively 
for nursing home care to funding critical services in the 
community that allow for low-income individuals with 
substantial daily needs to live in the place that they call 
home. Several states have taken or are currently taking strides 
to bolster their Medicaid long-term services and support 
systems, with the goal of providing high-quality, person-
focused, and cost-effective care to their residents, including 
states represented by members of this committee.
    So, for example, in our recent Scorecard that we put 
together with the support of the Commonwealth Fund and 
completed by AARP comparing all states on having a high-
performing long-term services and support system, Wisconsin 
ranked fifth in the nation. Additionally, we funded technical 
assistance to 21 states that seek to evolve their Medicaid 
long-term services and support systems. Tennessee is a 
frontrunner in this group given their experiences with the 
Choices program.
    Current laws and regulations, including many positive 
provisions in the ACA, already exist, giving states the 
flexibility to upgrade their operations, create more 
integrated, person-centered care, with strong beneficiary 
protections.
    Under these arrangements, states must increase the quality 
monitoring and oversight rules to ensure that individuals have 
appropriate access and that quality protections are 
incorporated into purchasing contracts and are strictly upheld 
in practice.
    States seeking only to solve what they perceive as a cost 
problem in Medicaid, without giving sufficient attention to 
improving person-centered access and care delivery, have a 
great potential to create undue harm to some of the country's 
most vulnerable residents.
    We believe that more person-centered care delivered in 
organized systems will generate savings in Medicaid. These 
savings, however, are necessary but not sufficient given that 
there will be a net increase in need. Medicaid is poised to 
take on more long-term services and support costs due to the 
trifecta of increasing life expectancy, increasing prevalence 
of chronic conditions and functional limitations at older ages, 
and finally low savings rates among Baby Boomers. Some states 
will experience the impacts of these factors on their Medicaid 
programs faster than others. Policy options are needed to 
minimize the disparity among states to absorb these costs 
through already-constrained resources, those same resources 
that face potential cuts as part of entitlement reform 
discussions. One possibility is to provide enhanced Federal 
support to states that are experiencing the most rapid patient 
aging.
    We also think that there is a lot of almost mythology about 
what is or isn't happening in the Medicaid program, and 
Medicaid crowd-out is, frankly, one of those areas that is more 
theory supported with scant evidence than proven fact. Many 
other organizations have done polling work, and we've done 
polling work ourselves that documents that the vast majority of 
Americans have no idea who pays for long-term care, long-term 
services and supports, or they believe that Medicare will cover 
them when the time comes.
    Furthermore, no one looks forward to being on Medicaid 
because it carries a public perception as being a welfare 
program.
    So American families deserve affordable, accessible, 
comprehensive solutions in order to plan for their future long-
term services and supports needs without having to spend down 
to Medicaid, if possible. Policy options in the public sector, 
but also in the private realm, should be thoroughly explored to 
meet these aims so that Americans can receive high-quality 
services provided with dignity, respect, and transparency.
    Thank you so much.
    The Chairman. Thank you very much, Dr. Chernof.
    Dr. Holtz-Eakin.

 STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION 
                     FORUM, WASHINGTON, DC

    Dr. Holtz-Eakin. Chairman Kohl and Ranking Member Corker, 
thank you for the privilege of being here today. Let me just 
pick up on some points that have been made by the panelists 
before me, and then I'll be happy to answer your questions.
    The first is, obviously, this is a very difficult problem 
whose scale will grow rapidly in the years and decades to come, 
and there are really two separate aspects to it. The first is 
going to be the nuts and bolts costs of long-term care services 
driven by a greater number of individuals who will require 
those services and an increasing cost per person, and there are 
really two things that the committee can think about on dealing 
with that fundamental problem, which is the cost.
    One is those kinds of preventive actions that could be 
taken to either defer or eliminate the need for long-term care 
services, and there, the things that stand out are the 
increasing prevalence of Alzheimer's and dementia, which lead 
to extremely costly cases, and to the extent that research and 
other efforts can make progress on that, I think that's 
something that should be within the scope of the discussion.
    And the second is the models of delivery which actually are 
more efficient, and thus given the state of the condition of 
any beneficiary, would lower the cost on actually delivering 
those services, and there I think the real moral is going to be 
picking very flexible strategies because we know that the 
current models, largely informal care provided by family 
members, can't survive the need to work and the increasing 
number of people needing the services, and we're going to have 
to have a lot of flexibility in the delivery of these services 
as we try to learn about what works.
    So avoiding building into some sort of program a rigid 
structure I think is the first order of business, given the 
cost problems that are going to face us.
    Then the second aspect is the financing of the cost of 
those services. Again, I think we're going to have to do things 
very differently. I at least believe that an enormous effort 
should be placed on enhancing the private-sector financing of 
these services as the top priority, and doing everything 
possible--and I understand this is not easy--to have private 
long-term care insurance take a greater role in the financing 
of this.
    I say that for two major reasons. I mean, the first is we 
know the current and projected strains on the Federal budget. 
