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26–379 2006

LONG TERM CARE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

FIRST SESSION 

APRIL 19, 2005 

Serial No. 109–46 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

BILL THOMAS, California, Chairman 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

ROB PORTMAN, Ohio 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

SCOTT MCINNIS, Colorado 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

BOB BEAUPREZ, Colorado 

MELISSA A. HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

ALLISON H. GILES, Chief of Staff 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HEALTH 

NANCY L. JOHNSON, Connecticut, Chairman 

JIM MCCRERY, Louisiana 

SAM JOHNSON, Texas 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

KENNY C. HULSHOF, Missouri 

FORTNEY PETE STARK, California 

JOHN LEWIS, Georgia 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

RAHM EMANUEL, Illinois 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


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C O N T E N T S 

Page 

Advisory of April 12, 2005, announcing the hearing ............................................ 2 

WITNESSES 

Congressional Budget Office, Douglas Holtz-Eakin, Ph.D. .................................. 7 

University of Texas, Health Science Center at San Antonio, San Antonio, 

Texas, Meghan Gerety, M.D. ............................................................................... 31 

Genworth Financial, Buck Stinson ........................................................................ 38 

George Mason University, Center for Health Policy, Research and Ethics, 

Arlington, Virginia, Mark R. Meiners, Ph.D. ..................................................... 44 

Lutheran Homes of Michigan, Frankemuth, Michigan, David M. Gehm ........... 51 

Georgetown Public Policy Institute, Judy Feder, Ph.D. ....................................... 55 

SUBMISSIONS FOR THE RECORD 

American Council of Life Insurers, Alane Dent, statement ................................. 72 

Americans for Long Term Security, Laura Howard, statement .......................... 76 

American Health Care Association, Hal Daub, statement ................................... 76 

American Network of Community Options and Resources, Alexandria, Virginia, Suellan Galbraith, statement ................................................................... 79 

Council for Affordable Health Insurance, Alexandria, Virginia, Merrill Matthews, statement .................................................................................................. 84 

Hometown Insurers, Inc., Saint Petersburg, Florida, Barbara Haseldon, statement ...................................................................................................................... 90 


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LONG TERM CARE 

TUESDAY, APRIL 19, 2005 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 4:19 p.m., in room 

1100, Longworth House Office Building, Hon. Nancy L. Johnson 

(Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943 

April 12, 2005 

No. HL–5 

Johnson Announces Hearing on Long Term Care 

Congresswoman Nancy L. Johnson (R–CT), Chairman, Subcommittee on Health 

of the Committee on Ways and Means, today announced that the Subcommittee will 

hold a hearing on long term care. The hearing will take place on Tuesday, 

April 19, 2005, in the main Committee hearing room, 1100 Longworth House 

Office Building, beginning at 4:30 p.m. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. Witnesses will include officials from the 

Congressional Budget Office (CBO) and representatives from the provider and insurer communities. However, any individual or organization not scheduled for an 

oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

As our society ages, the question of how we finance long term care services will 

become even more pressing. About 9 million adults currently receive long term care 

assistance, either in community settings or in nursing homes. Over 80 percent of 

those adults reside in the community, not in institutions. Among those 85 and older, 

about 55 percent require long term care assistance. Nearly 60 percent of elderly persons receiving long term care assistance rely exclusively on unpaid caregivers, primarily children and spouses. Only 7 percent of the elderly rely exclusively on paid 

services. 

In 2004, according to CBO, approximately $135 billion was spent on long term 

care for the elderly. Sixty percent of this amount was financed through Medicaid 

and Medicare, one third through out-of-pocket payments, and the remainder by 

other programs and private insurance. This funding excludes the significant resources devoted to long term care by informal caregivers (primarily spouses and 

children). The CBO estimates that informal care is the largest single component of 

long term care. 

In announcing the hearing, Chairman Johnson stated, ‘‘As the Baby Boom generation ages, increasing strain will be placed on our system of long term care. We must 

find new and innovative ways to encourage individuals to prepare for their long 

term care needs. It is important for us to develop a thorough understanding of how 

the current system is financed, how care is delivered, and what challenges we face 

in helping individuals plan for their long term care needs.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on current financing for long term care services; the range 

of services available in the continuum of care from home- and community-based 

services to nursing home care; private long term care insurance options, including 

the Long Term Care Partnership programs; and the challenges ahead in financing 

needed services for an aging population. 


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DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘109th Congress’’ from the menu entitled, ‘‘Hearing Archives’’ (http://waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Tuesday, May 

3, 2005. Finally, please note that due to the change in House mail policy, the U.S. 

Capitol Police will refuse sealed-package deliveries to all House Office Buildings. 

For questions, or if you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman JOHNSON OF CONNECTICUT. Good afternoon, everyone. Today I am pleased to Chair this hearing on long-term 

care. The issues surrounding long-term care, how to prepare for it, 

how it is delivered, how it is financed, will become ever more pressing as the baby-boom generation retires. As a result we must find 

new and innovative ways to encourage people to prepare for their 

long-term care needs as part of the broader examination of retirement security. Some of you may be surprised to learn that longterm care is not just institutional care, but encompasses a whole 

range of services. According to the Congressional Budget Office, 

about 9 million adults over the age of 18 currently receive longterm care assistance, with more than 80 percent receiving care in 


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the community, not in institutions. Among those 85 and older, 

about half, 55 percent, require long-term care. Informal unpaid 

care by children and spouses is a critical component of long-term 

care. More than half of elderly persons receiving long-term care assistance rely exclusively on unpaid care givers, while only 7 percent 

of the elderly rely exclusively on paid services. The Congressional 

Budget Office (CBO) estimates that informal care is the largest single component of long-term care, and as we move forward in consideration of this subject and what the public policy ought to be in 

regard to long-term care, I believe we absolutely must never lose 

sight of the fact that informal care is the largest single component 

of long-term care. 

Thus, as we consider this issue, we must consider the impact not 

only on public and private finances, but on families and communities. The formal financing of long-term care to date has fallen 

largely on the public sector, primarily Medicare and Medicaid. CBO 

estimates these two programs financed 60 percent of formal longterm care spending on the elderly in 2004. Nearly one-third of our 

Medicaid benefit spending goes for long-term care services, and 

three-quarters of that one-third is spent for beneficiaries who are 

dually eligible for both Medicare and Medicaid. Thus, the interrelationship between these two streams of financing must be considered when looking at this issue. Most of the remainder of formal 

financing for long-term care is made up through out-of-pocket payments by beneficiaries themselves. To date, private long-term care 

insurance has not played a significant role in financing long-term 

care. For many years now, I have sought to draw attention to the 

issue of long-term care and the burden it places on individuals and 

families by introducing legislation to provide tax incentives for the 

purchase of private insurance and to provide relief for family care 

givers. Although sales of private long-term care insurance are increasing, it still covers a small portion of the population and, therefore, a small portion of overall long-term care costs. Without a significant change in the market for private insurance or in the product itself, the burden of long-term care costs is likely to continue 

to fall largely on the public sector and on families. Ironically, the 

very existence of public sector programs serves as a disincentive to 

some individuals to purchase private insurance and will reduce the 

drive for greater innovation in private insurance products. Thus, as 

we move forward in examining the issue, we need to consider the 

interplay of public and private financing and the incentives created 

by each in order to develop a comprehensive solution for the longterm care system. 

I am pleased to have an outstanding array of witnesses here 

today to help us lay the foundation of knowledge necessary to understand the current state of long-term care and the changes we 

face in the future. We will begin by hearing from Douglas HoltzEakin, the Director of the Congressional Budget Office. Dr. HoltzEakin will provide us with an overview of long-term care financing, 

an update on the report CBO did last year on long-term care financing for the elderly. And our second panel will begin with Dr. 

Gerety. Dr. Gerety is President of the American Geriatric Association and will provide a broad overview of demographic and aging 

trends, how the baby boomers will change the long-term care sysVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 E:\HR\OC\26379.XXX 26379

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tem, and how the industry will need to respond to meet increased 

long-term care needs. Buck Stinson, President of the Genworth Financial’s Long-Tterm Care Division, will provide us with a view 

from the private insurance market. Genworth is the longesttenured provider of long-term care insurance in the United States 

and is the largest provider of individually purchased long-term care 

insurance. Mark Meiners, professor and director of the Center for 

Health Policy, Research, and Ethics at George Mason University, 

has done extensive research on long-term care and directed the 

Robert Wood Johnson grant for the Long-Term Care Partnerships. 

Dr. Meiners will discuss the partnership programs and issues arising from the interrelationship between Medicare and Medicaid in 

long-term care financing. David Gehm, President and chief executive officer of the Lutheran Homes of Michigan, will give us a provider’s perspective by discussing the full continuum of long-term 

care services that are available today, including institutional and 

home- and community-based services, along with the challenges 

care providers face in navigating various financing mechanisms. 

And, finally, we will hear from Judy Feder, Dean of the Georgetown Public Policy Institute. Dr. Feder will discuss the Georgetown 

Long-Term Care Project that she is co-directing, which has issued 

seven background papers and is currently in the process of reviewing a wide range of proposals for long-term care financing, and 

whose report we look forward to reviewing when it is published in, 

I hope, the not-too-distant future. 

This hearing will lay the foundation of knowledge that this Committee needs to consider the enormous challenge of long-term care 

for the baby-boom generation. But I hope this hearing will also be 

followed by those of you who know about small, significant 

expandings where improvements are being made, where new 

thoughts are being played out, and I hope to have some futurists 

meet with our Committee to clearly elucidate how current changes 

in medical science and those we can conceive of will affect in 10 

years or 20 years the nature of the long-term care needs of our seniors and the structure of services that they may need. I believe this 

is a very important hearing for the Members of the Committee. It 

may in the end prove to be as far as we can go. But it should be 

a beginning. In other Congresses it has been an end. So, I thank 

those who are testifying today, and I hope as they listen to each 

other and as others listen to this hearing that you will consider 

this a beginning, because I do not believe we know how to provide 

long-term care services for the size population that is going to need 

them in 10 years, and even more so in 20 years. And if we do not 

begin to get ourselves more focused, realistic, and profoundly 

knowledgeable about this, we will not be able to adjust policies to 

begin to prepare for the future. So, with that much introduction, 

let me yield to my colleague and friend, Mr. Stark. 

Mr. STARK. Thank you, Madam Chair. Today’s hearing on longterm care addresses a problem that is important and complex, and 

like you, I hope that this may be the first in a series of hearings 

that might lead to some action, although it seems to me Dr. Feder 

and I will be able to remember the Pepper Commission of some 

years back. And I think we went through this once before. 


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Chairman Thomas has said that he thinks long-term care should 

be part of the discussion on Social Security, and so perhaps it is 

time to revisit the issue and look into a variety of options. Medicare 

and Medicaid probably combine to be the largest payer for longterm care services in the United States, and if non-paid care is 

factored in, then individuals and their families and friends clearly 

have their greatest burden. But I think we have to remember that 

our family structures, as when we were children most women did 

not work outside the household, and now it seems with the ability 

for the nuclear families to disperse geographically, we lack the 

neighborhood cohesiveness of the family structure that often provided bed and board for Grandpa or Grandma by all the relatives 

in the neighborhood. And that is changing. So, I guess my question 

would be: Could we determine what the Government role should be 

in the years ahead? I personally think that long-term care is the 

poster child and few benefits are better suited for social insurance. 

It to me is the classic problem. Everyone might need it. Only some 

actually do need it. It is probably actuarially impossible to determine within age groups who is apt to need it. The expense can 

bankrupt the family, even though our bankruptcy bill did not do 

much to address that. It should be a program, in my opinion, into 

which everyone pays a small amount and everyone might or may 

benefit. In addition, I suppose a social benefit for long-term care 

could relieve some of the Medicaid pressures on the States, and, of 

course, that would be welcome today. 

So, I think there is a strong case that can be made that this 

should be social insurance. The tax incentives for private insurance 

I think are a weaker case. The private market is flawed, it is failing. Without non-forfeiture protection, most people are better off 

playing the slot machine or the office baseball pool than they are 

buying private long-term care insurance. But it is fine with me if 

people who can afford it want to buy it and it supplements a core 

benefit. That would be all right, I suppose, but I do not think that 

we should offer tax incentives to purchase the insurance. That is 

throwing billions of dollars at a flawed product which the market 

has rejected. So, if we really believe in the marketplace, let’s let it 

work. To contemplate spending tax money when we are poised to 

cut Medicaid really seems like we would be setting up robbing me 

to pay Paul, and I think that is unwise. So, if we can really engage 

in the issue of what the government role should be, what the benefits should be for every American, we might reopen that dialog of 

15 or 20 years ago when we nibbled around the edges of it. When 

we were in the majority, we had not much luck, so maybe it is your 

turn. Thank you, Madam Chair. 

Chairman JOHNSON OF CONNECTICUT. I would just remind 

you, I answered that Commission that Congressman Baird chaired 

and how many times we wrote bills to provide prescription drugs 

for seniors and how long it finally took us to do it. I think the time 

has come for us to really sink our teeth into the challenge of longterm care that the retirement of the baby-boom generation poses 

to Americans. So, I welcome you all here today. I am very pleased 

and I want to congratulate the Committee Members for coming in 

early to attend this hearing. I appreciate your doing it because it 

is hard in the very busy days that we have in Washington to get 


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such attendance. So, thank you very much for making it your business to be here. Dr. Holtz-Eakin? 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, PH.D., DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE 

Mr. HOLTZ-EAKIN. Chairman Johnson, Congressman Stark, 

and Members of the Committee, the Congressional Budget Office 

thanks you for the opportunity to be here today. As the Chairman 

mentioned in her opening remarks, we did produce a report in this 

area last year. We have submitted a written summary of that with 

an update as our written testimony. I will devote my opening remarks to four points regarding that report. Number one, with the 

aging of the baby-boom generation, the United States will likely 

face rising demands for long-term care services. Number two, the 

corresponding resource demands will rise above their already substantial levels. Currently, these are about 2 percent of gross domestic product, something that is in the neighborhood of $25,000 per 

senior with impairments. Distributing the burden for this care is 

a key aspect of both the policy design and the long-term budget 

outlook. 

And, finally, the fourth point is that currently financing is heavily influenced by rules that discourage people from making their 

own financial preparations. Left unchanged, those incentives will 

add to the financial demands for other Government programs in 

the face of rising demographic changes and rising health care costs. 

And so this problem must be addressed within the context of these 

other demands. So, I thought I would sketch the aspects of this 

problem. The aspects are familiar to this audience because you are 

familiar with health care programs, and they always break into 

two parts: what will be the costs and how will those costs be financed. The future costs of care are driven largely by demographics. Our baseline projections suggest that the costs will rise 

over the next four decades from about 2 percent of GDP to 2.3 percent of GDP. That is a rise of about 15 percent. It is something 

that does not look as large as the roughly 50-percent rise of Social 

Security benefits under current law, but it is quite significant. It 

is driven by the rising share of the population that is the oldest 

old. The share that is 85 or older is going to more than triple from 

1.5 percent to 5 percent by 2050. That group is the very dark line 

at the bottom of that chart that I am showing you. 

But our assumption that costs rise by that much assumes that 

we get continued improvement in the incidence of impairment 

among the people in this population. Impairment has declined at 

about 6 percent per decade over the 20th century. In the absence 

of that kind of improvement, costs could grow by 65 percent and 

rise to 3.3 percent of GDP. So, it seems clear that there will be rising demands for resources in this area and that the risks are largely on the upside if we fail to see continued improvements in impairment. Now, what will be the sources of financing for this care? A 

good starting point is the current allocation of spending and how 

it is financed in the United States. As the Chairman mentioned in 

her opening remarks, of the roughly $25,000 per impaired senior, 

private, non-market-donated care forms the vast majority. It is 

about $9,000. It is the largest. It is extremely difficult to value. The 


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aggregate estimates range from $50 billion to $200 billion. We include it in our estimates because it is clearly a very important aspect of the current financing of long-term care. A figure of that is 

in our report where over 50 percent—51 percent of highly impaired 

individuals rely exclusively on informal care for their long-term 

care services. 

Going forward, the demographics may affect the supply of this 

kind of care as well as the demand. As Congressman Stark mentioned, the demographics will affect both total family sizes and also 

the availability of care givers given labor force participation of 

women and divorce. Moving to the other sources in the private sector, self-insured or out-of-pocket care is about $5,000, and the key 

issue here is the degree to which individuals will accumulate more 

in personal saving than they do at the moment. It is unlikely that 

all but a significant minority could afford to face long-term care expenses of any magnitude by relying on this source. Private market 

long-term care insurance is a small aspect of the financing at the 

moment. Under 10 percent of people have policies, and this low utilization is one of the striking features of the current market. Instead, the vast majority comes in Medicare and Medicaid, as mentioned at the outset, and these public programs are bearing the 

largest fraction of the non-donated care. 

So, going forward, what issues will remain? Well, first, the larger 

budget context suggests that dollars will be scarce. I don’t have to 

repeat the litany of financial demands that will be placed under 

current law. It will be the case that Federal dollars will be scarce 

and need to be used wisely. This will require balancing the programs as they stand, balancing home- and community-based care 

versus nursing homes and Medicaid; balancing Medicaid versus 

Medicare, which has become a de facto long-term care program. Or 

it may involve limiting those Federal programs by revising income 

and asset tests in Medicaid, by providing more cost sharing in 

Medicare. Or it could take the form of encouraging a greater reliance for those who can use long-term care insurance provided by 

the private sector. 

The current low rates of utilization beg for an explanation. A variety have been offered. High administrative costs and the potential 

for adverse selection lead some to believe that the policies are simply so unfavorable as to be unwise to take up. Alternatively, it 

could be that premium instability and the difficulty of insuring 

against large health care cost shocks is underneath the problem. 

Or other research suggests that some policies do look to be at least 

actuarially fair, particularly for women, and the still low rates of 

take-up are indicative of other sources being available, be they private sources or public insurance programs, Medicaid and perhaps 

Medicare. In any event, going forward, rebalancing this mix to 

make sure that the dollars are used in the most appropriate fashion is a pressing policy problem. The only good news that I can 

offer to this group on this front is in the demographics, where in 

contrast to most of the programs which rise with the top line as 

people reach 65 and older, the largest incidence of impairment is 

with the bottom line, those 85 and older. To the extent the public 

policies can be molded and put in place, we have a bit more time 

for people to adjust and for the budget to take advantage of those 


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new policies. I thank you for the chance to be here, and I look forward to your questions. 

[The prepared statement of Mr. Holtz-Eakin follows:] 

Statement of Douglas Holtz-Eakin, Ph.D., Director, Congressional Budget 

Office 

Chairman Johnson and Members of the Subcommittee, thank you for the opportunity to be here today to discuss the cost and financing of long-term care (LTC) 

services. A Congressional Budget Office (CBO) report from April 2004, Financing 

Long-Term Care for the Elderly, examines these issues in greater detail. Long-term 

care is the personal assistance that enables people with impairments to perform 

daily routines such as eating, bathing, and dressing. Such services may be provided 

at home by family members and friends; through home and community-based services such as home health care, personal care, and adult day care; or in institutional 

settings such as nursing or residential care facilities. 

In my statement today I want to make the following points: 

• With the aging of the baby-boom generation, the United States’ elderly population is expected to grow rapidly over the next several decades. The surge in 

the number of seniors will increase the number of people with impairments and, 

in turn, the demand for long-term care services. 

• The resources devoted to long-term care services are already substantial. CBO 

estimates that spending on such care for the elderly (including the value of donated care) totaled over $200 billion in 2004—or approximately $24,000 per senior with impairments. In reporting estimates of LTC spending, CBO chose to 

include the value of donated care because it is an integral part of long-term 

care, even though measuring it accurately is difficult. 

• Currently, donated care is the largest source of financing for long-term care 

costs, followed by the combined public programs—Medicaid and Medicare—and 

out-of-pocket expenditures. Private long-term care insurance is a small portion 

of the current financing. 

• Financing patterns for long-term care are heavily influenced by the rules governing public LTC programs. Those rules create incentives that discourage people from making their own financial preparations and encourage them to rely 

on government assistance. If left unchanged, those incentives will add to the financial demands that government programs for retirees are already facing as 

a result of demographic changes and rising health care costs. 

Demographic Trends 

The oldest members of the baby-boom generation become eligible for early retirement under Social Security in 2008. According to estimates by the Bureau of the 

Census, the number of elderly people (those age 65 and older) in the United States 

will increase by two and a half times between 2000 and 2050. The share of the population claimed by the oldest seniors, those age 85 and older—and those most likely 

to use long-term care—will reach about 5 percent by 2050, more than triple the 1.5 

percent share they had in 2000 (see Figure 1). By comparison, the proportion of the 

population accounted for by working-age people (ages 20 to 64) will grow by only 

about 35 percent by 2050. 


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1Darius Lakdawalla and others, ‘‘Forecasting the Nursing Home Population,’’ Medical Care, 

vol. 41, no. 1 (2003), pp. 8–20. 

Figure 1. People Age 65 and Older as a Share of the U.S. Population, Selected Years from 1900 to 2050 

(Percent) 

Source: Congressional Budget Office based on Bureau of the Census, U.S. Interim 

Projections by Age, Sex, Race, and Hispanic Origin, Table 2a, ‘‘Projected Population 

of the United States, by Age and Sex: 2000 to 2050’’ (March 2004), available at 

www.census.gov/ipc/www/usinterimproj/natprojtab02a.pdf. 

Although the number of the oldest seniors will rise, declines in the prevalence of 

functional impairment could offset some of the effects of that increase. Impairment 

among seniors appears to have waned significantly during the 20th century. From 

1910 to the early 1990s, the overall prevalence fell by about 6 percent per decade. 

From the early 1980s to the present, the prevalence of impairment may have fallen 

even faster, according to research findings from the National Long-Term Care Survey. In contrast, some types of impairment, such as those requiring the use of a cane 

to walk, have been increasing. Impairment among people under age 65 may also be 

increasing, which could eventually lead to higher future rates of impairment among 

seniors. In fact, one recent study projects that the currently declining trend in the 

prevalence of impairment among seniors will reverse in the future, leading to greater rates of institutionalization than those that exist today.1 As those conflicting 

trends suggest, projecting the prevalence of impairment in future years and basing 

estimates of spending on those projections are both difficult and subject to a high 

degree of uncertainty. 

Demographic changes may affect the composition of LTC financing in the future 

as well. Smaller families, lower fertility rates, and increasing divorce rates may 

make donated LTC services less common in the future. The size of the average family has declined, reducing the number of adult children available to care for their 

elderly parents. Family size fell from 3.8 members in 1940 to 3.1 members in 2000; 

if current trends continue, it will decline to 2.8 people by 2040. At the same time, 

the rate at which women participate in the labor force will probably continue to 

grow, at least until 2010, further reducing the availability of donated care. Those 

family-related trends, in sum, could further stimulate the demand for formal, or 

paid, services. 

Sources of Long-Term Care Financing 

Long-term care is financed with both private resources and public programs (see 

Figure 2). Private resources include donated care, out-of-pocket spending, and priVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 E:\HR\OC\26379.XXX 26379

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2Peter S. Arno, Carol Levine, and Margaret M. Memmott, ‘‘The Economic Value of Informal 

Caregiving,’’ Health Affairs, vol. 18, no. 2 (1999), pp. 182–188. CBO converted their estimate 

of $196 billion in 1997 dollars to $218 billion in 2004 dollars. 

vate insurance. Public programs include primarily Medicaid and Medicare, although 

the Department of Veterans Affairs and the Social Services Block Grant program 

also fund long-term care. 

Figure 2. Estimated Shares of Spending on Long-Term Care for the Elderly, 

2004 

Source: Congressional Budget Office. 

Private Sources 

Most seniors with impairments who reside in the community, including those with 

severe impairments (unable to perform at least four activities of daily living, or 

ADLs), rely largely on donated care from friends and family. And many people who 

pay for care in their home also rely on some donated services. 

The economic value of donated care is significant, although estimates of it are 

highly uncertain. In 1998, the Department of Health and Human Services estimated 

that replacing donated LTC services for seniors with professional care would cost 

between $50 billion and $103 billion (in 2004 dollars). Another analysis, in 1997, 

estimated the value of donated care for people of all ages who had impairments— 

measuring it as the forgone wages of caregivers—at $218 billion.2

Out-of-pocket spending in 2004 accounted for about one-fifth of total LTC expenditures, or roughly $5,000 per senior with impairments (see Table 1). The federal government subsidizes a portion of out-of-pocket spending through the tax code. Taxpayers with impairments (or taxpayers who have dependents with impairments) 

may deduct LTC expenses from taxable income along with other medical and dental 

costs, but only the portion of total medical costs (LTC, medical, and dental expenses) 

that exceeds 7.5 percent of adjusted gross income. 


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3 Jeffrey R. Brown and Amy Finkelstein, The Interaction of Public and Private Insurance: 

Medicaid and the Long-Term Care Insurance Market, Working Paper No. 10989 (Cambridge, 

Mass.: National Bureau of Economic Research, December 2004). 

Table 1. Long-Term Care Expenditures for the Elderly, by Source of Payment, 2004 

(Billions of dollars) 

Source: Congressional Budget Office. 

Notes: Donated care is measured as the cost of replacing that care with professional services. 

Numbers may not add up to totals because of rounding. 

a. Includes local public programs, minor federal spending, charity care, and so 

forth. 

Private insurance for long-term care is a relatively recent development and pays 

for only a small amount of care at present. Few elderly people currently have private coverage—no more than 10 percent.3 However, that source of financing is growing—although the precise extent of the growth is difficult to measure accurately. 

The data on private LTC insurance generally capture payments that insurers make 

directly to providers but do not always pick up insurers’ reimbursements to policyholders for covered services that policyholders initially pay for out of pocket. Thus, 

estimates of LTC insurance payments—and of out-of-pocket spending—should be interpreted with caution because the former may be underestimated and the latter 

overestimated. 

In 1995, private insurance paid about $700 million for LTC services for seniors, 

or 0.8 percent of all such expenditures. In 2004, such spending totaled about $6 billion, CBO estimates, or about 3 percent of total expenditures. According to America’s Health Insurance Plans, the number of policies written yearly increased from 

about 300,000 in 1988 to more than 900,000 in 2002 (see Figure 3). About 9.2 million policies were sold from 1987 through 2002; roughly 72 percent of them are still 

in force. 


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Figure 3. Annual Number of Policies of Private Long-Term Care Insurance 

Sold, 1988 to 2002 

(Thousands) 

Source: America’s Health Insurance Plans, Research Findings: Long-Term Care 

Insurance in 2002 (Washington, D.C.: AHIP, June 2004), p. 15. 

A typical LTC insurance policy pays the cost of nursing home care and home and 

community-based care but specifies a maximum daily benefit (such as $100 or $150) 

and may impose other limits. Policies with so-called inflation protection increase the 

dollar value of their benefits by a contractually specified percentage each year, usually 5 percent. Although some policies offer coverage for an unlimited period, most 

commonly cover services for a shorter time, such as four years, or until benefit payments for a policyholder reach a preestablished maximum lifetime amount. Policyholders typically become eligible to collect benefits when they reach a specific minimum level of impairment, usually defined as being unable to perform two or three 

ADLs or having a cognitive impairment significant enough to warrant substantial 

supervision. 

Premiums for LTC insurance reflect the cost of services and the risk that policyholders will require long-term care as they age. In 2002, the average annual premium for a typical policy with no inflation protection or nonforfeiture benefit was 

$1,337 if the policy was purchased at age 65; with those two added features, the 

premium rose to $2,862. Premiums were three to four times higher if the policy was 

purchased at age 79 (see Table 2). The lower premiums offered to younger people 

reflect the lower risk of their requiring LTC services at younger ages and the expectation that younger policyholders will pay premiums over a longer period than will 

people who purchase coverage when they are older. Thus, the average annual premium for the same policy with inflation protection and a nonforfeiture benefit purchased by a 40-year-old would be only $1,117 and by a 50-year-old, $1,474. 


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4See Celia S. Gabrel, Characteristics of Elderly Nursing Home Current Residents and Discharges: Data from the 1997 National Nursing Home Survey, Advance Data no. 312 (Centers 

for Disease Control and Prevention, National Center for Health Statistics, April 25, 2000). The 

disparity between Medicaid’s share of total spending on nursing facilities (40 percent) and the 

proportion of patients covered by Medicaid (56 percent) may result from one or more factors: 

Medicaid’s low average reimbursement rates; differences between the severity of Medicaid enrollees’ conditions and the conditions of patients using other sources of payment; and enrollees’ 

cost sharing, which counts as out-of-pocket spending. 

Table 2. Average Annual Premiums for Long-Term Care Insurance, 2002 

(Dollars) 

Source: America’s Health Insurance Plans, Research Findings: Long-Term Care 

Insurance in 2002 (Washington, D.C.: AHIP, June 2004), p. 32. 

Note: These premiums are for policies offering a $150 daily benefit for four years 

of coverage and a 90-day elimination period. 

In fact, fixed premiums are a key feature of LTC insurance policies—that is, the 

premiums do not increase as the policyholder grows older or as his or her health 

deteriorates, even though the risk of requiring services rises. Instead, insurers calculate premiums to ensure that the premiums’ total, paid over the life of a policy, 

plus the interest that accrues from investing them will be sufficient to cover both 

the claims of the policyholder and insurers’ profits and overhead costs. However, insurers reserve the right to increase premiums for a specific group, or rating class, 

of policyholders—such as all policyholders in a state—if new data indicate that expected claims will exceed the class’s accumulated premiums and their associated investment returns. 

Government Programs 

Medicaid is the biggest government source of payment for long-term care. Jointly 

funded by the federal and state governments, Medicaid is a means-tested program 

that pays for medical care for certain groups of people, including seniors with impairments who have low income or whose medical and long-term care expenses are 

high enough that they allow those seniors to meet Medicaid’s criteria for financial 

eligibility. Within broad federal guidelines, the states establish eligibility standards; 

determine the type, amount, duration, and scope of services; set the rate of payment; and administer their own programs. The share of each state’s Medicaid expenditures that is paid by the federal government is determined by a statutory formula; nationwide, the federal share of the long-term care portion of Medicaid spending is about 56 percent. 

Medicaid generally pays for services provided both in nursing facilities and in the 

home, although the specific benefits that the program provides differ from state to 

state, as do patterns of practice, the needs and preferences of beneficiaries, and the 

prices of services. In total, Medicaid’s expenditures for long-term care for elderly 

people since 1992 have grown at an average annual rate of about 5 percent (see Figure 4). CBO estimates that in 2004, Medicaid’s payments for institutional care for 

seniors, including both state and federal expenditures, totaled about $36.5 billion. 

Accounting for about 40 percent of total expenditures on nursing facilities, Medicaid’s payments cover the care of more than half of all elderly nursing home residents.4


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5 Joshua M. Wiener, Catherine M. Sullivan, and Jason Skaggs, Spending Down to Medicaid: 

New Data on the Role of Medicaid in Paying for Nursing Home Care (Washington, D.C.: AARP 

Public Policy Institute, June 1996). Those proportions differ because discharged residents include people who were institutionalized for only a short time, and the sample of current residents includes more people who stay for extended periods. 6Medicaid’s nursing facility benefit (institutional care), in addition to covering skilled care 

provided in a SNF, also covers nonskilled care that may be provided in a SNF or nursing home. 

Medicare’s SNF benefit, however, covers only skilled care provided in skilled nursing facilities. 

Figure 4. Medicaid Long-Term Care Expenditures for Elderly Beneficiaries, 

Fiscal Years 1992 to 2004 

(Billions of dollars) 

Sources: Personal communication by Brian Bruen of the Urban Institute, and the 

Congressional Budget Office’s estimates. 

Medicaid’s expenditures for home and community-based services (HCBS), which 

include home health care, personal care services, and spending under HCBS waiver 

programs, are much smaller than its spending for nursing homes—HCBS expenditures constitute only about 23 percent of total Medicaid LTC spending. (Under the 

waiver programs, states have the option of providing people with impairments with 

enhanced community support services not otherwise authorized by the federal statutes.) Since 1992, Medicaid spending for home-based care for seniors has grown 

faster than spending for institutional care, rising by about 11 percent annually, on 

average, compared with about 3 percent growth for care in nursing facilities. 

Many people who are not eligible for Medicaid while they live in the community 

become so immediately or shortly after being admitted to a nursing facility because 

of the high cost of institutional care. (Nursing home costs in 2004 averaged about 

$70,000 annually for a private room.) According to a 1996 study, about one-third of 

discharged nursing home patients who had been admitted as private-pay residents 

became eligible for Medicaid after exhausting their personal finances; nearly onehalf of current residents had similarly qualified for coverage.5 Medicaid coverage is 

especially common among nursing home patients who have been institutionalized 

for long periods. 

Medicare, the nation’s health insurance program for the elderly, covers care provided in skilled nursing facilities (SNFs) and at home, but its benefits are designed 

primarily to help beneficiaries recover from acute episodes of illness rather than to 

provide care for long-term impairment.6 Medicare covers up to 100 days per spell 

of illness for SNF care, and the stay must be preceded by a hospitalization lasting 

at least three days. In contrast, Medicare’s home health benefit, while originally 

conceived to finance short-term rehabilitation, has evolved into what some observers 

have described as a de facto LTC benefit. To be eligible for reimbursement under 


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7 Congressional Budget Office, Projections of Expenditures for Long-Term Care Services for the 

Elderly (March 1999). 

the home health benefit, the beneficiary must be homebound and require intermittent care provided by a licensed professional, such as a registered nurse or physical 

therapist. If those conditions are met, Medicare will cover services provided by a 

home health aide, in addition to skilled care; aide services are the assistive services 

that typify long-term care. 

By CBO’s estimate, Medicare’s LTC spending for seniors in 2004 totaled about $16 billion for care in skilled nursing facilities and $18 billion for home health care 

(see Figure 5). Although the program’s outlays for those categories grew rapidly 

from the late 1980s to the mid-1990s, expenditures actually declined near the end 

of the past decade. A combination of factors was responsible, including changes to 

reimbursement methods imposed by the Balanced Budget Act of 1997, increased federal activities to counter providers’ fraud and abuse of the program’s payment systems, and delays in processing claims. CBO projects steady growth in spending for 

SNF and home health care over the 2006–2015 period, averaging approximately 5 

percent annually. 

Figure 5. Medicare Spending for Skilled Nursing Facility Care and Home 

Health Care for Elderly Beneficiaries, Fiscal Years 1992 and 2004 

(Billions of dollars) 

Source: Congressional Budget Office. 

