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95–605 PDF 2004

S. HRG. 108–664

MEDICAID IN CRISIS: COULD LONG TERM CARE

PARTNERSHIPS BE PART OF THE SOLUTION?

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

WASHINGTON, DC

JUNE 22, 2004

Serial No. 108–38

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING 

LARRY CRAIG, Idaho, Chairman 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

MIKE ENZI, Wyoming 

GORDON SMITH, Oregon 

JAMES M. TALENT, Missouri 

PETER G. FITZGERALD, Illinois 

ORRIN G. HATCH, Utah 

ELIZABETH DOLE, North Carolina 

TED STEVENS, Alaska 

RICK SANTORUM, Pennsylvania 

JOHN B. BREAUX, Louisiana, Ranking 

Member 

HARRY REID, Nevada 

HERB KOHL, Wisconsin 

JAMES M. JEFFORDS, Vermont 

RUSSELL D. FEINGOLD, Wisconsin 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

DEBBIE STABENOW, Michigan 

LUPE WISSEL, Staff Director 

MICHELLE EASTON, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Larry Craig .......................................................... 1

PANEL I 

Michael O’Grady, assistant secretary of planning and evaluation, U.S. Department of Health and Human Services, Washington, DC ................................... 3

Raymond Scheppach, executive director, National Governors Association, 

Washington, DC ................................................................................................... 15

PANEL II 

Mark Meiners, Ph.D., national program director, University of Maryland Center on Aging, College Park, MD .......................................................................... 32

Melanie M. Bella, assistant secretary, Indiana Family and Social Services 

Administration, Indianapolis, IN ........................................................................ 41

Bob Bishop, long term care partnership insurance consumer, Carmel, IN ........ 54

Kevin Corcoran, executive vice president, National Association of Health Underwriters, Arlington, VA .................................................................................... 58

Steve Chies, chair, The American Health Care Association, Cambridge, MN ... 71

(III) 

(1)

MEDICAID IN CRISIS: COULD LONG TERM 

CARE PARTNERSHIPS BE PART OF THE SOLUTION? 

TUESDAY, JUNE 22, 2004 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The committee met, pursuant to notice, at 10 a.m., in room SD–

628, Dirksen Senate Office Building, Hon. Larry Craig (chairman 

of the committee) presiding. 

Present: Senators Craig, Bayh, and Kohl. 

OPENING STATEMENT OF SENATOR LARRY CRAIG, CHAIRMAN 

The CHAIRMAN. Well, good morning, everyone. We are actually 

going to be a few minutes ahead of schedule this morning. That is 

rare in the U.S. Senate, but there are going to be a couple of votes 

at 10:45, so I thought we could get started and get through most 

of our testimony. 

Let me welcome you all to the U.S. Senate Special Committee on 

Aging. I would venture to say that Senator Bayh and I have a particular interest in today’s hearing, as it deals directly with legislation that we have co-sponsored, and Senator Bayh will be joining 

us for the balance of the hearing, hopefully within a few moments. 

As you know, this hearing is on what we call the Medicaid crisis: 

could long-term care partnerships be part of a solution to that 

problem? For the past several years, Medicare has commanded 

most of Congress’ health care attention. This is understandable but 

it is also to some degree—has obscured the equally important issue 

of long-term care. Experts estimate that four out of 10 people who 

reach the age of 65 will need long-term care at some point. The average cost of a 1-year stay in a nursing home today is about 

$66,000, and the average length of stay is about two and a half 

years. 

This often ruinous expense comes as a surprise to many seniors 

who mistakenly believe that nursing home care is covered under 

Medicare. As a result, many seniors find themselves in the tragic 

position of having to spend down their lifetime savings until they 

reach the poverty level to qualify for Medicaid. The Government, 

either State or Federal, now currently pays more than 60 percent 

of long-term care costs, but with the baby boom generation quickly 

aging, long-term care costs are expected to double by the year 2025 

and nearly quadruple by 2050. 

2

Given these sobering demographics and the continuing budget 

pressures facing State governments, the present Medicaid documented funding approach to long-term care is simply 

unsustainable. To help address this difficult challenge, Senator 

Bayh and I have reintroduced the Long-Term Care Insurance Partnership Program Act of 2004. This legislation would allow Americans to purchase State-approved private long-term care insurance 

policies and, in return, the State would guarantee that should the 

policy benefits be exhausted, the Government would cover the cost 

of their continuing care through Medicaid without first requiring a 

beneficiary to become impoverished. 

This legislation builds on partnership programs currently operated in four States: California, Connecticut, Indiana and New York. 

We are lucky enough to have representatives from Indiana here 

with us today to share their experiences. The bill would lift current 

Federal restrictions and make such programs available nationwide. 

Like over 15 other States, my own State of Idaho recently passed 

a joint memorial asking Congress to amend Federal law to allow 

States to enter into these innovative partnerships. I am extremely 

pleased that President Bush has also recognized the value of this 

approach and that the President has included it in his 1904 budget 

request to Congress. 

Enrollment in these policies is growing, and out of 150 partnership policies currently in force in these four States, only about 86 

policy holders to date have exhausted their long-term care insurance benefits and been forced to return to Medicaid. Such longterm care partnership programs truly represent a win-win for all 

concerned, something rarely encountered in health care policy. 

For the individual, such partnership policies allows the person to 

feel secure that the money they saved for their golden years will 

not be quickly wiped out on their way to poverty. For States, such 

policies offer a way to relieve pressure on skyrocketing Medicaid 

expenditures. Long-term care partnership programs alone will not 

completely resolve the Medicaid crisis so many States face, but it 

is one innovative option that States can consider, and I certainly 

look forward to the testimony that we are about to receive. 

Senator Craig. Now, let me turn to those who have come to be 

with us this morning to testify. Our first panel is made up of Michael O’Grady, assistant secretary of Planning and Evaluation, 

Health and Human Services, here in Washington and Raymond 

Scheppach, executive director, National Governors Association here 

in Washington, DC also. 

So with that, Michael, let me turn to you first.

3

STATEMENT OF MICHAEL O’GRADY, ASSISTANT SECRETARY 

OF PLANNING AND EVALUATION, DEPARTMENT OF HEALTH 

AND HUMAN SERVICES, WASHINGTON, DC 

Mr. O’ GRADY. Good morning, Mr. Chairman. 

It is a pleasure to be here to discuss long-term care insurance, 

particularly the partnership program. There are at least three key 

benefits for individuals who purchase long-term care insurance: 

flexibility, the flexibility to stay in their own home, to go to an assisted living center or to go to a nursing home; choice, the choice 

of which providers they would like to use for their long-term care 

services; and control, control over how much and what kind of services they use. 