They are, quite frankly, daunting, and in my years at the CBO 
and my career spent studying congressional budget problems, 
I've never seen anything like the position we find ourselves 
in. It is simply not a time at which we can commit the taxpayer 
to additional mandatory spending commitments without thinking 
very hard about it. I mean, right now the cash flow gap between 
premiums and payroll taxes coming into Medicare and the 
spending going out is approaching $300 billion a year. It is an 
unsustainable trajectory. So if we can enhance the private 
sector pick-up of these costs before we put them on the Federal 
budget, everyone comes out ahead, I think.
    The second reason is we've never pre-funded the costs of 
these services. If we had private insurance reserving premiums 
and pre-funding the payment for the cost of that care, we 
would, in fact, address some of our national saving issues and 
have a benefit there of delivering better overall growth and 
economic performance at a time when we're going to need every 
national dollar to meet the variety of demands on both the 
public and the private sector for the resources to meet the 
standards of living for both the elderly and the working 
population.
    So I think the strategies have to be flexibility and 
prevention on the costs, and private sector first on the 
financing, and I'd be happy to continue the discussion. Thank 
you.
    The Chairman. Thank you very much.
    So we'll go to questions and comments at the moment. There 
appear to be three areas where there is strong evidence that we 
can indeed save money while at the same time not damage the 
effectiveness of long-term care, and you have all referred to 
these three: number one, by keeping people out of the hospital 
in the first place; number two, by not sending people to a 
nursing home until they absolutely need to be there; and number 
three, by rebalancing or shifting nursing home residents who 
don't really need to be there to a home or a community setting 
where their costs are lower.
    So moving from here on forward, addressing these three 
things, how can we do better? Do you have some particular 
thoughts and ideas on how we can improve on our cost of long-
term care while not damaging the product?
    Mr. O'Brien.
    Mr. O'Brien. I think OPM is incredibly interested in sort 
of continuing to improve the products that we're offering. Just 
to clarify where we are, it is still a relatively young product 
for us. The experience of folks who are actually getting the 
services is relatively small relative to the total population 
that is in.
    One of the things we are monitoring very closely with our 
contractor as we go forward is as advantages are made in the 
delivery of the service, we will work with our contractor to 
make sure that those are applied to our program, and we are 
very interested in hearing what those on the cutting edge of 
these programs are as what the best way forward is.
    The Chairman. Mr. Colman.
    Mr. Colman. I think initially we have to look at what does 
the consumer want and what does the consumer have the ability 
to have as choice, and the number-one thing we hear from older 
people in Minnesota is they want to remain in their homes. And 
if we can provide low-cost interventions, we can delay the need 
for more expensive services for some period of time, and that's 
what we're really focusing on, is delaying the need for more 
expensive services.
    We have a tracking in Minnesota. Ninety-two percent of 
long-term care in Minnesota is provided by families right now, 
and they want to continue to do so, and the more we can support 
families to continue to help their older family member, again 
it will conserve dollars for those that truly have higher 
needs.
    The Chairman. Does that 92 percent lead the nation? Do you 
know, or do you----
    Mr. Colman. Mr. Chairman, I don't know. I don't know what 
other states are tracking. We----
    The Chairman. Are you imagining--because you've been in 
this field a long time--that that's among the very highest in 
terms of percentage?
    Mr. Colman. I think it is probably, Mr. Chair, on the 
higher end of the spectrum. But I think family members 
throughout the country want to support their family members. 
They need the tools, they need the information, they need some 
additional support in order to do so, but I believe there are 
people across the country who are committed to helping their 
family members.
    The Chairman. I think you and the others on our panel have 
said that a key is keeping people with long-term care needs in 
their homes as long as possible, keeping them out of hospitals, 
out of nursing homes, and in their homes. Is that right?
    Mr. Colman. Mr. Chair, that's correct.
    The Chairman. What about you, Professor Feder?
    Dr. Feder. Chairman Kohl, you asked about reducing hospital 
use as one of your goals. My testimony was directed at that 
through improved coordination of care, enhanced primary care 
targeted to this population, and coordinating their long-term 
care needs, as well as their basic medical needs.
    But I would add to that in preventing unnecessary 
hospitalization. We have tremendous evidence of inappropriate, 
unnecessary, and potentially preventable hospital use by long-
term nursing home residents who are not getting enough nursing 
care in the nursing home. And I would urge attention to holding 
nursing facilities, skilled nursing facilities--again, you can 
do this through Medicare--holding them accountable for 
providing that good care and thereby preventing unnecessary 
hospital admissions, whether for bedsores or dehydration, 
things that we know can be handled in the nursing home.
    And a third area for Medicare initiatives would be greater 
accountability for good-quality care, including preventing 
unnecessary hospitalizations, in the SNPs, the special needs 
plans, the Medicare Advantage plans that are directed at dual 
eligibles. MedPac tells us that we don't know very much about 
what goes on in those plans, and we could do a far better job 
of holding them accountable for delivering appropriate care.
    Now, when you ask about promoting more home and community-
based care, I would answer with what not to do. Making major 
cuts in Medicaid financing and Federal financing for Medicaid, 
or turning over more responsibility to the states I believe 
would put home and community-based care in particular in 
danger, and nursing facilities have a great deal of political 
power in the states, and I think that if resources are 
constrained, particularly as needs are rising, to cut what's 
coming in from the Federal Government would particularly put 
home and community-based services at risk.