Issues in Controlling Federal Long-Term Care Spending 

CBO has projected that total LTC expenditures for seniors (including the value 

of donated care) will rise from about $195 billion in 2000 (2.0 percent of gross domestic product, or GDP) to $540 billion (in 2000 dollars) by 2040, or 2.3 percent of 

GDP.7 That estimate of a relatively modest increase in use of long-term care services incorporated the assumption that the prevalence of impairment would decline 

at a rate of about 1.1 percent per year. If impairment levels instead remain about 

the same as they are today, use of services will rise faster, to $760 billion by 2040, 

or about 3.3 percent of GDP. Demand for care could be even higher if, as some researchers believe, the prevalence of impairment actually increases in the future. 

The current mix of financing for long-term care, in which a significant share of 

financing comes from government programs, adds to the pressures that the federal 

budget will experience with the aging of the baby-boom generation. Contributing to 

the strains that government LTC programs will face are incentives created by those 

programs that diminish the attractiveness of using private resources—especially private insurance—as a means for seniors to finance their care. Changes in those inVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 E:\HR\OC\26379.XXX 26379

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8 Congressional Budget Office, An Analysis of the President’s Budgetary Proposals for Fiscal 

Year 2006 (March 2005). CBO estimated that the President’s proposal to change the penalty pe- riod for illegal asset transfers would save $3 billion over 10 years. 9 America’s Health Insurance Plans, Research Findings: Long-Term Care Insurance in 2002 

(Washington, D.C.: AHIP, June 2004), p. 11. 10 America’s Health Insurance Plans, Long-Term Care Insurance in 2002. 11 Carmen DeNavas-Walt, Bernadette D. Proctor, and Robert J. Mills, Income, Poverty, and 

Health Insurance Coverage in the United States: 2003, Current Population Reports, Series P60– 

226 (Bureau of the Census, August 2004). 

centives might encourage more people to make their own preparations for financing 

their care rather than rely on governmental assistance. 

Direct Approaches to Limiting Federal Spending for Long-Term Care 

One approach to relieving the pressures on federal finances would be to directly 

reduce the role of Medicaid and Medicare, the programs responsible for the bulk of 

government-financed care. The most commonly discussed options are tightening the 

financial qualifications for people applying for Medicaid coverage and reducing 

Medicare’s coverage of home health care. 

Medicaid’s spending for long-term care could be constrained by making it more 

difficult for middle-income people to qualify for coverage by spending down their resources. The intent of Medicaid’s current rules is to restrict applicants to those who 

are destitute. Yet despite that intention, many applicants manage to protect a significant portion of their personal wealth and still qualify for Medicaid coverage by 

taking advantage of certain rules regarding the disposition of assets, a practice 

known as Medicaid estate planning. Strengthening the rules to reduce the use of 

such strategies would delay the point at which some people became eligible for benefits and would prevent others from qualifying. It could also discourage some people 

from going through the application process. However, it is unlikely that imposing 

those additional restrictions would have more than a modest impact on Medicaid’s 

expenditures.8

Medicare’s home health care benefit is relatively generous. Once a person meets 

the physical qualifications for coverage, there are no copayments or other coinsurance requirements. A modest cost-sharing requirement for beneficiaries could decrease the program’s LTC expenditures because beneficiaries would probably reduce 

the amount of care they used in response to that kind of financial incentive. 

Challenges in Encouraging Private Financing of Long-Term Care 

Future federal spending on long-term care could be lessened by encouraging people to rely more on private resources for their LTC needs. Out-of-pocket spending 

and donated care already account for a very substantial share of LTC services, but 

private long-term care insurance currently finances very little such care. CBO estimates that the proportion of LTC spending that private insurance pays will rise to 

about 17 percent in 2020; that share would be less than the shares of either Medicaid or Medicare. Several factors underlie the limited rise that CBO projects for the 

use of private insurance. Some factors affect the availability and quality of insurance: they include issues related to administrative costs, the instability of premiums, adverse selection, and the inability to insure against certain risks unique 

to long-term care. A final factor—the interaction of private insurance and Medicaid—is critical in the way it affects demand for private insurance. 

Administrative costs. Administrative costs contribute a substantial amount to 

LTC insurance premiums because most policies are sold individually rather than as 

group (employer-sponsored) policies.9 The costs of marketing to and enrolling individuals are about double those for groups, for which fixed administrative costs may 

be spread over more people. 

On average, administrative costs as a percentage of premiums are likely to fall 

in the future as group policies make up a larger share of the private LTC insurance 

market. In 2002, group policies constituted nearly one-third of new LTC policy 

sales.10 (By comparison, nearly 90 percent of people with private health care insurance hold group coverage.11) But group policies are accounting for an increasing 

share of the LTC insurance market, a trend that is likely to continue if more employers offer LTC coverage as an employee benefit. If employers offer such a benefit, 

any part of the premiums for their employees’ LTC coverage that they pay for, like 

their contributions for regular health insurance, is not included in employees’ taxable income. 

Instability of Premiums. Although LTC insurers typically offer premiums that 

do not automatically increase as the policyholder grows older or experiences deteriorating health, state insurance regulators allow insurers to increase premiums for all 

holders of a given type of policy in a state (known as a rating class) if they find 


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12 Ann Davis, ‘‘Shaky Policy: Unexpected Rate Rises Jolt Elders Insured for Long-Term Care,’’ 

Wall Street Journal, June 22, 2000, p. A1. 13Susan A. Coronel, Long-Term Care Insurance in 2000–2001 (Washington, D.C.: Health Insurance Association of America, January 2003). 14 Amy Finkelstein and Kathleen McGarry, Private Information and its Effect on Market Equilibrium, Working Paper No. 9957 (Cambridge, Mass.: National Bureau of Economic Research, 

September 2003). 15 Congressional Budget Office, Financing Long-Term Care for the Elderly (April 2004), p. 19. 16See Weiss Ratings, Inc., Long-Term Care Policies Vary Drastically in Cost to Consumers 

(Palm Beach Gardens, Fla.: Weiss Ratings, Inc., April 5, 2000). Weiss Ratings evaluates the financial condition of insurers (including companies that sell life, health, property and casualty, 

and LTC insurance) as well as banks and savings and loan institutions. 

that they have miscalculated the expected cost of their claims. Some insurers have 

boosted premiums several times for that reason, leading many policyholders to cancel their coverage and in all likelihood deterring some potential purchasers from acquiring LTC coverage.12 However, premiums may be stabilizing: a survey of top-selling LTC insurance carriers by the Health Insurance Association of America observed fairly steady premium levelsfrom 1997 to 2001 after a sustained decline in 

average premiums from 1990 to 1996.13

Policyholders can obtain some protection against large jumps in premiums by purchasing nonforfeiture benefits with their policy. That feature enables policyholders 

who cancel their coverage to recoup from the insurer at least some of the premiums 

they have paid. Nevertheless, although policyholders might get a proportion of their 

premiums back, they do not receive the associated returns on the investment of that 

money. 

Adverse Selection. The relative newness of the market for LTC insurance and 

the still fairly small number of policies being sold suggest that the market may be 

affected by adverse selection. People who purchase LTC insurance have greater expectations than nonpurchasers of using services in the future, and those greater expectations are not captured in the information that insurers collect as they enroll 

purchasers of their policies. If insurers believed that adverse selection was occurring, it might lead them to set premiums higher than a policyholder’s health status 

would suggest so as to incorporate the greater likelihood that that policyholder 

would use the insurance. In turn, the higher premiums might deter people who 

would purchase coverage if the premiums reflected their relatively lower expectations of using LTC services. 

One recent study suggests, however, that although adverse selection does exist in 

the LTC insurance market, it may not be producing higher overall claims costs.14

According to that study, the higher costs of policyholders with greater-than-average 

expectations of using services in the future are offset by the lower costs of policyholders who are averse to risk and whose probability of using services in the future 

is actually lower than the average for the population at large. Because of the market’s youth, there are no clear data to resolve the question of adverse selection. 

The Inability to Insure Against Certain Risks. Private LTC insurance may 

be unattractive to some consumers because it does not, in general, insure against 

the risk of significant price increases for long-term care. Most policies promise to 

provide contractually specified cash benefits in the event that a policyholder becomes impaired. To protect themselves against LTC price inflation, consumers can 

purchase a rider to their policy under which the policy’s benefits grow at a specified 

rate each year (usually 5 percent); however, such riders offer no protection against 

additional costs if prices rise at a faster pace. Concerns about price increases of that 

kind are not unjustified: Medicaid’s average reimbursement rates for nursing facilities grew at an average annual rate of 6.7 percent from 1979 to 2001.15 Over a 20- 

year period, a nursing facility benefit of $100 per day in today’s dollars would grow 

to $265 per day with an annual inflation protection rider of 5 percent. But the benefit would need to grow to $366 per day to keep up with a 6.7 percent annual 

growth rate, should costs continue to grow that fast in the future. 

An additional risk is that a policy could become obsolete at some point in the future. LTC services, and the private insurance policies that cover such care, are 

steadily evolving as the LTC insurance market matures. That fluidity may give 

some consumers pause, and indeed, one prominent rating agency recommended in 

2000 that people purchase LTC coverage no earlier than age 60 to avoid the problem 

of obsolescent coverage.16 Some consumers might also be reluctant to purchase LTC 

insurance if they believed that changes in public policy at some point could render 

their coverage obsolete. 

The Availability of Medicaid. The availability of Medicaid poses a substantial 

disincentive for people considering the purchase of private long-term care insurance. 

Although Medicaid in general serves people with very low income and assets, it also 


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17 Brown and Finkelstein, The Interaction of Public and Private Insurance. 

provides assistance to people with impairments who exhaust all of their private 

sources of financing for their long-term care. Even people who have set aside significant savings may eventually become eligible for Medicaid assistance. In that way, 

Medicaid serves as an alternative form of insurance for people who do not have private coverage and who are impaired for a significant period. Indeed, Medicaid’s impoverishment requirement may discourage people from saving because the less they 

have, the more quickly they will qualify for coverage. It also creates an incentive 

for people to give away or hide their assets so that they can qualify for Medicaid. 

There are substantial drawbacks to Medicaid coverage for long-term care. As a 

means-tested program, Medicaid requires eligible applicants to rely on out-of-pocket 

spending until they use up all of their savings. In addition, because Medicaid generally pays lower fees for services than those paid by private payers, beneficiaries 

may not receive the same quality of care that private policyholders receive. In some 

states, moreover, Medicaid might not be as flexible in the types of services it covers 

as private insurance would be; a person who has private coverage would probably 

have a broader choice of providers and types of care than a Medicaid beneficiary 

would have. 

Those drawbacks to Medicaid’s coverage are balanced by features that some people might consider advantageous. Medicaid is free from the perspective of the beneficiary. In addition, Medicaid has a defined-benefit structure—that is, it covers a 

specified set of services. Private insurance, by contrast, only ensures that a policyholder will have a specified monetary benefit to pay for care. It does not guarantee 

that the money will be sufficient to pay for desired services. 

Although Medicaid’s coverage differs in some respects from that of private insurance, it may nevertheless reduce the demand for private policies. Indeed, one recent 

study found that the availability of Medicaid constitutes a substantial deterrent to 

the purchase of private insurance, even for people at relatively high income levels.17

Medicaid’s rules for financial eligibility affect people’s decisions to purchase private 

LTC insurance as well as how much insurance they buy because the rules offer a 

low-cost alternative (by allowing people to qualify for the program’s benefits) to 

making personal financial preparations for possible future impairment. People who 

buy private insurance or accumulate savings substantially reduce the probability 

that they will ever qualify for Medicaid’s benefits, thereby forgoing the value of the 

government-provided benefits that they might otherwise have obtained. Thus, the 

availability of Medicaid raises the perceived cost of purchasing private insurance or 

of saving. That increase is small for relatively wealthy people who have little likelihood of ever qualifying for Medicaid coverage, but it can be substantial for others. 

Conclusion 

Currently, elderly people finance LTC services from various sources, including 

both private resources and government programs. Incentives inherent in the current 

financing structure have led to increased reliance on and spending by government 

programs and may have discouraged people from relying on private resources (savings, private LTC insurance, and donated care) to prepare for potential future impairment. The demographic changes projected for the coming decades will bring increased demand for long-term care and heightened budgetary strains. 

f 

Chairman JOHNSON OF CONNECTICUT. Thank you very 

much. I would point out that that group on the bottom are exactly 

the group that the Medicare Modernization Act aimed at, and the 

urgency of passing the bill was really not the prescription drug portion of the bill but the policy changes that will enable us to meet 

the needs of the over-85 population, most of whom have multiple 

chronic illnesses, so hopefully we will be able to bend that uniformly, and help the appearance of that chart. In your testimony, 

Dr. Holtz-Eakin, you mentioned that a recent study found that the 

availability of Medicaid constitutes a substantial deterrent to the 

purchase of private insurance even for people a relatively high income levels. This issue of the take-up rate of long-term care insurance has been a long-term concern of mine as the chief sponsor of 


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that initiative. I would think that the greater prevalence now of 

long-term care insurance being a cafeteria option and it being now 

part of a Federal program that we might be seeing some increase 

in uptake. The group insurance does lower the administrative cost, 

it has a lot of advantages, and we do see some greater activity. 

How much greater activity do we see there, and what evidence does 

this report give that the disadvantage to providing yourself with 

long-term care insurance, that just the existence of the Medicaid offers is something that affects people at all income levels and it does 

work as a substantial deterrent? 

Mr. HOLTZ-EAKIN. There has been some modest uptake in private long-term care insurance. We would be happy to work with 

you to get the numbers pinned down. The broader question of what 

are the deterrents of the choice to take up long-term care insurance 

in the private sector has been divided in the research literature to 

supply kinds of issues associated with really what amounts to unfair pricing from an actuarial point of view, and then demand 

issues which is the fact that there may be alternatives out there, 

be it Medicaid, the most direct substitute, or Medicare to the extent 

that that it is a substitute, and as a result people don’t buy longterm care insurance. 

The literature is not definitive on this and I think that is always 

frustrating when you don’t have a clean solution, but the most recent research is suggestive in that for those instances where it appears that the supply problems, the pricing is one which provides 

actuarially fair premiums, and that would not likely be the men, 

but some of the women in these studies looked at their insurance 

and do not take it up. That then leads you to suspect there must 

be something else that could provide the insurance as a substitute. 

And then former models clearly show that in the presence of a 

choice between Medicaid and private long-term care insurance the 

Medicaid would crowd out the private market. So, former models 

and actual real-world experience are a bit apart, but it is a suggestive collection in recent research. 

Chairman JOHNSON OF CONNECTICUT. I am going to yield 

to Mr. Stark now as we proceed. But that has always been a mystery to me. And I think the existence of the very large contingent 

of people who make a living learning to help people to spend down 

to Medicaid ineligibility indicates that in the long-term care area 

Medicaid has lost that sort of negative aura that clearly in the children’s health care it has taken us years to battle. So, that is interesting. Mr. Stark. 

Mr. STARK. I would just like, doctor, to have you elaborate. In 

your report and I guess in your testimony, you are suggesting that 

the reason that long-term care insurance is doing well is because 

everybody’s waiting for Medicaid to bail them out and that they are 

planning to cheat and hide assets and do those sorts of things. 

Could you elaborate whatever data or theories you have that say 

that people don’t buy long-term care insurance because they are 

counting on Medicaid? 

Mr. HOLTZ-EAKIN. As I mentioned in my response to the 

Chairwoman, there isn’t a definitive study or set of research in this 

area. 

Mr. STARK. Is there any study? 


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Mr. HOLTZ-EAKIN. There are. The two most recent studies are 

by Jeff Brown and Amy Finkelstein, and that—— 

Mr. STARK. That wasn’t peer-reviewed but go ahead. 

Mr. HOLTZ-EAKIN. That research does the following two things, 

roughly speaking. The first takes a look at a sample of actual policies and tries to determine the degree to which the premiums 

charged are actuarially fair or not, because clearly if buying a policy is an unfair bargain, people are not going to buy it. And their, 

on-average they are not actuarially fair, but the striking result is 

that they are far more fair, indeed probably roughly actuarially 

fairer for women, but take-up rates are the same. So, that is piece 

of evidence number one. 

Mr. STARK. I guess what I want to hear though is why you are 

suggesting that it is Medicaid that keeps them from doing this because they think Medicaid is going to bail them out? 

Mr. HOLTZ-EAKIN. It is far more conclusive—the suggestive 

evidence is that if it is not the pricing, then it must be the decision 

to buy, and presumably people value some sort of long-term care 

insurance. This looks to be an important financial risk. So, if you 

are not buying this insurance it could be because you have some 

other type of insurance. Medicaid is one—— 

Mr. STARK. What percentage of the Federal employees, let us 

say that people who are in the Federal Employee Health Benefit 

(FEHB) plan, what percentage of them buy long-term care insurance now under our Federal employee plan? 

Mr. HOLTZ-EAKIN. I don’t know that number off the top of my 

head, but I can certainly find out. 

Mr. STARK. A small percent, 5 percent? 

Chairman JOHNSON OF CONNECTICUT. Very small. 

Mr. STARK. Very small. Now, most of these Federal employees 

know that they are going to have a fairly generous pension, right? 

They don’t change that. In 30 years they will end up with 70, 80 

percent of their I-3. Most of the benefits that I see in the Federal 

long-term care have a maximum value of 100 grand, maybe 3 years 

36,000 bucks a year. So, they are going to look at that and see if 

their pension is going to be anywhere near 50. I think they aren’t 

going to get Medicaid, are they? Can you tell me a State where 

somebody with $50,000 worth of income can qualify for Medicaid? 

Maybe I will move there. 

Mr. HOLTZ-EAKIN. Well—— 

Mr. STARK. There aren’t any. So, I just don’t know who this person is that says that Medicaid will replace whatever responsibility 

they may have for building for their retirement, which I think people do, and if they can live comfortably in their retirement, many 

of them could figure out how to pay for—they aren’t going to get 

Medicaid. I think that is a double dip and I am not sure it is fair, 

doctor, that is all. Absent any kind of studies, Medicaid is in 

enough trouble without having respected economists like yourself 

beating up on it. We are having trouble getting health care for little kids, and when experts like you begin to suggest that Medicaid 

is keeping us from getting long-term care insurance to the market, 

that borders on being a little bit irresponsible, not to the long-term 

care people—— 

Mr. HOLTZ-EAKIN. I take exception to that. 


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Mr. STARK. All right. 

Mr. HOLTZ-EAKIN. I think that it is the responsibility of our office to examine all the potentia interactions between the public sector and the private sector. It is well established that individuals 

will look at interactions between what their options are in the public sector and the private sector. As I have tried to make clear, I 

think a comprehensive review of the places that one would find—— 

Mr. STARK. I think you—— 

Mr. HOLTZ-EAKIN. —expenses. 

Mr. STARK. —issues. 

Mr. HOLTZ-EAKIN. I think we should comprehensively—— 

Mr. STARK. —abstinence training for high school students. That 

might bring up some interesting things that you would have a responsibility to report on. 

Thank you, Madam Chair. 

Chairman JOHNSON OF CONNECTICUT. Mr. McCrery. 

Mr. MCCRERY. Thank you, Madam Chair. 

Dr. Holtz-Eakin, we could spend a lot of time talking about why 

people aren’t buying long-term care insurance. The fact is they 

aren’t, at least not in very big numbers. Have you looked at—and 

I think you mentioned in your testimony that your projection for 

people purchasing long-term care insurance is not very optimistic. 

In other words, it is going to go up a little but not very much. Is 

that right? 

Mr. HOLTZ-EAKIN. We don’t have a formal projection for the 

take-up. We have a projection of the costs of care. The costs are 

growing. We currently have some long-term care, and we don’t 

have an elaborate forecast of what would happen in, for example, 

to 2030 to the long-term care market. The question is, how would 

it evolve in the presence of more improved incentives? 

Mr. MCCRERY. We provided some incentives in the past few 

years through the Tax Code. What has been the experience just in 

the last few years of people purchasing long-term care insurance? 

Has it gone up? 

Mr. HOLTZ-EAKIN. I think it is up modestly, but I don’t know 

the numbers off the top of my head. We can certainly give you the 

past couple of years. 

Mr. MCCRERY. It would be interesting, Madam Chair, I think 

for us to explore a little more what the chances are of our being 

able to incentivize individuals to purchase private insurance for 

this purpose. I think you agree with me that that would be the 

most desirable solution to this problem, but clearly, what we have 

done so far hasn’t worked. I am wondering if we could develop 

through some of our smart folks in government some conclusions 

as to how generous those incentives would have to be in order for 

people to purchase that. If we conclude that those incentives are 

so generous that we can’t afford them, then obviously we have to 

look at elsewhere for a solution. I think this is an interesting discussion, but maybe our next panel, some of our next panelists will 

have some thoughts on this subject. Dr. Holtz-Eakin, what about 

Medicare’s home health benefits? You mentioned that in your testimony, and how that has become kind of a de facto long-term care 

benefit for folks. Can you elaborate on that? 


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Mr. HOLTZ-EAKIN. For many individuals it does appear to be 

a substitute for Medicaid or some other form of long-term care insurance. To the extent that it will be of interest to directly control 

costs in that program, we have, for example, done a budget option 

where we studied it at a 10 percent co-pay per episode and showed 

the budget savings that came from that. If people perceive it to be 

similar to Medicaid, and if there is a genuine substitution of one 

kind of insurance for another, it could also fit into the larger outcomes we are seeing with choices of financing for long-term care 

costs. So, I do think it is important to look at these comprehensively and think about how they interact. 

Mr. MCCRERY. Thank you. 

Thank you, Madam Chair. 

Chairman JOHNSON OF CONNECTICUT. Thank you. 

Mr. Lewis? 

Mr. LEWIS OF GEORGIA. Madam Chair, thank you very much. 

Thank you very much, Mr. Director, for being here today. In your 

written testimony you claim that Medicaid is a barrier to getting 

people to purchase long-term care insurance. You also said middle 

income people shelter their assets in order to qualify for Medicaid. 

However, you also said that there are drawbacks to Medicaid, like 

using all saving and limits choice. Now, with all of these drawbacks. With all of these drawbacks, wouldn’t people want to avoid 

Medicaid? Isn’t it possible that there are other reasons people don’t 

buy long-term care insurance? 

Mr. HOLTZ-EAKIN. Well, it is certainly the case that any of 

these decisions has many dimensions. So, it is neither the case that 

people don’t purchase long-term care insurance exclusively because 

of the existence of Medicaid; neither would you view any difficulties 

in getting Medicaid as a deterrent from using it at all because in 

fact it is a wisely-used public program. Instead, the programs interact. It is the case that there is a large industry devoted to advising 

individuals about how to shelter their assets under Medicaid, and 

that while I think it is impossible to place a numerical estimate on 

the degree to which assets are sheltered, there is an enormous 

amount of smoke, and one would suspect that there is a fire. There 

are web pages devoted to calculators and how they shelter assets. 

There are web pages at Amazon.com showing the books on how to 

do it. So, we know that that is an aspect of the incentives presented by Medicaid, and it is a form of insurance that is available. 

As I have said several times, I don’t think it is a panacea, it is not 

the exclusive solution to the problem for the long-term care market 

and may be the case that long-term care insurance in the private 

market is best suited for a fraction that is higher income, but they 

do interact and we simply wanted to highlight the potential for 

interaction. 

Mr. LEWIS OF GEORGIA. Do you have evidence of people sheltering their resources or is this just based on limited evidence? Do 

you have data that would testify to the fact that we have wholesale 

sheltering, people hiding their resources? 

Mr. HOLTZ-EAKIN. As I said, I don’t—it is not a question of the 

sheltering, but there are—you can go to places that say, 

www.Medicaidhelp.com that gives you a calculator. You plug in 

your age and your assets and it tells you where you stand relative 


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to Medicaid and getting long-term care insurance. There are lots of 

books. There are well-known strategies, half-a-loaf strategies, 

where the moment you enter the Medicaid program you give away 

a fraction of your assets, half of them, and you get to shelter half 

very effectively with no risk. So, I don’t know the net asset transfer 

that comes from that. I know that there is a lot of evidence of people thinking about those activities. 

Mr. LEWIS OF GEORGIA. Let me just try and ask you this in 

another way, and maybe throw something else into here. As I see 

it, if there is someone going to a nursing home, Medicaid looks 

back 3 years to see if they have transferred any of their resources. 

If so, that person is disqualified from Medicaid benefits for a time. 

This means that in order to qualify for Medicaid, an applicant 

would have to have transferred their resources more than 3 years 

prior to doing long-term care service. This would take some kind 

of crystal ball for any of us, any of these seniors to know when they 

are going to need long-term care. Do any of us know? So, how can 

you prepare? Do we know in 2010 or sometime down the road we 

are going to need long-term care? 

Mr. HOLTZ-EAKIN. Well, there is not a crystal ball, but it is the 

case that at the moment you enter the program you can shelter 

half without any risk. 

Mr. LEWIS OF GEORGIA. That is what I am trying to ask, we 

don’t know whether we are going to need it and then we don’t 

know when, we don’t know the date or the time. So, what does this 

seem to say, they must get rid of everything? 

Mr. HOLTZ-EAKIN. What is going on—and the kinds of policies 

you might like to put in place. What is going on I think is a riskfree transfer of one half at the moment of entry. Three years in advance, no one has a crystal ball, there is some risk associated with 

that, there is no question. We know, for example, from the waiver 

application of the State of Connecticut, 30 percent of folks had undertaken some sort of asset transfer. So, there is evidence out 

there. As I said before, I don’t think anyone has a firm numerical 

estimate of the pervasiveness and scale, but this is an activity that 

is provided—that the Medicaid program has provided an incentive 

to undertake. 

Mr. LEWIS OF GEORGIA. Madam Chairman, I know my time 

is up. If I can have just a quick three seconds? 

Chairman JOHNSON OF CONNECTICUT. Go ahead. 

Mr. LEWIS OF GEORGIA. Mr. Director, you stated in your prepared report that Medicaid spending for home-based care for service was going faster than spending for institutional care. Could you 

give us I guess the nature of why? Most people would like to stay 

in their home and not go into a nursing home. 

Mr. HOLTZ-EAKIN. If you divide costs into cost per person, 

more people—that seems largely to be driven by the entry of more 

beneficiaries into the home and community based care program, 

perhaps as a substitute for the informal care that had prevailed 

earlier because people would like to remain in their home. 

Mr. LEWIS OF GEORGIA. Thank you. 

Chairman JOHNSON OF CONNECTICUT. Thank you. 

Mr. Johnson of Texas. 


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Mr. JOHNSON OF TEXAS. Madam Chairman, I would like to 

continue on that vein if I could. I think you are absolutely right 

that people are not buying insurance because of the reasons you 

state, and I just wonder—you point out again, and it has been stated two or three times that home health care under Medicare has 

become something of a defacto long-term health care benefit. What 

implications has this had on Medicare and how do home health 

benefits under Medicare and those provided under Medicaid relate 

to each other? 

Mr. HOLTZ-EAKIN. Well, the implications for Medicare for 

2004, the numbers that we presented today, the total outlays under 

Medicare are about $32 billion. So, this is not an enormous share 

of the overall Medicare bill. Instead, it is about 16 percent of the 

financing for long-term care costs. It is an alternative to Medicaid, 

and, for that reason, I think it is probably best bought comprehensively in thinking about forward how are you going to do business. 

Mr. JOHNSON OF TEXAS. Okay. Thank you. I don’t have any 

further questions, Madam Chairman. 

Mr. THOMPSON Thank you, Madam Chair, and thanks for holding this hearing. I want to—there are a couple of things that have 

already been asked. Specifically, the issue of the look back issue 

that Mr. Lewis mentioned. If you’re still—you say if you go back 

5 years as opposed to the three that the savings would be modest. 

So, and I want to stipulate that I think any effort to hide money 

or disposed of money to get away from paying your share is wrong. 

We ought to be able to figure out how to stop that if we can. But 

I just wonder how widespread the abuse is. If you add 2 years to 

the look back you only pick up modest savings. 

Mr. HOLTZ-EAKIN. Our last answers are based on or discussions with the State-level Medicaid officials in charge of this. How 

we got the numbers associated with three versus five, I don’t have 

off the top of my head, but I would be happy to work with you. We 

could walk through it with your staff. 

Mr. THOMPSON. Well, we ought to try and figure out what is 

real and what is projected and not attainable, but at the same time 

figure out how to stop those practices from happening. On the 

home health care issue. It seems to me that is pretty inexpensive 

way to deal with the problem. I know in California, our in-home 

support services is about $8,000 a year where facility care is about 

$50,000 a year. So, that is a fairly substantial savings, and it 

seems to me we ought to be—and we know it is cheaper and to do 

in-home health care vis a vis some type of acute care. So, we probably should be looking at ways to expand that to help solve this 

problem. 

Mr. HOLTZ-EAKIN. Certainly my message today—this happens 

to me all the time. I come. I talk about costs. There are some 

things that are worth it. Those are the benefits and that is certainly part of the picture. Designing this—I think the basic message is we have to pick things that make sense in a cost effectiveness send because, money will, in fact, be harder to come by going 

forward, and if we can find those policies that are most worth it, 

where the benefits are the highest, then that is the place to go. 

Mr. THOMPSON. And then the other thing that has already 

been brought up and I don’t want to beat a dead horse. But the 


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whole issue of tightening the Medicare eligibility to change behavior. I am skeptical of that thesis. And if you look back at the 

changes in Social Security in 1983, most economists will agree that 

benefactors realize a real decrease in benefits. So, using your theory, they would have saved more in order to deal with the decrease 

in benefits. But we know that that has not been the case. At the 

time that they ’83 Social Security changes took place, the personal 

savings were about 11 percent of disposable income. And today, 

they are less than 2 percent. I think less than a percent and half. 

So, using that as a model would suggest that you can tighten these 

regulations or this eligibility all you want, but it is not going to in 

itself change the practices of individuals. And if you have any other 

data that suggest otherwise, I would like to see those. 

Mr. HOLTZ-EAKIN. We will certainly work with you on that. 

Sure. I’m sympathetic to the notion that, as I said, that formal 

models are not the answer to all our policy questions—far from it. 

I am also sympathetic to the notion that explaining the U.S. savings rate is pretty hard. If I could explain the U.S. saving rate, I 

would be in a far better place than I am right now. But, there is 

I think a sensible approach to analyzing this important issue, 

which involves comprehensively surveying all the available sources 

of financing, comprehensively thinking about the incentives that 

the present, and, then to the extent possible, comparing the data— 

which is limited and is an issue—with the kinds of potential responses that incentives predict. I am with you on the notion that 

not all economic incentives turn out to be as powerful as economists might think, myself included. But that is ultimately a data 

base exercise. 

Mr. THOMPSON. And I want to try and squeeze one more in. 

Is there some way that we can figure out the cost of Medicare expansion to include long-term benefits—kind of a menu. I know it 

already covers some things, and I am not suggesting that we move 

to expansion, but some folks are, and it may make sense. If there 

was a way to see a menu of what it would cost if we extended different benefits or how much for each benefit that we extended. 

That would be I think very helpful. 

Mr. HOLTZ-EAKIN. Nothing would make me happier than to 

volunteer the staff’s time. Why don’t we figure out the—— 

[Laughter.] 

Mr. THOMPSON. If looks could kill, you would be shot from behind. Thank you. 

Chairman JOHNSON OF CONNECTICUT. Thank you, Mr. 

Thompson. Mr. Emanuel. 

Mr. EMANUEL. Thank you, Mrs. Chair. With that answer, you 

may need a food taster at the next staff meeting. Let me ask you 

a question about your analysis on the partnership expansion. As I 

understand it, the whole notion of the Robert Wood Johnson—and 

I think there are about 10 States that do this. It was supposed to 

save money. And your analysis of the President’s budget is that it 

actually cost Medicaid money. A, what was the basis of, I don’t 

want it line by line, but what was the basis of why that is, and 

B, what do we got to do to get to the savings for Medicaid so the 

whole intention of this partnership was supposed to be a savings, 

not expenditure of greater resources. 


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Mr. HOLTZ-EAKIN. Well, two part answer. The first is that the 

analysis of the President’s budget is economic changes from whatever the current is. So, to the extent that there were savings by 

instituting the program to begin with, that is already in the baseline. We are only looking at the expansion. With respect to the expansion, you can think of purchases coming from two sources: people who would have bought a private policy anyway and basically 

doesn’t look any different, or those people who will come into this 

market, buy a partnership policy, and are new entrants and thus 

qualify for Medicaid for the first time, it is our expectation that the 

modest costs come from that group. 

Mr. EMANUEL. Let me ask you based on the premise that the 

partnership should save money, do you think we will ever see that 

realization? Part of that whole premise—am I misunderstanding 

the premise? 

Mr. HOLTZ-EAKIN. I guess compared to what. I am trying to 

figure out what—compared to what baseline. To the extent that the 

partnership policy and expansion of the type that, was proposed, 

those new people buying policies who ultimately qualify for Medicaid that will cost Medicaid money, because there will be new 

beneficiaries that would not have been there otherwise and extension of that on a regular basis. Now, that is one set of comparisons 

that you can make. A second set of comparisons might be what 

would a world look like with substantial private long-term care insurance, perhaps engendered by the partnership policies and with 

some pressures as a result on the delivery of services and savings 

rate there. That is a different question and not one that we have 

priced. I am sympathetic, but it is just past what that particular 

number would contain. 

Chairman JOHNSON OF CONNECTICUT. Excuse me. Would 

the gentleman yield on this? 

Mr. EMANUEL. Absolutely. 

Chairman JOHNSON OF CONNECTICUT. And I’ll take it on 

my turn. Partnership policies the insurance pays for the first 2 

years of care, so what percentage of seniors as a whole use more 

than 2 years of nursing home care? 

Mr. HOLTZ-EAKIN. I don’t know. It is a number we will get 

back to you on. 

Chairman JOHNSON OF CONNECTICUT. It is relatively small. 

Mr. HOLTZ-EAKIN. It is relatively—— 

Chairman JOHNSON OF CONNECTICUT. Well, it is a sign that 

everybody who is bearing a partnership program is going to end up 

being—using Medicaid dollars is in my estimation—— 

Mr. HOLTZ-EAKIN. It’s not an expansion of everybody. It is an 

expansion of the pool who will ultimately touch Medicaid dollars. 

Chairman JOHNSON OF CONNECTICUT. And it is an expansion of a pool that won’t touch Medicaid dollars until they have 

used 2 years of nursing home care, paid for by their insurance. So, 

that is a very different pool than just those who would be eligible 

for Medicaid, because it is those who will be eligible for Medicaid 

and need a third year of nursing home care. So, this is worth more 

conversation later. 