There are also clear benefits for the society as a whole. With the 

aging of the baby boom, Medicaid will be placed under significant 

financial pressure in the future. In 2004, total spending on longterm care for the elderly was $135 billion, and roughly a third of 

that was financed by the Medicaid program. By the year 2025, total 

spending is predicted to almost double to $260 billion, and by 2050, 

the population over age 65 is expected to double. 

There will be a compelling need to focus scarce Medicaid dollars 

on those who need it the most. Any measures that can increase the 

baby boomers’ prefunding of their own long-term care will improve 

the situation significantly. Whether you are a proponent of using 

the public sector, the private sector or a combination of the two, 

policies that result in the boomers funding their own needs will 

greatly reduce the possibility of a crushing financial burden on 

their children and grandchildren. 

The administration has a number of initiatives to encourage purchase of long-term care insurance, including making long-term care 

expenses deductible, an upcoming consumer awareness campaign. 

Long-term care, although the demographics underlining it are the 

same forces as we see in the Medicare crisis and in the Social Security crisis, it is, in effect, sort of a quiet stepchild. But the same 

forces are in effect; the same finances will be upcoming. 

The partnership program, we are certainly encouraging. What 

are partnerships? It is a program by which States can change their 

own Medicaid eligibility rules, their, quote, spend-down rules, and 

long-term care insurance does not count toward those calculations. 

Participants buy insurance that covers the cost of their own care. 

If they exhaust their long-term care insurance and need to go on 

Medicaid, they are allowed to keep additional assets equal to the 

value of their long-term care policy. 

This additional protection of assets increases the value of longterm care insurances for Americans, especially those of moderate 

income. Legislation is needed to give States the flexibility to introduce partnerships if they wish. Many States are anxious to do it; 

initially, 12 States passed legislation, but they are prevented by 

Federal Medicaid law from doing so. Only four of the 12, as you 

mentioned in your opening statement, California, Connecticut, Indiana and New York, moved quickly enough when partnerships 

were allowed to get their programs operational before the cutoff. 

OBRA 1993 prohibited the other States from moving ahead and 

cutoff the possibility of additional States starting programs. The 

four programs underway have continued, but the other States canVerDate 0ct 09 2002 12:11 Oct 29, 2004 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 H:\DOCS\95605.TXT SAGING1 PsN: JOYCE
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not start any new programs. The OBRA 1993 prohibitions reflect 

a concern that partnerships would be used to game the Medicaid 

program. A decade later, the data is in, and those concerns seem 

unwarranted. One hundred eighty thousand policies have been purchased in the four partnership States. Only 86 individuals, or 0.05 

percent, or five one-hundredth of a percent have actually gone on 

Medicaid. 

To summarize: long-term care insurance is an important tool in 

providing Americans with choice, flexibility and control during 

their last few years. It is an important tool in helping older Americans to stay in their own homes as long as possible. Partnership 

programs increase the value of long-term care insurance and make 

it more attractive to more people. The concerns about partnerships 

reflected in OBRA 1993 have not come to pass. Finally, anything 

that encourages the baby boomers to prefund their own long-term 

care reduces the financial burden on future generations and allows 

scarce Medicaid dollars to be focused on those with the greatest 

need. 

Thank you for your time. 

[The prepared statement of Mr. O’Grady follows:]

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The CHAIRMAN. Michael, thank you very much. 

Now, let me turn to Raymond Scheppach, executive director, National Governors Association. Welcome to the Committee. 

STATEMENT OF RAYMOND SCHEPPACH, EXECUTIVE DIRECTOR, NATIONAL GOVERNORS ASSOCIATION, WASHINGTON, 

DC 

Mr. SCHEPPACH. Thank you, Mr. Chairman. I appreciate the opportunity to appear before you today on behalf of the nation’s Governors to discuss the critical issue of long-term care. 

This morning, I would like to briefly cover three issues: first, the 

State fiscal challenges for Medicaid; second, the importance of your 

legislation, S. 2077; and also Governor Kempthorne’s leadership on 

long-term care as NGA Chairman. 

After 3 years of the worst fiscal crisis in the last 60 years, States 

are now witnessing relatively robust revenue growth. Regardless of 

the length and bullishness of the economic recovery, however, 

States will continue to confront very difficult long run budget decisions. Over 50 percent of a State’s budget goes to education and 

Medicaid. Medicaid is a mandatory Federal entitlement whose 

growth rate is driven by rapidly changing demographics and rising 

costs, while education is primarily discretionary. 

Medicaid’s growth is biasing State budget decisions and is winning the contest for State dollars. This will limit the States’ ability 

to adequately fund education over the next decade. Medicaid currently represents about 21 percent of State budgets. It has grown 

over 11 percent per year over the last 25 years. We were fortunate 

over the last 10 years, because during the boom period of 1995 to 

the year 2000, it went down considerably, but even there, the 

growth rate over the last 10 years was over 8 percent. Unfortunately, over the last 3 years, it rebounded again to over 11 percent 

per year. This is in spite of the fact that every State cut reimbursement rates, cut eligible populations, cut benefits and instituted 

formularies. 

Elementary and secondary education represents 21 percent of 

State budgets and higher education another 11 percent. Over the 

last 3 years, when Medicaid growth again exploded, secondary education growth rate fell to 2.7 percent per year, and higher education fell to 1.5 percent. Unfortunately, over the next decade, it 

looks like a continuation of these recent growth rates. 

That means Medicaid rates continuing probably in the 8 to 10 

percent range and education probably in the 2 to 4 percent range. 

This is going to cause us a major problem, I suspect, now that we 

have an open economy. We need to compete on the international 

marketplace. To do that, we need to invest in the education and 

training of the work force. 

The bottom line, Mr. Chairman, is that Medicaid is trumping 

education in State budgets. With respect to long-term care insurance, in recent years, there has been growth in the availability of 

private long-term care insurance. Although the growth in this market has been slow, for those that have access and can afford such 

coverage, it is a reasonable alternative to public financing such as 

Medicaid. 

16

The insurance industry estimates that for every individual on long-term care insurance, the potential savings is about $5,000 for 

Medicaid. As indicated previously, there are four States that have 

partnerships, California, Connecticut, Indiana and New York. Currently about 140,000 of these remain in force. The four States that 

operate these programs are very pleased with their success, but 

Federal legislation currently restricts any further expansion. 