    I would similarly pick up on a caution that I heard in Dr. 
Chernof's testimony about any initiatives that are moving to 
managed care for dual eligibles or managed long-term care that 
are primarily budget, not quality driven. There, too, I think 
we have to be very mindful of whether we will be getting 
appropriate home and community-based along with other services 
for those beneficiaries.
    And then finally, I would endorse another comment or 
suggestion of Dr. Chernof's, regarding the future as the 
population ages. I'm rooting for those improvements in 
preventing Alzheimer's. It's not only in my personal interest 
it is clearly in the nation's interest. But we are likely to 
see an increased demand or need for finance for formal long-
term care services, and unlike Dr. Holtz-Eakin, I'm not a 
believer that we will make great progress through private long-
term care insurance. We can do better with private long-term 
care insurance, especially on its quality, but I do not see 
that as the financing solution for the problem, whether we have 
it now or we have it in the future.
    In that area, enhanced Federal support, as Dr. Chernof 
said, with an enhanced match, or with the federalization of the 
program, I think, is going to be critical to getting 
appropriate access to care at home and in the community, as 
well as in nursing homes as the population ages.
    The Chairman. All right.
    Dr. Chernof, how can we do better without spending more?
    Dr. Chernof. Chairman, a couple of observations. First, I'd 
suggest that you're asking a specific question about what can 
we do better now, and I would observe that there is also this 
other question, which is how do we plan better for the long 
term. And so I want to address my comments specifically to your 
question, which is what is it that we can do with current 
systems to really improve them given what we know.
    I would observe, if you were to look at our long-term 
services and supports scorecard, looking all across the 
country, and then the roadmap work that we completed with the 
Center for Health Care Strategies looking at the steps to 
improving systems, whether it begins with rebalancing, moving 
to managed long-term services and supports, or creative models 
around duals, we should be heartened by the fact that there are 
really good models out there, some of them represented by folks 
on this committee, and that we should be building on what we 
know.
    So the notion that we're starting from scratch is certainly 
not accurate. There are really good models, and we should build 
on those experiences.
    To Dr. Holtz-Eakin's point, which I strongly agree with, 
flexibility is really important, because how we're going to 
meet the needs of families and delivery systems is very locally 
based. It's based on the assets on the ground, on family 
structures and other kinds of resources.
    So the solution I think to your three points resides in 
organized, accountable systems of care that have the 
flexibility to meet the needs of families and are responsive to 
the assets that are available. I would offer that those 
flexible, accountable systems have four key characteristics.
    The first is that they begin by focusing on the quality and 
coordination of care. The notion of targeting the right 
services to the right folks is incredibly important in how you 
get the efficiencies you're looking for.
    The second point would be that they have rebalancing at 
their core, which means we are going to focus on helping folks 
stay in the communities of their choice, that we're going to 
work against the tyranny of the bricks and mortar. I'm a 
physician. I grew up in hospitals. I've cared for people in 
nursing homes. Bricks and mortar drives so much of the 
financing of health care, but what we're really talking about 
is a system that begins and resides with the focus being in the 
community.
    The third key point would be this notion of self-direction 
and choice. It's hard for clinical providers to do that. I hold 
myself amongst them. We really start by talking with patients 
and families about what they want and then try to achieve that, 
because that will often be the most cost-effective choice, and 
it will often be one that keeps the family, the individual, 
even when they are a patient, in the driver's seat.
    And the fourth characteristic is that any of these changes 
really do need to be efficient systems. They need to generate 
cost savings that can be used to support the system, that they 
generate outcomes that improve quality. So that notion that you 
measure what you're doing, that we're not just building systems 
that are more expensive because they're better, but we're 
building better systems that are actually more efficient and 
are much better stewards of the public resources that we use in 
these programs.
    The Chairman. Thank you.
    Dr. Holtz-Eakin.
    Dr. Holtz-Eakin. Yes. So I think the important things to 
echo are that there are models and examples that appear 
promising at the moment for, in particular, doing the 
coordination in many cases across what are traditionally 
separated long-term care and health services.
    Our experience when I was at CBO was that successful small-
scale models don't often scale successfully. So what I would 
urge you to do is think hard about scaling things up, in 
particular if you're going to go past something that looks like 
a demo, pilot, example, and focusing on the states as the 
vehicle for scaling makes a lot of sense because they have the 
capability of running large-scale programs like Medicaid, they 
have flexibility in how they implement things, and you can 
learn from the different state experiences. So I think a focus 
on the state level actually makes a lot of sense from that 
point of view.
    We also know that many states have been very successful in 
the health area using managed Medicaid approaches with adequate 
quality controls for outcomes. To the extent that we wanted to 
try some more coordination through that vehicle, I think that 
would be a sensible first step in this area and see what kind 
of results we actually get on larger populations.
    The Chairman. Thank you.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman, and thank all of 
you for your testimony.