Mr. HOLTZ-EAKIN. Certainly. You are right. 


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Chairman JOHNSON OF CONNECTICUT. I simply want to 

point out that I did not agree with the answer that you were providing to my colleague. 

Mr. HOLTZ-EAKIN. Okay. We will be happy to work through 

the nuts and bolts of the estimate with you. I think the spiel of it, 

briefly and I won’t oversell my expertise on the nuts and bolts, but 

these are large numbers to begin with so it is not as if everybody 

who touches this in the expansion is going straight on to Medicaid. 

There are these features that you pointed to, but it is the—the key 

features—it does make the net pool of people who have the potential to touch Medicaid larger because of the attractiveness of the 

policy. That is one of the features. 

Mr. EMANUEL. I don’t want to belabor a point and I look forward to when we do press this a little farther and have a discussion and obviously, you’re right: it is what benchmark you are comparing it off of because it can change the picture. As I remember, 

the whole bells and whistles around the partnership was that there 

was going to be a savings, not a greater expenditure. And my only 

question is based on your analysis of the President’s Budget, the 

partnership is A, costing more money on Medicaid rather than less; 

therefore, either we got sold a bag of goods as it relates to the bells 

and whistles on the partnership, or we did not understand it when 

we were dealing with it, and then we can press this point later on. 

We don’t have to use a lot of time here. And maybe you have 

maybe a one staff person that doesn’t mind a lot of work gave you 

answer right there. 

Chairman JOHNSON OF CONNECTICUT. We will also have a 

member of the panel later who has done a lot of work in the partnership area. 

Mr. EMANUEL. Oh. That is fine. 

Chairman JOHNSON OF CONNECTICUT. It is difficult in the 

estimating area because there are only four States actually that 

have the right to do this. So, nobody can develop a product that 

could go nationwide. 

Mr. EMANUEL. Okay. Thank you. 

Chairman JOHNSON OF CONNECTICUT. Thank you. Mr. 

Pomeroy is not a Member of the Subcommittee, but he has an high 

interest I know these areas, and I am going to invite him to question. 

Mr. HOLTZ-EAKIN. Could I speak on this issue about the partnerships and make two points,. One big picture point which is I 

hope the spirit of the opening remarks was conveyed that there is 

a total cost to the demand or these services that would be incurred 

by the economy and the financing issue is about figuring out who 

bears them. So, savings in one piece, be they Medicaid—it may not 

necessarily mean that the overall bill is lower. That was my point. 

Chairman JOHNSON OF CONNECTICUT. Right. Okay. 

Mr. HOLTZ-EAKIN. Try to say more clearly. Number two, on the 

partnerships, the key leading to big savings is to get large increases in new purchasers, and it was our judgment that the particular proposal we looked at would have incremental new purchasers that were not large, but instead we would really have just 

a big shift of the base, and that we the source of the cost estimate. 


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And I am happy to get us together and work through the details 

on it. 

Mr. EMANUEL. Can I—you mind if I? Or you want to move on? 

Chairman JOHNSON OF CONNECTICUT. Well, can you make 

it brief? I did interrupt you so. 

Mr. EMANUEL. No. I’ll make it—— 

Chairman JOHNSON OF CONNECTICUT. Sorry. 

Mr. HOLTZ-EAKIN. If that is the basis and the premises and 

the tipping point is you are looking for scale, and you don’t have 

the scale, and so, therefore, it is going to cost Medicaid more money 

and until we do this on the scale to get an economy of scale and 

the efficiencies out of it. Basically, with four States and so forth, 

it is going to cost Medicaid more money and it has to be a program 

that is expanded nationwide or bigger. 

Mr. EMANUEL. So, we can certainly work with you and give you 

a feel for how that looks. 

Chairman JOHNSON OF CONNECTICUT. Well, let us leave 

this question open, because I think if you talk to some of the States 

where they have used it, we might get a different answer. 

Mr. Pomeroy. 

Mr. POMEROY. Well, Madam Chair, thank you so much for letting me see in this hearing. I got some data from the States themselves directly on the point. California issued 72,683; enforced 

61,273, in claim 735, exhausted 86. Exhausted and assessed Medicaid 24. To me that’s a very, very positive ratio. It is similarly 

with like to the other four States. Connecticut issued 36,613; exhausted 21. Indiana issued 32,800; exhausted 16 I think there is— 

these are the data report by the States themselves. I think unlike 

a lot of long-term care insurance issues, we have data here—10 

years of records from the States themselves and I am convinced 

that it is very positive; that people are laying private third party 

protection is protecting their assets and they are not following into 

Medicaid eligibility. I also think for those that say, well, that is 

just for those very affluent households that never would have hit 

Medicaid eligibility, the dollar for dollar coverage model is one that 

can be priced for—as limited a time as one year. It is much affordable, and it protects assets dollar for dollar of third-party coverage. 

I think we have an experiment here that is working. We have got— 

I think with the States of California, Connecticut, Indiana, and 

New York. We have a body that we can really look at so it is not 

just conjecture or philosophy. We actually have numbers we can 

draw conclusions from. Dr. Holtz-Eakin, is that your brief? 

Mr. HOLTZ-EAKIN. It is certainly the case that that tells you 

performance in the presence of the partnership program. The question from the point of view of cost effectiveness is what would performance had been in the absence. That is the unknowable and in 

those circumstances. It other States, it is the reverse. You don’t 

have the program, you ask what it would like in the presence of 

it. The intricacy of doing the cost estimates on these and evaluating the President’s budget and other things is, in fact, comparing 

both. And so you never get to see both. You have one that we get 

to see in your case, and we ask what it would have looked like for 

Medicaid in the absence of the partnership program. This strikes 

me as of the same character as the questions that Mr. Emanuel 


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and Congresswoman Johnson had. I would be happy to sit and 

work with all of you. 

Mr. POMEROY. And the Chairwoman as been very gracious in 

giving me time here to make a point. I would just ask you looking 

at what we’ve coming at us in terms of increased long-term care 

expenses, and the need, the desperate need, to try and get more 

private pay dollars into this mix. Is long-term care an insurable 

risk? 

Mr. HOLTZ-EAKIN. The question I think—the answer of course, 

is yes from the broad point of view of the economy as a whole. You 

can spread the risks of those expenses. The question is whether the 

private market in isolation can they handle that? The next step 

would be are there particular regulatory or other government policies that we’ll need to supplement a private market to make it 

work, or is it something that simply will not function in the absence of the government being the entity that spreads the risk. I 

think it is about that, and I don’t think there is definitive answer, 

and I think this is the source of the interesting. The partnership 

program, which is the interaction between Medicaid and private 

long-term care insurance. It is the source of the interest more generally in the small scale, the current long-term care market. 

Mr. POMEROY. I’ll allow you it is an insurable risk, and that 

viewed not on the micro—not on the macro, but on the micro for 

an individual household that doesn’t want to face just spend down 

to get Medicaid eligibility it can be viable risk protection tool. Now, 

admittedly, we need to advance this topic, but I don’t think that 

when an individual household has the kind of cost exposure that 

long-term care brings them, we can afford to be just dismissive of 

this as something that can never work. Indeed, we’ve got now plenty of market data that I think suggests this can be a valuable protection to families and you can have sufficient consumer protection, 

so they are getting something meaningful for their premium dollar. 

I yield back, Madam Chair. 

Chairman JOHNSON OF CONNECTICUT. Thank you very 

much, Mr. Pomeroy. We will get together and discuss this at greater length after this panel and in the course of these deliberations. 

But we have all recognized and we all recognize in our daily life 

that the performance of a market depends in part on the evaluation of value. And as you pointed out and several others would 

point out in their testimony, many people don’t evaluate the current policies as offering very much value. But these partnership 

policies offer a different value. And they have provided particularly 

to modest income families a cheaper product that guarantees them 

the right to pass some inheritance on to their children and these 

are not big savers who have any other inheritance. 

So, it is worth looking at the motivation, at the structure of the 

product, and, therefore at the nature of the savings or cost to the 

system. So, we look forward to working with you on that. Thank 

you very much, Dr. Holtz-Eakin. We appreciate your being here 

today. And now we will call the next panel forward altogether. And 

we will start with Dr. Gerety. I numerated your—the institutions 

that you represent as I had my introductory remarks, but as you 

sit down, Dr. Gerety is the Professor of Medicine, Geriatrics and 

Extended Care, the University of Texas in San Antonio, and repVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 E:\HR\OC\26379.XXX 26379

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resents the Geriatric Society. Buck Stinson is with Genworth Financial. Mike Meiners is from George Mason University, and Dr. 

Gehm represents the Lutheran Homes from Michigan. And we 

have been joined—by Dr.Feder has been before us before and we 

welcome you back. And we have been joined by our Committee 

Member, Mr. Camp, whose plane just arrived from Michigan, and 

I would like to recognize him. 

Mr. CAMP. Thank you. I just wanted to welcome Mr. Gehm from 

Michigan and not from my district, but from an area near my district, and I wanted to thank him for all the good work that Lutheran homes does and to welcome him to the Committee and just 

to mention I look forward to your testimony. 

Chairman JOHNSON OF CONNECTICUT. Thank you, Gary. 

Dr. Gerety, you probably are familiar you have 5 minutes. The yellow light will remind as you are coming to the end and red light 

will indicate when the 5 minutes is up, and your entire statement 

will be included in the record. If you have trouble seeing it and you 

all sort of get the picture from the rest. They’ll be nodding. Thank 

you for being with us. 

STATEMENT OF MEGHAN GERETY, PROFESSOR OF MEDICINE, 

GERIATRICS AND EXTENDED CARE, UNIVERSITY OF TEXAS, 

HEALTH SCIENCE CENTER AT SAN ANTONIO, SAN ANTONIO, 

TEXAS 

Dr. GERETY. Members of the Subcommittee. You have already 

introduced me and my title, so I won’t repeat that. But I will tell 

you that I am a geriatrician, and that geriatricians are primary 

care oriented physicians who do at least 1 year of additional training after initial specialty certification. We specialize in the care of 

older persons and are experts in the delivery of care across all settings, but particularly in long-term care settings. Today as you are 

discussing long-term care, I think it is important that we recognize 

that long-term care cannot be defined as a list of settings or a defined set of services. And it is also not possible to accurately predict 

a person’s long-term care choices based simply on a knowledge of 

his or her diseases or functioning. In addition to these factors, one 

has to have a comprehensive picture of an older person, both their 

social resources, psychological states and their personal preferences. Too often today, our system creates a gap between medical 

services and the essential non-medical services that are part of 

long-term care. In long-term care, these services are inextricably 

intertwined and are most effective when delivered together. 

Today our long-term care system is a fragmented patchwork of 

payers, providers, settings and formal and informal care. And too 

often this results in extra costs and poor outcomes, and I would 

like to illustrate this for you with an example, which is something 

that I see virtually on a daily basis in my practice. An 88-year-old 

woman who lives at home. She falls. She breaks her hip. She is admitted to the acute care hospital, has a hip repair, and following 

that she is transferred to a skilled nursing facility where Medicare 

will pay for the first 21 days of her benefit without a significant 

co-pay on her part. At the conclusion of her therapy unfortunately, 

she hasn’t gained sufficient independence to be able to return 

home. Now, she could go home with extensive—with some supVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 E:\HR\OC\26379.XXX 26379

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portive services in the home, but Medicare’s home health benefit 

only pays for an average of 42 days of care, and most of those visits 

are not skilled but rather unskilled. So, she does qualify for Medicaid and remains in the nursing home. Several months later, she 

develops a urinary tract infection requiring IV fluids and IV antibiotics. Medicaid won’t pay for that in the nursing home, but Medicare will in the hospitals. So, she returns there to the hospital with 

all of its associated risks and potential complications. 

This is a sort of payment driven kind of chaotic care that is 

played out thousands of times every day in this country. When integrated properly, however, long-term care services can serve many 

purposes, completing care from hospitals, smoothing transitions between care settings, providing relief to care givers and indeed potentially preventing hospitalizations and emergency room services. 

That structure today, however, this long-term care system has a 

long way to go to fill its potential. And I believe as we face my 

aging—I am one of the baby boomers—we have got to modernize 

the system to meet our needs. I also believe that long-term care 

today is undergoing a transformation that acute care underwent a 

couple decades ago. Payment systems are modernizing to become 

resource-based rather than charge-based. But as acute care was 

then, long-term care still is now largely institutionally based. And 

providers and consumers now understand that what we once 

thought was safe to provide within only in institutional walls can 

be as safely potentially more economically and more comfortably 

provided at home. But long-term care’s financing and eligibility has 

not caught up with this. It has not adopted the change in public’s 

preferences or to the expanded array of long-term care services, 

settings, and technology. We believe that public policy must adopt 

a shift in its paradigm that acknowledges these changes, updating 

and reforming the long-term care system of today. We also believe 

that system inequities can be addressed by a series of fixes that 

should be carefully studied and considered. 

First, public and private financing systems should develop coherent methods to allocate resources across institutional and non-institutional programs. In doing so, we believe services should be targeted to high-risk populations and titrated according to need, potential benefit, and consumer preference. Second, while Medicaid 

provides permanently only a safety net, we must find a more comprehensive way to meet long-term care needs. As you know, a 

woman age 65 today can expect to live about 20 more years; five 

of those or more will be spent with some disability and she has 

about 40 percent chance of spending some time in a nursing home. 

Now private long-term care insurance vehicles are increasing in 

number, but they are not very accessible to people with modest 

means. And premiums as unpredictable over the long term, causing 

some people to drop coverage at an age when they most need it. 

I myself have not purchased long-term care insurance, because I 

find the policy options not as valuable as I might think and because it is difficult, in fact, to calculate the risks and benefits that 

I would receive from those policies. Third, prescription of long-term 

care should be preceded by a comprehensive assessment prior to 

long-term care services. 


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Too often today, care is not—is delivered based on eligibility, not 

on a thoughtful care plan that elicits preferences, assesses need 

and establishes goals. And although long-term care comprises 

many disciplines, typically these disciplines are not integrated into 

a team that provides compassionate competent care. And as we 

move toward—am I in the red? Okay. I’m sorry. I would just say 

that I believe that this Committee and the House itself faces many 

challenges in trying to address long-term care: the challenge of trying to marry public and private financing, the challenge to make 

insurance for long-term care sensible and accessible and affordable, 

and the challenge of creating a workforce that is going to be able 

to provide care for these people. So, I thank you for the opportunity 

to participate today, and will close my remarks. 

[The prepared statement of Dr. Gerety follows:] 

Statement of Meghan Gerety, M.D., Professor of Medicine, Geriatrics and 

Extended Care, University of Texas, Health Science Center at San Antonio, San Antonio, Texas 

Chairman Johnson, Congressman Stark and Members of the Subcommittee. 

Thank you for inviting me to testify today on a critical issue—long term care. 

I am Dr. Meghan Gerety, a Board certified geriatrician and Professor of Medicine 

at the University of Texas Health Sciences Center at San Antonio and Associate 

Chief of Staff and Service Line Manager for Geriatrics and Extended Care at the 

South Texas Veterans Health Care System. I have had a geriatric practice for twenty years and have practiced and overseen health care in virtually every form of long 

term care. I have experience in surveying nursing homes, serving as a nursing home 

and home care medical director and have provided care to many persons in assisted 

living facilities. 

I currently serve as President of the American Geriatrics Society. I appreciate the 

opportunity to participate in today’s hearing on behalf of the American Geriatrics 

Society (AGS), an organization of over 7,000 geriatricians and other health care professionals dedicated to the care of older adults. 

Geriatricians are physicians who specialize in caring for older persons in all settings of care. Geriatric medicine promotes preventive care and care management 

that helps patients maintain functional independence in performing daily activities 

and improves their overall quality of life. When maintenance of function is not possible, geriatricians seek to optimize quality of life in the context of limited functioning. With an interdisciplinary approach to medicine, geriatricians typically work 

with a coordinated team of other providers, caring for the most complex and frail 

of the elderly population. 

Many geriatricians spend part or all of their time in long term care settings, including a broad range of medical, social, personal care and supportive services provided to persons with limitations in basic and instrumental activities of daily living 

(ADLs), such as bathing, dressing, or eating. It is important to recognize that we 

cannot define long term care as a list of settings or as a set of defined services. 

Equally important to understand, it is not possible to accurately predict a person’s 

long term care choices by knowing his or her diseases, functional status, or cognitive 

abilities. Instead, one must have a comprehensive picture not only of these factors 

but also social resources (the scope and depth of the caregiving network), psychological states, and personal preferences. At the present time, our current, fragmented long term care system too often creates an artificial gap between the medical components of long term care and the equally as important non-medical components. In a long term care population, medical needs and supportive care are inextricably intertwined. 

Today I will focus on the following areas: 

• Long term care: The past and present 

• Long term care policy: How we allocate resources 

• Comprehensive assessment: A method to assess needs 

• Attaining an adequate long term care workforce 

• Long term care: Costly but often inefficient 

• Modernization: Using successful intervention studies to shape long-term care 

• The Baby Boomers and the future 


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Long term care—The Past and Present 

When employed properly, long term care services can serve many purposes. Long 

term care can complete essential medical care begun in acute care hospitals, smooth 

the transitions between hospital and nursing home or nursing home to home, fill 

unmet need for basic or instrumental activities of daily living, defer the need for 

institutional care, provide relief to caregivers, and prevent unnecessary hospitalizations and emergency room visits. As it is structured in our nation, however, long 

term care has yet to fulfill its potential. As we face the demographic imperative of 

the aging baby boomers (a group to which I proudly belong) it is imperative that 

we organize long term care to fulfill its potential over the next 40 years after which 

most of us will be gone and need will decline. 

Our current long term care system is not well designed to provide ongoing support 

of chronically ill, functionally impaired persons. A woman reaching age 65 can now 

expect almost twenty additional years of life, but over five of those years are likely 

to be spent with some degree of disability, and she has a 40 percent chance of 

spending some time in a nursing home. Interestingly, despite an increase in the 

number of aged persons, nursing home use has remained relatively static during the 

last decade, a fact which may in part be explained by older persons preferences for 

other long term care settings such as assisted living and in part by slight declines 

in disability rates in old age. 

Today, unpaid family caregivers provide most long term care informally, but many 

persons must rely on formal or paid care as a supplement or a sole source of care. 

Unfortunately, our nation’s system of long term care is neither integrated nor comprehensive, but rather a fragmented patchwork of payers, providers and settings, 

government and private programs, and formal (paid) and informal (unpaid) caregivers. This mix of programs provides varying services and often has confusing and 

differing eligibility criteria, enrollment processes, access points and financing systems. Access to long term care varies significantly from state to state and from 

payer to payer. Today, we face the challenge of modernizing care to include proven 

methods, accommodate consumer expectations, incorporate new technologies, and 

maximizing the partnership between private and public sources of funding. 

This is best explained through a common patient example. An 88 year-old woman 

lives in her home, falls and breaks her hip. She is sent to the hospital where Medicare covers her care. Following her surgery, she is sent to a nursing home for rehabilitation, also covered by Medicare. However, when her therapy is completed she 

is less independent and therefore cannot return to her home. She qualifies for Medicaid coverage in the nursing facility, but NOT for enhanced services that would 

allow her to return safely home. After several months at the nursing home, she develops a urinary tract infection and needs antibiotics and IV therapy. Unfortunately, 

Medicaid will not cover this service in the nursing home, but Medicare will cover 

it in the hospital. The woman is transferred back to the hospital. This chaotic, payment-driven approach to care is played out thousands of time each day throughout 

the country. It does not serve the patient well. 

Long term care today is undergoing a transformation similar to that experienced 

by acute care over the last two decades. As acute care was, long term care today 

is still largely provided in institutional settings with only a few states spending 

more on home—and community-based care than on nursing homes. Many long term 

care payment systems have become resource-based rather than charge-based, forcing providers to carefully evaluate the mix, intensity and duration of services that 

can be offered, resulting in marked variations in service availability and quality 

across the nation. 

At the same time, providers and consumers have come to understand that services 

once thought to be safe only within institutional walls can be safely, more economically, and more comfortably provided in home—and community-based settings. Consumers of care, their families and caregivers are no longer satisfied accepting the 

settings and services that some agency or authority prescribes. Instead, they expect 

services that fill the needs they perceive and services that are more easily consumer-directed or modified. Long term care financing and eligibility systems have 

not yet adapted to changes in the public’s attitudes or to the expanded array of long 

term care settings, services and technologies. In many ways, while long term care 

delivery has evolved, our public policy and financing have remained static. Public 

policy must adopt a paradigm shift that acknowledges these changes; updating and 

reforming the long term care system of today. 

Long term care Policy: How we allocate resources 

At the present time, publicly and privately funded long term care systems do not 

have a coherent method of allocating resources across programs or targeting services 

according to an individual’s need or potential benefit. Instead, any person who satisVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 E:\HR\OC\26379.XXX 26379

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fies eligibility criteria is entitled to receive a service package that often is not 

matched to need or titrated to potential benefit. Despite their recognition of the importance of institutional and home- and community-based long term care services, 

there is no consensus among private or public payers about the role of these services, the population to which they should be targeted, or the scope and duration of 

services that should be provided. Long term care services are popular with consumers and have been codified in statute and regulation as entitlements to eligible 

persons who have severe functional impairments, skilled needs, or who are at risk 

for institutionalization. The status quo has become ingrained and made changes in 

eligibility for, targeting of, or defined limitations of scope or amount of long term 

care difficult to propose or evaluate. 

One interesting approach to allocation of long term care resources, as proposed 

by William Weissert in a recent Journal of Aging and Health article, would be to 

characterize the eligible long term care population with respect to different types 

of risk, e.g., risk of hospitalization, functional decline and/or institutionalization. 

Each of these risk profiles may benefit from different intensities and mixes of services. For instance, those at risk of hospitalization may require more nursing than 

unskilled care. The plan of care might include a focus on patient/caregiver education 

and illness management. In contrast, moderately frail persons at risk for functional 

decline may benefit from rehabilitation-oriented interventions that restore function 

and lower risk for decline or institutionalization. Persons at the highest risk for institutionalization (those with more functional disabilities who require heavier care) 

may be able to defer institutionalization if more home care provides sufficient unskilled services to meet functional needs. 

First, under this system, the government would establish clear financing for services for persons with long term care needs. Once eligibility for services has been established, a systematic method could be used to ‘titrate’ services on the basis of risk 

of adverse outcomes, effectiveness of the in-home services of mitigating the risk, and 

the value (or cost) of the outcome to be avoided. Long term care providers could be 

provided with an individual patient’s profile of estimated risks of death, functional 

decline, hospitalization and nursing home admission. A projected budget could be 

developed based on each person’s risk of each of the outcomes and a plan of care 

developed within that budget. For instance, persons at high risk of institutionalization (the most costly outcome) would have a higher monthly budget for care than 

persons at low risk. A person with high risk of all of the adverse outcomes: hospitalization, institutionalization, functional decline and death would have the highest budget. 

Our current long term care system would make such a system difficult to propose 

or to evaluate. Most significantly, the current system utilizes a cliff approach whereby Medicaid covers the majority of long term-care services for persons in nursing 

homes. Those who do not meet the eligibility criteria for spend down or the limited 

Medicare benefits do not receive government-financed long term care. Medicaid is 

not a satisfactory solution. It’s a critical safety net, but we need to find a more comprehensive and even way to meet the long term care needs so the burden doesn’t 

fall to the states. We must change this approach through the development of a 

meaningful long term care benefit for all that need it. The reallocation of resources 

discussed above could help defray some of the costs of such a benefit. 

Comprehensive assessment—a method to assess needs 

The AGS believes that a comprehensive assessment by qualified providers of geriatric care should precede the prescription of long term care. Often long term care 

services are allocated according to eligibility, rather than being based on a care plan 

derived from a comprehensive assessment that evaluates needs, elicits preferences, 

and establishes goals. For any person, it is very difficulty to create a package of long 

term care services that addresses both medically necessary care for illnesses and 

supportive care for the functional deficits that are the consequence of disease. The 

package should also address personal preferences for care design. 

The ability to perform assessment is limited by the different eligibility criteria 

and different methods of resource allocation employed by the States and the federal 

government. Medicare provides short-term nursing home care for persons recovering 

from acute illness and injury and provides medically necessary skilled home health 

care services to homebound Medicare beneficiaries. Personal care and homemaker 

services are restricted to situations in which they are incident to the skilled care 

needs and in cases where they facilitate treatment or to maintain health. So, Medicare home care largely focuses on medical needs and does not support the functional 

needs that are present in many persons requiring long-term care. States provide 

nursing home care for very low income persons who meet minimum functional criteria. Access to Medicaid funded alternatives to nursing home care, such as in-home 


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personal care or chore services, adult day health care or care in assisted living settings is highly variable from State to State. Hence a person who requires both 

skilled care and personal care must rely on a patchwork of programs that are not 

integrated, not based on identified needs or treatment goals. Too often, the program 

fragmentation deters appropriate assessment to promote the highest level of quality 

care and patient choice. 

Long term care—An adequate workforce 

We are faced with growing workforce shortages in all long term care settings. The 

AGS highly values direct caregivers in our nation’s nursing homes, home care agencies and other long term care settings. Not only must they have the requisite knowledge and skills, but also their attitudes while delivering hands-on care can influence 

the success of care and affect quality of life for vulnerable elders. Compassionate, 

competent care must be our goal. 

National policy and action will be required to create and maintain a workforce 

qualified to deliver skilled, competent compassionate geriatric care. There is already 

a shortage of physicians, nurses, social workers, and personal care providers who 

are trained in geriatric care. Unless action is taken to meet future need, drastic 

shortages will occur over the next decade. Our current long term care financing system is not designed to support a workforce sufficient in numbers, skills, stability, 

and commitment to geriatric care. To increase recruitment into geriatric disciplines, 

trainees must envision a bright future in geriatric care, have role models who enjoy 

their work and feel satisfied with their lifestyle. Given the current low recruitment 

rates, measures to ‘‘jump-start’’ recruitment into the geriatrics disciplines are justified and are urgently needed. The measures should include loan-repayment for geriatric trainees and support for advanced fellowships to train geriatricians in research, administrative, and educational skills. 

Long term care is costly but often ineffective 

About 10 million people in the U.S. need long term care, with about two-thirds 

of this population comprised of the elderly. Most of these individuals live in the 

home and community, but as their needs progress they may require long term nursing home care. According to the Centers for Medicare and Medicaid Services (CMS), 

national health expenditures for nursing home and home care were approximately 

$139 billion dollars in 2002. Of that cost, approximately 55% is funded by the Federal and State Governments, 32% comes from out of pocket payments by consumers 

and 11% from private insurance. Although long term care insurance vehicles are increasing in number, a relatively small number of individuals have purchased such 

insurance. 

Long term care insurance is not yet a viable option for many Americans. Private 

options tend to be less appropriate for those with modest means. Tax incentives for 

private long term care insurance primarily benefit the higher income. Additionally, 

premiums are often unpredictable over the long term. Long term care insurance premiums often increase dramatically as individuals age, meaning that people drop 

their policies just when they need them most. In fact, as a baby boomer and a geriatrician I have neglected to purchase a long term care policy because it is of limited 

value. 

Despite these large expenditures described above, our fragmented system is inefficient, costly and lead to poor outcomes. Lack of coordination among settings and 

providers of care is a serious problem. Often there is inadequate transmission of information among providers, inadequate assessment of patient needs, poor care during transitions, and both under- and over-medication and health care utilization. 

Vulnerable persons often find themselves in long term care programs that use a ‘one 

size fits all’ approach where services are not matched to their needs or available in 

a timely fashion when need arises. The absence of flexibility in long term care programs poses a barrier to ‘just in time care’ which has the potential to prevent hospitalization or emergency room care. 

The current system lacks proper incentives for promoting alternative delivery systems. For instance, many consumers have indicated a preference for care in the 

home and community. But, our current system of financing has a strong institutional bias. While the majority of persons with long term care needs (83 percent) 

live in the community, 78 percent of their help is from unpaid sources such as family and friends. Government financing as well as long term care insurance favors 

institutional settings. Congress should promote alternative delivery systems, such 

as early intervention and care management in nursing homes and the community, 

as well as greater use of home and community based care when appropriate. 

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grams. Improvement in the long term care delivery systems requires innovation and 

investment in development and testing of new models of care. We urge Congress to 

fund evaluation of new models of long term care and use the results to modernize 

the system. 

Modernization: Using successful intervention studies to shape long term care 

To achieve improvements in functioning and achieve reductions in avoidable 

health care utilization, long term care programs must have the flexibility to pattern 

themselves after proven interventions. The most effective models of care incorporate 

coordinated interdisciplinary team care. Although most nursing homes and home 

and community-based services are delivered under a plan of care approved by a physician, there is no real integration of health care professionals and personal care 

providers into a functioning interdisciplinary team that coordinates medical, social, 

rehabilitative, and other services. Case management models that use either nursing 

or social work personnel that are not members of integrated teams do not appear 

to either avoid costs or promote function. In the last decade, numerous examples 

of models of care that are characterized by integrated interdisciplinary teams have 

emerged. Policy makers in a position to influence the direction of home and community based services may wish to incorporate lessons learned from these trials. 

One model of care is based on comprehensive geriatric assessment. In this model 

an integrated interdisciplinary team assesses the patient and, in consultation with 

the patient and caregiver, develops a plan of care. Part or all of the assessment may 

be conducted at home and home visits may be a part of the intervention. 

A different and successful model of care targets short-term home care services not 

toward meeting needs for ADL support or skilled care, but rather to the mitigation 

of specific risks or conditions. An interdisciplinary assessment followed by a twelveweek intervention to reduce risk of falls was highly successful in reducing fall risk 

by almost one-third. A highly focused short-term rehabilitation intervention in the 

home has been shown to significantly reduce the risk of functional decline in persons who are only moderately frail and have not yet developed significant ADL disability. These interventions suggest that highly focused, intensive, short-term, 

home-based care can be successful in addressing common geriatric conditions and 

preventing functional decline, often in persons who would not meet either skilled 

need or disability criteria for home and community based long term care. Despite 

these positive outcomes, today’s long term care system is not structured to permit 

such uses of home care or rehabilitation services. 

Long term care and Baby Boomers—The Future 

Long term care needs will explode in the next few decades as baby boomers like 

me age. Baby boomers are less likely to be satisfied with a narrow range of long 

term care programs or to be forced into one size fits all programs like traditional 

nursing home or home care. We are informed consumers and expect to be able to 

pick and choose among services to select those that we feel may best meet our 

needs. Indeed the long term care marketplace is evolving quickly and providing an 

large array of available services: assisted living, retirement communities, personal 

assistants, shopping and transportation services, personal care homes among others. 

Baby boomers have increasing sophistication about program characteristics such as 

quality indicators, and are willing to embrace new technologies such as telehealth. 

The challenge to today’s policy makers will be how to most effectively marry public and private funding for long term care. How can we encourage the purchase of 

long term care insurance? What is the optimum cost-sharing methodology that will 

permit access to necessary care, encourage participation of families and caregivers 

in care, and discourage over-utilization? What public policies will support the development and maintenance of a workforce of providers highly skilled in geriatric care? 

What set of regulations and policies will give long term care providers the flexibility 

to target resources according to need and to potential benefit? What is the appropriate mix of provider directed and consumer directed care? All of these questions 

will need careful deliberation by public and private entities as we move to modernize the system. 

The American Geriatrics Society would like to work with the Subcommittee to resolve the issues these issues. We thank you for including us in today’s important 

hearing. 

f 

Chairman JOHNSON OF CONNECTICUT. Thank you very 

much, Dr. Gerety. Mr. Stinson. 


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STATEMENT OF BUCK STINSON, PRESIDENT OF LONG TERM 

CARE DIVISION, GOVERNMENT RELATIONS, GENWORTH FINANCIAL 

Mr. STINSON. Thank you, Mrs. Johnson. Distinguished Members of the Committee, thank you for inviting Genworth Financial 

to testify at today’s hearing. We believe that long-term care is an 

often overlooked, yet critically important Federal policy issue and 

are pleased that you have decided to have an open discussion about 

our Nation’s long-term care needs. I am the President of Genworth 

Financial’s Long Term Care Insurance Division. Genworth Financial is a Richmond, Virginia based company which provides life, 

health, retirement, and mortgage insurance products to more than 

15 million customers in 22 countries. We are the largest and most 

experienced long-term care insurance provider in the country, with 

more than 30 years experience and more than $500 million in 

claims being paid every year. 

We will submit more extensive information in our written testimony to the Committee, but for now I think it would be most helpful if I touch on a couple of the populations that we have learned 

over the years and what we think it means to long-term care marketplace. As a private long-term care insurance company, we take 

our job very seriously. We believe that we provide policies that protect people from potentially catastrophic consequences and allow 

them access to quality care environments. The expected growth in 

the number of people needing long-term care is staggering. Based 

on Genworth’s unique 30 years of long-term insurance claims history, 60 percent of those reaching age 65 use long-term care at 

some point in their lives. There are more than 6.2 million Americans that own long-term care insurance today. Since 1996, the average age of purchase of long-term care insurance has radically 

dropped 10 years, from age 69 to age 59. This customer is married 

and likely to be college educated. Where our customer used to be 

post-retirement, today’s customers are baby boomers who purchased the product as part of a larger financial plan. 

The long-term care insurance market has evolved from nursing 

home only to one that offers flexible care options and numerous 

consumer protections. For example, of the top long-term care insurance salaries, coverage now includes flexible plans covering nursing 

homes, assisted living facilities, home health care, hospice care, 

and respite care; strict adherence to consumer protections in line 

with HIPA and the National Association of Insurance Commissioners (NAIC); benefits including case management services, home 

care, or chore services; coverage of some medical equipment; survivor benefits and care giver training. Due to consumer interest in 

limited pay policies, some companies offer these types of policies as 

well in different variations. For example, single pay, 10 pay, or pay 

to 65. Benefits through policies are triggered when the policyholder 

has cognitive impairment, as an example suffering from Alzheimer’s or they need assistance in performing two or more activities of daily living, such as bathing or dressing. Plans are guaranteed renewable, meaning that the insurer cannot change the terms 

of the policy coverage as long as the policy holder continues to pay 

the premium. 