We strongly endorse your legislation, S. 2077. This is a win for 

older citizens who can stay in the community as well as a win for 

States in saving money and a win for the Federal Government in 

terms of saving money. As indicated previously, Governor Kempthorne chose as his Chairman’s Initiative this year long-term care. 

In May, we brought together teams from 30 States, teams of four 

to five State policy individuals for 2 days in Chicago to talk about 

what innovations can take place to provide more long-term care. At 

the NGA annual meeting, we will be releasing in Seattle this summer a CD ROM related to four issue areas: promoting wellness and 

disease management, encouraging personal and financial planning, 

promoting community-based living and supporting family givers 

and in-home workers. 

We have also been working with the Department of Health and 

Human Services, who is funding an academy with us. This is 

where we bring together eight States for intensive technical assistance where they are supposed to develop their programs, go back, 

work with their legislatures and get them enacted. So I think 

States are taking a fair amount of leadership in this area. 

Your bill is obviously not a panacea. It is not a silver bullet, but 

it is a win-win situation. It is something that Congress should 

enact. I thank you, Mr. Chairman. 

[The prepared statement of Mr. Scheppach follows:]

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The CHAIRMAN. Raymond, I thank you very much. I was extremely pleased that Governor Kempthorne would take that as his 

initiative. It kind of coincided. He is my Governor and also, of 

course, Chairman of the National Governors Association, and so, 

we see this as a team effort, as, of course, dealing with Medicaid 

and those who are eligible for it has always been at a State and 

Federal level. 

Before we go to questions, let me turn to my colleague, Senator 

Kohl, who has joined us. 

Herb, any opening comment? 

Senator KOHL. No. 

The CHAIRMAN. All right; well, then, let me start with questions. 

Mike, you mentioned some savings in budget neutrality. In your 

best estimate, how much could be saved with long-term care partnerships if we had them nationwide? 

Mr. O’ GRADY. It is a little hard to put a firm number exactly 

what it would do. What we do know is that by moving through 

partnerships, you are encouraging people to buy the long-term care 

insurance. As Ray pointed out, it is sort of one of the tools in the 

toolbox to help people prefund their own care. 

As I said before, we do have this demographic trend that is underlying where really the more you can get the baby boomers to 

use their own money rather than relying on future taxes or their 

own children’s spending. So is there a firm number on exactly how 

many more there will be? I do not know of one. We can certainly 

look into it to try and find it. But it is certainly—this is an attempt 

to move in the right direction and to again, as was pointed out, to 

add one more tool that will allow people to prefund their own care. 

The CHAIRMAN. Ray, a similar question to you: you mentioned a 

$5,000 figure. Would you break that out? That is annualized per 

patient? 

Mr. SCHEPPACH. I think that it is a total number for Medicaid. 

The CHAIRMAN. Total? 

Mr. SCHEPPACH. That is right. That is from the insurance industry. I do know that the State people think that they are saving 

money on all four of the particular programs right now. 

The CHAIRMAN. But the States involved have not done an analysis as to what their average savings per individual is under their 

current policy? 

Mr. SCHEPPACH. I do not think they have good numbers. The individual from Indiana is here later. She may want to address that. 

I know they have done a number of surveys, however. So, I mean, 

I think they have a sense of it. 

The other point I would like to make, though, is that this is an 

insurance that is not widely available in most places. 

The CHAIRMAN. Exactly. 

Mr. SCHEPPACH. So I think by expanding it, it will probably become more efficient, and perhaps the cost savings will be even larger. 

The CHAIRMAN. Well, that was going to be my next question, and 

I can ask it of both of you: if long-term care partnership legislation 

of the type that Evan and I have here passes, will the insurance 

industry from your experience be willing to work with the States 

to offer suitable policies, and how can we assure that these policies 

26

offer enough coverage? A combination of will they offer it, and do 

you think the industry will step up if this opportunity exists, and 

will there be enough coverage? 

Mr. O’ GRADY. I would say that in terms of will they step up, yes. 

I think that they will. What we have seen in other forums where 

we have moved into offering and allowing new insurance products 

to be offered, and there is a demand for them, they certainly move 

up. Their competitive instinct is to make sure that they move up 

before one of their competitors moves up and takes that market 

share. 

Is there still work to do for them to try and think about how to 

be as innovation as possible, to make this as attractive to people? 

I think so. There is still room for improvement there, and how you 

might make it so that it really does fit the needs of particular subpopulations of the elderly. 

The CHAIRMAN. Sure. 

Ray. 

Mr. SCHEPPACH. I also think they will step up. The other thing, 

of course, that is going on in States, that a lot of States are requiring now that this be an option for state employees in terms of their 

health care benefits, and I think the Federal Government has recently done that as well. So I think some of these other things will 

get the spotlight more on it. It will increase the awareness of individuals and develop a more sophisticated insurance market at 

lower costs. 

The CHAIRMAN. Mike, you mentioned that of course, the legislation or the partnerships in long-term care are only a part of the 

solution. What else needs to be done? 

Mr. O’ GRADY. Well, there are a number of other things that, you 

know, this falls into a general category of trying to increase the 

savings rate, especially among the boomers who are now at their 

peak earning period. So you want them to be able to save, and we 

look at international comparisons of American savings rates to others; there is certainly an indication from the pension world, certainly from other aspects of retiree health insurance that there is 

a need to save at higher rates than we currently do. 

So part of the other tools you might bring to bear are certainly 

how long-term care expenses are treated in terms of tax deductibility, how they are treated there to encourage. Are there other 

things that could be done? Certainly. There are other forms of annuities; there are other forms of savings, and Congress may consider whether—how tax advantaged or otherwise. That is certainly 

as we have done certain other areas. Like, I used to work for Senator Roth in the Finance Committee. Certainly, when we saw the 

Roth IRA come in, and you see that attempt to get new savings, 

not just people shifting from something with a little more tax advantage than they had before but really getting people to save 

more, and that is the general area that we are talking about. 

Some of the other tools that might be brought to bear are—we 

are looking at home conversion. People hold an awful lot of equity 

in their homes. If they spend down to Medicaid, some of that equity 

will be eventually taken by the State after they die. 

Are there other ways that they could use their home equity to 

stay in their own home longer and be able to do that in a way that 

27

both meets all the concerns of Congress and the Administration but 

at the same time keeps elderly Americans in their homes as long 

as they possibly want to? 

The CHAIRMAN. Ray, any comment in that area? 