    As you look at the issue and just look at overall financing 
for health care in general, it's obviously a major train wreck 
that's out on the horizon. I was this weekend visiting a couple 
of neighbors in a long-term care facility, and it's just 
incredibly expensive. All of us either have loved ones or 
friends or neighbors that have had Alzheimer's. We see more and 
more of that coming. So the financing component of it is just 
incredibly difficult and a national issue, and moving to a 
national crisis.
    How are the private institutions that you've dealt with 
that are actually insuring long-term care on the private side, 
how are they actuarially doing? I mean, it seems to me it would 
be very difficult at this juncture, knowing so many changes 
demographically but also larger occurrences of Alzheimer's, 
obviously much larger costs, how in the world, how are the 
private institutions faring that are actually in the long-term 
care business, and are there concerns about their solvency down 
the road?
    Do any of you want to--I know some of you don't really like 
private, so I'll ask you some public. Go ahead.
    Dr. Holtz-Eakin. I think we've seen both some private 
failures where they have not adequately managed those risks, 
and we've seen some people leave the long-term care insurance 
market as a result, but we've also seen some of the 
institutions both understand the interactions with Medicaid 
better, have taken advantage of the partnership opportunities, 
offer policies that protect against up to 5 percent inflation 
risk to the beneficiary and still manage their finances well 
enough to stay in business.
    So there are still people in the business and being 
successful. If we get more examples like OPM, where there are 
more employers providing the gateway to large pools of 
individuals buying this insurance, I actually think they would 
have a much brighter future. When you look at the kinds of 
things that matter for making private insurance more successful 
and a bigger part of this--and I want to emphasize for 
Professor Feder's sake, I don't think private insurance is 
going to pay every dollar going forward. Most is in families. 
That's the bulk of it. We ought to get every dollar we can in 
private insurance because the demands on the public sector are 
going to be enormous, and we just ought to do these things.
    So I think awareness, start with awareness campaigns. I 
think there is a lot of ignorance about the need for this care 
late in life and who is going to pick up the tab. Get wherever 
you can employer offer as part of the package so that people 
can see it there, and enroll----
    Senator Corker. You mean in a cafeteria?
    Dr. Holtz-Eakin. If at all possible, yes. I mean, it's not 
perfect for everything. Deal with the Medicaid coordination 
issue. I mean, there is a research literature suggesting that 
Medicaid crowds out private long-term care insurance. I think 
it deserves serious consideration. It's not the only reason 
that there's trouble. You could consider some things for the 
tax code. None are magic bullets.
    But again, since we have a saving need, and we have a long-
term care financing need, products that come with annuities for 
long-term care insurance, innovative financial products that 
are favored by the tax code might be part of the solution. And 
if you go back to the literature on how do you get people to 
save and buy health insurance, you could have opt out. Start 
with private long-term care insurance as part of a package and 
then opt out of it if you don't want it.
    So, none of those are, in and of themselves, fabulous. None 
of them are, in and of themselves, going to solve it. But I 
think all of them merit some consideration.
    Dr. Feder. Senator Corker, it's not that I don't like 
private long-term care insurance.
    Senator Corker. I was going to ask you about public.
    Dr. Feder. I'd be happy to talk about that as well, but 
it's not that I don't like it. It's that it is--and Doug has 
couched his suggestions, suggestions--it's a neutral term, 
``advocacy''--in terms of recognizing that it's part of the 
solution. It's not the solution.
    And my concern is that as long as I've been working on this 
issue, and it's getting close to long enough to need long-term 
care, long-term care insurance has been called a fledgling 
industry. It is very challenging for this industry to grow. 
It's serving about the same number of beneficiaries today as it 
was 10, 20 years ago. It's just not growing. And several of the 
companies, or certainly some prominent ones, have stopped 
offering the product.
    I don't know that it's because they're going out of 
business, but they're having difficulty making money on it and 
making it grow. The way they keep from going out of business is 
that they set limits on the lifetime benefits and are careful 
in selecting their beneficiaries and, when necessary, they 
increase the premiums even after people have been paying for 
many years.
    So it is a product that is particularly limited--and I know 
that Senator Kohl has been quite interested in promoting strong 
quality standards for insurance. If it's a good product, it's 
good that people with means can afford it. But the number who 
can is modest, and the industry itself recognizes that.
    So my concern with a strategy to make it better, I think 
making it better is great. My concern with any strategy that 
would, say, put tax incentives into it to support it, that's 
actually spending public dollars or foregoing revenues, as Doug 
well knows, and if I'm choosing, I would rather see those 
dollars strengthen support for those least able to afford care, 
not for those who are most able to afford care, because we know 
historically that those subsidies do, in fact, go to people who 
probably would have bought it anyway.
    Senator Corker. That's interesting. I do think the 
environment here is moving more towards tax reform that doesn't 
incent, that actually does away with many of the $1.2 trillion 
in tax breaks that we give each year. So I understand that's a 
suggestion that maybe calls for there to be greater uptake. At 
the same time, I think the momentum right now is in a very 
different direction, and I think everybody acknowledges that.
    Doctor.