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Rates cannot be raised without approval from the State Departments of Insurance. Coverage also includes a 30-day free look period, and some companies offer a return of premium feature that 

allows the refunding of premiums paid if the policy ever dies before 

a certain age. We believe that over the time the long-term care insurance market will continue to expand as a result of aging demographics, increasing health care and nursing care cost, growing 

awareness of the limitations of government programs, and increasing public awareness of the benefits of private long-term care insurance. However, more must be done. We believe that a public 

education effort must be a critical component of the expanding 

awareness of the true cost and likelihood of long-term care needs. 

Many non-buyers mistakenly believe that their health insurance or 

Medicare provides coverage for long-term care. Generally speaking 

long-term care is very expensive. Depleting the perspective according to a 2004 Genworth Study on the cost of care, the average 

nursing in the United States cost $65,200 per year. Yet only 7 percent of seniors have said enough money to cover even 1 year of 

nursing home care. Assisted living facilities cost on average $28,800 per year. There 

is no magic wind that will solve the long-term financing problems 

that are looming for millions of Americans. In the end, many different approaches will have to be applied if we are to solve the 

problem. We believe it is important for private industry to be a 

part of the solution. Two partial solutions that we urge the Subcommittee to explore are tax incentives for long-term care insurance and public education. A great example of an effective awareness campaign is the recent Department of Health and Human 

Services (HHS) and Center for Medicare and Medicaid Services 

(CMS) ‘‘Own Your Future’’ program, which was launched earlier 

this year and in five pilot States—Virginia, Nevada, Arkansas, 

Idaho, and New Jersey. We believe this type of program—this is 

the type of program that should expanded nationwide. Madam 

Chairwoman, we want you to know that we applaud your efforts 

to bring attention to this issue from these hearings today, to the 

legislation that you have proposed to enact an above the line tax 

deduction for long-term care insurance premiums. 

As the market leader, we fully support tax incentives for the purchase of long-term care insurance, and we offer your support to 

help you achieve this goal. Just last month, we hosted a forum on 

Capitol Hill to present focus group findings on long-term care policy to many of your staff. The research confirmed what many of us 

in the industry have long suspected that many Americans do not 

understand that they have a huge potential long-term care financing burden hanging over their heads. We would be happy to 

present it to you and your staff members, as well as discuss other 

ways we can develop research and find answers to the long-term 

care policy problems. Let me close by telling you that we are committed to being a partner, a resource, and an asset to this Committee on both sides of the aisle. We are eager to work with you 

and your staff to share our abundant data and to conduct new research as needed. We know that long-term care insurance is not 

the solution for everyone; however, we believe it has to be a part 

of the broader solution that leads to a better long-term care stratVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00043 Fmt 6633 Sfmt 6602 E:\HR\OC\26379.XXX 26379

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egy for our country. Thank you for the opportunity to be here 

today. 

[The prepared statement of Mr. Stinson follows:] 

Statement of Buck Stinson, President of Long Term Care Division, 

Government Relations, Genworth Financial 

Genworth Financial is a Richmond, Virginia based company, which provides life, 

health, retirement and mortgage insurance products to more than 15 million customers in 22 countries. Our long-term care business is the largest and most experienced provider in the country, with more than a million customers and over $500 

million in claims being paid every year. 

We believe that long-term care is an often overlooked, yet critically important federal policy issue and are pleased that you have decided to have an open discussion 

about our nation’s long-term care needs. As a private long-term care insurance company, we take our job very seriously. We provide policies that protect families from 

potentially catastrophic consequences and allow them access to quality care environments. 

Current Trends in Caring for Our Aging Population 

Americans are living longer with the oldest of the 77 million baby boomers reaching retirement age in 2008. The most significant growth will be among those 85 and 

older, a segment that will more than triple in size to 5.2 percent of the population 

by 2050. This surge in our elderly population will create an acute demand for longterm care (LTC) services. 

Long-Term Care Differs 

Long-term care is different than what most of Americans think of as health care, 

and it isn’t usually covered by health insurance policies, HMO plans or Medicare 

supplemental policies. Both Medicare and most health insurance policies are designed to cover expenses resulting from ordinary doctor care or hospital stays. 

The Congressional Budget Office estimates that total expenditures for long-term 

care services for the elderly in 2004—excluding the value of donated care—will total 

$135 billion. Of that, nearly a third is paid out of pocket. 

Long-term care needs are typically triggered by the need for assistance with activities of daily living, including bathing, eating or dressing, as well as cognitive impairment resulting from illness including dementia and Alzheimer’s disease. Longterm care can range from basic help with chores and activities in your own home, 

assistance with activities of daily living in an assisted living facility or highly skilled 

care in a nursing facility. The possibility of needing long-term care due to an illness 

or physical disability is something most people don’t like to think about. But as we 

age, and because Americans are living longer, the likelihood that we will need some 

kind of assistance is very real. 

The expected growth in the number of people needing long-term care is staggering. Sixty percent of those reaching the age of 65 are expected to need long-term 

care at some point in their lives[1] According to the AARP, seven million people over 

the age of 65 needed long-term care in 2001 and by 2020, the number is expected 

to increase to 12 million. 

Caregiver Changes 

Traditionally, long-term care needs are taken care of within the family, with nearly 70 percent of elderly individuals receiving volunteer help from their personal network. Over the next several decades, that number is expected to drastically decline 

due to several factors. With the size of the American family getting smaller, there 

are fewer adult children to take care of elderly parents—and these children live farther away from their parents than they did a generation ago. In addition, there are 

more women—the traditional caregivers—in the workforce, and studies have shown 

that care giving at home suffers proportionately with hours of employment[2] 

Long-Term Care Payment 

Beyond their families, Americans have several options when it comes to receiving 

and paying for long-term care, but few are prepared for the financial reality or the 

impact on their assets. 

We often underestimate the costs of long-term care. With nursing home care averaging $65,200 (daily rate of $179) per year, savings and assets may be quickly diminished. According to the 2004 Genworth Cost of Care Survey, the problem is even 

more acute in urban areas, where nursing home care costs are 20 percent higher 

than in rural or suburban areas. In some states, such as New York, California and 


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1 Employee Benefit News, A Federal Case for Long Term Care, 2/02/03. 2The Tradeoff Between Hours of Paid Employment and Time Assistance to the Elderly, Urban 

Institute, February 2000. 3 U.S. Department of Health and Human Services. 

Minnesota, the cost of urban area care was more than 40 percent greater than in 

non-urban areas of those states. The survey queried more than 6,000 providers in 

88 separate regions, including nursing homes, assisted living facilities and home 

care providers. These numbers become especially daunting when we consider that 

ten percent of those entering nursing homes will stay there for five or more years.3

Average Costs of Long Term Care in the United States: 

Nursing Homes $179.00 per day 

Assisted Living Facilities $79.00 per day 

Certified Home Care $20.08 per hour 

Source: 2004 Genworth Cost of Care Survey for Nursing Homes, Assisted Living Facilities and Home Care 

Providers 

Most Seniors Unprepared 

Most seniors are not financially prepared to pay for these long-term needs. According to a study done by the Bureau of Census, only seven percent of American 

seniors have enough saved to cover even one year of nursing home care.4

Most Americans are also not wealthy enough to fully fund their long-term care 

needs through private savings. Many rely on public programs provided at taxpayer 

expense by the state and federal government. However, the majority of Americans 

are unaware of the fact that Medicare is not intended to cover the majority of longterm care expenses, and Medicaid coverage for long-term care only becomes available if and when an individual depletes most of their savings and assets or that 

Medicaid can recoup long-term care expenses after a covered individual’s death by 

foreclosing on that individual’s house. State Medicaid programs force seniors to 

‘‘spend down’’ their assets, essentially spending all of their savings and assets before 

they will cover expenses such as nursing home care. In fact, according to the Department of Health and Human Services, this accounts for more than half of the 

nursing home residents, who ‘‘have become poor enough’’ to qualify for Medicaid coverage. 

Nearly one-third of all long-term care bills are paid by individuals and families 

out-of-pocket. As a result, 70 percent of single people and 50 percent of married couples who require long-term care become destitute.5

Even those seniors who believe they have saved enough may still be in trouble. 

The one thing that none of us can predict is the length or extent of any impairment 

that may befall us. 

Long-Term Care Insurance Helps Americans Plan for Long-Term Care 

Needs 

Long-term care insurance allows people to pay certain, smaller payments now in 

order to ensure that they can afford the long-term care coverage they likely will 

need later in life, instead of taking the financial risk of losing their life savings in 

order to become eligible for government programs. 

In addition to ‘‘sharing the risk’’ with others to mitigate the costs, long-term care 

insurance often allows policyholders more choices and greater quality of care. 

According to LIMRA International, there are 6.2 million Americans who own longterm care insurance today. Despite those positive numbers, there remains a general 

lack of understanding with respect to LTC insurance that leaves many people baffled, discouraged and, in the end, unprepared to meet their own needs. 

With more than 30 years of experience, Genworth has also been at the forefront 

of identifying emerging trends and working with health and advocacy experts to develop better forms of coverage and protections. Most significantly, Genworth has determined that nearly 50 percent of all the company’s claims paid over time have 

been for care provided to patients with Alzheimer’s and other forms of dementia. 

With four and a half million Americans currently diagnosed with Alzheimer’s, and 

the number projected to grow to 14 million in coming decades, this is an important 

chronic illness to plan for early on in life. 


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Policy Coverage and Offerings 

Planning for future long-term needs by securing a long-term care insurance policy 

is one way Americans can help ensure that they retain their independence and quality of life as they age. Industry trends indicate that the baby boom generation is 

gaining an appreciation for long term care insurance as evidenced by more Americans planning for their long-term needs earlier. The average age of people buying 

long-term care insurance has shifted dramatically from post-retirement to pre-retirement. Since 1996, the average age of individuals purchasing long-term care insurance has dropped from 69 to 59. One explanation of this trend can be attributed 

to the baby boomers planning ahead, as they see how their parents’ needs for longterm care are addressed. 

Of the top 13 companies providing long-term care insurance, there have been more than $8 billion in claims paid through 2002. The 13 largest companies offer 

policies to individuals ranging in ages from 18 to 99, provide a $50-$600 per day 

benefit, guarantee renewability and offer many different options for coverage and 

inflation protection. 

In addition to ‘‘sharing the risk’’ with others to mitigate the costs, long-term care 

insurance often allows policyholders more choices and greater quality of care. For 

instance, the market has evolved from nursing home-only to one that offers flexible 

care options and numerous consumer protections. 

Most policies allow customers to choose between in-home care, assisted living facilities and nursing homes, encouraging the individual and their families to customize his or her care needs. In addition, policies offer the services of a local care 

coordinator that meets with a policyholder at the time of claim to help craft a plan 

of care and identify local care providers. There is a chart in the appendix that illustrates the typical coverage offered by the top long-term care insurance sellers. 

The most recent study of industry-wide data and trends was conducted by America’s Health Insurance Plans (AHIP) in 2002. 

At that time AHIP found that: 

• Approximately 80 percent of all long-term care insurance policies were sold 

through the individual market. Ninety-four percent of long-term care insurers 

sold in this market. 

• In contrast, as of December 31, 2002, 28 percent of the 2002 long-term care insurance carriers sold policies in either the employer-sponsored or life insurance 

markets. This is in comparison with only 14 percent in 1988. The employersponsored and life insurance markets also represented 21 percent of all longterm care policies sold as of 2002, up from less than 3 percent in 1988. 

• This study validates the persistency of long-term care insurance coverage. Findings from this study show significantly lower than expected lapse rates. 

• Long-term care insurance carriers paid more than $8 billion in benefits to their 

claimants through 2002. 

• More than 280,000 new long-term care insurance policyholders, representing almost one-third of all policies sold in 2002, purchased their coverage though 

their employer. A significant portion of this growth can be attributed to the 

launching of the Federal Long-Term Care Insurance Program. This program 

made long-term care insurance available to federal government employees and 

annuitants and their qualified dependents and relatives. 

As in previous years, the long-term care insurance market was concentrated 

among a relatively small number of sellers. Thirteen companies represented approximately 80 percent of all individual policies sold in 2002. AHIP also conducted 

an in-depth look at the top sellers’ latest policies and found that these insurers offer 

policies with a wide range of benefit options and design flexibility at moderately 

priced premiums. Its key findings were: 

• All companies offer plans covering nursing home, assisted living facility, home 

health care, hospice care, respite care, and alternate care services. 

• Other common benefits include case management services, homemaker or chore 

services, restoration of benefits, reimbursement of bed reservations in long-term 

care facilities, coverage of some medical equipments, survivorship benefits, and 

caregiver training. 

• Spousal discounts are more prevalent and offer significant reductions in premiums. The discount ranges from 10 to 40 percent. 

• There appears to be consumer interest in limited pay policies and some companies are beginning to offer these types of policies in different variations, such 

as single pay, 10-pay, and pay until 65 options. 

• Criteria used for benefit eligibility is deficiency in performing activities of daily 

living (ADLs) and cognitive impairment. 


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• All plans are guaranteed renewable, have a 30-day ‘‘free look’’ period, cover Alzheimer’s disease, have a waiver of premium provision, and offer unlimited or 

lifetime nursing home maximum periods. 

• All companies use a six-month or less preexisting condition limitation. 

• Age limits for purchasing continue to expand. Companies offer individual policies to people as young as 18 and as old as 99. 

• All plans offer the National Association of Insurance Commissioners (NAIC) 

Long-Term Care Model Act and Regulation inflation protection requirement of 

benefits increasing at an annual 5 percent compounded rate, funded with a 

level premium. 

• All companies offer plans that have a nonforfeiture benefit; shortened benefit 

period is the most common type offered. 

Future Outlook 

Over time, the long-term care insurance market will continue to expand as the 

result of aging demographics, increasing healthcare and nursing care costs, growing 

awareness of the limitation of government programs and the increasing public 

awareness of the benefits of private long-term care insurance. 

However, more must be done. There is no magic wand that will solve the longterm care financing problems that are looming for millions of Americans. In the end, 

many different approaches will have to be applied if we are to solve the problem. 

While Congress has done a great deal to encourage private retirement planning, 

long-term care planning has been largely unaddressed. We believe it is important 

for private industry to be part of the solution, both in terms of educational awareness and legislative policymaking. 

There are several policies that could make a great impact on both American’s 

long-term care needs and the federal budget. Financial incentives, most notably in 

the form of some level of tax deductibility, would most likely produce the greatest 

stimulus for more Americans to better plan for their future health needs. Public 

education and greater cooperation between the public and private sectors could also 

make a very significant contribution to easing the pressures that are currently 

building. 

Genworth recognizes, as part of its corporate mission, an obligation to raise the 

public’s awareness of the impending long-term care challenges. The company is also 

fully committed to working in partnership with policymakers and consumer advocates to better serve the needs of the nation’s aging population. 

Just last month, we hosted a forum on Capitol Hill to present focus group findings 

by noted researchers Bill McInturff of Public Opinion Strategies and Geoff Garin of 

Peter D. Hart Research on long-term care policy to many of your staff. 

The research confirmed what many of us in the industry have long suspected— 

that many Americans do not understand that they have a huge potential long-term 

care financing burden hanging over their heads. 

We would be happy to present it to you or your staff members, as well as discuss 

other ways that we can develop research that finds answers to our long-term care 

policy problems. 

A great example of an effective awareness campaign is the recent HHS and CMS 

‘‘Own Your Future’’ program which was launched early this year in five pilot states 

(VA, NV, AR, ID and NJ) We believe this should be expanded nationwide. 

In closing, we want to assure Members of the Committee, as well as staff, that 

we are committed to being a partner, a resource and an asset on both sides of the 

aisle. We are eager to work with you to share our abundant data and to conduct 

new research as needed. We do not have all of the answers, but we hope to be part 

of the solution that leads to a better long-term care strategy for our country. 

Thank you for the opportunity to provide this testimony to the Committee. 

Appendix 

Source: American Health Insurance Plans; Long-Term Care Insurance in 2002 

f 

Chairman JOHNSON OF CONNECTICUT. Thank you very 

much, Mr. Stinson. Doctor Meiners? 


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STATEMENT OF MARK R. MEINERS, PH.D., PROFESSOR AND DIRECTOR, CENTER FOR HEALTH POLICY, RESEARCH AND 

ETHICS, GEORGE MASON UNIVERSITY, ARLINGTON, VIRGINIA 

Mr. MEINERS. Thank you for inviting me to speak on a topic 

that has been new and dear to me for many years. In my testimony 

today, I want to focus on two of the programs I have been working 

on-the Partnership for Long-Term Care and the Medicare-Medicaid 

Integration Program. Each of these programs provide excellent case 

studies of the creativity and perseverance States have demonstrated in carrying out their long-term care responsibilities in 

the face of often times great barriers. It is the barriers with which 

we need your help. States are hungry for workable models to deal 

with their long-term care responsibilities. There is general recognition of the need to improve the health care delivery system for 

those with chronic care needs. A commonly accepted premise is 

that to make progress, we must improve the integration and coordination of acute and long-term care. To do this, health plans and 

providers must experiment with systems of care and financing. But 

I want to start with the financing option that is known as the Partnership for Long-Term Care because, as many of you know, form 

tends to follow finance in health care. 

The Partnership for Long-Term Care is a state-based program 

developed with the support of the Robert Wood Johnson Foundation. The program is designed to stimulate long-term care insurance market by helping to balance the difficult competing pressures 

between product value and price. Four States-California, Connecticut, Indiana, and New York-are currently operating the public-private partnership which provides consumer special protection 

against depletion of their assets in the financing of long-term care. 

The Partnership long-term care insurance policies work in the following way: By buying a Partnership Policy, a person qualifies for 

Medicaid benefits under special Medicaid rules. When a Partnership Policy is exhausted, the policyholder is permitted to retain assets equal to the amount his or her insurance has paid out. There 

are some nuances to this that allow for total assets model. We can 

talk about that another time. The person is then eligible for coverage under Medicaid without having to be impoverished. Insurers 

participating in the Partnership must meet the program certification standards. These standards ensure the participating longterm care policies are of a high quality. Among the standards required in each State are inflation protection, minimum benefit 

amounts, and agent training. Participating insurers are also required to provide the State with information on purchasers of certified products and on the utilization of benefits. 

The program is fiscally conservative, helps middle income people 

avoid impoverishment, serves as an alternative to Medicaid estate 

planning, promotes better quality insurance products which promote consumer protection efforts, enhances public awareness regarding long-term care needs and options, and helps maintain public support for the Medicaid program. About $43 million in asset 

protection has been earned to date, but the vast majority of that 

protection will never actually be needed because in most cases the 

insurance covers the needs of beneficiaries until they die. This is 


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one of the unique strengths of the Partnership. It provides a meaningful incentive to prepare for the risk of long-term care with insurance, while costing relatively little. Indeed, early estimates and 

recent experiences suggest that the program can save Medicaid 

costs. At least some of you Committee Members are quite familiar 

with the Partnership Program having had a hand in 

grandfathering the current States, giving them the right to operate 

the program and it is part of the 1993 Omnibus Budget Reconciliation Act. The same legislation, however, put restrictions on wider 

State replication of this idea, which has proved to be a major barrier to broadening the success of the program. Without the repeal 

of the OBRA ’93 restrictions on partnership style asset protection, 

it has not been possible to stimulate the multi-State interest necessary to justify the commitment of resources by insurers and their 

agents to support these alternative marketing strategies. 

We respectfully ask you all to work with your colleagues on the 

Ways and Means Committee to remove the OBRA restrictions on 

the Partnership Program. In addition to financing innovations like 

the Partnership, there is a profound need for new systems of care 

that integrate the financing, delivery, and administration of primary, acute, sub acute, and long-term care. The current Medicaid 

crisis along with the new Medicare prescription drug benefit and 

the increased recognition of the high cost and unique care needs of 

many special needs populations, including those eligible for both 

Medicare and Medicaid, the dually eligible, has prompted renewed 

interest in the integration of Medicare and Medicaid managed care. 

Effective care management for such a population can best be accomplished when health plans have the ability to coordinate the 

service delivery and financing the entire continuum of health and 

long-term care services. The current financing delivery system contains many obstacles to the development of such integrated care 

models. The Medicare-Medicaid Integration Program, with the support of the Robert Wood Johnson Foundation, has been working 

with States to help end the fragmentation of financing, case management and delivery, and service delivery that currently exists 

with our two main public financing programs. 

The ultimate goal of these efforts is to help evolve an effective 

way for all populations in need of or at risk for the full continuum 

of acute and long-term care services to get care more efficiently and 

effectively. The Partnership for Long-Term Care is a strategy that 

can help broaden the market for long-term insurance. But financing is only part of the problem to be solved. There needs to be systems of care that integrate acute and long-term care so that the 

limited resources available are spent wisely on behalf of the consumer. Together, Medicare and Medicaid have an enormous impact 

on our health care delivery system as well as on the private insurance market. We must begin to recognize the critical interrelationship between these two programs and approach Medicare-Medicaid 

modernization efforts in tandem. Systems of care that integrate 

Medicare and Medicaid for dual eligibles are beginning to show us 

how to deal with the complex clinical, operational, and financial 

problems that will increasingly confront us as our population ages. 

These State-based efforts should be supported as good investments 

in our future. Thank you. 


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[The prepared statement of Mr. Meiners follows:] 

Statement of Mark R. Meiners, Ph.D., Professor and Director, Center for 

Health Policy, Research and Ethics, George Mason University, Arlington, 

Virginia 

Chairman and members of the Subcommittee, my name is Mark Meiners. I am 

a professor at George Mason University where I direct the Center for Health Policy, 

Research, and Ethics. I specialize in the economics of aging and health as it relates 

to public policy. For over 30 years I have worked with the Federal government, state 

governments, the Robert Wood Johnson Foundation and many others to develop and 

direct state programs designed to improve our Nations’ long-term care financing and 

delivery systems. In my testimony today I want to focus on two of the programs I 

am working on—the Partnership for Long-Term Care and the Medicare-Medicaid 

Integration Program. Each of these programs provide excellent case studies of the 

creativity and perseverance states have demonstrated in carrying out their longterm care responsibilities in the face of great barriers. It is the barriers with which 

we need your help. 

The Medicaid Crisis and State Initiatives in Long-Term Care 

It is not surprising that states have been the focal point in reform of long-term 

care. Much of long-term care is related to daily living needs rather than health care 

needs. This tends to make the approach to care more the concern of individuals and 

their communities. Perhaps even more important, financing and administration of 

long-term care under the Medicaid program has been an increasing burden for 

states. Their desire to find alternatives to nursing home care has provided most of 

the experience with program innovation. 

States are hungry for workable models to help deal with their long-term care responsibilities. There is general recognition of the need to improve the health care 

delivery system for those with chronic care needs. A commonly accepted premise is 

that to make progress we must improve the integration and coordination of acute 

and long-term care. To do this, providers must experiment with new systems of care 

and financing. 

The Partnership for Long-Term Care 

The Partnership for Long-Term Care is a state-based program developed with the 

support of the Robert Wood Johnson Foundation. The Partnership program is designed to stimulate the long-term care insurance market by helping to balance the 

difficult competing pressures between product value and price. Four states (California, Connecticut, Indiana, and New York) are currently operating this public-private partnership which provides consumers special protection against depletion of 

their assets in the financing of long term care. 

The Partnership long term care insurance policies work in the following way. By 

buying a Partnership policy, a person qualifies for Medicaid benefits under special 

Medicaid rules. Once a non-Partnership policy runs out, an individual must spend 

virtually all of their savings before they qualify for Medicaid. In contrast, when a 

Partnership policy is exhausted, the policyholder is permitted to retain assets equal 

to the amount his or her insurance paid out (IN and NY have allowed some policy 

holders to keep all remaining assets). The person is then eligible for coverage under 

Medicaid without having to be impoverished. 

Insurers participating in the Partnerships must meet the program certification 

standards. These standards ensure that participating long-term care policies are of 

high quality. Among the standards required in each state are inflation protection, 

minimum benefit amounts, and agent training. Participating insurers are also required to provide the state with information on purchasers of certified products and 

on the utilization of benefits. 

The Partnership states selected the strategy of linking the purchase of long-term 

care insurance to Medicaid eligibility after considering numerous alternatives. The 

program is fiscally conservative, helps middle income people avoid impoverishment, 

serves as an alternative to Medicaid estate planning, promotes better quality insurance products which promote consumer protection efforts, enhances public awareness regarding long term care needs and options, and helps maintain public support 

for the Medicaid program. 

Each of the four Partnership states maintains a web page full of useful information that, among other things, tracks the experience of their program for consumers, 

agents, and policy makers. For example, approximately 238 thousand applications 

have been taken in the four states since the start of the program. The average age 

of purchasers is in the range of 58–63 and women comprise 55–60 percent of the 


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purchasers. For more information see: www.umd.edu/aging and go to the Partnership for Long-Term Care. Links for each or the Partnership States can be made 

from this web page. 

About $43 Million of asset protection has been earned to date but the vast majority of that protection will never be actually be needed because in most cases the insurance covers the needs of the beneficiary until they die. That is one of the unique 

strengths of the Partnership; it provides a meaningful incentive to prepare for the 

risk of long-term care with insurance while costing relatively little. Indeed early estimates and recent experience suggest that the program can save Medicaid costs. 

During the planning phase of the program (1991) we used the Brookings-ICF LongTerm Care Financing Simulation Model and identified potential savings gradually 

increasing so that by the final estimation period of 2016–2020 there was a 7 percentage point decline in Medicaid’s share of the long-term care bill. More recently, 

the Partnership states that are using the dollar-for-dollar model have developed 

their own estimation strategy which shows their cumulative Medicaid savings to 

date as being in the range of $8–10 million. While it is always difficult to estimate 

with certainty the behavior change that would come from a National Partnership 

model it seems clear that the current Partnership States’ experience are going in 

the direction of the savings that were originally anticipated from the earlier simulations. 

The Partnership Balancing Act 

Partnership policy sales indicate steadily growing interest in public-private longterm care insurance policies. However, the numbers also reveal that the public is 

still wary about the need for such policies and needs positive reinforcement to consider such an investment in their future. There are good reasons for this that involve the differences in perspectives that have fueled the status quo. 

In the early stages of program development, arguments against the Partnership 

were raised primarily by social insurance advocates who viewed the program as an 

incremental step which would erode support for more ambitious reform. As the Partnership was implemented, insurers voiced their own dissatisfaction with certain aspects of the program design because it deviated from some of the standard approaches used to market this coverage and required extra attention beyond that for 

non-partnership products. Not satisfying everyone exactly to their liking is, after all, 

what we believe to be necessary for a workable public-private partnership. 

Most of the arguments for and against the Partnership share common issues 

viewed from different perspectives. Central to the strategy is the fact that Medicaid 

is the primary public payer for long-term care that states are the key decision makers regarding Medicaid rules and insurance regulation, and that the states need to 

be at least budget neutral in their efforts to provide a positive incentive to the insurance market. 

OBRA ’93 Language A Major Barrier to Replication 

At least some of your committee members are quite familiar with the Partnership 

program having had a hand in grandfathering the current Partnership States the 

right to operate their programs as part of the 1993 Omnibus Reconciliation Act. 

That same legislation, however, put restrictions on wider state replication of this 

idea which has proved to be a major barrier to broadening the success of this program. 

At the time when the Partnership programs were initiated, two countervailing 

forces clashed. First, state interest in the Partnership grew well beyond the four 

states funded by the Robert Wood Johnson Foundation. In fact, 12 states passed enabling legislation to create programs modeled on the RWJF program. Second, the 

Omnibus Reconciliation Act of 1993 (OBRA ’93), enacted the same year as the 

RWJF Partnership was implemented, contained language with both indirect and direct impact on the expansion of Partnership programs. Indirectly, the Act closed 

several loopholes in the Medicaid eligibility process, thereby providing further incentives for persons to purchase private insurance for long-term care. The Act also 

makes specific mention of Partnership programs. The statute contains a ‘‘grandfather’’ clause which recognizes as approved the four initial states, plus a future program in Iowa and a modified program in Massachusetts (protecting only the home 

from estate recovery). These states were allowed to operate their partnerships as 

planned since the Health Care Financing Administration had approved their state 

plan amendments before May 14, 1993. 

While states obtaining a state plan amendment after that date are allowed to proceed with Partnership programs, they are also required to recover assets from the 

estates of all persons receiving services under Medicaid. The result of this language 

is that the asset protection component of the Partnership is in effect only while the 


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insured is alive. After the policyholder dies, states must recover what Medicaid 

spent from the estate, including protected assets. At the very least this becomes a 

very complicated and convoluted message for consumers. It also removes one of the 

major incentives people have to plan for their long-term care needs. The effect has 

been to significantly stifle the growing interest in replicating the Partnership in 

other states. Promising efforts in Colorado, Illinois, Iowa, Maryland, Michigan, and 

Washington, to name a few, were sidetracked by the impression that Congress did 

not support this program. 

Next Steps 

Without the repeal of the OBRA ’93 restrictions on Partnership style asset protection, it has not been possible to stimulate the multi-state interest necessary to justify the commitment of resources by insurers and their agents to support these alternative marketing strategies. But there is growing recognition that States need 

flexibility in dealing with the pressures on the Medicaid system and that private 

long-term care insurance is a needed alternative to public financing. The National 

Governor’s Association has for some time now been calling for elimination of federal 

barriers to public-private insurance partnerships like those in the RWJF states and 

the expansion of authority to all states to implement such programs. 

When the OBRA ’93 restrictions are repealed, the current Partnership States suggest the following core benefit and administrative features be considered for a National Long-Term Care Insurance Partnership Program. The idea is that a Partnership Rider be created that could be attached to a federally tax-qualified long term 

care insurance policy. The purpose of the proposed features is outlined in brackets. 

Rider Benefit Standards: 

1. Compound inflation protection at 5% annually for both the daily and maximum benefit for all ages. [To protect both the consumer and the state’s 

Medicaid program.] 

2. Maximum lifetime benefit options must include 1 or 2 year plans (according 

to state law/regulations). [Opens the market to the middle income consumer 

who is most at risk of having to go through Medicaid spend-down. Protects 

the state’s Medicaid program.] Maximum lifetime benefit paid out in a pool 

of money. 

3. Minimum daily benefit—calculation to be determined later. [To protect both 

the consumer and the state’s Medicaid program.] 

4. Tax-qualified plan that includes an assessment and plan of care developed 

by a licensed health care practitioner who is independent of the insurance 

company. ‘‘Independent’’ = not on the staff of the insurance company. [To 

provide some level of standardization and to protect the consumer.] 

5. Reduced benefit offer, in place of lapsing, at original issue age and taking 

into account accrual of inflation protection over time. [To protect both the 

consumer and the state’s Medicaid program.] 

6. Asset protection—start with the dollar for dollar model. [Currently in existence are three models—dollar for dollar, total asset protection and a combination of both dollar for dollar and total asset protection. Starting with 

the dollar for dollar model would be the easiest for states to implement with 

a budget neutral stance for Medicaid.] 

7. Coordination of benefits. [Protects the state’s Medicaid program.] 

Administrative/Regulatory Standards: 

1. Existing partnership programs would be allowed to remain as they are. 

2. Companies wanting to participate would sign a National Participation 

Agreement. One agreement would suffice for all states. An Officer of the 

company would sign the agreement. It would state the following: 

a. Partnership Riders may not be attached to home care only policies. 

b. Partnership Riders may be attached to tax-qualified policies that calculate premiums based on issue age. No attained age premiums. [Protects the consumer and the state’s Medicaid program.] 

c. A Partnership Rider must be offered with all eligible tax-qualified policies, with premium for the Rider being equal to the policy with a 5% 

compounded inflation protection feature. 

d. The company agrees to abide by the reporting requirements (some type 

of uniform system—could be the Uniform Data Set already in existence). Reporting requirements are for the purpose of tracking participation and tracking asset protection. The companies would submit data 

to a central repository on a regular basis. States would have access to 


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the data. (Funding of the repository to be determined later.) [Protects 

the consumer and the state’s Medicaid program.] 

e. The company agrees to abide by the reporting requirements even if 

they later decide to stop issuing Partnership riders. 

f. The company agrees to be audited by a State (in-person) after the first 

Partnership policyholder has gone into benefit status. An audit performed by one state will be accepted by all other states. However, any 

state may perform an audit of that state’s policyholders’ records via 

mail or electronic means. The purpose of the audit is to ensure accurate 

tracking of asset protection. [Protects the consumer and the state’s 

Medicaid program.] 

g. The company agrees to provide quarterly asset protection reports to 

policyholders who are in benefit status; and providing service summary 

reports to policyholders who have exhausted policy benefits, lapsed 

their policies, or upon the policyholders’ requests. A copy of such reports will be sent to the State. [Protects the consumer and the state’s 

Medicaid program.] 

h. The company agrees to obtain from, and provide a copy to, the applicant consent to release information to the State as well as a disclosure 

form (content to be determined later) that provides information about 

asset protection and Medicaid. [Protects the insurer, the state’s Medicaid program, and the consumer.] 

i. The company agrees to accept applications for policies with Partnership 

Riders from, and pay commissions to, agents who show completion of 

a five-hour continuing education course on the Partnership program. 

[Protects the consumer.] 

Medicare/Medicaid Integration 

I have started my testimony with the Partnership program because I believe that 

overturning the OBRA ’93 restrictions is a relatively easy to accomplish next step 

that can lead to even more creative efforts that are needed to help reform Medicare 

and Medicaid. Further, form follows finance and, in the absence of appropriate financing mechanisms and incentives, delivery reform will be nearly impossible to accomplish. In addition to financing innovations like the Partnership, there is a profound need for new systems of care that integrate the financing, delivery and administration of primary, acute, sub acute, and long-term care services. The current 

Medicaid crisis along with the new Medicare prescription drug benefit and the increased recognition of the high cost and unique care needs of many special needs 

populations, including those eligible for both programs (the dually eligible), has 

prompted renewed interest in the integration of Medicare and Medicaid managed 

care. 

There are more than six million individuals in this country who are eligible for 

both Medicare and Medicaid. The dually eligible represent a costly subset of the 

Medicare population. More than $200 billion is likely to be spent on duals in 2005— 

roughly the same amount spent on either population alone, despite the relatively 

small case load in each program. While only about one-sixth of Medicare beneficiaries were dually eligible in 2001, they accounted for over a quarter of total 

Medicare expenditures. With Medicaid where duals comprise a little over a sixth of 

the population, the costs even more disproportionate, with the duals accounting for 

about a third of all Medicaid costs. Total spending across all payers for duals was 

more than double the amount for Medicare-only beneficiaries in 2001. 