Mr. SCHEPPACH. Yes, a lot of it is public awareness, I think, and 

that is one of the areas where I think States are beginning to step 

up more, and also private sector financial counseling; it needs to 

be part of that. I do think tax treatment, whether it is tax credits 

or deductibility is a possibility. Including it with other types of insurance, whether it is life insurance, annuities, other health insurance so that people get used to it being part of a general insurance 

package. 

The CHAIRMAN. We have just been joined by my partner in this 

legislation, the Senator from Indiana, Evan Bayh, and Evan, do 

you have any opening comment you would like to make? Then, we 

will go back to Herb for questions if he has any and return to you? 

We are running up against a 10:45 two-stacked votes, so I thought 

we would run into that vote until we are right at the tail end of 

it, and then, we will probably recess and jog over and make the 

first and the last vote and get back here for our second panel. 

Please proceed. 

Senator BAYH. That being the case, Mr. Chairman, I would defer 

to the panel. I would just say thank you for your leadership in 

holding this hearing. It is a pleasure to work with you and Senator 

Kohl on this issue. It is good to see Mr. Scheppach again. As a matter of fact, our State began this—we are one of the four States, as 

you know, that is fortunate to have been able to experiment with 

this effort and began it in 1991 in a previous incarnation of mine 

when I was Governor of our State. 

The CHAIRMAN. I was going to say, this was done on your watch, 

was it not, or did it start before——

Senator BAYH. The enabling legislation was enacted in 1987. The 

program was instituted in 1991, when I was Governor of our State, 

Larry. 

So I just thank you for your leadership and our panelists. We 

have two——

The CHAIRMAN. Yes. 

Senator BAYH [continuing]. Panelists coming up who are from Indiana, so obviously, I look forward to introducing them. I thank 

Senator Kohl for his forbearance. 

The CHAIRMAN. Herb? Senator Kohl? 

Senator KOHL. I thank you, Mr. Chairman, and I am pleased 

that you are holding this hearing today. 

With the retirement of the baby boom generation within sight, it 

is past time that Congress and the administration take a serious 

look at the holes in our long-term care system. More and more 

Americans will need care in nursing homes, assisted living facilities and home health care. Yet, too few Americans have planned 

for these costs, and Government programs alone, as we know, cannot be the answer. 

So we need to look at a variety of ways to encourage people to 

plan for their future health care needs. This hearing focuses on 

long-term care partnerships as one potential solution, and it seems 

clear that they could be of some help to people. It is a good idea 

28

and one worth considering. However, as this legislation moves forward, I think we need to take a careful look at total asset policies 

and make sure that they do not allow wealthier people to use partnerships to inappropriately shield their assets to qualify for Medicaid. 

Medicaid, as we all know already, faces huge financial challenges, and I think we would all agree that we need to be very 

careful not to add unnecessarily to that strain. It is clear that partnerships could be one part of the solution for long-term care, and 

I commend the Chairman and Senator Bayh for bringing this proposal before the Committee. 

We all know that partnerships alone cannot solve our nation’s 

long-term care challenges. At best, this would be just one small 

part of trying to address the problem. I appreciate the fact that 

both of you have suggested that there are other ways in which we 

need to move if we indeed are going to take a comprehensive look 

at the problems of long-term care, and so, I was going to ask you 

to talk about some of those other ways, and you have mentioned 

some already, but I just want to emphasize, and I am sure that 

Senator Craig and Senator Bayh would agree that long-term care 

partnerships in and of themselves, while good, certainly do not 

fully address the needs of long-term care in our society today. 

Would you agree with that, Mr. O’Grady? 

Mr. O’ GRADY. Yes, I would, and when we think about this population, and we think about how to help them prepare as much as 

possible, I think that one of the things about partnerships is they 

help you focus on those moderate income folks, the kind of person 

who maybe made $40,000 or $50,000 a year when they were working; now, they are making maybe $20,000 in retirement, and if 

they are hit with one of these $60,000 a year nursing home bills, 

they are going to fairly quickly spend down into Medicaid. 

Lower-income folks, they are not holding these kind of assets. 

They are Medicaid, and in the thinking of how you target Medicaid 

dollars, those are the folks that Medicaid is really designed for, to 

give them the sort of safety net and protections. Higher-income 

folks who have a lot of assets, they are probably, you know, they 

are going to in effect self-fund. 

Now, if they would like to buy insurance to cover that, that is 

great, and you want them to have the opportunity. But when we 

think about these different measures, kind of the key target population to a certain degree is that moderate income guy who, when 

we think of Medicaid and who they serve, long-term care is the one 

sort of spike where the program really spends up into the moderate 

income group when we think about the, you know, TANF population or other people like that who are linked with Medicaid. 

So this is the one area where we are really moving into moderate 

income folks, and as I said before, there is this demographics of the 

baby boom going on so that if there is any way to get that generation to do some prefunding, it is just going to make things so much 

better than whatever their children and grandchildren face, either 

through public programs or private funding that they might have 

to pay. 

29

So you want to figure out any way you can get any tool in the 

toolbox to get this generation to finance their own, not put it on 

their children and grandchildren. 

Senator KOHL. I think that is good. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Well, thank you. 

Ray, one last question of you, and then, we will get to our second 

panel, and I think we can gain testimony from them before we 

need to break to vote. Reports suggest that estate recovery programs in the States are not the most cost-effective way of offsetting 

the cost of Medicaid. Why are States not more aggressive in their 

estate recovery efforts? 

Mr. SCHEPPACH. Well, first, you have a whole, large sophisticated 

industry out there that is working to shelter individuals’ income, 

and so, that is the first problem. The other problem is that the politics around this issue are tough, so even if a Governor oftentimes 

wants to introduce legislation in his legislature, it is very difficult 

to get it passed. So you are up against some pretty serious obstacles. 

The CHAIRMAN. Well, gentlemen, thank you very much. 

Senator BAYH. Mr. Chairman, can I just ask——

The CHAIRMAN. Please. 

Senator BAYH [continuing.] Just a quick question of Mr. O’Grady. 

The CHAIRMAN. Of course. 

Senator BAYH. I understand the issue of cost has been raised, 

and we are working with the different scoring agencies to try to get 

them to take a more global view. My colleague, Senator Kohl, did 

raise the issue of the potential for wealthy individuals perhaps 

shielding assets and getting on Medicaid, which initially has some 

intuitive sense to it. 

I would like your opinion, though, about the possibility of 

wealthy individuals seeking their health care from Medicaid providers. At least in my experience, it is unfortunate; many providers 

do not opt into the Medicaid system, but it is a fact, and most 

wealthy individuals, at least in my experience, those are not the 

providers they go to. So it seems while it is a risk that I think we 

need to protect against, I think that it is unlikely that Bill Gates 

or someone like that is going to be going to an urban hospital to 

get health care. 