    Dr. Chernof. Just to add one observation, more from a 
clinical place than the folks on each side of me, I guess the 
challenge that I see in front of us is that we've failed as a 
country to achieve a social policy goal of getting people to 
plan effectively for their long-term service and support needs 
as they age, given that 70 percent of folks are going to need 
them.
    So even when you look at things like the Partnership 
Program, which is a nice incremental step, the reality is that 
it's an open question whether the Partnership Program actually 
covers new people or whether it covers people who were 
predisposed to buy long-term care coverage, which is still a 
good thing. I mean, every person covered is a good thing.
    So those sorts of challenges suggest that what we have is 
kind of a boutique or a niche product and that many of the 
solutions we've looked at sort of build in a very incremental 
way, and I think the challenge or opportunity in front of us 
may be to look at larger-scale solutions that get us to broader 
forms of coverage, whether they're in the public or the private 
space. But we need to get to a place that has people more 
engaged and that there are cost-effective choices in front of 
them.
    Senator Corker. Professor Feder, I know that you were, I 
think, a pretty major champion of not necessarily the Class Act 
but something like that, where there was public financing in 
place. If you look at where we are today, where in today's 
dollars the average American family making average wages puts 
about $119,000 into the Medicare program over their lifetime in 
today's dollars, and that same family takes out of Medicare 
over their lifetime in today's dollars $357,000, as we all 
know, you cannot make that up with volume, and yet a lot of 
volume is on its way, over this next 10 years in particular.
    I mean, knowing that we're not particularly good at making 
those things work in the public sector, we always want to give 
people what they wish without asking them to pay for it. I 
mean, that's kind of the way politics has been in Western 
democracies.
    Is there a way for us to effectively design, in your 
opinion, a public plan that addresses the concern you're 
talking about, that we're all talking about?
    Dr. Feder. Well, I think there is. I think that, 
unfortunately, there's a lot of resistance to that at the 
current time. But let me just----
    Senator Corker. And I think a lot of it is because of the 
way we've handled some of these other programs.
    Dr. Feder. Well, let me address that. First, I think it's 
useful to consider and we've heard a couple of times, 
accurately, that 70 percent of people who are turning age 65 
are likely to need long-term care. The reason that we're 
talking about insurance, whether public or private, is because 
there's a lot of unpredictability for individuals about where 
they're going to fall.
    So on the 70 percent, that means 30 percent aren't going to 
need it at all, and I think we all root for that, live to a 
ripe old age and then say goodbye, healthy. That would be the 
best. But there are also, even within the 70 percent, about 17 
percent use less than a year of intensive long-term care 
services. At the other end of the spectrum--excuse me, 20 
percent use more than 5 years. So there's variation, and that's 
why we talk about insurance, because savings alone, you can't 
do it.
    Senator Corker. That's right.
    Dr. Feder. It's just not doable. So that's the first thing.
    On your Medicare point, the problem there is rising health 
care costs. Can we contribute during our working years at the 
rate of growth we've seen on health care costs? First of all, 
we only contribute during our working years to cover Part A, 
mostly hospital costs, which is only about half of costs. The 
rest we pay through premiums and general revenue. So in that 
pre-funding, there's such an imbalance because we aren't 
controlling health care costs, and it's not that Medicare is 
doing worse than the private sector. The whole system is not 
controlling health care costs. If anything, Medicare is doing 
slightly better, has done historically over most of history 
slightly better in controlling costs.
    Now, going forward, because we are moving toward more 
integrated care, we're looking to have Medicare lead the whole 
system in making that more efficient. So I wouldn't share a 
negative view toward Medicare. I think we need to do better in 
all of our health care spending.
    And then what you're raising really is whether we----
    Senator Corker. I wasn't giving a negative view. I was just 
stating the facts. We're spending three times as much as we're 
taking in, and I'm just saying that as politicians, we have 
difficulty aligning those things. I agree with you that both on 
the public and private side, health care costs have not been 
controlled. I agree with that. I'm not making a differentiation 
between public and private.
    Dr. Feder. Good. Okay.
    Senator Corker. We just haven't handled this program or the 
other entitlement program particularly well.
    Dr. Feder. Well, I'm not sure we agree on that, but that's 
okay. We can move on from that. What I would say is that what I 
thought you were talking about is looking for a way to pre-
fund.
    Senator Corker. That's correct.
    Dr. Feder. And I actually would be happy to provide for the 
record a proposal that was developed by Len Berman, who used to 
run the Urban Institute Brookings Joint Tax Center, and a 
colleague of his at the Urban Institute that actually put 
forward a design for the pre-funding of services for that. I 
think that can be done, challenging, pre-funding it all, which 
Medicare was never designed to be. That's what I was really 
saying earlier. Pre-funding it all is challenging because we 
do, when we take it in as a federal government, we tend to lend 
ourselves that money.
    Senator Corker. That's right.
    Dr. Feder. And if we really want to put it away, that's a 
challenge for us. But I'd be happy to share that proposal.
    Senator Corker. I'd love to see it. Thank you.
    Sorry for taking so long.
    The Chairman. Thank you so much.
    I know Senator Udall has to leave. Do you want to ask a 
couple of questions, make a comment? Go ahead.