Many in this group have complex medical care needs due to multiple chronic conditions. Twice as many duals are in poor or fair health as non-duals, they have more 

chronic conditions than Medicare-only enrollees and 75% have functional limitations. Comorbid medical conditions and disabilities require the use of multiple care 

providers and care management services to coordinate care among multiple providers to ensure appropriate care, optimize health outcomes and prevent adverse 

health events. Consider, for example, that Medicare beneficiaries with 5 or more 

chronic conditions, on average, sees 14 different physicians annually, has 40 office 

visits and fills 50 prescription drugs. 

Effective care management for such a population can best be accomplished when 

health plans have the ability to coordinate the service delivery and financing of the 

entire continuum of health and long-term care services. The current financing and 

delivery system contains many obstacles to the development of such an integrated 

system. Of major concern to the development of managed care programs is the fragmentation of financing and responsibility for patient care. Medicare and Medicaid 

currently maintain wholly separate contracting, reimbursement and quality standards for managed care organizations, in spite of overlapping populations. If manVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00053 Fmt 6633 Sfmt 6621 E:\HR\OC\26379.XXX 26379

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aged care providers are to be effective in accessing the most appropriate and cost 

effective care for their patients they must have the flexibility to provide whatever 

combination of care and services is the most clinically effective and economically efficient. 

Getting Medicare and Medicaid policy to work together can be quite difficult. Unnecessary hospitalizations of those in nursing homes are encouraged by low Medicaid reimbursements, bed hold day payments, and DRG related payment incentives 

for short stay hospital admissions. Medicare physician payments are biased toward 

hospital care instead of care in the office, home, or nursing home. More emergency 

room visits, medical transportation, and readmissions result. Too little home and 

community care is available to serve as an alternative to nursing home care. Improved managed care models are again being looked to as a way to handle these 

problems. Integrated care programs represent an opportunity for better care outcomes and greater cost-efficiencies by improving the attention to detail that is often 

missing for people when there is no systematic effort to coordinate care. 

The model of nursing home care originally demonstrated by Evercare is a case in 

point of improved care management and outcomes through integrated care. Evercare 

provides care management, aggressive primary care services and early identification 

and treatment of acute illness to long-term nursing home residents. While beneficiaries with four or more chronic conditions are 99 times more likely to be hospitalized for an ambulatory care sensitive condition that could have been prevented with 

appropriate ambulatory care, Evercare has reduced hospital use among nursing 

home residents by 45%, including preventable hospitalizations. Reductions in hospitalization result in significant cost-savings to both the acute and long-term care 

systems when one considers risks associated with hospitalization for seniors—infections, depression, falls, irreversible functional decline that may require life-long supportive services, loss of bone mass and other forms of decline that can lead to lifelong decline in health status and increased acute and long-term care costs. 

The PACE model is probably the best known example of successful integration of 

acute and long-term care under managed care arrangements. Full integration is 

made possible by a pooling of Medicare and Medicaid resources; over 95% of PACE 

members are dually eligible. Now that PACE has been made a permanent option 

within Medicare there is growing interest in making this model of care more appealing to private pay populations who need similar care. The challenge will be to get 

middle class seniors to substitute private insurance or financing for long-term insurance for Medicaid dollars and to make a commitment to the prescribed delivery system. One approach that might work is to offer this care approach as a preferred 

provider arrangement under long-term care insurance contracts. Other options for 

expanding alternative financing, contracting and care arrangements warrant examination to determine the potential for PACE alternatives to serve large numbers of 

Medicare beneficiaries. 

The Medicare/Medicaid Integration Program, with the support of the Robert Wood 

Johnson Foundation, has been working with states to help end the fragmentation 

of financing, case management, and service delivery that currently exists with our 

two main public financing programs. The ultimate goal of these efforts is to help 

evolve an effective way for all populations in need of or at risk for the full continuous of acute and long-term care services to get their care more efficiently and effectively. 

Arizona, Florida, Massachusetts, Minnesota, Texas, New York, and Wisconsin are 

among the states that have made considerable progress in integrated care program 

development with the help of the Center for Medicare and Medicaid Services (CMS). 

Other states (CA, GA, NJ, MD, WA) have been working at it and are interested in 

doing more. Though the initial focus is on public pay clients the delivery system development lessons are equally relevant to long-term care insurance links that might 

be made with Medicare managed care products as the private market alternative 

for those not eligible for Medicaid. The growth of Medicare managed care products 

designed to serve special needs populations will eventually stimulate the development of products in the private sector that could well benefit from the type of incentives offered by the Partnership program as a way to encourage the purchase of 

comprehensive shorter-term coverage that is appealing and affordable to middle and 

modest income purchasers. Indeed the group most at risk for spend-down to impoverishment if they need long-term care could benefit greatly by being in a system of 

care that managed chronic illness well. That way unnecessary accidents, behavior, 

and transition mistakes associated with the client’s special needs could be better 

avoided and help keep people from needing Medicaid all together. 

Currently the conflicting Medicare and Medicaid financing and administrative 

rules continue to result in significant duplication, fragmentation, and costs. The new 

Medicare Special Needs Program (SNP) statute and regulations could be a way to 


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begin to mainstream the types of care system improvements that have begun to be 

tested in the various state integrated care demonstrations. The current SNP regulations do not as yet provide states and health plans the authority to integrate financing, care delivery and administration that has been achieved under the current dual 

demo waivers. It is important to allow Medicare demonstrations seeking designation 

as SNPs to convert to SNP demonstrations with the authority to retain previously 

approved waivers so that they can continue to refine and enhance the models developed under demonstration authority. Consideration should also be given to allow 

states to waive Federal Medicaid rules where they conflict with Federal Medicare 

rules and to add requirements for long-term care benefits that are not addressed 

in Federal regulations. 

States should also be allowed to integrate Medicare and Medicaid administration 

and expand eligibility through state plan amendments. This could allow for creative 

upstream program development for pre-duals that could be linked with Partnership 

type asset protection incentives in exchange for voluntary participation in managed 

care plan programs involving care coordination and/or chronic care management 

strategies. 

Conclusions 

Medicare and Medicaid often share in the delivery of health and social services 

to high-cost chronically ill elderly and disabled individuals. But Medicare does not 

cover long-term care so private insurance enters the picture as a way to help people 

prepare for this risk and avoid having to depend on Medicaid. The Partnership for 

Long-Term Care is a strategy that can help broaden the market for long-term care 

insurance. But financing is only part of the problem to be solved. There needs to 

be systems of care that integrate acute and long-term care so the limited resources 

available are spent wisely on behalf of the consumer. Together, Medicare and Medicaid have an enormous impact on our health care delivery system as well as on 

the private sector insurance market. The incremental development of these two programs has created many distortions and inefficiencies in providing care to individuals who qualify for both programs, as well as in the delivery system as a whole. 

We must begin to recognize the critical inter-relationship between these two programs and approach Medicare and Medicaid modernization efforts in tandem. Only 

through a unified approach to care for the dually eligible, can we optimize health 

care outcomes and contain the cost of care for the highest-cost subgroup in the 

health care system. Systems of care that integrate Medicare and Medicaid for dual 

eligibles are beginning to show us how to deal with the myriad of complex clinical, 

operational, and financing problems that will increasingly confront us as our population ages. These state based efforts should be supported as good investments in 

our future. 

f 

Chairman JOHNSON OF CONNECTICUT. Thank you very 

much. Mr. Gehm. 

STATEMENT OF DAVID GEHM, PRESIDENT AND CHIEF EXECUTIVE OFFICER, LUTHERAN HOMES OF MICHIGAN, FRANKEMUTH, MICHIGAN 

Mr. GEHM. Thank you. Madam Chairman and Members of the 

Subcommittee, I am pleased to have the opportunity to testify 

today on behalf of Lutheran Homes of Michigan and the American 

Association of Homes and Services for the Aging, of which we are 

a member. Lutheran Homes of Michigan is a non-profit Christian 

agency providing a full range of services to God’s oldest children. 

Our facilities provide round-the-clock Medicare-certified skilled 

nursing care, certified home care, senior housing, hospice, and private-duty services to hundreds of Michigan seniors and their families of all faiths. Lutheran Homes’ history tracks the trends in 

long-term care over the last several decades and the ways in which 

our field has in some ways come back to the future. Over the last 

114 years, Lutheran Homes has evolved from a housing provider 

for impoverished elderly to adding services as needed. Post enactVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 E:\HR\OC\26379.XXX 26379

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ment of Medicare and Medicaid in the sixties, we became predominantly a nursing home provider and now we are back to the future 

as we evolve back to housing, with services leading the way. In 

that context, I want to mention the need to finance supportive and 

health-related services in affordable housing settings. Public payments for nursing home care bundle housing costs together with 

the cost of health care and supportive services. For short stay 

skilled nursing patients and some very frail longer stay residents, 

this arrangement has proven to be a cost-effective way of ensuring 

that they receive the level of care they require. 

However, we are seeing the unbundling of the services can make 

much more sense for people who don’t need the entire package of 

services that nursing homes are required and bound to provide. 

But if housing and supportive services are unbundled, they must 

both available and affordable to people if people are to have a realistic alternative to nursing home care. The full Ways and Means 

Committee has jurisdiction over the Nation’s largest affordable 

housing program, the low-income housing tax credit. I would hope 

that this Committee can spearhead discussions with other congressional Committees that oversee housing and supportive services to 

overcome some of the obstacles to coordinating affordable housing 

with services that enable people to age with dignity in place. In the 

future, we believe that housing plus services can help many people 

avoid or postpone entry into nursing homes. I want to emphasize 

that although Medicaid and Medicare to a lesser extent are an important source of funding for long-term care, our community also 

plays large role in financing the services our clients and residents 

receive. 

Lutheran Homes and providers like us across the Nation create 

life enriching opportunities for our elders by leveraging the social 

capital in our communities. Last year alone, Lutheran Homes 

logged over 19,000 hours of volunteer time in support of our services. We also received donated funds nearing $1 million to help offset unfunded needs and create additional services seniors need. Future policy should find a way to strengthen this public and private 

partnership. Because Medicaid is primarily a health care program, 

long-term care developed an excessively medical and institutional 

bias that is difficult to overcome. And the lack of realistic financing 

alternatives at least for the current generation of seniors has made 

Medicaid a de facto long-term care insurance program for middle 

class individuals, although it is important to keep in mind that 

families still provide the preponderance of long-term care on an informal and unpaid basis. 

The increasing trend of asset divestitures to qualify prematurely 

for Medicaid coverage of nursing home costs has negative consequences for the Medicaid program, for long-term care providers, 

and for consumers, both those who access Medicaid and those who 

use their own resources to pay for their care. People are often surprised by the price of long-term care, which reflects constantly rising costs for staff and other elements of top notch services. In most 

States, Medicaid reimbursement does not keep up and private room 

rates become higher than they otherwise would have to be in order 

for a facility to break even. The burden of cost inadequately covered by Medicaid now falls unequally on the narrow segment of 


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nursing home residents who pay their own way because they end 

up paying more than they otherwise would have to, drawing down 

their savings more rapidly. The question isn’t is long-term care 

properly funded? But rather what is it we want the program to 

buy? If the intended outcome is the bare survival of residents, then 

Medicaid probably is adequate. However, if the intent is to have 

nursing home residents and elders in the community thrive according to the spirit of the nursing home standards in OBRA 87, we 

have a long way to go. 

The future of long-term care when innovatively and successfully 

created will be led by a government, provider, consumer partnership that leverages emerging care technologies and fully embraces 

the consumer-focused culture change movement that is now underway. To be successful, we will need regulations rethought for this 

new world, and we will need innovative funding design which 

aligns with what seniors and their care givers want. In closing, I 

just want to mention a project that Lutheran Homes has initiated, 

which we are calling Operation Enduring Thanks. In early June, 

we plan to bring approximately 30 of our World War II veteran 

residents here to Washington to see the new World War II Memorial on the Mall. Congressman Camp is a member of our honorary 

steering Committee for this project, and we greatly appreciate his 

generosity in helping us help these older veterans achieve this recognition. Once again, I appreciate the opportunity to discuss these 

issues with you today, and I look forward to working with you on 

the future of aging services. Thank you. 

[The prepared statement of Mr. Gehm follows:] 

Statement of David M. Gehm, President and Chief Executive Officer, 

Lutheran Homes of Michigan, Frankemuth, Michigan 

Madame Chairwoman and members of the subcommittee, I am pleased to have 

the opportunity to testify today on behalf of Lutheran Homes of Michigan and the 

American Association of Homes and Services for the Aging (AAHSA), of which we 

are a member. Lutheran Homes of Michigan is a non-profit Christian agency providing a full range of services to God’s older children. Our facilities provide roundthe-clock Medicare-certified skilled nursing care, certified home care, senior housing, 

hospice, and private-duty services to hundreds of Michigan seniors of all faiths. In 

addition to basic housing, nutrition, and medical care, Lutheran Homes provides a 

number of life-added programs whose cost is completely covered by private fundraising. Sixty percent of our residents are dually eligible for Medicare and Medicaid. 

Our history tracks the trends in long-term care over the last several decades and 

the ways in which our field in some ways is turning back to the future. Lutheran 

Homes began 114 years ago primarily to give low-income seniors an affordable place 

to live, adding whatever services were necessary. Over the next several decades, we 

developed a long history of finding ways to meet seniors’ varied needs. With the establishment of the Medicare and Medicaid programs in the 1960s, we became primarily nursing home oriented. While that so-called medical model and the government programs that finance it continue to fill a critical need, we are finding that 

consumers strongly prefer to receive services in the places they call home. We therefore are diversifying our services once more to approximate the kind of care we 

originally provided, with affordable housing as the focal point for the delivery of 

supportive services. In fact, within the next fifteen years we see ourselves moving 

away from providing skilled nursing facility care except for short-term rehabilitation 

and some levels of dementia. 

In that context, I want to mention the need to finance supportive and health-related services in affordable housing settings. Public payments for nursing home care 

bundle housing costs together with the costs of health care and supportive services. 

For short stay skilled nursing patients and some very frail longer stay residents 

with more extensive care needs, this arrangement has proven to be a cost-effective 

way of ensuring that they receive the level of care they require. 


jcorcoran on PROD1PC62 with HEARING
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However, we are seeing that unbundling the services can make much more sense 

for people who don’t need the entire package of services that nursing homes provide. 

But if housing and supportive services are unbundled, they must both be available 

and affordable if people are to have a realistic alternative to nursing home care. 

The full Ways and Means Committee has jurisdiction over the nation’s largest affordable housing program, the low-income housing tax credit. I would hope that this 

committee can spearhead discussions with other congressional committees that oversee housing and supportive services programs to overcome some of the obstacles to 

coordinating affordable housing with services that enable people to age in place. In 

the future, we hope that housing plus services can help many people avoid or postpone entry into a nursing home. 

I want to emphasize that although Medicaid, and Medicare to a lesser extent, are 

an important source of funding for long-term care, our community also plays a large 

role in financing the services our clients and residents receive. We do not discharge 

residents who become indigent, and private fundraising in the community pays for 

approximately half of the cost of their care. Our Annual Fund assists many seniors 

who are in desperate need of help with their health care expenses. Last year we 

fund-raised nearly $1 million, of which about half was used for direct program support, with the rest placed into long term capital replacement or other special accounts. 

In addition to financial support, our communities contribute greatly to the quality 

of life for our residents through many hours of volunteer time. Volunteers help our 

residents with activities, religious services, telephone companionship, transportation, meal deliveries, and errands, as well as assisting our staff with clerical and 

office work. In 2004, we logged 19,000 volunteer hours, people giving of their time 

and talent to enrich the quality of life for our residents. 

We need to build on the existing private contributions to long-term care in order 

to develop a more rational and balanced long-term care system. Up to now, heavy 

reliance on the Medicaid program as the primary source of financing for long-term 

care has had some unintended consequences. Because Medicaid is primarily a 

health care program, long term care developed an excessively medical and institutional bias that is difficult to overcome. And the lack of realistic financing alternatives, at least for the current generation of seniors, has made Medicaid a de facto 

long term care insurance program for middle class individuals, although it is important to keep in mind that families still provide the preponderance of long-term care 

on an informal, unpaid basis. 

The increasing trend of asset divestitures to qualify prematurely for Medicaid coverage of nursing home costs has negative consequences for the Medicaid program, 

for long-term care providers, and for consumers, both those who access Medicaid 

and those who use their own resources to pay for their care. People often are surprised by the price of long-term care, which reflects constantly-rising costs for staff 

and other elements of top-notch services. In most states, Medicaid reimbursement 

does not keep up, and private-pay rates become higher than they otherwise would 

have to be in order for a facility to break even. The burden of costs inadequately 

covered by Medicaid now falls unequally on the narrow segment of nursing home 

residents who pay their own way, because they end up paying more than they otherwise would have to, drawing down their own savings more rapidly. A letter I recently received from the family member of a privately-paying resident expressed his 

outrage over the inherent unfairness built into the current system. At the same 

time, consumers who access Medicaid coverage must devote all of their income except for a small personal needs allowance to their nursing home care, removing from 

them any financial independence. 

We must find equitable and effective ways to better share the essential costs of 

long-term care between public and private sources. Any one of us at some point 

could find ourselves in need of these services. 

The question isn’t ‘‘is long term care properly funded?’’, but rather ‘‘what is it we 

want the program to buy?’’ If the intended outcome is the bare survival of residents, 

then Medicaid probably is adequate. However, if the intent is to have nursing home 

residents and those in the community thrive, according to the spirit of the nursing 

home standards in the Omnibus Budget Reconciliation Act of 1987, we have a long 

way to go. 

We increasingly are looking to technology to maximize our quality and cost-efficiency of care. Traditionally, ours has been a ‘‘high touch’’ field, but we now are 

using new technology to track our home care staff, hoping to become as sophisticated at scheduling them as Federal Express is at tracking packages. AAHSA’s Center on Aging Services Technology is working with researchers, Intel and other technology companies, and providers to find ways in which technological developments 


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could be applied to the field of aging services in order to help elders remain independent and to provide services more effectively. 

Another important trend in our field is culture change, shifting away from hierarchical staffing to a team approach to care and emphasizing consumer direction of 

the services we provide. The federal nursing home standards that were put into 

place under OBRA ’87 generally have improved the quality of care provided in our 

nation’s nursing homes. We feel that the culture change movement, emphasizing 

consumer direction and autonomy, is well within the spirit of OBRA and other federal and state nursing home quality initiatives. At the national level, officials at 

CMS have indicated that OBRA should not be a barrier to putting the ‘‘home’’ into 

nursing home care, but implementing culture change still requires step-by-step negotiations with state survey agencies because of highly prescriptive regulations. Lutheran Homes has embarked on a complete transformation of our nursing departments, but we are still short of our ideal goals. We need a new spirit of cooperation 

among providers and government agencies so that we can partner in carrying out 

innovative approaches to long-term care. 

In closing, I just want to mention a project in which Lutheran Homes is now involved, which we are calling Operation Enduring Thanks. We plan to bring approximately thirty of our World War II veteran residents here to Washington to see the 

new World War II Monument on the Mall. Congressman Camp is a member of the 

Honorary Steering Committee for this project, and we greatly appreciate his generosity in helping our older veterans achieve this recognition. 

Once again, I appreciate the opportunity to discuss these issues with you today, 

and I look forward to working with you on the future of aging services. 

f 

Chairman JOHNSON OF CONNECTICUT. Thank you very 

much, and before I recognize Dr. Feder, let me excuse myself for 

the questioning portion. I am going to stay and listen, but I am 

going to let the gavel transfer as testimony concludes. But I do 

want to thank you all for your thoughtful comments and for the 

continuity that I see flowing between them as to great importance 

of integrating care to greater quality and greater flexibility, and to 

make the changes in payment system and thinking and regulatory 

law and so on that that kind of holistic approach requires. I have 

read your testimony, Dr. Feder, and I am sorry that I won’t be here 

to listen to the questions, but I do look forward to the full report 

that you are working on. I recognize you and turn the gavel over 

to my colleague from Louisiana, Mr. McCrery. 

STATEMENT OF JUDY FEDER, PH.D., PROFESSOR AND DEAN, 

GEORGETOWN PUBLIC POLICY INSTITUTE 

Ms. FEDER. Thank you, Madam Chair. I appreciate being part 

of such an informative panel, and I appreciate speaking before you 

all, Mr. Stark, Members of the Committee on long-term financing. 

As Mrs. Johnson said, a lot of the information that I am relying 

on today and is in my statement for the record comes from a Robert Wood Johnson funded project that we call the Georgetown 

Long-Term Care Financing Project. I hope the information can be 

useful to you, and you can find it at www.LTC.Georgetown.edu. So, 

please take advantage of it. I want to concentrate now on three 

points: on long-term care financing as a problem not just for the 

future, but now, and not just for the budget, but more importantly 

for people in need of long-term care and their families; on the inability of private long-term care insurance regardless of its potential value and growth in use to address that problem adequately; 

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nancing, to assure affordable access to long-term care, both now 

and in the future. 

First, long-term financing as a problem now, not just as well as 

in the future. Among the roughly eight million people outside of 

nursing homes who are estimated to need long-term care, one in 

five report receiving insufficient care, with a great likelihood of falling, soiling themselves, or being unable to bathe or to eat as a result. The burden of long-term care is borne overwhelmingly by individuals and the families of those in need, in both caregiving and 

dollars, rather than spread through a public or private insurance. 

This is true despite the fact that the need for long-term care poses 

an unpredictable catastrophic risk, best handled by insurance. Almost 40 percent of the population estimate to be in need of longterm care today is under the age of 65, a population that clearly 

faces an unpredictable risk. And among the population about to retire today, the need for long-term care is also unpredictable, with 

tremendous variation in the likelihood o long-term care use. Close 

to half of today’s retirees are estimated to die ultimately having 

needed either no long-term care or a year or less, while at the other 

extreme, one in five are estimated to need more than 5 years of 

care. 

Insurance is increasingly recognized as the way we ought to handle long-term care financing. But private insurance can only do 

some of the job. Indeed, promotion of private insurance as a fundamental solution or even as a priority ignores its significant limitations. Private long-term care insurance is not available to people 

who already have long-term care needs. Though available, it is not 

designed to meet the needs of younger people who are also at risk 

of needing long-term care; is not affordable to the substantial segment of older persons now and in the future with low and modest 

incomes; limits benefits in dollar terms in order to keep premiums 

affordable, but therefore leaves policy holders with insufficient protection when they most need care; and lacks the premium stability 

and benefit adequacy that can assure purchasers who pay premiums year after year that it will protect them against catastrophe. 

We need only look at the experience in health insurance to recognize that reliance on the individual market plagued by risk selection, high market and cost benefit exclusions, and other problems 

for long-term care will be grossly inadequate to assure adequate 

protection to most people. Current public policy also falls short of 

assuring insurance protection. Medicare focuses primarily on 

skilled care, not long-term care. Medicaid is the Nation’s long-term 

care safety net. It is invaluable but it provides care-it does not provide what we think of as insurance in that it does not protect people against financial catastrophe. Rather, it protects them only 

after catastrophe strikes. Some have labeled the impoverishment of 

Medicaid as a fallacy, claiming that many people on Medicaid could 

pay for themselves. And some have claimed that having Medicaid 

available is a substantial deterrent to the purchase of long-term 

care insurance. As CBO Director Holtz-Eakin indicated a few moments ago, there is little evidence available to support either claim. 

Despite Medicaid’s essential role, however, its protection has significant limitations. It provides too little care in the home where 


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people would prefer to receive it; its eligibility and benefits vary 

substantially from State to State; and its services are too vulnerable to the fiscal pressures that States face. And as we have heard 

from CBO, if the problem is bad today, it is only likely to get worse 

in the future. What is needed for a different future is a public policy action. Developing better policy requires an assessment options 

to assure access to affordable long-term care and to distribute financing equitably between individuals who need long-term care 

and their families on the one hand, and the rest of Federal and 

State taxpayers on the other. 

Consideration of budget implications is a part of that assessment, 

but allowing budgetary constraints to drive that process distorts 

the Nation’s policy choices. Last April’s CBO report did precisely 

that, though I was pleased to hear Dr. Holtz-Eakin present a far 

more balanced approach today. To assert that, as CBO does, cutting back already inadequate Medicaid and Medicare protection 

would save Federal dollars is not surprising if you are focusing 

only on reducing Federal costs. But as CBO states, such a policy 

would increase burdens on family and reduce access to care. Similarly, CBO notes that promoting long-term care insurance whether 

through partnerships or other mechanisms is unlikely to reduce 

costs or even substantially expand coverage. What is needed is the 

expansion of Federal dollars to support a more adequate approach 

across the Nation. We know that such an approach must need not 

eliminate personal responsibility, as many European nations are 

working to more fairly distribute burdens—— 

Mr. MCCRERY. [Presiding.] Dr. Feder, if you could wrap up. 

Ms. FEDER. And in conclusion, to more fairly distribute burdens 

across individuals and taxpayers, we can do the same, and it ought 

to be our highest priority. 

[The prepared statement of Ms. Feder follow:] 

Statement of Judy Feder, Ph.D., Professor and Dean, Georgetown Public 

Policy Institute 

Chairman Johnson, Mr. Stark, and members of the Committee, I’m pleased to 

have the opportunity to testify before you today on long-term care. My testimony 

will reflect more than twenty-five years of research experience in long-term care, at 

Georgetown University and, before that, the Urban Institute. Based on that research, my policy conclusions are the following: 

• Today, 10 million people of all ages are estimated to need long-term care, close 

to 40 percent of whom are under the age of 65. Among the roughly 8 million 

who are at home or in the community, one in five report getting insufficient 

care, frequently resulting in significant consequences—falling, soiling oneself, or 

inability to bathe or eat. 

• The need for long-term care is unpredictable and, when extensive service is required, financially catastrophic—best dealt with through insurance, rather than 

personal savings. But the nation lacks a policy that assures people of all ages 

access to quality long-term care when they need it, without risk of impoverishment. 

• Private insurance for long-term care is expanding and will play a growing role 

in long-term care financing. However, even with improved standards and special ‘‘partnerships’’ with Medicaid, it does nothing for those currently in need, 

is not promoted as a means to serve the under-65 population and, in the future 

will be affordable and valuable for only a portion of the older population—most 

likely, the better off. 

• Medicaid is the nation’s only safety net for those who require extensive longterm care. Rather than serving primarily as a deterrent to the purchase of private insurance, it serves overwhelmingly to assure access to care for those least 

able to afford that insurance. But its invaluable services become available only 


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when and if people become impoverished; its protections vary substantially 

across states; and, in most states, it fails to assure access to quality care, especially in people’s homes. 

• A growing elderly population will mean greater demand on an already significantly stressed Medicaid program, squeezing out states’ ability to meet other 

needs and, at the same time, likely reducing equity and adequacy across states. 

• Policy ‘‘solutions’’ that focus only on limiting public obligations for long-term 

care financing do our nation a disservice. Although individuals and families will 

always bear significant care-giving and financial responsibility, equitably meeting long-term care needs of people of all ages and incomes—throughout the nation—inevitably requires new federal policy and a significant investment of federal funds. 

The following will lay out inadequacies in current long-term care financing; the 

implications of growth in the elderly population for future inadequacies; and the importance of federal policy to sustain and improve long-term care protection. Unless 

otherwise noted, I am drawing on research from the Georgetown Long-Term Care 

Financing Project, funded by the Robert Wood Johnson Foundation, and available 

at our web site: ltc.georgetown.edu. The opinions I present are, of course, only my 

own. 

People who need extensive assistance with basic tasks of living (like bathing, 

dressing and eating) face the risk of catastrophic costs and inadequate care. Today, 

almost 10 million people of all ages need long-term care. Only 1.6 million are in 

nursing homes. Most people needing long-term, especially younger people, live in the 

community. Among people not in nursing homes, fully three quarters rely solely on 

family and friends to provide the assistance they require. The range of needs is considerable—with some people requiring only occasional assistance and others needing 

a great deal. Intensive family care-giving comes at considerable cost—in employment, health status and quality of life—and may fail to meet care needs. Nationally, 

one in five people with long-term care needs who are not in nursing homes report 

‘‘unmet’’ need, frequently resulting in significant consequences—falling, soiling oneself, or inability to bathe or eat. The cost of paid care exceeds most families’ ability 

to pay. In 2002, the average annual cost of nursing home care exceeded $50,000 and 

4 hours per day of home care over a year were estimated to cost $26,000. Clearly, 

the need for extensive paid long-term care constitutes a catastrophic expense. 

The likelihood of needing long-term care is also unpredictable. Although the likelihood increases with age, close to 40 percent of people with long-term care needs are 

under the age of 65. And the need for care among the elderly varies considerably. 

Over a lifetime, projections of people currently retiring indicate that about 30 percent are likely to die without ever needing long-term care; fewer than 17 percent 

are likely to need one year of care or less, and about 20 percent are likely to need 

care for more than five years. 

Because long-term care needs are unpredictable and may be financially catastrophic, insurance is the most appropriate financing strategy. Reliance on savings 

alone is inefficient and ineffective. People will either save too much or too little to 

cover expenses. However few people have adequate private or public long-term care 

insurance. Although sales of private long-term care insurance are growing (the number of policies ever sold more than tripled over the 1990s), only about 6 million people are estimated to currently hold any type of private long-term care insurance. 

Growing numbers of older people, especially of the segment with significant resources, will create the potential for substantial expansion of that market. But private long-term care insurance policies remain a limited means to spread long-term 

care risk. Private long-term care insurance 

• Is not available to people who already have long-term care needs; 

• Is not designed to meet the needs of younger people who are also at risk of 

needing long-term care; 

• Is not affordable to the substantial segment of older persons, now and in the 

future, with low and modest incomes; 

• Limits benefits in dollar terms in order to keep premiums affordable, but therefore leaves policyholders with insufficient protection when they most need care; 

and 

• Lacks the premium stability and benefit adequacy that can assure purchasers 

who pay premiums year after year that it will protect them against catastrophe. 

We need only look at experience in health insurance to recognize that reliance on 

the individual market—plagued by risk selection, high marketing costs, benefit exclusions, and other problems—for long-term care will be grossly inadequate to assure adequate protection to most people. 


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Current public policy also falls far short of assuring insurance protection. Medicare, which provides health insurance to many who need long-term care, covers very 

little long-term care. Its financing for nursing home care and home care is closely 

tied to the need for acute care and is available for personal care only if skilled services—like nursing and rehabilitation therapy—are also required. 

It is Medicaid that provides the nation’s long-term care safety net. Most nursing 

home users who qualify for Medicaid satisfy Medicaid’s income and asset eligibility 

requirements on admission. But 16 percent of elderly nursing home users begin 

their nursing home stays using their own resources and then become eligible for 

Medicaid as their assets are exhausted. Because the costs of long-term care are so 

high relative to most people’s income and resources, the opportunity to ‘‘spend 

down’’ to eligibility—spending virtually all income and assets in order to qualify— 

is essential to assure access to care. Some have labeled impoverishment a ‘‘fallacy’’, 

arguing that the bulk of Medicaid resources go to finance nursing home care for people who could afford to pay for themselves, but who ‘‘transfer’’ their resources in 

order to qualify for Medicaid benefits. Such exaggeration relies on anecdote, not evidence. Indeed, the evidence shows that few of the elderly have the income or wealth 

that would warrant such transfer; that people in poor health are more likely to conserve than to exhaust assets; that, for the elderly population as a whole, transfers 

that occur are typically modest (less than $2000); and that transfers that are associated with establishing eligibility are not significant contributors to Medicaid costs. 

Further, there is little evidence to support the argument that Medicaid’s availability is a substantial deterrent to the purchase of long-term care insurance (CBO, 

‘‘Financing Long-Term Care for the Elderly,’’ April 2004). This argument is based 

far more on theoretical assumptions than on empirical analysis of people’s actual 

behavior. Indeed, analysis of actual purchases of private long-term care insurance 

found no impact on purchase decisions among older workers and found the slight 

impact on purchasers over age 70 too small to explain the very low proportion of 

elderly holding policies (Frank A. Sloan and Edward C. Norton. 1997. ‘‘Adverse Selection, Bequests, Crowding Out and Private Demand for Insurance: Evidence from 

the Long-Term Care Insurance Market, Journal of risk and Uncertainty 15, no.3: 

201–219). 

Despite Medicaid’s essential role, however, its protections differ considerably from 

what we think of as ‘‘insurance’’. Medicaid does not protect people against financial 

catastrophe; it finances services only after catastrophe strikes. Further, Medicaid’s 

services fall far short of meeting the needs and preferences of people who need care. 

Medicaid’s benefits focus overwhelmingly on nursing home care—an important service for some, but not the home care services preferred by people of all ages. In the 

last decade, Medicaid home care spending has increased from 14% to 29% of Medicaid’s total long-term care spending. But nursing homes still absorb the lion’s share 

of Medicaid’s support for long-term care. 

Medicaid protection also varies considerably from state to state. As a federal-state 

matching program, Medicaid gives states the primary role in defining the scope of 

eligibility and benefits. A recent Urban Institute analysis emphasized the resulting 

variation across states in service availability as a source of both inequity and inadequacy in our financing system. In an examination of 1998 spending in 13 states, 

long-term care dollars per aged, blind, or disabled enrollee in the highest spending 

states (New York and Minnesota) were about 4 times greater than in the lowest 

(Alabama, Mississippi)—a differential even greater than that found for Medicaid’s 

health insurance spending for low income people. 

Both our own research and that conducted by the Government Accountability Office tells us that differences in state policies have enormous consequences for people 

who need long-term care. Studies comparing access for individuals with very similar 

needs in different communities show that people served in one community get little 

or no service in another. Georgetown research finds that the same person found financially eligible or sufficiently impaired to receive Medicaid services in one state 

might not be eligible for Medicaid in another—and, if found eligible, might receive 

a very different mix or frequency of service. And a comparison of use of paid services 

in 6 states finds almost twice the incidence of unmet need (56%) in the state with 

the smallest share of people likely to receive paid services as in the state with the 

largest (31%). 

This variation—as well as ups and downs in the availability of benefits over 

time—undoubtedly reflects variation in states’ willingness and ability to finance 

costly long-term care services. The recent recession demonstrated the impact on 

states of changes in their economies and the vulnerability of Medicaid recipients to 

states’ reactions. In 2001, Medicaid accounted for 15 % of state spending, with longterm care responsible for 35% of the total. Virtually all states were cutting their 

Medicaid spending as budget pressures struck, endangering access either for low inVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 E:\HR\OC\26379.XXX 26379

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come people needing health insurance, older or disabled people needing long-term 

care, or both. 