Mr. O’ GRADY. Right, and when we think of that side of the physicians that they might go to, the specialists they might go to, most 

of these folks are going to be covered by Medicare, and that will 

be their aside. When we are thinking about where a wealthier individual might be in a position to spend down is more in a nursing 

home setting, where nursing homes do have a mix of Medicaid and 

private pay. If they have too many Medicaid, they are in financial 

difficulty and how you sort of blend that. 

The one sort of real advantage that you have got here in moving 

forward on your bill, though, is that we are always, as we face 

these new challenges, we are always sort of stuck with, well, how 

do we think this is going to really work? You know, is it time for 

a demo or a pilot? Well, in effect, you have got 10 years. 

The CHAIRMAN. You have done it. 

30

Mr. O’ GRADY. You have done it. You have got four States. They 

are diverse States. You have got it. We see—I think it was 86 or 

89 people actually over a decade have actually spent down and triggered Medicaid. 

Senator BAYH. Governors have been arguing for this kind of 

flexibility for years. 

Mr. O’ GRADY. Right, and you have got the reassurance of a track 

record here. So, you know, we are always looking to be breakthrough and innovative, but then, you know, the CBOs of the world 

say show me the data. It is little hard to be innovative and have 

an experience to show, but you have a win-win here in terms of it 

has got a proven track record. 

Senator BAYH. Two other quick things. 

Mr. O’ GRADY. Sure. 

Senator BAYH. Just one on the cost front. I think one of our Indiana experts is going to offer her assessment of our experience, but 

as Mr. Scheppach was mentioning, Mr. Chairman, there is a whole 

industry that has arisen about asset transfers so that rather 

than—people engage in all sorts of financial machinations to qualify for Medicaid by transferring their assets here and there, and I 

believe that she may testify that it has been up to 15 percent has 

been our experience, that these kinds of policies will avoid that 

kind of behavior and thereby save Medicaid money, because individuals will be taking responsibility for themselves as opposed to 

engaging in this sort of financial engineering to qualify for Medicaid. 

Just one other point that I think needs to be—as we assess the 

cost, that needs to be factored in as well, and I think she is also 

going to testify about the savings per year that accrue from every 

year delayed, which certainly ought to be taken into account. 

My last question, and then, let us get on to the next panel: do 

you have an opinion, either one of you, about the dollar-for-dollar 

coverage versus total asset coverage? Do you have an opinion about 

the advisability of one versus the other? 

Mr. O’ GRADY. The data that we have seen on that, I mean, it 

seems to me that there were certain concerns when New York first 

went to sort of a larger——

Senator BAYH. I think this gets to Senator Kohl’s concern. 

Mr. O’ GRADY. Yes, I mean, we have not seen the sort of concerns 

come out that this somehow is going to mean, in that State anyway, higher income people really sheltering large amounts of assets. 

Senator BAYH. Congressman Waxman had concerns about this 

back in 1993. 

Mr. O’ GRADY. Right. 

Senator BAYH. Which is one of the reasons the program was just 

limited to only four. 

The CHAIRMAN. Right. 

Mr. O’ GRADY. Right, and that is the idea of you look at the design, and you have concerns, the advantage again that you have is 

that we have 10 years of experience, and those concerns have not 

proven out. So you have got some confidence there you can move 

forward without it blowing up on you later. 

Senator BAYH. Thank you, Mr. Chairman. 

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The CHAIRMAN. Gentlemen, thank you very much for being with 

us this morning and offering your testimony. We appreciate it. We 

appreciate the partnership that we have got going here on this legislation. We will continue to with you. We need your Governors out 

there tromping the turf to convince our colleagues her that this is 

the right direction to go in, Ray. 

Mr. SCHEPPACH. Right, we will be there. 

The CHAIRMAN. All right; thank you very much. 

The CHAIRMAN. Now, let me ask our second panel to come forward this morning if they would, please. 

Evan, if you would, I will let you start and introduce your two 

home State folks who are here, and then, I will introduce the balance of the panel, and then, we will start with the testimony. 

Senator BAYH. Thank you very much, Mr. Chairman. 

I am honored and pleased to have two Hoosiers with us today 

who I can introduce. I want to welcome them both. Why do I not 

start with Melanie Bella, who is the director of our State Medicaid 

program with an annual operating budget, Mr. Chairman, of over 

$4.2 billion, and it serves over 800,000 low-income and disabled 

Hoosiers. That is about one out of every seven citizens in our State. 

During my years as Governor, Mr. Chairman, I spent as much 

time in the Medicaid program as anything else trying to strike the 

right balance between what the taxpayers could afford and quality, 

affordable health care for the indigent and disabled who needed it, 

and Ms. Bella has done an outstanding job of striking that right 

balance. 

She has a number of honors and awards from national organizations. I will not go through them all but just touch briefly upon the 

Visionary Award that she received from the Robert Wood Johnson 

Foundation’s Office of Improving Chronic Illness Care. She has also 

been selected to join the National Academy of State Health Policy 

and was elected to the Executive Committee of the National 

Association of State Medicaid Directors as the Midwest regional 

representative. 

Before serving as the Medicaid director, Ms. Bella was a senior 

vice-president for Netgov.com, director of operations and strategy 

for the Indiana University School of Medicine, one of the largest 

schools of medicine in the country, Mr. Chairman, and director of 

health policy for the Health and Hospital Corporation of Marion 

County, IN, which deals with a very significant Medicaid population. 

She received her undergraduate degree from DePauw University 

and her master’s of business administration from an institution in 

Boston, Harvard University. So we welcome Ms. Bella today, and 

Melanie, I want to thank you today for the wonderful job you are 

doing on behalf of the people of our State. We look forward to hearing your testimony today. 

Also with us today is Bob Bishop from Carmel, IN. Bob, I cannot 

tell you how often people from other States tell me they have 

friends in Carmel, IN, but as you and I both know, it is Carmel. 

So I welcome you. 

Bob is 70 years old, married with five grown children and nine 

grandchildren. What a blessing. He purchased plans for himself 

and his wife. He purchased dollar-for-dollar coverage for himself 

32

and total asset protection for his wife. I believe he is going to refer 

to the partnership as a blessing and believes it would be devastating for someone to work their entire life, successfully raise a 

family, then retire only to have all of their assets placed in jeopardy because of health care circumstances beyond their control. 