    Senator Udall. I think Senator Manchin arrived before I 
did.
    The Chairman. All right. Go ahead, Senator Manchin.
    Senator Manchin. Thank you so much. I appreciate that. Very 
kind of you.
    Mr. Colman, we all know that Medicaid was never intended to 
be the primary provider of long-term care coverage, yet 
Medicaid is the largest payer of long-term care services, with 
long-term care accounting for almost half of national long-term 
care spending. As a former governor, I know that giving our 
states the flexibility and resources they need to innovate is a 
first and critical step toward controlling spending in the 
Medicaid program and improving long-term care outcomes.
    We will never achieve quality and savings with a one-size-
fits-all approach that ignores the differences in the Medicaid 
population from state to state. As you noted in your testimony, 
Minnesota is applying waivers under Medicaid to improve the way 
to deliver and pay for services and to make sure that services 
go to the most in need, which I agree with.
    With that being said, sir, what steps could Congress take 
to improve an increase in flexibility in states like West 
Virginia and Minnesota to help maximize the value of long-term 
care in their Medicaid programs?
    Mr. Colman. Thank you for the question. I, too, believe 
that the states can manage the programs effectively, and I 
think Minnesota is an example of if you have a vision, if you 
have a goal, and if you plan appropriately, you can achieve 
that. But it takes some prerequisites. You can't have a home 
and community-based system unless you plan to have a home and 
community-based system, unless you have the infrastructure for 
communities to retain people of all ages in their communities.
    I think we have to not only move away from a one-size-fits-
all philosophy so that all states will look alike but also that 
the waivers have to look identical. We've had this partnership 
with the Federal Government that begins with the assumption 
that the institution, because of the way the programs were 
initiated, the institution is the entitlement, and then you 
have to seek permission to do things differently, which is 
always contrary to my thinking, why we have to ask permission 
to do things differently that the consumer wants.
    Again, I'll repeat. People want to stay in their homes, and 
that's why we're redesigning a system whereby the most 
expensive care, the most expensive services, the waiver so to 
speak, will be available to those with the highest needs where 
it cannot be provided elsewhere.
    But beyond that, we want strategies to maintain 
independence, again low-cost strategies to maintain 
independence, low-cost strategies to encourage transition back 
to the community, and we've had some success with that. 
Transition to communities of people who have been in nursing 
homes longer than 90 days are proving very successful. But it 
takes a person-by-person strategy to achieve that outcome. We 
can't just declare that that's what we're going to do. It takes 
resources, which is what Minnesota is doing.
    So if we dispense with the waiver, and then everyone has 
that full menu, as opposed to targeting based upon individuals' 
needs where in the system they best can use their----
    Senator Manchin. You believe in health care waivers, 
correct?
    Mr. Colman. I do, sir, yes.
    Senator Manchin. Mr. Chernof, if you would, the same kind 
of comment on the waivers. How do the states have a little bit 
more flexibility, and do you believe that's important?
    Dr. Chernof. Thank you, Senator. Building on what was 
already said, I think that there needs to be a valid, reliable 
delivery system in place. So to get from where you are to where 
you want to be really depends on the resources that are 
currently available, and if you don't have everything you need, 
then you need to give the time to grow those resources, and 
that's why, to my mind, some of these flexibilities are really 
important. If you're going to encourage folks to remain in 
their home or in their community, there have to be valid, 
reliable, observable, accountable resources that can be there 
to help those families when they need that little bit of help.
    So I think where the flexibilities come in is I do agree 
that moving away from the only entitlement being the nursing 
home and actually getting to a place where folks get home and 
community-based services as a right, not as a waiting list but 
as a right. That's a huge step in the right direction, and 
that's an important piece of flexibility.
    But then what the states need to be able to demonstrate is 
that there's really a valid system that's there to meet the 
needs of folks as we make that transition.
    So I think what the states need to be able to demonstrate 
to ask for that flexibility is that there really is a 
demonstrable system where quality is being measured, where 
there is a way that, if folks are having a problem, beneficiary 
issues, they can be addressed. But we need to move away from 
the tyranny of bricks and mortar.
    Senator Manchin. If I can just very quickly ask Mr. Holtz-
Eakin, in your testimony it's a common misconception that 
Medicare covers long-term care, and many more simply never save 
for it or plan for it, for long-term care services and 
supports. What do you think can be done, or what should be done 
for us to educate the public? Because there are so many people 
falling through. They just have nowhere to turn to.
    Dr. Holtz-Eakin. I'll be honest, I don't know that there's 
a magic public education program. We have enormous problems in 
Federal programs and their costs, and it's difficult to educate 
the American public about the scale of that problem. But there 
have been some Own Your Future initiatives which were 
mentioned. I think those are the kinds of things you ought to 
look and see what kinds of successes we get from them. They are 
relatively small scale. If they turn out to be a good 
investment, you do a project evaluation, they've improved 
awareness and they don't cost much, that would be great.
    I think the more you can do through the employer community, 
who are often very effective at reaching their employees about 
various financial management issues, I think those are the two 
things to do.
    Senator Manchin. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Udall.