In sum, under current policy, neither public nor private insurance protects people 

against the risk of long-term care. Despite Medicaid’s important role as a safety net, 

the overall result for people who need care is catastrophic expenses, limited access 

to service, and care needs going unmet. 

Given inequities and inadequacies in our current approach for long-term care, it 

is no wonder that we are concerned about the future, when a far larger proportion 

of the nation’s population will be over age 65 than are today. Experts disagree on 

whether disability rates among older people in the future will be the same as or 

lower than they are today. But even if the proportion of older people with disabilities declines, the larger number of older people will likely mean a larger number 

of older people will need long-term care in the future than need it today. The population aged 85 and older, who are most likely to have long-term care needs, is likely 

to double by 2030 and quadruple by 2050. 

States will vary in the aging of their populations—with resulting differences in 

the demand for long-term care and the ability of their working-aged population to 

support it. To identify future demands on Medicaid, a Georgetown study examined 

census data on the ratio of elderly people to working-age adults between 2002 and 

2025. Nationally, this ratio changes from about one to five (one person over age 65 

for every 5.2 people of working age) in 2002 to one to three—an increase of about 

66 percent. But the changes differ across states, with some states well below the 

national average (e.g. California, Connecticut, D.C., Massachusetts) and others, far 

above. In many states, the ratio increases by more than three quarters and in a few 

(e.g. Colorado, Utah, and Oregon), it more than doubles. All states will be challenged to meet increased long-term care needs. 

States are already struggling with Medicaid’s fiscal demands, which challenge 

their ability to meet equally pressing needs in education and other areas. And state 

revenue capacity varies considerably. If current policies persist, pressure to make 

difficult tradeoffs will only get stronger. In the future, states with bigger increases 

in the elderly-to-worker ratio will face the greatest pressure. And, since many of the 

states with above average changes currently spend relatively little per worker on 

Medicaid long-term care, there is a strong likelihood that in the future, long-term 

care financing will be even less equitable and less adequate across the nation than 

it is today. 

What’s needed for a different future is public policy action. Developing better policy requires an assessment of options to assure access to affordable quality longterm care and to distribute financing equitably between individuals who need longterm care and their families, on the one hand, and the rest of federal and state taxpayers, on the other. Consideration of federal budgetary implications is an important part of the assessment process. But allowing budgetary constraints to drive 

that process distorts the nation’s policy choices. Last April’s CBO report on longterm care financing did precisely that. Explicitly focusing on the achievement of 

only one policy goal—alleviation of ‘‘pressure’’ on the federal budget—the report 

treated as legitimate only policy options with the potential to reduce federal spending, without regard to the consequences for people in need. 

From this perspective, the report’s first set of policy options—cutting back already 

inadequate Medicaid and Medicare protection—is not surprising. But its implications are nevertheless horrifying. CBO straightforwardly states that such action 

could reduce the number of people dependent on public programs—a fairly obvious 

conclusion. But it presents no evidence that people inappropriately rely on Medicaid 

today; and no evidence that savings or private long-term care insurance would provide adequate protection if Medicaid were made more restrictive for the future. Indeed CBO explicitly recognizes that this approach implies greater burdens on family 

and friends, greater difficulty in obtaining care, and greater bad debt for long-term 

care providers. If the policy goal is—as it should be—to improve care and distribute 

costs equitably, such cutbacks seem unconscionable, not desirable. 

The CBO report’s second set of options to alleviate fiscal pressure aim to ‘‘improve 

the functioning of the market for private long-term care insurance’’—a strategy that 

is less likely than public cutbacks to reduce access but still unlikely to significantly 

improve either access or equity. Standardizing long-term care insurance policies 

might facilitate consumers’ ability to make choices in the marketplace and improve 

the adequacy of private long-term care insurance. But, as CBO notes, standards 

that improve policies would likely increase insurance premiums. The result might 

be better protection for those who can afford private insurance—a worthy goal, but 

it is highly unlikely to be an increase in the numbers of people willing or able to 

buy insurance. 


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CBO’s consideration of so-called ‘‘partnerships for long-term care’’—which would 

allow benefits paid by private insurance to offset (or protect) assets for Medicaid 

users who purchase approved private long-term care insurance policies—also reveals 

this strategy’s limitations. These partnerships have been advocated as a means to 

save Medicaid money by preventing ‘‘spend-down’’ and asset transfers. The hope is 

that allowing the purchase of asset protection, along with insurance, will encourage 

modest income people to purchase private long-term care insurance. Experience 

with these policies in four states has produced only limited purchases, primarily 

among higher income people, and has affected too few people for too short a period 

to assess its impact on Medicaid spending (Alexis Ahlstrom, Emily Clements, Anne 

Tumlinson and Jeanne Lambrew, ‘‘The Long-Term Care Partnership Program: 

Issues and Options’’, Pew Charitable Trusts’ Retirement Security Project, George 

Washington University and The Brookings Institution, December 2004). The partnership has contributed to improved standards for long-term care insurance policies 

and more partnership policies are being sold to more modest income people as the 

standards that apply to them are also applied to the broader market. However, as 

CBO notes, if these policies simply substitute for policies individuals would otherwise have purchased or increase the likelihood of using long-term care services, they 

may eventually increase rather than decrease Medicaid expenditures. From the 

budgetary perspective, advocacy of reliance on Medicaid to essentially subsidize private long-term care insurance alongside promotion of budget legislation to curtail 

federal Medicaid contributions seems both disingenuous and risky. Further, from 

the broader equity perspective, targeting private long-term care insurance to modest 

income people seems questionable. The purchase of a limited long-term care insurance policy could easily absorb close to 10 percent of median income for a couple 

aged 60—a substantial expenditure for a cohort acknowledged as woefully unprepared to meet the basic income needs of retirement. 

Even more questionable are proposed tax preferences for private long-term care 

insurance. CBO does not analyze these proposals, perhaps because they would clearly increase rather than decrease public expenditures. Nevertheless, they are consistently on the policy agenda, despite the likelihood that they will be poorly targeted 

to improve insurance protection. Experience with health insurance tells us that such 

credits are likely to primarily benefit those who would have purchased long-term 

care insurance even in the absence of credits—substituting public for private dollars—and, as currently proposed, are not even designed to reach the substantial portion of older and younger Americans with low and modest incomes. 

Indeed, the whole focus on reducing public spending and promoting private insurance ignores the public responsibility to address for all Americans what should be 

our fundamental policy choice: do we want to live in a society in which we assure 

affordable access to long-term care for people who need it or in a society in which 

we leave people in need to manage as best they can on their own? 

There is little question that to address both current and future long-term care 

needs requires not a decreased but an increased commitment of public resources— 

and, to be adequate and effective in all states—federal resources. Expanded public 

financing for long-term care could take a variety of forms and by no means need 

eliminate private contributions. One option, modeled on Social Security, would be 

to provide everyone access to a ‘‘basic’’ or ‘‘limited’’ long-term care benefit, supplemented by private insurance purchases for the better-off and enhanced public protection for the low income population. Another option would be establishment of a 

public ‘‘floor’’ of asset protection—a national program assuring everyone access to 

affordable quality long-term care—at home as well as in the nursing home—without 

having to give up all their life savings as Medicaid requires today. The asset floor 

could be set to allow people who worked hard all their lives to keep their homes 

and modest assets, while allowing the better off to purchase private long-term care 

insurance to protect greater assets. Either public/private combination could not only 

better protect people in need; it could also provide substantial relief to states to 

focus on health insurance, education and other pressing needs—relief that governors 

have explicitly requested by calling on the federal government to bear the costs of 

Medicare/Medicaid ‘‘dual eligibles’’. Because Medicaid serves the neediest population 

and, in the current budgetary environment is at risk, my highest priority for expenditure of the next federal dollar would be responding to this call (along with supporting more home care and better quality care) with more federal dollars to Medicaid. 

Some will undoubtedly characterize proposals like these as ‘‘unaffordable’’, given 

the fiscal demands of Medicare and Social Security and the current federal budget 

deficit. But that deficit reflects policy choices. I would far rather see expenditure of 

the next federal dollar devoted to enhanced Medicaid long-term care financing than 

to tax credits for long-term care or tax cuts in general. Indeed, the estate tax is esVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00065 Fmt 6633 Sfmt 6621 E:\HR\OC\26379.XXX 26379

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pecially appropriate for long-term care financing: taxing everyone’s estate at certain 

levels, to provide reasonable estate protection for those unlucky enough to need 

long-term care. 

As we look to the future, examination of the choices being made by other nations 

of the world is instructive. Analysis by the Organization for Economic Cooperation 

and Development (OECD) of long-term care policy in 19 OECD countries (presented 

at the June 2004 research meeting of AcademyHealth) found that the number of 

countries with universal public protection for long-term care (Germany, Japan and 

others) is growing. Public protection, they report, does not imply the absence of private obligations (cost sharing and out-of-pocket spending), nor does it imply unlimited service or exploding costs. Rather, in general, it reflects a ‘‘fairer’’ balance between public and private financing—relating personal contributions to ability to pay 

and targeting benefits to the population in greatest need. Many of these nations 

have substantially larger proportions of elderly than the U.S. does today and therefore can be instructive to us as we adjust to an aging society. 

Clearly, we will face choices in that adjustment. If we are to be the caring society 

I believe we wish ourselves to be, we too will move in the direction of greater risksharing and equity by adopting the national policy and committing the federal resources which that will require. 

f 

Mr. MCCRERY. Thank you. Mr. Stinson, Dr. Feder outlined a 

number of reasons that private long-term care insurance is not 

working and won’t work in her opinion. Would you like to respond 

to the reasons that she gave or in the alternative give me your reasons why long-term care insurance is not being purchased in large 

numbers these days? 

Mr. STINSON. I would be happy to respond. Correct maybe just 

a couple of points or give my perspective on the a couple of the 

things that Ms. Feder presented and then give an answer perhaps 

to why more people haven’t bought long-term care insurance. She 

indicated in her findings that the product is not designed for 

younger people. And I will take exception to that. I have dozens 

and dozens of claimants under age 50. In fact, my youngest claimant is 36 years old. The product to those families is extremely important. It is going to pay for costs of care for those families for 

many, many years, and the policies today are designed with extreme flexibility in terms of where you can receive care. So, I believe the products are built for a younger population. In fact, in my 

testimony, I indicated that the average age is now down in the 

high fifties, and it is dropping rapidly. So, it is a financial planning 

product for the baby boomers. 

The dialog before this panel got up was why aren’t more people 

owning long-term care insurance. About 8 percent of adult Americans own long-term care insurance today. Over 65, that number is 

about 15 percent of Americans over age 65 own the product. That 

is not incredibly unique. Life insurance ownership is about 30 percent. long-term care insurance has only been around in its form 

today for about 10 to 15 years. So, the fact that 15 percent of adult 

Americans over age 65 own the product is actually a pretty good 

thing. I mention the statistic six million people. Why isn’t the number 30 percent? I think the single biggest issue that we have in 

front of us is the reluctance of the American people to embrace an 

idea that they are going to lose their independence. People don’t 

want to think about it. People don’t want to talk about it. That 

forces a lack of awareness of three important things: the lack of 

awareness or the likelihood of needing care; the lack of awareness 


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of the cost of long-term care; and a lack of awareness around what 

the funding options are. I think our single biggest issue facing the 

penetration of this particular product is the lack of awareness in 

the public today of long-term care issues. 

Mr. MCCRERY. How do you change that? 

Mr. STINSON. I think a couple of things. The tax incentive that 

has been proposed I think does two things. It certainly will help 

on the cost, on the affordability side of purchasing long-term care 

insurance. As I mentioned, long-term care insurance is not a product for everyone. I think the most important thing that an above 

the line tax deduction would provide or a discussion around the 

Partnership is the fact that it would bring this topic to every kitchen table in America today. Everyone has just completed filing their 

tax returns. If that particular item was on every single tax return 

in America, people would be asking their financial planners, asking 

their advisors, or looking to one another and say what is long-term 

care insurance? Should I be taking some action? And I think the 

Partnership Programs are another great way in terms of getting 

the concept out and with an objective oversight from government, 

from the States, and a plan that works in public and private partnership is a great way and an inexpensive way to address the 

issue. 

Mr. MCCRERY. Why is it not a product for everyone? 

Mr. STINSON. In terms of affordability, if you look at lower income families, I think, the average premium for this product is 

$1,500 to $2,000. For those that are just getting by and putting 

food on the table, living paycheck to paycheck, I do not believe this 

particular product or many financial products is the right solution 

for that individual family. 

So, that is an area of the population I don’t believe this product 

is designed for and we recognize that. And that is the purpose of 

our Medicaid system. 

Mr. MCCRERY. Ms. Stark. 

Mr. STARK. Thank you. Thank you, all of the witnesses for participating. Mr. Stinson, can you tell us what your persistency is on 

your long-term care policies? 

Mr. STINSON. Yes. Our—to flip it around and say lapse rate, 

voluntary lapse rate. The number of people that just stop paying 

premiums. 

Mr. STARK. Before they die or before they—— 

Mr. STINSON. Right. 

Mr. STARK. Mature. 

Mr. STINSON. Excluding mortality, is about one and a half percent. Most of our customers hang on to this policy until they pass. 

Mr. STARK. Okay. And can you give us a loss ratio? 

Mr. STINSON. That is a more complicated answer. 

Mr. STARK. All right. 

Mr. STINSON. It is difficult to frame a specific percent for you, 

sir. 

Mr. STARK. Why? 

Mr. STINSON. I would have to understand the context of the 

question. I know about half of my customers are going to file a 

claim. 


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Mr. STARK. No. Of the premiums you take in, how much do you 

pay out in benefits? That’s what I have always thought of as loss 

ratio, but—— 

Mr. STINSON. I can get you—I don’t have the number right off 

the top of my head, sir. 

Mr. STARK. Well, I don’t. Well, whatever you can give us. The 

last year you can think of what were your in force premiums for 

your long-term care? 

Mr. STINSON. In force premium is about a billion six. We pay out about $500 million in claims every year. 

Mr. STARK. So, your loss for insured is about a third. Right? 

Thirty percent? 

Mr. STINSON. In that definition. 

Mr. STARK. Very good. 

Mr. STINSON. And I know that about 50 percent of the people 

that own the policies today will file a claim at some point. 

Mr. STARK. Well, I don’t have any other questions, Mr. Chairman. 

Mr. MCCRERY. Mr. Lewis? 

Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. Let me thank each of you for being here today, and thank you 

for your testimony. Dr. Feder, it is good to see you again. I haven’t 

seen you in a long time. Thank you. Mr. Gehm, you written testimony stated that Medicaid reimbursement does not keep up with 

the cost of care in nursing homes. Can you tell me how the repeal 

of the Borne Amendment in 1997 has affected your bottom line? 

Has the quality of care diminished as a result or lower payment 

as anticipated? Would you say that some of the quality problems 

in nursing homes that are being reported in recent years are the 

result of the repeal? 

Mr. GEHM. I can tell you that in our experience through the 

early ’90, even into some of the mid ’90s with Borne intact, Medicaid funding was more consistent with our expense profile for caring for folks. As a result of the repeal of Borne, what we have seen 

at least in Michigan, and I think this is similar across the country, 

is that the increases in Medicaid initially did not keep up with 

what the inflation of the expenses were and more lately we have 

seen, of course, some rollbacks in Medicaid. As a result, our bottom 

line has been impacted significantly. Provider taxes came onto the 

scene, and so it would take some analysis to get you some direct 

numbers at least in the case of Lutheran Homes and that could be 

done. I would be happy to do that. 

Mr. LEWIS OF GEORGIA. I would love to seeing maybe other 

Members of the Committee would like—— 

Mr. GEHM. I would be happy to do that. But I think the overall 

theme for us right now is certainly the trend with respect to Medicaid is that the differential between cost of care and coverage 

under Medicaid is a widening gap for us. Your broader question 

about whether it has impacted quality issues in nursing homes. On 

the one hand, I can’t help but think that it hasn’t. On the other 

hand, I know that the provider community has become very innovative within the regulations and very proactive in trying to create 

new futures and new models of care, and I think quality continues 

to grow and we have seen it in the quality indicators that are 


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tracked and monitored. And so we are happy with the direction 

that it is going. But certainly funding will always impact quality, 

certainly to a certain extent. 

Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Gehm. Dr. 

Feder, I would like to ask you and this may be a question that my 

friend, Mr. Pomeroy, may be interested in. I understand that the 

National Association of Insurance Commissioners is currently promoting formation of an interstate compact that will circumvent 

State laws and allow same insurance products, including long-term 

care insurance, to be monitored and essentially regulated by nongovernmental effort. Are you familiar with this proposal? What are 

you thoughts on that? 

Ms. FEDER. Mr. Lewis, I am relying on the work done by my 

colleague, Nila Kaufman, at Georgetown who has in looking at the 

policy has indicated a number of concerns as have many who have 

looked at it. The concerns being that rather than strengthening the 

standards that apply to the policies affected that it creates an opportunity for some insurance to be sold that escapes State standards that are more restrictive and more effective. So, rather than 

strengthening consumer protections, the concern is that it would 

weaken them. 

Mr. LEWIS OF GEORGIA. Other members of the panel have any 

reaction? Thank you, Dr. Feder. Thank you, Mr. Chairman. 

Mr. MCCRERY. Yes, sir, Mr. Lewis. Mr. Pomeroy? 

Mr. POMEROY. Thank you, Mr. Chairman. First of all, let me 

congratulate—first express my appreciation for being allowed to 

ask questions, not being a Member of the Health Subcommittee. 

But I want to acknowledge that I think this has been an excellent 

panel. And it has been my pleasure to work with a couple of panels 

for a long time—Dr. Feder, and even longer Mark Meiners. We 

have been trying to figure this one out for 20 years. And it is really 

good to see you again. The first question I direct to Mr. Stinson and 

it relates to the loss ratio questions that Mr. Stark—I am a little 

rusty from my old insurance regulatory days. But I believe the loss 

ratio includes claims reserving in the loss side of the equation. So, 

if it was—it is not simply a matter of claims paid out in a given 

year versus premium in a given year on the loss side, those premiums held in reserves to pay future losses are also counted as 

loss; isn’t it for a loss ratio? 

Mr. STINSON. Hence, my reluctance to just jump at an answer 

to the question. Just an incurred loss ratio of the claims that I am 

actually paying was the 30 percent number there, the $500 million, 

divided by the billion six, when, in fact, the insurance companies 

do have to put up substantial reserves to pay for claims in the future. 

Mr. POMEROY. And as the policy book ages, your claims go up? 

Mr. STINSON. Absolutely. Absolutely. 

Mr. POMEROY. Do you know your target loss ratio for getting 

policy form and rates approval in a given State? 

Mr. STINSON. Not in a particular State. 

Mr. POMEROY. My notion is it is 60 percent or better. 

Mr. STINSON. Right. Sixty to seventy percent is a range. 

Mr. POMEROY. Right. 

Mr. STINSON. Yes. 


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Mr. POMEROY. The real debate of long-term care insurance is 

should we try and figure out some private protections for people or 

is it all basically a waste of time awaiting some significant Federal 

relief with a comprehensive program. I have run into this from my 

youngest days as insurance commissioner trying to work on improving what was offered by way of this coverage. My approach 

was kind of agnostic on the question. I think that until we pass 

something—that is a big Federal program to address the concern 

in this area—people have legitimate risk exposure and then therefore a legitimate need to try and get something in place that deals 

with it. Dr. Feder, do you acknowledge that can be a legitimate role 

in the meantime here. 

Ms. FEDER. Absolutely, Mr. Pomeroy. And I know how hard you 

have worked to achieve that. And I think that the policies, as we 

have heard from Mr. Stinson and also Mark Meiners and the Partnership, the policies have improved dramatically over the years as 

the policies have evolved. But when we look at a focus of public policy, I have a number of concerns. 

Mr. POMEROY. My question is—I am surprised to hear the debate almost, there was a wonderful little trip down memory lane, 

because it sounded a lot like 1985 all over again. I am just looking 

at this budget, which is in tatters, and has been horrifically handled by Congress in my belief. But I don’t see any shred of a possibility of some significant new comprehensive Federal program to 

deal with this long-term risk, especially when you consider the 

aging of the population. 

Ms. FEDER. But, Mr. Pomeroy, what we do know in this budget 

is that we are seeing proposed cuts in the Medicaid program that 

we rely on for long-term care. 

Mr. POMEROY. I think that is very ill advised. 

Ms. FEDER. That the partnerships, we heard a CBO estimate 

that it might increase costs and that we—therefore, I find it a matter of concern to rely on a program that is being squeezed on the 

one hand to provide some subsidy on the others. 

Mr. POMEROY. Has Georgetown, your study been able to look 

at the partnerships and try and draw your own conclusions about 

whether it is a net cost or saving? 

Ms. FEDER. We have not done that. What we will be doing as 

part of the larger project is looking at the partnerships alongside 

other initiatives that could be taken to see what their consequences 

are in terms of costs and—— 

Mr. POMEROY. Before my time entirely. Thank you very much, 

and it is I really good to see you again. 

Ms. FEDER. Could I just say one more thing on the trouble? No. 

I won’t then. 

Mr. POMEROY. Well, I want to get Mark in here before my time 

runs out. 

Ms. FEDER. All right. 

Mr. POMEROY. I am at the Chairman’s leave. So, do you have 

an evaluation in terms of whether this is a net cost or a net minus 

or largely a wash but in the meantime people are getting substantial private coverage and protecting some assets, which should be 

considered on the plus side I imagine. 


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Mr. MEINERS. Well, back—it seems like 20 years ago, when we 

were starting the program. We did simulations with them and the 

state of the art modeling technique of using the Brookings ICF 

model that Judy is now using a version of. And we had estimated 

that as the program unfolded by year, it was done in five-year intervals, 2016 to 2020, the rollback should be a 7 percent in each 

point drop in Medicaid costs as a proportion of the expenditures. 

Now, more recently—— 

Mr. POMEROY. Well, I am just going to ask if you could take 

that model and then juxtapose into it the early, experiences that 

we have had in the pilot States. 

Mr. MEINERS. Because we get asked this question all the time, 

the States have really developed their own model based on some 

responses they have gotten from surveys as well as the experience 

of purchasers as much as you mentioned. There is a fairly good 

tracking that has been done now. And the States—the three dollar 

for dollar States—California, Indiana, and Connecticut—have estimated at this point a savings of $8 million to $10 million in an aggregate basis. 

Mr. POMEROY. And—— 

Mr. MEINERS. They are showing savings from their perspective 

of putting these numbers on the table and—— 

Mr. POMEROY. Actuarially, many—depending on the period of 

time of protection purchased, but people—and with the disability 

sufficient so that they actually become institutionalized many will 

before becoming Medicaid eligible—before they have exhausted 

their coverage die, and is that seems to be—as I look at the data, 

it looks like this is fitting an actuarial expectation and that getting 

them that extra private coverage is indeed allaying the inevitable 

Medicaid hit. Even if it is essentially a wash on Medicaid, it is getting them additional private pay so they are having asset protection in a very meaningful way that is of value to creating the estate. 

Mr. MEINERS. What we are seeing is that most of the asset protection incentive that is earned is not used because the insurance 

is the first thing that pays and most people will die, in using up 

the insurance to take care of their long-term care needs. So, relatively little of the Medicaid asset protection is ever used. And the 

flip side of the way you get the benefit of it is the strategy is really 

designed to bring people in the market who are resistant. We worry 

about the size of the market. There is a lot of denial out there. 

There is a lot of worry about costs versus quality, and frankly the 

people who need it most are the ones who are asking those questions the hardest. And the Partnerships are really designed and I 

think can be effective in getting to that middle modest income 

group that really need this kind of protection because it is geared 

toward providing a more limited yet significant useful type of care, 

level of care. 

Mr. POMEROY. My time is exhausted, but I really appreciate 

this information. 

Mr. MEINERS. Good to see you. 


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Mr. POMEROY. If you have stuff to bring to my attention at the 

office I would really enjoy learning a lot more from your perspective. Thank you, Mr. Chairman. 

Mr. MCCRERY. Before I ask Doctor, there was a couple more 

questions about the Partnership, I want to give Mr. Stark a follow 

up. 

Mr. STARK. I just wanted to ask unanimous consent to insert 

the CBO estimates in the record, which show a $45 million cost on 

the Partnerships and I think that should be part of the hearing’s 

records. 

Mr. MCCRERY. Without objection. 

Mr. STARK. And I will discuss the question of reserves on loss 

ratios with my colleague privately. 

Mr. MCCRERY. Dr. Meiners, I want you to talk a little bit more 

about the partnership concept, especially as it relates to Medicaid 

estate planning. Dr. Feder says in her testimony that there is not 

really a lot of evidence out there that that is going on, that it is 

all anecdotal. I have several books here that we got from the library that are all about Medicaid estate planning. So, somebody 

thinks it is going on. There is a Web site from the University of 

Minnesota that says Medicaid estate planning involves legal and financial approaches to satisfying financial eligibility requirements 

for Medicaid. More specifically, an individual’s assets are sheltered 

with the intention of voluntarily becoming impoverished to meet 

Medicaid eligibility criteria. So, there is something going on out 

there, and my question to you, Dr. Meiners, is if this is going on, 

do you think the partnership concept is a way to minimize that? 

Mr. MEINERS. Okay, yes. Let me take a pick on the issue. First 

of all, I think we can debate back and forth how much of it is going 

on. I think when it happens, unfortunately it happens because people haven’t been able to prepare for this risk. And the reason they 

are unprepared for the risk is because they really haven’t had good 

options, particularly those people that are most at risk of easily 

spending down. So, when the problem hits and they haven’t prepared, they are going to look for ways to shelter their limited assets and that is, viewed as this divestiture notion. And most people, if you were facing them as a social worker, someone like that, 

you would probably help them do it because, their backs are to the 

wall and they don’t really have a whole lot. So, what we are trying 

to come up with is an alternative that really is appealing to people 

so that when—they can avoid that situation. I think several things 

can happen then. The issue of going after people’s divestiture behavior is something that is very hard. We have seen it being politically hard. So, the only way you can really do it is if you have a 

reasonable alternative, like the partnership, that really helps people plan for this risk and get that out there far enough in advance 

so that you have sort of the carrot and the stick. Otherwise, it becomes very hard to do that. 

I think, bottom line, in terms of what you do about asset transfers, we have debated this on and off and on and off, and it is kind 

of like if there are a lot of asset transfers going on, then it is something that we ought to do something more about. And if there is 


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not a lot of assets transferring going on, then what does it matter 

if we do something about it? So, either way, doing something about 

it is to sort of send the message, that this really isn’t what ought 

to happen, is important. But I, frankly, feel like you really need 

something like the partnership or other ways to help people prepare for this risk so that the information can be out that there is 

something positive that can be done about it. One of the reasons 

that we struggle with this is because we don’t really have good answers, so we don’t raise the problem, and sort of—CMS, for example, has done their educational campaign, but it has been very slow 

in unfolding and fairly limited. And I think in part it is because 

there is a hesitancy to acknowledge that we have any answers. I 

think the partnership is an answer that we can work on that actually can help to strengthen the Medicaid program and give people 

incentives to provide for themselves at the same time. And then 

the asset transfer issue can be dealt with more effectively. 

Mr. MCCRERY. Thank you. Before I give any of the other panel 

members a chance to make a last comment before we adjourn, I 

just want to point out that while we haven’t made a bubble on deductibility public policy for long-term care insurance, we have allowed the use of health savings accounts balances for paying premiums which, of course, are pre-tax dollars. So, there is that vehicle out there now that is available for paying premiums for longterm care insurance. Does any other panel member want to make 

a comment before we adjourn. 

Ms. FEDER. I would. 

Mr. MCCRERY. Dr. Feder? 

Ms. FEDER. Just I wanted to say, going back to Mr. Pomeroy’s 

questions about frustration in trying to do something, one area of 

concern to me is that we will be cutting Medicaid while talking 

about these other areas that would rely on it. But even of greater 

concern if we take new initiatives is if we are going to actually 

commit to spending new public dollars, it seems to me that they 

must go first to those who are in greatest need, which means targeted down the income scale. And that is why I am most concerned 

about policies that would continue to, that have done or would continue to offer tax incentives for the purchase of private long-term 

care insurance, or targeted to the higher-income population. It 

seems to me that many of us can afford to buy these products already if we so choose. And spending these—you are quite right— 

hard-do-come-by tax dollars on the population most able to take 

care of themselves seems to me a very unwise policy choice. 

Mr. POMEROY. Mr. Chairman, if I might ask a follow-up question. 

Mr. MCCRERY. Sure. 

Mr. POMEROY. Well, what if it is like this. We have enough dollars to either help a broader number, if we leverage some private 

dollars into the mix, even though that means gearing it at middle 

income as opposed to the most needy income, versus helping a 

smaller number that have no assets at all and so have to be 100 

percent public funded. These are the terrible policy choices a bad 

budget environment leaves us with, but I think that it shouldn’t be 

dismissed out of hand, helping the broadest number that you can. 


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Ms. FEDER. Well, actually, I think that it is not that we are 

helping people even today, with people who have no assets, people 

who are going on Medicaid, the evidence is overwhelming, or people 

with modest income and assets who contribute all those assets and 

income to the costs of their care. So, we are relying on private and 

public resources now. It is just a public-private partnership, if you 

will, that is tremendously unfair to the individuals unlucky enough 

to fall into that trap. I have heard some people refer to it as the 

last estate tax left, is on individuals who are so unlucky as to need 

long-term care and exhaust their resources. So, we can enhance 

Medicaid’s ability to protect people who have long-term care needs 

and still rely, still be relying on profit resources but do a far better 

job of mixing public and private resources, even if we don’t go all 

the way to a social insurance program, as Mr. Stark—— 

Mr. POMEROY. My notion is, just in response—the discussion 

will be continued, I suppose, in philosophical ways for a long time. 

If, for example, you took the Federal dollars and tried to bring up 

spend-down levels so we have a higher level for eligibility for Medicaid; or, on the other hand, you tried to preserve, the payment for 

Medicaid services that are under great stress now. Either way. You 

basically do not expand substantially the portion of the population 

that you are helping. And if you, on the other hand, with a partnership approach, can incent additional people buying this third-party 

coverage, which is getting additional private payment into the mix, 

conceivably you are leverage dollars that allow you to help a larger 

number of people. 

Ms. FEDER. It is just not clear to me that the partnership is actually serving as the incentive that you would like it to be. People 

can buy limited-dollar policies now. They do run the risk of having 

to ultimately spend down to Medicaid, so I do get that they are getting the additional asset protection. But as we hear, most of them 

are dying before they exhaust the one- and two-year benefit period. 

So, they buy that now. 

What is troubling to me as a public policy is targeting our attention on modest-income people. I looked at the data. It says for a 

60-year-old, you are asking somebody for a limited-dollar policy to 

spend—I have to double-check my notes, but I think it was 10 percent of income, roughly, median income for 60-year-olds, on a policy. That doesn’t feel to me like we are helping them so much. They 

haven’t even got sufficient resources for retirement. So, I would 

rather we worked harder on making the safety net decent. 

Mr. POMEROY. I certainly understand your point. 

Ms. FEDER. Thank you. 

Mr. MCCRERY. Let’s go—this is your last chance. Mr. Gehm? 

Mr. GEHM. Thank you. I would like to offer maybe an alternative kind of perspective with respect to long-term care insurance 

and its kind of market penetration, such as it is, and these kinds 

of things. I am not sure that, from where I sit on kind of the longterm care continuum, from the provider side, both within, certainly, my organization, colleagues I speak with in Michigan and 

across the country, I have really come to the conclusion that the 

lack of buy-in to long-term care insurance isn’t necessarily a rejection of that product, but mostly a rejection of what you are insuring 

against, and that is the notion that it is buying you traditional 


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nursing home care rather than what it really can do for us with 

respect to buying services that link to housing. So, I think we 

might have some success if we begin to think a little differently 

about what it is we are trying to get long-term care insurance to 

really do. And when it allows folks to link services with housing, 

which the programs do allow, I think we will have some success. 

The problem is people think they are insuring against nursing 

home risk. They don’t want to deal with it. And I agree with my 

colleague down the panel here, who suggested that there is this 

kind of I-don’t-want-to-deal-with-my-own-aging bias with respect to 

that. And if we can offer the market choices in terms of care 

venues and housing with services and other things as part of what 

we talk about when we talk about long-term care, I believe that we 

will have more success in creating the right incentives in the market for folks to go ahead and insure against that risk. 

Mr. MCCRERY. Thank you. 

Dr. Meiners? 

Mr. MEINERS. I appreciate the opportunity to mention one more 

thing, and that is as we try to think creatively, I really was trying 

to orient us to thinking about these systems of care, the integration 

of Medicare and Medicaid, because when you pull those dollars, you 

really have the chance to actually take Medicare dollars the only 

way you really can and turn it into more of an ability to pay for 

things like the In-Home Supportive Services program that was 

mentioned earlier, a personal care program, long-term care programs. So, I think those are a model of where you can pool dollars 

and the States are creating systems of care that are unique in 

doing more than is normally out there in the process, coming up 

with better ways of caring for people. I think, with that structure 

in place, you could use something like the partnership incentive to 

perhaps encourage people who are pre-duals, who haven’t yet 

ended up on Medicaid, and get them in some of those systems of 

care with care management, care coordination, and perhaps have 

them get the kind of coordination that helps them avoid ever needing to spend down or at least delaying that spend-down process, 

where they would ever need to end up on Medicaid. Now, that is 

something, if you let States work with those pre-duals and some incentive systems, States really get a lot out of that because this person never really becomes a full dual-eligible, never really becomes 

Medicaid-eligible, because they are getting better care up front. I 

think there are a lot of creative things we can do there in this situation we are in, which is not unlike the situation we were in when 

I first started looking at long-term care insurance more than 20 

years ago. We need that kind of creativity. And I think there are 

ideas that we can pursue in that regard, and the partnership and 

those integrated care systems can both be part of it. 

Mr. MCCRERY. Mr. Stinson? 

Mr. STINSON. Thank you, yes. Just in response to the question 

around does the partnership program help sell insurance. We believe it does. Statistically, we sell more partnership programs in 

those States that have the partnership program than non-partnership policies. A significant proportion of the policies we sell in California, Connecticut, Indiana, New York are partnership policies because we believe consumers see the value of the private and public 


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partnership and the value of that program. So, we believe it does 

help insurance and would offer broader coverage for consumers. 

Again, the long-term care insurance industry does not believe that 

the long-term care insurance product is the only solution. We believe that it should be part of the solution. We believe that the way 

to get greater penetration is a program of greater education and 

awareness. I think broader consideration of the partnership program is a very just cause, and considering above-the-line tax deductions, other forms of tax incentives will help people consider 

this product and own more of it. 