So, Bob, you are going to put a human face on this today with 

your personal experience, and I want to thank you for taking the 

time and trouble to journey here to the nation’s capital. So I welcome both you and Melanie and look forward to hearing from you 

both. 

Mr. Chairman. 

The CHAIRMAN. Evan, thank you very much, and I must say, 

Melanie, we are glad to have an expert, if you will, assisting us as 

we work this legislation. 

Let me introduce the balance of our panelists: Mark Meiners, national program director, University of Maryland Center on Aging in 

College Park. Mark, we appreciate your presence here. Kevin Corcoran, National Association of Health Underwriters in Arlington; 

and Steve Chies? 

Mr. CHIES. Chies. 

The CHAIRMAN. Chies, chair of the American Health Care Association in Cambridge. 

Now, Mark, we will start with you and move through our panelists. Please proceed. 

STATEMENT OF MARK MEINERS, PH.D., NATIONAL PROGRAM 

DIRECTOR, UNIVERSITY OF MARYLAND CENTER ON AGING, 

COLLEGE PARK, MD 

Mr. MEINERS. Mr. Chairman, Senator Bayh, it is a pleasure to 

be here. My history with long-term care insurance goes quite a 

ways back, 1979, I was a young researcher with the Department 

of Health and Human Services and begun——

The CHAIRMAN. Pull that microphone just a bit closer. 

Mr. MEINERS. Sorry. I began a research agenda on long-term 

care insurance, because there was none. So we explored whether 

there was market failure and why there was market failure and 

discovered some ways that we could develop products. So, by the 

mid eighties, some of this research had really led to the insurance 

industry taking it seriously, looking at getting products to the market. My next phase in this was to try to figure out a way to really 

make sure that the product was there for the middle and modest 

income people that we have talked about already this morning so 

that we could really help people avoid spend-down. 

That is what led to the partnership program. The Robert Wood 

Johnson Foundation supported us at Maryland to do a multistate 

initiative that ultimately ended up in these four States that we are 

now talking about today having existing programs, and Senator 

Bayh, I remember when we kicked the program off, the press conference, we were there, and it was a great time. 

I am now here to——

Senator BAYH. Seems like ancient history. 

Mr. MEINERS. It does; well, it was 1991, so it has been awhile 

back. 

33

But now, it is the time to take that next step. We need your help, 

and I really appreciate this legislation to overturn the OBRA restrictions. I said in my testimony to really kind of close it off is saying that this is really a no-brainer. I do not mean to offend anybody 

by that, but in a sense, we have struggled with this issue, and I 

think the partnership is a way to balance sort of the countervailing 

points of view on long-term care insurance. It really gives States 

a way to step up and provide middle and modest income people an 

opportunity to avoid impoverishment and to avoid the temptation 

to game the Medicaid system. 

So it does the things that we really want long-term care insurance to do but does it for the right people, and I think that is very 

important. It also, I think, one of the things that we sometimes lose 

sight of is that it will help create an atmosphere where agents in 

the communities can really step up and expose a broad spectrum 

of their citizens to this insurance risk with the idea that there is 

actually something to be done about it, and that cannot be emphasized enough. 

Right now, I think long-term care insurance is often viewed as 

a niche product for the well-to-do. This is a way to make sure that 

any time an agent walks through the door with their portfolio of 

insurance, they can expose people to long-term care insurance as 

well, because they have a way to help people think about it even 

though they may not have a lot of income and assets; they have 

enough to afford something. That is very important. It changes the 

mindset. 

In terms of arguments for the partnership, I think research are 

a couple of things that really speak to why I think it is a nobrainer. First of all, in the scheme of how you might subsidize this 

insurance, we talk about pre-tax benefits, and I certainly would 

support those. But I also think that when you budget those out in 

times of budget deficits, it is very difficult to not think about the 

costs of those pre-tax dollars in supporting such a market. 

This is a very efficient subsidy. It only kicks in once somebody 

has on their own purchased the product and then gone through 

that product, and it is only at that point that Medicaid is at all at 

risk of having to pay some of the benefit. It is an incentive to get 

more people to enter the market. 

We have used that mindset to do some simulations in launching 

this program, so in answer to the questions that you have about 

cost-effectiveness, our simulations suggest that by the year when 

we reach a steady State in the year of 2020 that one could expect 

as much as a 7 percent savings in Medicaid budget. Even though 

we were really going for a budget-neutral kind of world, that potential does exist, for the reasons I said: it brings more people into the 

market who otherwise would not be there, and in fact, it creates 

a situation where people who might game the system do not game 

the system. 

The other side of it is where I would argue it is a no-brainer is 

because I think it really helps mitigate some of the concerns Congressman Waxman had about erosion of support for Medicaid. I 

think we need to support Medicaid. There are many people whom 

Medicaid must serve, but it should not be the middle class. This 

is a way to create a situation where even though we are encourVerDate 0ct 09 2002 12:11 Oct 29, 2004 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 H:\DOCS\95605.TXT SAGING1 PsN: JOYCE
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aging people not to use Medicaid, we are supporting Medicaid in 

the sense that you have a constituency out there that should their 

circumstances change that they would want Medicaid to be as good 

as it can be at the time they need it. 

For them, can be supported by the fact that they would have assets to help support their care in addition to the support from Medicaid. So I think it really balances a number of very strong countervailing interests and does so in a way that supports middle and 

modest income to really be a part of this market. 

We have had, I think, a lot of success getting these products off 

the ground. I think there is much more success to come once more 

States are on board. That is the key of overturning OBRA. We need 

to make this not just a niche market, which it will remain if it is 

only in these four States. 

I will be happy to answer the kinds of questions you were asking 

the other panelists before. 

[The prepared statement of Mr. Meiners follows:]

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The CHAIRMAN. Mark, thank you very much. 

Melanie, please? 

STATEMENT OF MELANIE M. BELLA, ASSISTANT SECRETARY, 

INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION, 

INDIANAPOLIS, IN 

Ms. BELLA. Mr. Chairman, thank you for the chance to be here 

today. Special thank you to Senator Bayh, because without his 

leadership, we would not be here. 

On behalf of Governor Kernan, I feel fortunate to represent Indiana as one of the four partnership States and share with you a little bit about our experience. Just to give you context, in Indiana 

Medicaid, we are spending close to $788 million to $800 million on 

nursing home care alone. In any given year, it ranges from 18 to 

20 percent of our budget. 

As we look at the aging of our population and project, that demand is going to increase. It is not sustainable for our State Medicaid program, as we are paying for two out of every three Nursing 

home beds today as it is. So we are very much in favor of expanding the long-term care partnership program to help promote the 

market as a whole. 