    Senator Udall. Thank you, Mr. Chairman. Thanks to you and 
the Ranking Member, Senator Corker, for holding this important 
hearing. I think this discussion has been very, very helpful on 
a macrocosmic level. I've got a couple of questions that are a 
little more focused.
    But before I turn to those, I wanted to acknowledge that, 
Dr. Chernof, I think you're sitting between those two 
advocates----
    [Laughter.]
    ----Intentionally.
    Chairman Kohl and Chairman Corker have very astute staffs. 
But thank you all for your great and spirited conversation.
    Mr. Colman, let me turn to you and follow up a little bit 
on what Senator Manchin pursued, with a particular focus--and 
I'm going to turn to Dr. Feder as well--on rural parts of the 
country. In Colorado, of course, the eastern reach of our state 
is very rural. We produce a lot of food and fiber and fuel for 
the country. We also have western reaches in Colorado that are 
very rural.
    What have you found are some of the unique challenges in 
providing those long-term services into those parts of your 
state?
    And then, Dr. Feder, I'd like you maybe to follow on with 
how Medicare itself could work with that dynamic.
    Mr. Colman. Again, Minnesota has Greater Minnesota also, 
where the population density is certainly a challenge in 
providing services to older adults and people with 
disabilities. What we've found, though, is that we need some 
flexibility, that again, relying upon the communities and the 
community infrastructure with which to base long-term care 
services and supports, we need to acknowledge the drive time, 
the differences that we need to accommodate in our policies to 
allow for people to have some choice, but they may not have as 
much choice.
    It's a challenge to devise policies that accommodate those 
kind of distinctions or differences, but it can be done.
    We're also learning the value of technology and the fact 
that every day there is more to be learned from how we can 
support people in their own homes with the use of technology 
via the Internet, via other lifeline-like systems and 
monitoring systems for people who are some miles away from 
services.
    Senator Udall. Dr. Feder, would you like to----
    Dr. Feder. Yes. I would reiterate and I think reinforce the 
emphasis on technology to connect people who are dispersed to 
resources that can serve as supports and have people who can 
check in on people who are impaired and be able to--Skype is a 
wonderful thing. I'm sure we've got better than that, but there 
are I think mechanisms that can make people feel connected and 
supported and keep them connected to caregivers, by which I 
mean medical technicians in urban areas.
    But you asked about Medicare. I think that Medicare, in 
terms of developing integrated delivery systems, I think 
Medicare is in the process of doing this. We need not look to 
states, or we need not look only to states. Medicare can do a 
great deal, and is, in this regard. By trying to support 
physician practices, small physician practices in rural areas, 
and using personnel who can serve several practices as care 
coordinators, who are able to connect--using both visits and 
technology--to people who are in their own homes and enable 
them to connect to resources for supports, I think Medicare can 
do a lot in that regard.
    Senator Udall. So you perhaps could be making house calls 
using technology without actually being on site.
    Dr. Feder. I'm confident it's not exactly the same, but I 
think you could greatly enhance support for people both in 
terms of monitoring their conditions and in terms of helping 
them--keeping track of people so that you know when a crisis is 
occurring. That's what coordinators, what we're looking at with 
social workers and nurses and other professionals, to help 
identify when people need interventions and try to connect them 
to the resources, the infrastructure we're talking about, that 
Bruce is talking about building, so that they can stay at home, 
so it doesn't become a crisis and we don't have an unnecessary 
hospitalization.
    Senator Udall. Both my parents were very stubborn. I'm sure 
I won't be stubborn and my children will think I'm very 
flexible. But they both wanted to live in their own homes in 
their later years. Imagine that. And they both took falls. 
There were not people there, and both of them lay in the 
bathroom and kitchen, respectively, for half a day or longer, 
and then the result of those falls ended up in their deaths 
ultimately. So I wonder if there couldn't be that sort of 
monitoring, although you have privacy concerns and so on.
    Dr. Feder. But we can do way better. I don't think there's 
any question about that. If you think about things that cause 
unnecessary hospitalization, like dehydration, having somebody 
checking in on you that you're eating properly, taking your 
medications, all those things can very much improve quality of 
life and quality of care for people, and prevent the use of 
expensive services.
    Senator Udall. Dehydration actually contributed to the 
conditions that both my parents developed.
    Let me go back to, if I might, long-term care insurance. I 
know, Dr. Holtz-Eakin, you spoke to this. I know I've got my 
little pamphlet that the FHEBP has sent me sitting in my home 
office, suggesting I ought to buy long-term care insurance. I 
haven't responded yet. I keep thinking, well, I'll find a 
moment where I want to do that.
    Mr. O'Brien, I know that in the Federal program we have one 
long-term care insurer, I think. Is it John Hancock? What are 
you doing to think about attracting more carriers? And then if 
there's a little bit of time left, I might ask Dr. Holtz-Eakin 
how we further use market forces and market psychology to get 
us aging Baby Boomers to participate.
    Mr. O'Brien. I actually think you've identified one of the 
challenges that we see for the Federal long-term care program 
going forward, is that in recent years the number of insurers 
who are actively participating in this market has gone down. 