Mr. MCCRERY. Dr. Gerety, you get the last word. 

Dr. GERETY. I would just urge the Subcommittee to think, along 

with all these issues about financing and the structure of care, to 

not forget that you need a workforce to deliver that care. And right 

now we are already in a situation where we have a real shortage 

of qualified professionals who can deliver geriatric care—doctors, 

nurses, social workers, therapists, personal care providers. And so 

as we are trying to prepare for all this need, I think the Nation 

has to face the fact that without public policy action, you simply 

will not have trained people to be able to provide high-quality care. 

And I think any program that you undertake to reform long-term 

care has to address these work-force issues, or we will be stuck 

with still-poor-quality care even in a system that might have financing available. 

Mr. MCCRERY. At the risk of engendering more discussion, 

which I will cut off immediately, any ideas you have on how we 

could improve that climate, we would welcome. Because we have 

been struggling with it for some time. Thank you all very much for 

a very interesting discussion of the topic. And we thank you very 

much for coming to our humble chamber and sharing your ideas 

with us.. 

[Whereupon, at 6:18 p.m., the hearing was adjourned.] 

[Submissions for the record follow.] 

Statement of Alane Dent, American Council of Life Insurers (ACLI) 

The American Council of Life Insurers (ACLI) is a Washington D.C.-based national trade association representing more than 350 member companies that offer 

life insurance, annuities, pensions, long-term care insurance, disability income insurance and other retirement and financial protection products. ACLI member companies have 81 percent of the long-term care insurance in force in the United States. 

We are delighted that this Subcommittee is addressing an important issue facing 

this nation—long-term care—through the hearing process and possibly through legislation. Subcommittee Chairwoman Nancy Johnson has been and continues to be 

a thoughtful leader on this issue by introducing legislation that would encourage individuals to plan ahead and adequately provide for their future long-term care costs 

by purchasing long-term care insurance. A number of Members of this Committee 

have sponsored this legislation, and we are pleased to discuss with the Subcommittee the role that private long-term care insurance plays in ensuring the retirement security of millions of middle-income families. 

To elevate the issue of long-term care today and over the next decade ACLI cosponsored the 2005 White House Conference on Aging’s Mini-Conference on LongTerm Care. At this conference participants representing long-term care stakeholders 

within both the public and private sectors came together to actively address the serious issues associated with long-term care and worked to formulate public policy 

recommendations to the upcoming White House Conference on Aging that will be 

held later this year. The Mini-Conference on Long-Term Care participants urged 

Congress to enact laws which would encourage private arrangements by individuals 

and their families for LTC services, such as tax incentives for the purchase of longterm care insurance or other private options for financing long-term care. 


jcorcoran on PROD1PC62 with HEARING
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One of the greatest risks to asset loss in retirement is unanticipated long-term 

care expenses. ACLI has found that nearly half of all Americans will need long-term 

care at some point in their lives. A 65-year-old woman has a 50-percent chance of 

needing nursing-home care in her lifetime; a 65-year-old man has a 30 percent likelihood of needing such care. One in five over age 50 is at risk of needing it in the 

next twelve months. The annual cost of a nursing home stay averages $55,000 and 

is projected to reach $241,000 by 2030. Two visits a day by a home health aide to 

help with bathing, dressing, and household chores can cost $2,500 a month. If 

skilled help, such as physical therapy, is needed the expense is greater. These costs 

can quickly erode a hard-earned retirement nest egg. 

Today, your Subcommittee is focusing on the current financing for long-term care 

services; private long term care insurance options include the Long Term Care Partnership programs; and the challenges ahead in financing needed services for an 

aging population. We want to stress that both current and future long-term care financing needs can best be met through the broader use of long-term care insurance. 

Current Financing for Long-Term Care Services 

• Long-Term Care Insurance 

The long-term care insurance market is vibrant and innovative. ACLI recently 

surveyed the long-term care insurance market, with the assistance of America’s 

Health Insurance Plans (AHIP) and found that the individual market in terms of 

premiums is approximately 12.5 times larger than the group market in terms of premiums—$6,502 million compared to $510 million, and 3.5 times larger in terms of 

policies versus certificates—4 million policies compared to 1.1 million certificates. 

The individual market grew at 7.5% from 2003 to 2004 (in terms of premiums). 

The group market grew at 25%. The strong growth in both markets represents the 

value of the product and the continued effects of the Federal Long-Term Care Insurance Program that made long-term care insurance available to federal government 

employees, annuitants and their qualified dependents and relatives. This program 

stands as an example to all employers to offer similar programs to encourage their 

employees to prepare for their future retirement needs. The average age of purchasers of long-term care insurance continues to decrease as individuals increasingly understand it as a tool to retirement income security, In 2004, long-term care 

insurance carriers paid more than $2.1 billion, or a 20 percent increase from 2003, 

in long-term care insurance benefits. 

long-term care insurance continues to evolve to give policyholders more choices 

and greater quality of care. For instance, the market has evolved from nursing 

home-only to one that offers flexible care options and numerous consumer protections. Most policies allow customers to choose between in-home care, assisted living 

facilities and nursing homes, encouraging the individual and their families to customize his or her care needs. In addition, policies offer the services of a local care 

coordinator that meets with a policyholder at the time of claim to help craft a plan 

of care and identify local care providers. Other common benefits include: 

• case management services; 

• homemaker or chore services; 

• restoration of benefits; 

• reimbursement of bed reservations in long-term care facilities; 

• coverage of some medical equipments survivorship benefits; 

• caregiver training; spousal discounts; and 

• limited pay policies. 

All plans are guaranteed renewable, have a 30-day ‘‘free look’’ period, offer an inflation protection, cover Alzheimer’s disease, have a waiver of premium provision, 

and offer unlimited or lifetime nursing home maximum periods. 

• Incentives to Encourage Individuals to Buy Long-Term Care Insurance 

An integral solution to meeting long-term care expenses will be the reintroduction 

and passage of H.R. 2096, the ‘‘Long-Term Care and Retirement Security Act of 

2003’’ that the Chairwoman introduced in the 108th Congress. The measure provided individuals with an above-the-line federal income tax deduction for the premiums they pay to purchase long-term care insurance. The long-term care policies 

subject to the deduction are covered by broad consumer protections. In addition, the 

measure would permit long-term care insurance policies to be offered under employer-sponsored cafeteria plans and flexible spending accounts. Finally the bill includes a tax credit to individuals with long-term care needs or their caregivers of 

up to $3000. 

This important tax incentive will go a long way toward encouraging the purchase 

of long-term care insurance by middle-income Americans. Moreover, providing this 


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important tax incentive means that Americans who take advantage of long-term 

care protection will not be a burden on the Medicaid system and will not have to 

spend-down their retirement assets to pay for long-term care before becoming eligible for Medicaid. Instead, they will have the choice of a variety of services if they 

are unable to perform a specific number of activities of daily living or are cognitively 

impaired. Today’s long-term care insurance policies cover a wide range of services 

to help people live at home, participate in community life, as well as receive skilled 

care in a nursing home. Policies may also include respite care, medical equipment 

coverage, care coordination services, payment for family caregivers, or coverage for 

home modification. These options can enable people who are chronically ill to live 

in the community and to retain their independence. 

While the financial benefits to individual policyholders are obvious, the benefits 

to government—and future taxpayers—of wider purchase of private long-term care 

insurance are substantial. By the year 2030, Medicaid’s nursing home expenditures 

could reach $134 billion a year—up 360 percent over 2000 levels. ACLI’s research 

indicates that by paying policyholders’ nursing home costs—and by keeping policyholders out of nursing homes by paying for home—and community-based services, 

private long-term care insurance could reduce Medicaid’s institutional care expenditures by $40 billion a year, or about 30 percent. 

In addition, the ACLI study found that wider purchase of long-term care insur- ance could increase general tax revenues by $8 billion per year, because of the number of family caregivers who would remain at work. Today, 31 percent of caregivers 

quit work to care for an older person; nearly two-thirds have to cut back their work 

schedules; more than a quarter take leaves of absence, and 10 percent turn down 

promotions because of their care giving responsibilities. It costs the typical working 

caregiver about $109 per day in lost wages and health benefits to provide full-time 

care at home—which is almost as much as the cost of nursing home care. 

• Long-Term Care Partnerships 

Increasingly, states are tackling the costs of long-term care and are exploring 

ways to partner with the private insurance industry to alleviate the growing burden. One such way is through the Partnerships for Long-Term Care, a pilot program 

developed by the Robert Wood Johnson Foundation in conjunction with state governments and the support of the private insurance industry. 

The Partnerships allow consumers to purchase a long-term care policy whose benefits must be fully utilized prior to qualifying for Medicaid. When that coverage is 

exhausted, individuals may apply for Medicaid, as they would have without the private insurance. Because they utilized their insurance coverage under the Partnership, they can protect the level of assets as defined in their policy. 

Partnerships have taken the form of two models. The dollar-for-dollar model allows people to buy a policy that protects a specified amount of assets. The total 

asset model provides protection for 100 percent of assets once they exhaust their 

private insurance coverage. 

The Partnership program is currently operational in four states: California, Connecticut, Indianaand New York. More than 180,000 long-term care insurance policies have been purchased in those states, and it is estimated that through these 

Partnerships, approximately $30 million of assets have been protected. The Partnership benefits consumers, Medicaid and private insurers. 

Few Partnership policyholders have accessed Medicaid to date. Of the more than 

180,000 policies that have been purchased since 1992, fewer than 100 individuals 

have exhausted those benefits and applied to and or accessed Medicaid. 

In 1993, shortly after the Partnership pilots began, Congress suspended expansion 

of the Partnership to any additional states. The pilots were stopped due to concerns 

that a publicly funded program such as Medicaid would endorse private insurance 

programs. Others were concerned that the Partnership might increase Medicaid 

spending. However, as Medicaid costs increase, Congressional representatives from 

non-Partnership states have become interested in implementing Partnership programs. During the 108th Congress, legislation was introduced in both the House 

and the Senate that would repeal that prohibition. In addition, 16 states have 

passed legislation that would implement a Partnership once the 1993 restrictions 

are withdrawn or waived. The long-term care insurance industry is interested in expanding the Partnership beyond the four pilot states and is actively engaged in a 

public policy dialogue that is intended to utilize the lesson learned those four Programs. 

ACLI believes that some type of simplified uniform approach to the LTC Partnership Program that includes eligibility for benefits for any approved tax-qualified 

LTC policy; state reciprocity; dollar for dollar asset protection; uniform, simplified 

annual reporting to a single respository; and consumer protection can play an imVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00078 Fmt 6633 Sfmt 6621 E:\HR\OC\26379.XXX 26379

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portant role in encouraging the purchase of LTC insurance and help provide important savings to Medicaid. 

Future Financing for Long-Term Care 

Private long-term care insurance will be the key to future financing for long-term 

care. The insurance industry continues to educate Americans that a financially secure retirement includes a plan to cover future long-term care expenses. To help 

educate consumers on how to select and purchase a long-term care insurance policy, 

ACLI maintains educational brochures and information on its website, and upon request, which encourages consumers, when considering a major purchase of longterm care insurance, to: 

(1) look for insurance companies that are reputable, consumer oriented, financially sound and licensed in their particular state, 

(2) obtain the name, address and telephone number of the agent and insurance 

company, 

(3) take time when making a purchase, ask for and read the outline of coverage 

of several policies, 

(4) understand what the policy covers and ask questions to be clear about what 

the policy is not intended to cover, 

(5) understand when the policy becomes effective, what triggers benefits and if it 

is tax deductible at the state and/or federal level, 

(6) answer questions on medical history and health truthfully on the application, 

and, 

(7) contact the State Insurance Department or the State Health Insurance Assistance Program with questions on long-term care insurance and the insurance 

company with specific questions about the policy. 

The federal government and the states have also recognized the need to educate 

individuals in the workplace to plan to cover their future long-term care needs. The 

federal government, by Act of Congress, has taken the lead and set the example for 

other employers by offering federal employees and their families the protection of 

long-term care insurance. Through this program, federal employees are able to protect their retirement savings from a long-term care event and will have the choice 

of providing care for themselves or a family member in the home, through assisted 

living or in a nursing home. 

Last year, the Department of Health and Human Services began a federal project 

to increase awareness among retirees and near-retirees about the need to plan 

ahead for potential long-term care needs. Governors of five pilot states are conducting long-term care awareness campaigns over a two- to three-month period, 

starting in January 2005. The campaign includes press conferences, mailings to 50- 

to 70-year-olds in each state, advertising and follow-up mailings. Results will be 

evaluated and improved before expansion to other states. The five states include 

Virginia, Idaho, New Jersey, Nevada and Arkansas. 

About half the states have programs through state personnel offices that afford 

state employees/retirees the opportunity to purchase individual long-term care insurance policies. Twenty-one states provide tax incentives for purchasing long-term 

care insurance. Most state tax deductions share some features with federal rules— 

allowing all or part of premiums and expenditures to be deducted. Two states provide a tax deduction or credit for employers offering group LTC insurance policies. 

As more than 77 million baby boomers approach retirement, the rapidly aging workforce together with more employees caring for elderly parents heighten the importance of long-term care planning as a workplace issue. 

In conclusion, we believe that protection and coverage for long-term care is critical 

to the economic security and peace of mind of all American families. Private longterm care insurance is an important part of the solution for tomorrow’s uncertain 

future. As Americans enter the 21st century, living longer than ever before, their 

lives can be made more secure knowing that long-term care insurance can provide 

choices, help assure quality care, and protect their hard-earned savings and assets 

when they need assistance in the future. We also believe that the costs to Medicaid—and therefore to tomorrow’s taxpayers—will be extraordinary as the baby 

boom generation ages into retirement, unless middle-income workers are encouraged 

to purchase private insurance now to provide for their own eventual long-term care 

needs. ACLI believes it is essential that Americans be given an above-the line deduction for this product that is so vital for their retirement security. 

Again, the ACLI looks forward to working with this Subcommittee to help Americans protect themselves against the risk of long-term care needs. 

f 


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Statement of Laura Howard, Americans for Long Term Security (ALTCS) 

Chairman Johnson; 

Americans for Long Term Care Security, a bi-partisan, 35-member organization 

commends you on scheduling today’s hearing examining long term care. It is consistent with your strong leadership on this issue for most of the past decade. 

ALTCS strongly believes that as Congress prepares to examine broad issues and 

possible legislation related to retirement security, long term care must be included. 

We believe your Long Term Care and Retirement Security Act from the past several 

Congresses and when introduced in the 109th Congress will be the most comprehensive long term care bill before Congress. 

We must not just recognize but respond to the growing challenge that long term 

care poses to individuals, families and the nation. Long term care costs now exceed 

costs for medical devices and prescription drugs combined. Medicaid, which will get 

much attention at this hearing, now exceeds education as the largest expenditure 

in state budgets. Nursing home expenses under Medicaid have risen by more than 

100 percent between 1990 and 2000. 

Meanwhile, we confront the aging of the baby boomers in our nation. Long term 

care remains the greatest unfounded liability for this generation. 

We need greater incentives through the tax code to encourage more Americans 

who are able to purchase long term care insurance. Your legislation has proposed 

a phased-in, above-the-line deduction for qualified long term care insurance premiums. This is good policy that can encourage more Americans to purchase this 

product which is evolving in a positive way to address more of what people might 

face with respect to long term care. 

Any discussion of long term care must also address another growing challenge— 

family caregiving. Estimates point to more than 20 million American families who 

are confronted with caregiving responsibilities of one kind or another. They need relief from the costs associated with caregiving. These are direct and daily costs and 

other costs such as reduced earnings. Your bill recognizes this need by calling for 

up to a $3,000 tax credit for family caregivers. 

We also applaud your legislation’s call for coverage of long term care in employer 

cafeteria plans and FSAs. This too will be important to achieve balanced long term 

care reform. 

As the hearing will raise today, by approaching long term care reform as both a 

public and private sector responsibility it might be achieved. 

ALTCS also strongly believes that we must intensify our public education efforts 

around long term care. It remains a fact that too many Americans still believe that 

Medicare covers long term care. There remains a huge disconnect between what 

people need to know and what they do know about long term care to help them 

make responsible decisions. ALTCS salutes the work being done by the 2005 White 

House Conference on Aging on this aspect of work on long term care. Their miniconference on long term care is being held today as well and it should produce one 

or more resolution for later consideration and adoption by the delegates. 

ALTCS believes that beyond robust public education, improving long term care 

will also require a strong and trained workforce and the sharing of financial risks 

involved in providing care. 

ALTCS looks forward to our continued work with you, Chairman Johnson, this 

Subcommittee, and later the full Congress on behalf of achieving passage of meaningful long term care legislation. We must make the necessary investments today 

in terms of tax incentives and reforms to Medicaid. Important savings can and eventually will be achieved to Medicaid and Medicare through this investment. Medicare 

and Medicaid both are celebrating their 40th anniversaries. It also means we are 

40 years older as a society in terms of addressing the needs of our aging population. 

Today’s challenges are tomorrow’s crises if we fail to act. 

f 

Statement of Hal Daub, American Health Care Association 

As President and CEO of the American Health Care Association (AHCA), the nation’s largest association of long term care providers, and as a former member of 

the Ways and Means Committee myself, I would like to thank Rep. Nancy Johnson 

for holding this hearing—and for her long time advocacy of not just improving long 

term care, but also for exploring and proposing new ways to finance our seniors’ 

growing care costs 


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I would also like to thank every Member of the Health Subcommittee for their 

consistent, diligent attention to the healthcare needs of America’s most vulnerable 

population of seniors and persons with disabilities. 

A thoughtful discussion regarding long term care’s chronic solvency crisis—and 

the extent to which the expansion of long term care insurance and partnerships can 

improve the financial stability and quality of Medicare and Medicaid services—is 

timely and necessary. 

As we are all aware, the Administration’s proposed FY 2006 budget reduces Medi- care long term care funding by $25 billion and Medicaid by an unprecedented $60 

billion over a ten-year period. These double whammy budgetary reductions will undoubtedly create short-term instability, thereby putting in jeopardy the financial 

foundation required to maintain and sustain the care quality improvements we have 

all worked so hard together to achieve. 

I’d like to remind members of this Subcommittee that former HHS Secretary 

Tommy Thompson and CMS Administrator Mark McClellan stood with our profession last December to announce not just that nursing home care quality in America 

is improving in a quantifiable manner through the Nursing Home Quality Initiative 

(NHQI)—but that there is indeed a direct correlation between stable funding 

sources and levels of care quality. 

At the time the Secretary expressed ‘‘hope’’ that continued stability of long term 

care funding will lead to further quality improvements. 

In light of the improvements in nursing home care we have achieved with the Administration through the NHQI, the cumulative long term care funding cuts are ill 

considered, and not only place seniors’ care quality at risk, but sends the long term 

care sector backwards. 

Even the Medicare Payment Advisory Commission (MedPAC), which is historically critical of the skilled nursing facility (SNF) sector, declined to support the 

short-sighted budgetary savings of reduced Medicare reimbursements. Rather, the 

commission suggested preservation—but reallocation—of the add-ons. 

The bottom line is that these proposed budgetary reductions will cut into quality 

care and reduce our ability to properly prepare for the demographic challenges facing America. 

Since passage of the 1997 Balanced Budget Act (BBA)—which resulted in approximately 15 percent of long term care providers seeking bankruptcy protection— 

skilled nursing providers have been on a dangerous and unnecessary economic roller 

coaster ride of Medicare cuts followed by temporarily-restored funding. 

The President’s proposed budget places a critical sector of our nation’s health care 

delivery system back on the roller coaster in a manner that will negatively impact 

not only our current and future ability to maintain and sustain quality gains for 

the residents we serve, but also capital investment into our sector. 

This hearing today coincides with the White House Conference on Aging Long 

Term Care Mini-Conference—which today is hosting leading stakeholder organizations, including AHCA, as we work towards developing a comprehensive policy roadmap to ensure our nation’s future long term care needs can be achieved. 

The policy recommendations developed at the mini-conference will serve as the 

basis for the long term care policy discussions at the full 2005 White House Conference on Aging, to be held later this year. 

Among those speaking during the two day forum are Harvard Law School Professor Arthur Miller who moderated the discussion, CMS Administrator Mark 

McClellan, and Dorcas Hardy, the former Administrator of the Social Security Administration, and Chairman of the White House Conference on Aging Policy Committee. 

For the record, Madame Chairman, I would like to submit AHCA’s statement delivered today at the Conference, as it coincides with the very themes and issues 

being discussed today: 

‘‘The demographics are startling. With 77 million baby boomers rapidly approaching an age when many will require long term care services, it is imperative that we 

establish policies now to equip us to provide the highest quality care in the most appropriate setting for the patients and residents of tomorrow. 

‘‘This demographic wave will present new and unexpected challenges for providing 

and funding healthcare services in homes, communities, nursing facilities or other 

residential care settings. This forum of our nation’s premier long term care experts 

and thought leaders will most certainly help provide policy makers a framework for 

taking the right steps now to meet the changing needs of an aging population.’’ 

We know for certain the impending wave of aging baby boomers and advances in 

health care and medicine will allow many, many more Americans to live longer— 

and these simultaneous developments require fresh, realistic approaches towards 

long term care financing. 


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As America will soon confront its greatest unfunded liability—the public cost of 

future retirees’ long term care needs—Congress needs to investigate a variety of 

new approaches that utilize the tax code to more effectively meet these costs. 

In that regard, AHCA and NCAL have always been strong proponents of your proposal, Madame Chairman—the ‘‘above-the-line’’ tax deduction also supported by 

President Bush, Rep. Earl Pomeroy (D–ND) and by Senators Charles Grassley (R– 

IA), among others. 

A deduction of this nature could dramatically increase the number of people who 

purchase long term care insurance by reducing its costs. Increasing the size of the 

pool will also drive down premium costs, making the insurance model progressively 

more appealing. 

We also strongly support the Long Term Care Insurance Partnership Program 

Act—legislation introduced by Senators Craig and Bayh in the last Session of Congress, which expands the ability of citizens to purchase state-approved long term 

care insurance policies—so they can take control of how and where their own long 

term care needs are met. 

Should the need for care exhaust the benefit of the policy, the Partnership program provides asset protection, allowing individuals to qualify for Medicaid, without 

‘‘spending down’’ their entire savings. 

The many benefits to this legislation are significant: 

• It would conserve scarce Medicaid resources due to the fact long term care expenses will be increasingly met by the private sector; 

• It would promote greater self-reliance and individual responsibility as Americans meet their own care needs as opposed to relying exclusively upon government funding; 

• It would allow seniors to bequeath at least a portion of their assets to loved 

ones; and 

• It would encourage the expansion of the long term care insurance market which 

will have a positive impact of helping to make policies more affordable. 

In particular, Madame Chairman, expansion of the long term care insurance market is especially important: for patients, expanding the market will bring about increased long term care funding stability and the concomitant benefit of higher quality care; for states and for taxpayers, the inherent benefit is reduced financial and 

budgetary pressure on Medicaid-financed long term care. 

As we thank you here today for bravely addressing the so-called ‘‘elephant in the 

room’’—the need to create longer term solutions for long term care financing—we 

also encourage the exploration of other private activities, such as reverse mortgages, 

tightening asset transfer requirements, and enacting new tax laws to incentivize the 

purchase by individuals of long term care insurance. But these alone will not create 

a comprehensive solution for long term care financing, and so, we look forward to 

working with you, Madame Chairman, your committee, Congress and the Administration to seek out and create new and innovative resolutions to this impending crisis. 

With the impending cuts proposed for both Medicaid and Medicare in the FY 2006 

budget, these are much-needed initiatives meriting fast-track consideration and enactment. 

With the funding instability produced by initial budget cuts, funding restorations, 

eligibility and benefit changes, more cuts and the general cycle of uncertainty that 

best characterizes federal long term care funding over the past decade—regardless 

of who controls Congress and the White House—our profession is acutely aware of 

the linkage between Medicaid and Medicare funding instability and our ability to 

maximize patients’ care quality. 

It is alarming that that 85 percent of Americans believe their long term care 

needs will be met by Medicare, Medicaid or their existing health insurance. This 

fact underscores the need for government to help educate and inform its citizens to 

understand how to prepare for their retirement and its financing. 

When individuals understand the risks they face, the costs of care, and the options before them, we as a nation should be confident the vast majority of Americans will choose to act responsibly and plan for their future needs and the needs 

of their families. 

This fundamental premise reflects American values: Americans want to control 

their destiny, and every individual must—and should—take some level of responsibility for their future, and that of their family. If armed with the facts and the 

means, people will do what is right to protect their health, their family, and their 

economic interests. 


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With the proper planning and level of commitment this matter deserves, Congress 

can begin laying the groundwork for a long term care financing system that has the 

capacity to meet the care needs of millions of future retirees. 

Madame Chairman, there is no stronger supporter of Medicaid reform than 

AHCA, and we have very publicly and consistently called on Congress and the 

states to maintain its financial viability with appropriate levels of investment. 

Demographic realities require a change in policy and a transformation in thinking. 

We must fundamentally shift the role of government—from government simply 

paying for services—to government helping individuals save for their own long term 

care needs. 

Thank you for the opportunity to submit our testimony today, and we look forward to working productively and cooperatively with this Committee, with this Congress and with this Administration to do what America has always done when presented with a challenge of this scope: engage in honest debate, create a workable 

plan, earn the support and trust of the nation’s citizens, and pursue a course that 

is in the best interest of every American. 

f 

Statement of Suellen Galbraith, American Network of Community Options 

(ANCOR), Alexandria, Virginia 

The American Network of Community Options (ANCOR) is the national organization of more than 850 private providers of supports and services to more than 

380,000 individuals with mental retardation and other disabilities throughout the 

nation. For nearly 40 years, ANCOR has represented at the national level private 

providers who offer community living and employment supports and services to people with significant disabilities. Throughout its history, ANCOR has been a staunch 

advocate for quality long-term supports to people with disabilities in their communities. ANCOR appreciates this opportunity to provide written testimony to the 

Ways and Means Subcommittee on Health. 

First, ANCOR extends appreciation to Chairwoman Nancy Johnson for convening 

this hearing and for the subcommittee’s attention on this important national issue. 

ANCOR will provide brief comments in the following five areas: 

1. Diversity of Individuals in Need of Long-Term Care 

2. Intersection of Multiple Federal Financial and Medical Services 

3. Workforce Crisis Affecting Delivery of Long-Term Care 

4. Need for Multiple Public and Private Options 

5. Sustained National Dialogue 

ANCOR believes that how our nation frames public policy is in large measure due 

to the questions asked and/or problems identified which in turn determine how we 

arrive at answers and solutions contained in the public policy. To aid the Subcommittee in its work, ANCOR suggests that their work include addressing the following questions: 

1. Who needs long-term care? (i.e, breadth and scope of populations, individual 

characteristics; differences and similarities) 

2. Who pays for long-term care? (i.e, intersection of public and private health and 

financial mechanisms, private income and savings, Social Security cash benefits, state and federal programs) 

3. Who delivers long-term care? (i.e., state and local governments, family and 

friends as caregivers, institutional and community-based agencies, paid staff) 

4. What public programs assist in providing long-term care? (i.e., housing, transportation, social services) 

5. What private means are currently available to help finance and deliver longterm care? 

6. What public and private options need to be created to ensure availability of 

long-term care for those who need it? 

7. What constitute quality supports and how can we ensure quality through our 

payment systems? 

8. How will future demographic changes and system redesign strategies affect 

each of these areas? 


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Diversity: Long-Term Care: Not Just For Retirees, But a Lifetime Need 

Today, nearly 10 million Americans need long-term services and supports to assist 

in their daily living. And yet, any one of us at anytime can find him/herself in need 

of long-term supports and services. For some individuals, for example—a person 

born with mental retardation, cerebral palsy, or autism—these are lifetime needs. 

For others, the onset of a severe disability may come as a teenager when an automobile accident results in a brain injury; in mid-life as a result of a job injury and 

altering employment options; or as an elder with Alzheimer’s disease. 

For some, the need for long-term services and supports is due to a physical disability that affects their ability to perform activities of daily living (ADLs) such as 

eating, dressing, toileting, and walking. For others, a cognitive disability affects 

their ability to perform typical instrumental activities of daily living (IADLs) such 

as meal preparation, medication management, and financial and home management. 

In some cases, the disability may an individual’s affect cognitive, mental and physical abilities. 

The number of elderly persons is projected to increase dramatically, both as a percentage of the population and in absolute numbers, due in part to the aging of the 

77 million baby boomers and to increased life expectancy. The entry of baby boomers 

into the long-term supports and services system will place additional burden on an 

already strained system. In addition, long-term services are vital to individuals with 

disabilities under the age of 65—especially in light of the fact that they may require 

supports over a lifetime. With the aging of parents who currently provide long-term 

supports to their adult children with mental retardation, nearly 700,000 parents 

who are caretakers now will soon be in need of their own long-term supports. longterm services and supports are not only an issue for older Americans, but also for 

children and working-age adults with disabilities as well, and any examination of 

long-term supports must account for all populations. 

While this Subcommittee is very aware of the fact that the need for ‘‘long-term 

care’’ is not solely an issue for the elderly or aging, frequently policymakers address 

the financing and delivery of supports and services as if it were unique to the elderly. This singular focus limits the options in the range and type of supports and services offered to individuals. There is a wide range in the ages of those in need of 

long-term supports and services and that there is a wide range in the nature of 

those supports and services. 

Acknowledgment of these diversities are important in looking at both the financing and structure of long-term supports and services. What a 79 year old female 

with Alzheimer’s with no family needs is entirely different than what a 42 year old 

man with mental retardation who can work part-time needs. The desires and needs 

of a person in their 60s and 70s is very different for someone in their 20s or 40s. 

For example, personal assistance to get to work is not a desire of someone in their 

70s. 

ANCOR urges the Subcommittee to keep the following factors in mind: 

1. Individuals who need long-term supports are a diverse group. 

2. long-term supports may be time limited or needed over the lifetime of 

an individual. 

3. Supports should be provided on an individual basis and are likely to 

change over the life-time of an individual. 

Intersection of Multiple Financing and Delivery Systems 

For the 10 million people who need long-term supports and services now and for 

the millions of family members who are their caregivers and the millions of paid 

direct support professionals who deliver these supports and services, one thing is 

very clear: There is no national long-term care policy and there is no cohesive or 

uniform long-term care system. In fact, most individuals and families who arrive at 

the need for long-term supports and services face a fragmented delivery system. 

Hundreds of thousands of individuals each year must face the roller coaster of determining whether they meet eligibility to qualify for supports and if there will be 

money available in any given year for their essential supports. 

The system we now depend upon is best described as a patchwork of programs 

that vary from state to state and community to community. Each program has its 

own standards for eligibility and provides different services. This assortment of 

services is inefficient, inequitable and often ineffective. The lack of a cohesive national policy to assure access to long-supports has left most people with disabilities 

with an unrecognizable and splintered system of support for their long-term care 

needs. 

long-term care is an essential component of family financial security. The longer 

we continue to disregard the financial impact of long-term disabilities on individuals 


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and on society, the wider the gap in our nation’s economic security becomes. The 

current system for enhancing economic security is principally derived from earnings, 

Social Security, Medicare, employer provided pensions and savings, none of which 

addresses our long-term care needs. No one is immune from the risk of having a 

family member in need of long-term care, not to mention the possibility that they 

will need assistance themselves. About 45 percent of the long-term care population 

is under the age of 65. Yet, although the need for health insurance to cover a patient’s medical expenses in case of catastrophic illness is widely accepted, few people 

are insured against the costs of providing long-term support services. This lack of 

insurance coverage jeopardizes the financial security of families and diminishes the 

economic security of the country. It also places a greater burden on the nation’s primary long-term care financing program—Medicaid. 

And, yet, the public and many policymakers mistakenly assume that long-term 

supports are needed only by the elderly and that Medicare provides payment for 

such services to the elderly. Aside from the new prescription drug coverage added 

to Medicare and limited after-hospital care, this federal program provides little in 

the way of long-term supports to the nation’s elderly and disabled populations. 

Medicaid successfully provides long term care to individuals with disabilities and 

seniors, accounting for 43% of total long-term care spending. It also finances premiums, co-payments, and long-term supports for those who are also Medicare eligible. However, most of Medicaid’s long-term services are considered optional services 

under current Medicaid law. Yet, for those who need these essential services to get 

out of bed and to eat, go to school, go to work, and contribute to their community, 

they are by no means optional. More than half of all Medicaid long-term care spending goes toward institutional services. 

Currently, there are few if any long-term insurance products that will cover the 

comprehensive services needed by non-elderly individuals with severe disabilities. 

Once born with a disability, long-term insurance is not an option. 

By default, the Medicaid program has become the nation’s only publicly 

financed source of long-term supports and services. However, Medicaid was 

never intended to be the nation’s primary financing source of long-term supports 

and services. The state and federal governments’ reliance on Medicaid as the sole 

source of long-term supports and services not only forces individuals to spend-down 

their assets and resources to become eligible for the essential services, but places 

the burden for our nation’s long-term supports on one single program—Medicaid— 

thereby jeopardizing its financing and its structure and rendering a need for radical 

changes with claims of unsustainable growth. 

Because long-term care financing was never integrated into our national retirement and disability security system, an unstable and convoluted patchwork system 

of financing has emerged. Federal programs do not co-ordinate with or even complement private long-term care insurance. States provide long-term care as a public 

assistance program that helps seniors only after they have reached the poverty level 

while it condemns people with disabilities to a life of permanent impoverishment. 

Unless they have purchased long-term care insurance or have significant savings, 

the average family must try to piece together limited Medicare coverage, public 

services, and personal resources, until they spend down to Medicaid eligibility. 

Clearly, the complexity of the health care financing system requires a multi-faceted 

solution. Public and private resources must be mobilized and coordinated into a 

flexible array of programs that can be adapted to provide appropriate levels of care 

at a reasonable cost. 

What is lost in examinations of long-term supports and services is the intersection 

of Social Security retirement and disability programs, Medicare, Medicaid, private 

insurance, housing, transportation, and other federal and state assistance programs. 