For Indiana, it allows us to provide important incentives for purchasing long-term care insurance. It allows us to reward Hoosiers 

who plan ahead, and it provides us with critical assistance to manage the Medicaid budget. In Indiana, we have sold over 30,000 policies. We have about 26,000 actively in force today, and I will talk 

to you a little bit about who those folks are in just a minute. 

I want to talk about three key features that the partnership program has. One is asset protection. Indiana is the only State to have 

both total asset protection and dollar-for-dollar asset protection. So 

policy holders can choose if they want to purchase a policy that allows them to protect all of their assets or if they would like to purchase a policy that protects dollar-for-dollar. 

Again, that gives our policy holders an important choice where 

they can figure out what preplanning is best for their situation. 

Seventy-five percent of our policyholders have the total asset protection, so that is an attractive incentive for them. The asset protection is most important, from my perspective in running the Medicaid program, because it gives us a very viable alternative to the 

Medicaid estate planning and asset sheltering that has been referred to. 

There is a growing market of attorneys and financial planners 

who manage to find very creative ways to shelter assets and create 

loopholes to get on Medicaid early. We like to joke it is kind of like 

the whack a mole game. As soon as we close a loophole, another 

one pops up. We are constantly chasing ourselves to keep closing 

those loopholes. There are creative people out there. By having the 

partnership program, we are able to say to legislators and the Governor and others who take quite a bit of pressure for some of these 

initiatives we are trying to do that we have a viable alternative 

that allows people to shelter their assets from Medicaid in a way 

that benefits them as well as the State. So it is a very powerful 

tool to help us get the legislative support that we need to close 

more and more of those loopholes. 

42

The second feature that I want to talk about is the reciprocity 

feature. Within the partnership program, Indiana and Connecticut 

have reciprocity, meaning that with the asset protection feature, 

someone who purchases in Indiana can have their assets protected 

from Medicaid in Connecticut. 

The bill that we are talking about today would really help us, because we do not have very many people retiring between Indiana 

and Connecticut, and so, the more States that are part of this program, the more attractive it is, especially as we try to get younger 

policyholders to purchase, because they do not know where they 

are going to retire. So giving them the opportunity to know that 

the reciprocity is going to exist in more than two States would be 

very valuable to continue to assist us. 

The third feature that we have been asked about is there a tax 

benefit for this? There is a State tax deduction in Indiana. Also, as 

you know, there are Federal tax deductions for the federally qualified policies. 

I want to spend just a minute talking to you about who the people are on our program and get to the question of is this a good 

incentive, is this really good for Medicaid programs? Of the 26,000 

people that I told you about who have an active policy in force, we 

have 187 people who are in their benefit period or who have used 

a benefit at any given time. Fifty-two of those people have passed 

away. So of those who are remaining, 13 people, that is 0.004 percent, have actually exhausted their benefits and are in an asset 

sheltering period. 

So when you look at the average length of time for a policy translates into about 4 years when people are purchasing their coverage 

period. The average length of time in a nursing home is about 21⁄2

years. Generally, people are not exhausting their benefit before 

they would go into the asset shelter period. So from our perspective, it does strengthen the Medicaid program and does not end up 

costing more than it would by offering that asset protection. 

So in closing, just to reiterate, Medicaid cannot be the payer of 

last resort for the lower and upper middle class. We have got to 

offer them viable alternatives to plan, and this is a tremendous tool 

for States, and we would very much encourage your expansion. 

Thank you. 

[The prepared statement of Ms. Bella follows:]

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The CHAIRMAN. Thank you very much for that very enlightening 

testimony. 

Bob, now, let us turn to you and find out why. 

STATEMENT OF ROBERT BISHOP, LONG TERM CARE 

PARTNERSHIP INSURANCE CONSUMER, CARMEL, IN 

Mr. BISHOP. Thank you, Mr. Chairman and thank you, Senator 

Bayh, for your words of introduction. 

The CHAIRMAN. Please pull your mike a little closer if you would, 

please. 

Mr. BISHOP. Sure. 

My name is Robert Bishop. I reside with my wife in Carmel, IN, 

and except for 2 years while on rotational assignment have always 

lived in Indiana. My wife and I have five grown children, all of 

whom are gainfully employed. We have nine grandchildren, and 

both my wife and I are 70 years old. 

Until my retirement in early 1991, I was employed for 39 years 

by the Indiana Bell Telephone Company, which was, at that time, 

part of Ameritech. Most of my career, I was involved in network 

planning, where we planned and conducted economic comparison 

studies dealing in large part with the timing and economic feasibility of introducing new technologies into the telephone network. 

Long-term care insurance was not a priority item with me until I 

attended a broker-client meeting in, I believe, the year 2000, where 

Indiana’s partnership program was explained. 

The meeting awakened me to the substantial risk I was exposing 

my estate to and to the potential hardship, both economic and emotional, I was placing in the path of my family by not owning longterm care insurance. This realization, along with the knowledge 

that I could permanently protect some of my assets under the partnership plan caused me to purchase a limited amount of insurance 

and to take advantage of this protection. 

Anticipating my wife would outlive me and probably live well 

into her eighties as her mother and grandmother did, I chose to 

buy a larger amount of insurance for her which qualified for the 

100 percent plan. Due to cash-flow constraints, I purchased a lesser 

amount of insurance for myself, qualifying me for dollar-for-dollar 

asset protection. 

Insurance premiums for long-term care are not insignificant, particularly when you wait as long as I did to purchase it. Consequently, I feel that I am somewhat underinsured. However, 

whenever a major purchase is being considered, one must weigh 

many factors, including present and future cash-flow constraints, 

probable future inflation rates, and in this case, the stability and 

long-term prospects of the insurance company itself. 

When on a fixed income, these considerations become even more 

critical. On the other hand, had I moved ahead years earlier while 

still working, I would not have been able to benefit from the partnership plan. This is because Indiana’s program did not go into effect until, I believe, 1993. 

While the existence of the partnership plan was not in and of 

itself the reason I purchased the insurance, it certainly was a very 

significant motivator. The partnership plan is indeed a blessing. To 

me, it would be devastating and shattering for a person to work his 

55

entire life, successfully raise a family, then retire with the notion 

that he can live out his days using the proceeds from an accumulated nest egg only to die in poverty because of circumstances 

brought about by situations completely beyond his control. 

I do not want that to happen to me or my wife. I do not want 

to lose that sense of pride and accomplishment that one has when 

he has run a good race. 