I'm not so concerned that we have one provider of the long-term 
care program right now. I think that for the way we've done it, 
that's the way we do life insurance. It's not like the health 
insurance where people are changing yearly.
    What I am more concerned about is that when we re-upped our 
contract, we only had one active bidder to provide that 
service. So we are looking very carefully. At the moment we 
have a provider that's doing a good job, but a concern long 
term for this program is that there are enough active 
participants, insurers out there trying to actually provide 
that service.
    I think the point was made earlier today that the market 
has stayed relatively static over a number of years, and it's 
not growing rapidly. We are very happy in the fact that, when 
the contract opened up again, that we actually increased 
enrollment by roughly 20 percent, which we thought was very 
positive. But it is one of the challenges on the horizon for 
us.
    Senator Udall. I could help those numbers if I'd sign up.
    Mr. O'Brien. You can sign up any time.
    [Laughter.]
    You can do it in the hearing now.
    [Laughter.]
    Senator Udall. Doctor, would you have any further 
observations?
    Dr. Holtz-Eakin. I think it's very important to harness 
market forces literally from the ground up. You've heard talk 
about the technologies. You've heard talk of the need for 
flexibility, and markets are very, very good at that. There are 
roles for government in this, and they are on both sides, both 
good and bad. I mean, you care about privacy. You care about 
having quality personnel going into someone's home and 
delivering services. But if you regulate too tightly what a 
person can and cannot do, then you're not going to get the 
benefits of bundling the different kinds of services.
    So a thorough review at the ground level in every state 
about the ability to provide these services more cheaply is 
going to make the care cheaper, and that's going to help make 
the insurance cheaper. You just can't get around that. Having 
very expensive underlying care makes insurance a lot harder to 
sell.
    And then you have to be able to make money or you're not 
going to stay in the insurance business, and I think we've had 
too little awareness and too little education for people to 
sign up. There's an old saying that says insurance is sold and 
not bought, and we might need to sell more of this. So I think 
that's a big part of it. And to the extent that the experience 
of the Boomers in caring for their parents drives this, I think 
that's one thing we might see be very different in the future 
than in the past.
    Senator Udall. Thanks again. Thanks to the Chairman.
    I think President Clinton once remarked this is a high-
class problem we have because of the extension of our 
lifespans, but nonetheless it is a real challenge. Thank you 
all.
    The Chairman. Thank you very much, Senator Udall.
    Dr. Holtz-Eakin, you've expressed some optimism about the 
private long-term care insurance market. The individual market 
has not thrived, as you know, in recent years, with premium 
increases sometimes as high as 90 percent.
    On the other hand, a Wisconsin company that I'm very proud 
of, the Northwestern Mutual, has never had a premium increase.
    In your opinion, or in your view, how can we succeed with 
the long-term care insurance market in keeping the premiums 
reasonable and getting people to participate in long-term care 
insurance?
    Dr. Holtz-Eakin. Again, as I mentioned to Senator Udall, 
ultimately the costs are driven by the underlying costs of 
long-term care services. So step number one is work on those to 
the extent possible. And then step number two is pool as 
effectively as you can and make sure that you can get broader 
pools. That's always been a problem in the individual markets, 
and this is a very thin individual market at the moment. Ways 
to enhance the pooling, particularly by having individuals able 
to buy through their employer, I think is the key to making 
that more successful.
    The Chairman. Senator Corker.
    Senator Corker. I think I'm good. I look forward to seeing 
Professor Feder's document, and I thank all of you for 
testifying. This is a very massive problem. I mean, people are 
not thinking in advance of those kind of things down the road. 
I mean, people, candidly, have difficulty just sort of seeing 
daily and yearly activities through. I think the comment, Doug, 
that you made about insurance being sold and not bought, the 
fact is that it's just not on--by the way, I haven't signed up 
either, and I may not.
    But it's a big problem, and the cost associated with this--
and again, I hate to go back to that. I really do appreciate, 
Dr. Chernof, your comments about customizing and making this 
very customer or patient centered. I agree with that. We were 
very aggressive, as you know, in Tennessee in seeking waivers 
and really moving to community-based solutions. By the way, 
that was done by people on both sides of the aisle through the 
years, and I think it's worked out very well for us.
    But this is a massive, massive problem, one that the 
Finance Committee and others here all need to be involved in 
dealing with, and no doubt there is a public sector role. And 
at the same time, I have to tell you, on the private side I 
think that trying to--again, this sounds like Northwestern 
Mutual, who I do have a policy with--has done a good job of it. 
But the actuarial issues of being able to take in premiums now 
and know that that's going to deal with situations down the 
road is really, really tough.
    Anyway, I thank you all for educating us today and coming 
here from other places, and look forward to seeing you again.
    The Chairman. Any other comments from members of the panel?
    [No response.]
    We thank you so much for being here. It is clearly 
complicated, vast, and terribly important, and you've shed a 
lot of light, and thank you for coming.
    Thank you, Bob.
    Senator Corker. You too, sir. Appreciate it. Good hearing, 
very good hearing.
    [Whereupon, at 3:24 p.m., the hearing was adjourned.]



                                APPENDIX







                                  
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