Public and Private Options 

long-term care is an essential component of family financial security. The longer 

we continue to disregard the financial impact of long-term disabilities on individuals 

and on society, the wider the gap in our nation’s economic security becomes. The 

current system for enhancing economic security is principally derived from earnings, 

Social Security, Medicare, employer provided pensions and savings, none of which 

addresses our long-term care needs. No one is immune from the risk of having a 

family member in need of long-term care, not to mention the possibility that they 

will need assistance themselves. About 45 percent of the long-term care population 

is under the age of 65. Yet, although the need for health insurance to cover a patient’s medical expenses in case of catastrophic illness is widely accepted, few people 

are insured against the costs of providing long-term support services. This lack of 

insurance coverage jeopardizes the financial security of families and diminishes the 


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economic security of the country. It also places a greater burden on the nation’s primary long-term care financing program—Medicaid. 

Medicaid has become the single largest public payer of long-term care services. 

Moreover, although most people prefer to live at home, Medicaid’s bias towards institutional care has left Americans with few alternatives and tremendous confusion 

over how best to arrange the options available to them. 

While many people equate term long-term care with someone who lives in a nursing home or other institutional facility, almost 80% of the elderly and 41% of individuals with severe disabilities live at home or elsewhere in the community. Many 

people with disabilities and older persons with functional limitations or cognitive 

impairments choose to remain in their homes or live in supportive housing if they 

can receive assistance with activities of daily living such as eating, bathing and 

dressing. 

The heavy bias in Medicaid funding toward institutional care does not reflect this 

growing preference for home and community supports and services. Ironically, while 

people with disabilities and a growing elderly population prefer to receive services 

in the community, the federal government imposes a strong bias toward institutional care through existing Medicaid and Medicare laws. 

Clearly, Medicaid has been forced to fulfill a role it was never intended to play. 

Though many Americans believe Medicaid only provides assistance to individuals 

with very low incomes, the reality is far different. Many middle class individuals 

are forced to spend down—or deplete—their income and assets to qualify for Medicaid services and receive assistance with the high costs of long-term care. 

Insurance programs—whether public or private—that provide income and health 

security only for people in retirement will fail to meet the needs of non-elderly individuals with a range of severe disabilities and a different set of life expectations. 

Because no one set of long-term supports solutions can be appropriate for every 

American with a disability, we must design income, health, and long-term security 

programs that build upon each other and are flexible to support individuals of all 

ages and their families and communities. 

Workforce Crisis 

In considering long-term supports and services to the elderly and to non-elderly 

individuals with disabilities, it is crucial to keep in mind that these supports are 

multi-dimensional in nature. Although financing is the cornerstone of the long-term 

care issue, our public policy must also consider other issues equally critical in building an adequate, seamless, and effective long-term care system. These issues include: supporting family caregivers, addressing workforce shortages, improving the 

quality of long-term care supports and services and improving access to transportation and housing. 

long-term care services and support encompasses a broad range of assistance to 

people who need ongoing help to function on a daily basis. These services may range 

from assistance with daily activities such as bathing, dressing and eating to more 

complex services such as meal preparation, shopping, money management, medication management, and transportation. long-term care cannot be relegated to specific 

hours, days of the week, or to services where one size fits all. 

ANCOR believes that the lack of a stable, quality direct support professional 

workforce is a crisis that is one that will plague the entire long-term care field in 

the 21st century unless national attention is brought to this issue. This crisis is a 

result of several factors, including the increased demand for long-term supports and 

services; a traditional labor supply not able to keep pace with demand; and jobs that 

cannot compete within today’s labor market. 

The workers who provide the intimate and daily supports to people with disabilities are known by many job titles—but one thing in common is shared by all of 

them. They are the hands, voice and face of long-term supports. They are the backbone of our nation’s formal long-term support system. These paid workers assist 

with personal care, general health care, people with severe disabilities with medications, preparing and eating meals, dressing, mobility, and handling daily affairs 

medication administration, life sustaining medical care such as suctioning and tube 

feeding, transportation, emotional or behavioral support, community participation, 

financial management and/or any other life areas that an individual with disabilities might require assistance or support. 

A majority of these workers are female and often the sole breadwinner of their 

household. Although employed, the wages they earn keep many families impoverished. The cost of this labor comprises between sixty and seventy percent of the 

total dollars necessary to provide long-term supports. As Medicaid is the single largest funder of these supports, it is by default our nation’s leading payer of these longVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00086 Fmt 6633 Sfmt 6621 E:\HR\OC\26379.XXX 26379

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term supports. Yet this system inadequately reimburses providers to cover the cost 

of wages and benefits to attract, train and retain quality workers. 

As the pool of potential unpaid caregivers shrinks due to demographic and economic trends, direct support professionals will play an increasingly greater role in 

delivering long-term care. However, the relative size of the paid long-term care 

workforce is not likely to increase with the anticipated demand for paid long-term 

care. A low wage workforce, unrealistic workloads, inadequate government reimbursement rates, along with the need for additional training and support, as well 

as labor shortages have all contributed to high staff turnover. Recruitment and retention problems create an unstable workforce and are a barrier to high-quality 

care. In addition, our current financing system does not support today’s wages, and 

therefore raises serious questions about the ability to recruit future direct support 

professionals. 

Conclusion: Need for a Sustained, National Dialogue 

For the past 60 years, Americans have relied on a combination of social insurance 

and private means to pool risk and support financial security. The basis for our social insurance programs and most of our private means of pooling risk and enhancing financial security is tied to employment. Social Security, including the life and 

disability insurance portions for Social Security, and Part A of Medicare are earned 

rights derived from employment for the worker or the worker’s dependent. Most private insurance is organized through group purchases made b employers on behalf 

of their employees and their dependents. Retirement income is also enhanced 

through employer-provided pensions and deferred compensation plans. Thus, the 

American approach to pooling insurable risks and protecting financial security has 

been a combination of social insurance and tax encouraged private insurance. However, there are gaps in these arrangements as well as gaps between these arrangements. Savings are used to bridge the gaps. And, in the absence of sufficient savings, public assistance is called upon with benefits targeted to those in specific categories with the least financial means. 

Unfortunately for those who need extended long term supports and services, public assistance remains the primary financing mechanism. In order to address the 

issue of how to best finance long term supports and services and then develop comprehensive means for delivering a range of supports and services, a national dialogue is needed today more than ever. 

The current fragmented services and supports available to people with disabilities 

does not reflect the growing need nor preference for long-term supports and is limited by the way in which such services have been funded in the past. Changing longterm care financing will change how long term supportsis organized and delivered. 

A rational approach to financing that looks at all income and health insurance options and maximizing their integration, and not merely one single program, will improve the efficiency and equity of the system. It will recognize an individual’s desire 

to receive supports where and when they need it, and it will improve the quality 

of the supports. 

ANCOR believes there are a number of principles that should be implemented in 

the development of an ideal long-term services system. These principles include: 

• The social commitment to long-term care must be in the form of a public/private 

system built on the principles of social insurance and private insurance. 

• Eligibility for the social insurance benefit should be based on functional limitations as an entitlement benefit. 

• Direct support professionals are critical to quality supports and must be recognized and valued by the system. 

• Public assistance must be maintained and improved to provide a full range of 

services and supports to those who are not otherwise covered. 

• The financing system must support a arrange of choices and help maximize personal independence, self determination, dignity and fulfillment. 

• Systems should coordinate services for people with multiple needs that change 

over time, providing a seamless and continuing delivery system. 

• Systems for assuring quality of supports should be built into all long-term supports and services programs. Such systems should assure quality and value 

based on identified outcomes and adequate provider payments. 

• The financing of long-term supports should be spread broadly and progressively. 

This goal may involve tax policy, Social Security, Medicare, Medicaid, private 

health insurance as well as pensions, social services and housing policies. Both 

public and private financing mechanisms should be strengthened toward this 

goal. 


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ANCOR recommends that the Congress work with the Administration, governors, 

state lawmakers, providers, workers, families, and individuals who depend upon 

long-term supports to initiate a comprehensive national dialogue on long term care 

financing and the looming workforce crisis facing people with disabilities of all ages 

who need health and health-related supports to live in the community. By initiating 

and continuing a national long-term care dialogue, we can move forward with a 

positive and comprehensive plan to help safeguard the health and well being of tens 

of millions of Americans. 

ANCOR again congratulates the Subcommittee for its initiative in calling for this 

hearing. We hope it is a first step in a national dialogue. ANCOR appreciates the 

opportunity to submit our written comments on this important issue. We would be 

happy to provide further information or testify at future hearings. 

f 

Statement of Merrill Matthews, Council for Affordable Health Insurance 

(CAHI), Alexandria, Virginia 

On behalf of the Council for Affordable Health Insurance’s (CAHI) board of directors and members, I applaud Chairman Johnson and members of the House Ways 

and Means Health Subcommittee for opening this dialogue on how to improve the 

long-term care delivery and financing mechanisms in the United States. We appreciate your consideration of our comments on this critical issue. 

CAHI is a national non-profit research and advocacy association whose mission 

is to develop and promote free market solutions to America’s health care challenges. 

Our membership includes health insurance companies (active in the individual, 

small group, HSA, long-term care and senior product markets), small businesses, 

physicians, actuaries and insurance brokers. 

Our members represent a broad range of health care products, including longterm care and Medicare Supplement insurance, home health care services and prescription drug discount cards. They provide insurance policies that protect families 

from potential financial catastrophe, as well as critical services to people with disabling conditions and long-term health care needs. 

long-term care is the most significant health care funding expense Americans now 

face. Something must be done to stem the public’s massive and growing dependence 

on government-funded long-term care—and it must be done now. 

Our comments will focus on the following: 

• Private long-term care financing options available today, including long-term 

care insurance; 

• Obstacles facing the private long-term care market; 

• Solutions to removing barriers to private market growth and reducing the burden on Medicaid. 

Today’s Private LTC Market 

Beginning in 2011 the first baby boomers will turn 65. By 2031, all 76 million 

boomers will have reached retirement age, many of them woefully unprepared for 

the cost of long-term health care. Americans are living much longer than in the past 

and the phenomenal advances in medicine will mean that many Americans will be 

living not only longer but also healthier and more fulfilling lives. 

While these advances were unimaginable just decades ago, they come at a cost. 

The public policy question facing us is, ‘‘Who will pay?’’ Government cannot—and 

should not—pay for it all. 

The private sector will have to provide workers with ways to protect their future 

health, independence and assets. The good news is that there are innovative and 

effective private long-term care financing options available to consumers today, such 

as long-term care insurance and home equity conversion. 

long-term care is usually provided in three venues—the home, an assisted living 

facility or a nursing home—and is financed primarily by three sources: private pay, 

Medicaid or Medicare. (The Congressional Budget Office estimates that if converted 

into dollars, donated care would represent 36% of all spending on long-term care 

for the elderly. Our focus here, however, is on paid care.) 

Private long-term care (LTC) insurance protects assets and incomes from the devastating financial consequences of long-term health care costs. In existence since the 

early 1970s, LTC insurance policies initially piggybacked on Medicare’s skilled nursing benefit, providing short-term indemnity benefits for stays in a Medicare skilled 

nursing facility. Intermediate care and non-Medicare facility services were covered 

beginning in the late 1970s. Coverage for home care services emerged in the early 


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1Steve Moses, ‘‘The Long-Term Care Dilemma: What States are Doing Right and Wrong,’’ 

2004, http://www.cahi.org/cahi_contents/resources/pdf/LTCStudy2004.pdf. 

1980s. With the implementation of the National Association of Insurance Commissioners’ LTC insurance model regulations in the mid-1980s, coverage expanded to 

include care in assisted living facilities, and insurers began offering longer periods 

of covered care, including unlimited lifetime benefits and increased daily benefits. 

Due to significant competition in the marketplace, LTC insurers are developing 

products with very flexible benefits to better meet consumers’ needs. Today’s comprehensive LTC insurance policies allow consumers to choose from a variety of benefits—including reimbursement for informal caregivers—and offer a wide range of 

coverage choices. They provide for care to be received in a variety of settings—nursing homes, homecare, assisted living facilities and adult day care—and some of the 

most recent policies are providing for a cash benefit that the consumer can spend 

anyway he/she feels is best. Additionally, insurers are coming out with hybrid products that are combined with life insurance and annuities. 

Policy options offered by one CAHI member include: 

• Short term facility care plan for stays of less than one year; 

• A stand alone home health care plan; 

• A benefit plan for substandard health risks; and, 

• A comprehensive benefit package covering all care settings—facility, home and 

community. 

Additionally, under a first-of-its-kind arrangement with a major university, their 

newest product incorporates an independent health promotion and disease prevention program, as well as caregiver support services. 

LTC insurance allows individuals to take personal responsibility for their longterm health care needs and reduces the strain on state Medicaid budgets. By the 

year 2030, Medicaid’s nursing home expenditures are expected to reach more than 

$130 billion a year. Private LTC insurance is the only real alternative to more state 

Medicaid spending on seniors. 

Home equity conversion (HEC)—which allows people to convert the illiquid equity 

in their homes into a liquid monthly income or a lump sum payment without having 

to repay the loan while they live in the home—is another private financing option 

for long-term care needs. Eighty-one percent of seniors own their homes. Seventythree percent of elderly homeowners own their homes free and clear. Nearly $2 trillion worth of home equity is held by seniors that could go to offset the cost of longterm care—enough money to solve the long-term care financing crisis now and in 

the future.1

These reverse annuity mortgages are available to anyone 62 years of age or older 

and are strictly regulated by the government. Proceeds of a reverse mortgage can 

be used for any purpose. For example, when interest rates plummeted, many seniors 

turned to reverse annuity mortgages as a way to replace lost income. 

Properly done, reverse mortgages are medically underwritten so that the mortgages are priced so that they do not come due while borrowers are still able to live 

at home. In other words, the lender is taking on risk that the borrower may live 

in the home longer than anticipated. Thus, the product is insurance, not just a loan. 

Borrowers can never lose their homes and do not pay back the reverse mortgage 

until they leave or sell the home, usually as a result of death or nursing home institutionalization. At that time and only then, the lender recoups principal and all accrued interest. 

Recently, the Centers for Medicare and Medicaid Services and the National Council on the Aging (NCOA) have encouraged the use of home equity to pay for longterm care. In an estimate prepared for the NCOA by the Lewin Group, reverse 

mortgages could save Medicaid $3 billion to $5 billion annually by 2010 if sales 

reached certain levels. 

Obstacles to Private Market Growth 

Most seniors are financially ill-prepared to meet potential long-term care needs. 

According to the Congressional Budget Office, only 7% of American seniors have 

enough saved to cover one year of nursing home care. 

Consumer education about the need for long-term care planning is critical. The 

largest disincentive to buying private LTC insurance, however, is Medicaid. As originally conceived, Medicaid was mainly intended to be an acute-care safety net for 

poor women and children. To this day, approximately 75% of Medicaid recipients are 

poor adults, mostly women and children, who account for only about one-third of 

Medicaid’s costs. 


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2See: http://www.cms.hhs.gov/statistics/nhe/historical/t7.asp; ‘‘Table 7: Nursing Home Care 

Expenditures Aggregate and per Capita Amounts and Percent Distribution, by Source of Funds: 

Selected Calendar Years 1980–2002’’ and C. McKeen Cowles, 2002 Nursing Home Statistical 

Yearkbook, Cowles Research Group, Montgomery Village, MD, 2003, p. 64. 3See ‘‘SI 011715.020 List of State Medicaid Programs for the Aged, Blind and Disabled’’ at 

http://policy.ssa.gov/poms.nsf/1nx/0501715020. 4 Ibid. 

The remaining 25% of Medicaid recipients are aged, blind or disabled, but they 

account for two-thirds of the program’s costs. The main cost driver for this group 

is long-term care, principally nursing home care. 

Medicaid spent $50.9 billion on nursing home care in 2002 and paid for two-thirds 

of all nursing home residents.2 Medicaid also spends a large and rapidly increasing 

amount for home and community-based long-term care. long-term care accounts for 

one-third to one-half of total Medicaid expenditures in most states. 

The American public is in denial about the risk of long-term care because Medicaid and Medicare have paid for most expensive extended care services since 1965. 

When a care crisis occurs and large expenses begin to be incurred, families frequently turn to the public benefit programs and learn that qualifying for Medicaid 

is easier than they thought and that Medicare, although very limited in its benefits, 

has no means test to obstruct eligibility. Consequently, few people plan, save, invest 

or insure for long-term care and most people end up dependent on the public programs. 

To qualify for Medicaid’s long-term care benefits, someone must be aged, blind or 

disabled and medically in need of nursing-home level of care. Beyond that, there are 

two financial tests that must be passed: one is based on income and the other on 

assets. 

Income eligibility is determined in two ways. Thirty-four states and the District 

of Columbia have ‘‘medically needy’’ income eligibility systems.3 In those states, 

medical expenses—including private nursing home costs, insurance premiums, medical expenses not covered by Medicare, etc.—are deducted from Medicaid applicants’ 

income. If they have too little income to pay for their care, they are eligible for Medicaid—not just for long-term care but also for the full array of Medicaid services. 

The remaining states have ‘‘income cap’’ Medicaid eligibility systems.4 In these 

states, anyone with income over $1,692 per month (300% of the SSI monthly benefit 

of $564) is ineligible for long-term care benefits. But $1,692 is not enough to pay 

privately for nursing home care and one dollar more is too much to qualify for Medicaid, a Catch 22. So Congress approved ‘‘Miller Income Trusts’’ in the Omnibus 

Budget Reconciliation Act of 1993 (OBRA ’93) that allow people to divert income 

into the trust and become eligible for Medicaid. The trust proceeds must then be 

used to offset their cost of care, and any balance in the trust at death reverts to 

Medicaid. Nevertheless, Miller Income Trusts allow people with incomes substantially over the limit to qualify for Medicaid, enjoy the program’s low reimbursement 

rates and receive its extensive range of additional medical services. 

Thus, whether you’re in a ‘‘medically needy’’ or an ‘‘income cap’’ state, you don’t 

have to be poor to qualify. You only need a cash flow problem. There is no set limit 

on how much income you can have and still qualify, as long as your private medical 

expenses are high enough and, if you are in an ‘‘income cap’’ state, you have a Miller 

Income Diversion Trust. Thus, income is rarely an obstacle to Medicaid long-term 

care benefits, as long as medical expenses are high enough. Only the top 10% or 

15% of seniors would have too much income to qualify. 

Most states allow individual Medicaid applicants to retain at least $2,000 worth 

of otherwise nonexempt liquid assets. What you don’t hear so often is that Medicaid 

also exempts the home and all contiguous property regardless of value. Simply express a subjective ‘‘intent to return’’ to the home and it remains exempt, whether 

or not there is any medical possibility the patient will ever be able to return. According to the Social Security Administration’s Program Operations Manual System 

(POMS), Medicaid also exempts: 

• One business, including the capital and cash flow, of unlimited value; 

• A prepaid burial space for ‘‘the individual, his or her spouse, or any other member of his or her immediate family is an excluded resource, regardless of value’’; 

• Unlimited term life insurance with no effect on eligibility; 

• Home furnishings up to $2,000, but they are rarely counted; 

• One car of unlimited value, assuming it’s used for the benefit of the Medicaid 

recipient. (And because it is exempt, giving it away is not a transfer of assets 

to qualify for Medicaid.) 


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5See SEC. 1917 [42 U.S.C. 1396p] of the Social Security Act, ‘‘Liens, Adjustments and Recoveries, and Transfers of Assets,’’ at http://www.ssa.gov/OP_Home/ssact/title19/1917.htm. 6Moses. 

7Moses. This estimate is based on applying Oregon’s probate recovery rate of 6.9% to the national total Medicaid nursing home expenditures for FFY–02 of $46.5 billion. Using the 8.1% 

estate recovery rate estimated by Oregon staff gives a total national estate recovery potential 

of $3.8 billion. 

Many upper-middle-class people qualify for Medicaid by consulting legal specialists, known as elder law attorneys, who use an array of qualification techniques, including the purchase of annuities, irrevocable income-only trusts and life care contracts. Thus, even beyond Medicaid’s extremely generous basic eligibility rules as 

described above, savvy seniors with cunning legal advisors can stretch Medicaid 

long-term care eligibility much further still. 

Medicaid planning has negative consequences beyond overloading the program 

with recipients who could have paid for their own care. Elder law attorneys routinely advise their Medicaid planning clients to retain enough ‘‘key money’’ to pay 

privately for at least a year of nursing home care. That’s because it’s common 

knowledge that patients cannot count on getting into a quality nursing home unless 

they can pay privately for an extended period of time. Once they’re in, however, 

state and federal laws prohibit nursing homes from removing them just because 

they convert from private-pay to Medicaid. So, the well-to-do divest or shelter most 

of their wealth, but save out enough to pay privately for a year, lock into a good 

nursing home, and later transfer the financial burden to Medicaid, tax payers and 

nursing homes. The tragedy is that poor people, whom Medicaid is supposed to help, 

do not have key money and consequently must occupy the less desirable beds in 

nursing homes more heavily dependent on Medicaid’s low reimbursement rates. 

Although state Medicaid programs have been required since OBRA ‘93 to recover 

benefits paid from the estates of deceased recipients—and arguably from the estates 

of the spouses they predecease—few states do so efficiently and effectively. 

Two states—Michigan and Texas—have not implemented estate recoveries to this 

day. Most states make only a half-hearted effort. CMS reports that state Medicaid 

programs recovered only $350 million from estates in 2002 while spending $46.5 billion on nursing home care—an almost negligible return of only 0.75%. 

Even states like Oregon that pursue estate recoveries aggressively are hamstrung 

by restrictions in federal law that protect large amounts of money from recovery.5

Nevertheless, Oregon recovered $13.7 million from estates in 2002, which is 6.9% 

of what the state spent on Medicaid nursing home benefits that year.6 If every state 

were as successful as Oregon, estate recoveries would total $3.2 billion.7

With a growing industry devoted to helping individuals qualify for Medicaid, and 

with little or no effort on the part of the states in pursuing estate recovery or otherwise limiting Medicaid eligibility, it should come as no surprise that consumers view 

long-term care as an entitlement, and see no value in using their own money to purchase private LTC insurance or long-term care services directly. 

Solutions 

Encouraging individuals to plan for their own long-term care needs, and providing 

incentives to access the private market products to do so, are the two most important ways we can improve long-term care financing and delivery, and contain the 

growth of Medicaid. 

Tax Incentives: While pure demographics should spark some increased interest 

in LTC insurance, the onslaught of the baby boom generation is not enough in itself 

to encourage the purchase of the product. 

Today’s private long-term care market continues to evolve with policy improvements, consumer protections and administrative efficiencies. It is competitive and 

innovative, changing to meet consumer demand. So why aren’t consumers buying 

it? 

Studies of ‘‘non-buyers’’ show that if LTC insurance could be purchased with tax 

incentives, they would seriously consider buying a policy. By giving Americans a tax 

break to purchase LTC insurance, Congress can help millions of families enjoy a financially secure retirement. While an income tax deduction is one way government 

has encouraged Americans to purchase LTC insurance, the deduction applies only 

to premium amounts that exceed 7.5% of adjusted gross income, thereby limiting it 

to very few taxpayers. Pending legislation would provide an above-the-line income 

tax deduction for LTC premiums. 

One new LTC financing option is a Health Savings Account (HSA), which allows 

a worker to tax-shelter LTC insurance premiums. However, few people have an 

HSA, and some employers may never offer that option. 


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8 ‘‘209B states,’’ refers to the states which retained the right, under Section 209(b) of the Supplemental Security Income (SSI) program, to continue to use their own eligibility criteria in determining Mediciad eligibility for the elderly and disabled rather than extend Medicaid coverage 

to all who qualify for SSI benefits. The Medicaid Resource Book, Kaiser Commission on Medicaid 

and the Uninsured. 

Congress can do much more. Many Americans are saving for their retirement 

years through IRAs, 401(k) and 403(b) plans, with personal contributions matched 

in whole or in part by employers. Allowing taxpayers age 50 or older to use funds 

from those plans, without withdrawal penalties, to buy LTC coverage can: (a) encourage the purchase of LTC insurance at younger ages when premiums are lower 

and people are healthier; (b) motivate consumers to take responsibility for their long 

term health care needs; and (c) if restricted to just IRAs, would be almost tax neutral. 

However, when Congress or the state legislatures create new options, they sometimes feel compelled to impose new regulations on those options. It is important that 

Congress and the states not do to long-term care insurance what they—primarily 

the states—have done to health insurance: impose numerous mandates and restrictions that drive up premiums and reduce access to affordable coverage. 

Long-Term Care Partnerships: The private long-term care insurance market is 

robust and competitive, with products that offer consumers comprehensive benefits 

and financial security. However, the ease with which people can shelter or transfer 

their assets reduces the incentive to purchase private LTC insurance and increases 

the number of people who rely on Medicaid for their long-term care. 

Four states—Connecticut, California, Indiana and New York—have addressed the 

LTC problem by establishing public/private partnerships. These programs encourage 

people to purchase private LTC insurance by allowing insured persons to protect 

their assets in whole (New York) or in part if they exhaust their private LTC benefits. Thus, if partnership participants exhaust their LTC policies, they will not forfeit their estate once they enroll in Medicaid. In other words, if people go to reasonable lengths to act responsibly and protect themselves by buying LTC coverage, 

their assets are not at risk if they must eventually turn to Medicaid. 

While the current partnership programs are a step in the right direction, their 

mandated product design and administrative burdens encumber insurers. As a result, the products are expensive. Moreover, the Omnibus Budget Reconciliation Act 

of 1993 effectively precluded the establishment of partnership programs in new 

states by prohibiting the states from allowing participants who buy LTC coverage 

to be exempted from Medicaid’s estate recovery provisions. 

Yet the fundamental concept behind LTC insurance partnerships is sound and 

could attract consumers if the restrictions were removed. 

A fresh, full examination of LTC partnerships is needed. An affordable partnership program would link the public and private sectors, allowing consumers to purchase private LTC insurance and making Medicaid the last option for long term 

care. What to do? First, Congress should allow states to establish an LTC partnership program by repealing the OBRA ’93 ban on the forgiveness of estate recovery 

liability. Then, state legislators should advance public/private partnership programs 

that promote the development and availability of affordable, voluntary, private LTC 

insurance products. 

Home Equity Conversion: Seniors’ home equity is the biggest potential source 

of private long-term care financing that could relieve fiscal pressure on Medicaid. 

Home equity represents over half the wealth of the median elderly household. Yet 

home equity is not being widely used to finance long-term care. Why? Because Medicaid exempts the home and all contiguous property regardless of value for any recipient who expresses an ‘‘intent to return’’ to the home. Under federal law, the 

medical feasibility of returning to the home is immaterial (except in three or four 

209b states 8). Expressed intent is all that matters. Thus the Medicaid home exemption and the ease of transferring the home to avoid estate recovery liability chill the 

market for home equity conversion products. 

The federal Medicaid program should require home equity conversion as a condition of qualifying for Medicaid-funded long-term care, and states should encourage 

the use of this program. This approach would prevent Medicaid from being ‘‘inheritance insurance’’ for baby boomer heirs as it is now, and it would wake up the 

boomers to the risk and cost of long-term care. With home equity genuinely at risk, 

most people would plan early to save, invest or insure for their long-term care 

needs. They would be less likely to ignore the problem until it’s too late, as they 

do now, because if they did, they would have to consume their biggest asset before 

receiving public assistance. This approach would also unleash the long-term care inVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00092 Fmt 6633 Sfmt 6621 E:\HR\OC\26379.XXX 26379

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surance and home equity conversion markets, thus creating jobs and adding to state 

and federal tax revenues. 

Medicaid Long-Term Care Eligibility: Medicaid’s income and asset limits are 

very severe for people who need acute care. The rules are much more generous for 

seniors who need long-term care. Income is rarely an obstacle to eligibility because 

applicants’ medical expenses, including nursing home expenditures, are deducted 

from their income in 30 ‘‘medically needy’’ states. In the remaining ‘‘income cap’’ 

states, applicants can divert excess income into ‘‘Miller Income Trusts’’ in order to 

qualify for Medicaid coverage. 

The key is to control eligibility. Many states have tried to reduce costs and improve service delivery by de-emphasizing nursing home care and encouraging home 

and community-based services. But in so doing, they’ve made their Medicaid programs more attractive and private financing less attractive. If they could control eligibility, however, so that people would access Medicaid only after consuming home 

equity, fewer people would become dependent on Medicaid, and the state could better afford to provide the most attractive home and community-based services 

(HCBS) and pay adequately for them. 

Congress and CMS should encourage states to study their Medicaid eligibility systems to determine how much they lose as a result of generous Medicaid eligibility 

rules, early wealth transfers and Medicaid estate planning. Then they should consider: 

• Tightening income and asset limits; 

• Enforcing the rules more strongly; 

• Joining Connecticut, Minnesota and Massachusetts in their 1115 waiver request 

to extend Medicaid’s ‘‘look-back’’ period for asset transfers; and, to eliminate the 

‘‘half-a-loaf’’ loophole (giving away half your assets and spending down during 

the resulting shortened eligibility penalty) by starting eligibility penalties at the 

date of Medicaid qualification instead of the date of the transfer. 

Medicaid Estate Recovery: Every state Medicaid program is required to recover 

the cost of care from the estates of deceased recipients (Omnibus Budget Reconciliation Act of 1993). Few states aggressively enforce the estate recovery requirements, 

however, and none effectively inform the public of this liability in advance. Oregon 

leads in estate recoveries, annually recouping 4.1% of its Medicaid nursing home expenditures from recipients’ estates. If every state recovered at the same rate, estate 

recoveries could generate nearly $2 billion in nontax revenue to supplement Medicaid’s limited resources. If states warned citizens about the risk and cost of long-term 

care, the downside of enrolling in Medicaid—such as loss of independence and 

choice—and the use of estate recovery, many more people would plan earlier to save, 

invest or insure for long-term care costs, thus reducing the burden on taxpayers and 

the Medicaid program. 

States should review their Medicaid estate recovery programs. If recoveries do not 

meet or exceed 5% of nursing home expenditures, states should consider: changing 

laws to encourage stronger recoveries; implementing ‘‘best practices’’ from other 

states; adding staff until recoveries are maximized; and publicizing the program to 

encourage responsible long-term care planning by consumers who are still young, 

healthy and affluent enough to purchase private insurance. 

Conclusion 

The United States is the richest country in the world. We have more than enough 

wealth to ensure access to long-term care for all American citizens. Yet our longterm care service delivery and financing system is seriously dysfunctional. 

By making Medicaid nursing home benefits routinely available to virtually anyone 

since 1965, we created a nursing home-based, welfare-financed long-term care system that fails everyone, especially the poor. 

While it is understandable that seniors want to protect their assets in order to 

pass something on to their families and friends, the best way to do that is to take 

financial responsibility and protect their assets by purchasing long-term care insurance, not becoming dependent on the Medicaid system. 

The private LTC insurance industry continues to serve consumer expectations 

well in the design and offering of quality products. Disincentives to buy the products 

do not come from a lack of benefit plans—excellent, affordable coverage is available 

and new products continue to be developed. Concern for the stability of premium 

rates for these products has been addressed by the National Association of Insurance Commissioners, while meaningful consumer protections have been put in place 

in the states. 

By providing individuals with the proper incentives to plan for their own longterm care financing, Congress can reduce the number of people dependent on MedVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026379 PO 00000 Frm 00093 Fmt 6633 Sfmt 6621 E:\HR\OC\26379.XXX 26379

jcorcoran on PROD1PC62 with HEARING
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icaid and allow the program to do a better job for its proper clientele: the poor. Medicaid could afford to offer home and community-based care, not just nursing home 

care, and perhaps it could pay long-term care providers something closer to market 

rates. 

Thank you again for the opportunity to share our comments. Please feel free to 

contact me if I can provide any further information. 

f 

Statement of Barbara Haselden, Hometown Insurors, Inc., St. Petersburg, 

Florida 

Sixteen years ago I formed a corporation and opened a neighborhood Long Term 

Care Insurance Agency in St. Petersburg, Florida. My family had experienced the 

long term care needs of both of my grandmothers each lasting for seven years, one 

at home and one in a nursing home. I witnessed the financial and emotional impact 

this exacted on all close members of my family and when I became aware of the 

emerging product of insurance to cover these events I was hooked. Surely this would 

be a life’s work that, once understood by the public, would provide both a good living 

and rewarding service to others. In my naivety, I had no idea of the road I was 

about to travel filled with years of struggle, moments of hope dashed by years of 

disappointment. 

I will not take your valuable time to relive the history of this industry as I know 

you have plenty of testimony covering this aspect. I will say that interest in the 

product peaked perhaps as long as five years ago. At that time the promotion of 

Medicaid planning Seminars by Elder Law Attorneys and Insurance Agents began 

to proliferate promising to assist families in escaping the consequences of uninsured 

long term care. 

One such seminar entitled ‘‘Just Say No to Long Term Care’’ drew crowds of 60 

to 100 people consistently for years all over the southern half of the state. Another 

Seminar given by a young local Elder Law Attorney entitled, ‘‘FINALLY, Answers 

to Your Medicaid Questions and Long Term Care’’ has been running monthly for 

the past five years and in fact is in the St. Petersburg Times just this past Sunday. 

These seminars are actually held in public libraries and senior citizen centers. 

There are thousands of Purveyors of Medicaid nationwide each with their own approach to marketing Medicaid to the public for their own personal gain. I have attended many of these seminars in Florida and have been so disappointed by the 

general willingness of everyday Americans to engage in schemes to become eligible 

for Welfare and to escape paying an insurance premium to finance their own future 

personal needs. But, most seminars start out with a long pitch proclaiming Medicaid 

as an Entitlement Program guaranteed to every American if you only know how to 

play the game and, after listening to the distorted message, one walks away from 

these convincing half-truths thinking only a fool would buy long term care insurance. After all, you paid taxes all these years . . . 

Today we are loosing more policyholders monthly at my agency than we are able 

to add. They are going on claim at a rate that exceeds our growth due to the low 

interest in our product. If something isn’t done quickly to assist our industry in 

reaching the public I fear the industry will collapse. The languishing legislative action on building a financially strong long term care delivery system thru adequate 

financing via insurance, like all other major risks in our society, threatens to rob 

us of our future ability to care for our aged in their own homes, assisted living or 

nursing facilities. 

While it is certain that the Medicaid Planning industry must be stopped, I fear 

the number of years that it may take to outwit 5000 attorneys into submission. 

Therefore, I am asking for an above-the-line tax deduction now to give us compelling 

incentives to those that will listen to purchase long term care insurance. Then 

quickly shut every loophole you can to false impoverishment to send a clear message 

to all Americans that, if they can afford it, long term care insurance is their appropriate vehicle to finance their future care if they do not want to risk their savings. 

Thank You. 

Æ 


jcorcoran on PROD1PC62 with HEARING