Thank you for the opportunity of appearing before you this morning. I would be happy to take any questions you may have. 

[The prepared statement of Mr. Bishop follows:]

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The CHAIRMAN. Well, Bob, thank you very much for that testimony and that kind of presentation of reality. We appreciate that. 

Kevin, now we will turn to you. Please proceed. 

STATEMENT OF KEVIN CORCORAN, EXECUTIVE VICE 

PRESIDENT, NATIONAL ASSOCIATION OF HEALTH UNDERWRITERS, ARLINGTON, VA 

Mr. CORCORAN. Good morning, Mr. Chairman, Senator Bayh. 

My name is Kevin Corcoran. I am the executive vice-president of 

the National Association of Health Underwriters. NAHU is an association of almost 20,000 health insurance professionals involved 

in the sale and service of health insurance, long-term care insurance and related products, serving the insurance needs of over 100 

million Americans. 

We believe long-term care partnership programs can serve an important role in encouraging Americans to plan for their long-term 

care needs by addressing affordability, which is the most basic component of access to any type of health care. 

As Chairman Craig addressed in his opening remarks, the challenges facing Medicare are significant. In the year 2020, one in six 

Americans will be 65 years or older; the number of people in nursing homes will begin to mushroom as the baby boomers reach age 

75. Nursing home costs currently run over $66,000 annually, and 

this will continue to increase. Eight out of 10 people in America are 

not insured for this type of catastrophic expense, and as a result, 

Medicaid has become the primary payer for long-term care expenses. 

Medicaid now pays an amazing 60 percent of long-term care expenses for people nationwide, either for people who are poor or for 

those who have spent down their assets in order to qualify for Medicaid. 

As we all know, most States are experiencing significant budgetary problems, and Medicaid is one of their biggest expense items. 

Currently, costs for long-term care consume almost two-thirds of 

most State Medicaid budgets. It is imperative that we do something now to encourage consumers to plan for this expense, as they 

do other expenses, and that we create reasonable incentives for 

them to do so. 

Long-term care partnership programs can do just that. Under a 

partnership policy, if a policy holder exhausts the benefits provided 

by their long-term care insurance, Medicaid will pay for their longterm care expenses. But rather than being required to spend down 

all of their assets to qualify, the policy holder can keep personal assets equal to the benefits paid by the policy. 

States with partnership programs are projected to realize savings, since their treasuries will be the last payer for care and the 

not the first. The success of the existing partnership programs, as 

we have heard, are outstanding, and most of the people who purchase coverage through them find that their benefits are more than 

adequate for their needs, and these programs also offer care options that are not always available through the Medicaid program. 

Preliminary studies suggest that the asset protection provided in 

a long-term care partnership program would not result in increased 

State expenditures but would generate savings for the States, and 

59

in fact, as we have heard, of the nearly 150,000 long-term care 

partnership policies in force, only 86 nationwide have ever accessed 

the Medicaid safety net. 

Unfortunately, because of OBRA 1993, there is an impediment 

that prevents the development of additional partnership programs 

and is interfering with the fact that 16 States have passed legislation, resolutions or studies indicating their desires to enact such 

programs. OBRA 1993 was written when the partnership programs 

were new and had not had a chance to prove their effectiveness. 

The concern at that point was that asset protection would favor 

only more affluent Americans, but this could not be further from 

the truth. 

A dollar for dollar model, which is used in most of the States, 

protects assets equal only to the amount of the benefits used, and 

even in New York, where the total asset model is tilted toward 

higher-income citizens, nearly 42,000 partnership policies are in 

force, and in the 12 years since they have been enacted, only 38 

people have accessed Medicaid. 

The folks in New York have seen that there were significant 

problems with or issues with folks looking to spend down their assets, but as we have said before, that has not yet come to fruition. 

But the real benefit for partnership programs is that they allow 

persons with moderate income to buy affordable basic coverage, 

with the assurance of a Medicaid safety net if their need for care 

exceeds the benefits available through their policy. NAHU believes 

that the language in OBRA 1993 discriminates against the residents of the 46 States that cannot establish partnership programs, 

preventing individuals with moderate income from having the option to affordable private insurance for long-term care expenses. 

We applaud your actions, Senator Craig and Senator Bayh, for 

your work in sponsoring S. 2027 to move this process forward. We 

also applaud Congressman John Peterson of Pennsylvania and Earl 

Pomeroy of North Dakota for introducing H.R. 1406 in the House. 

We believe this legislation would save Medicaid millions of dollars, 

since long-term care needs would be met by the private sector rather than through public expenditure. 

Every dollar paid by a private long-term care insurance policy is 

potentially one less dollar paid by a State Medicaid program, and 

in addition, as we have heard, it would encourage greater self-reliance in people to meet their own care needs rather than relying on 

an already overburdened Government program. 

In short, now that we know that partnership programs work, it 

is time to extend them to all Americans. Consumers will have a 

choice of care options only available with private insurance coverage. Medicaid can provide an appropriate safety net as it was intended to do, and both Federal and State Government will reduce 

their Medicaid long-term care expenses. This is a win-win situation 

for both the consumer and the Government. 

I thank you for your time today, and I look forward to answering 

your questions. 

[The prepared statement of Mr. Corcoran follows:]

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The CHAIRMAN. Kevin, thank you very much. 

Now, let us turn to you, Steve. I said Cambridge. I did not say 

Cambridge, MN. 

Mr. CHIES. That is correct, Senator. 

The CHAIRMAN. Thank you. 

STATEMENT OF STEVE CHIES, CHAIR, THE AMERICAN 

HEALTH CARE ASSOCIATION, CAMBRIDGE, MN 

Mr. CHIES. I would like to thank Senator Craig and Bayh and 

every member of the Senate Aging Committee for providing us this 

opportunity to appear today. We certainly admire and respect the 

dedication and the effort that you have gone through in order to 

provide for America’s citizens to try to meet their long-term care 

needs. 

My testimony today is given on behalf of the American Health 

Care Association and the National Center for Assisted Living. We 

represent over 10,000 members across the country, and our 1.5 million caregivers are providing quality care and services to about 1.7 

million Americans who are in our care. 

As America will soon confront its greatest unfunded liability, the 

public cost of its long-term care needs, Congress certainly needs to 

investigate a variety of approaches that utilize the tax code and 

other incentives to more effectively meet the needs. In that regard, 

AHCA and NCAL strongly supports the Long-Term Care Insurance 

Partnership Program Act of 2000, legislation introduced by Senators Craig and Bayh, that expands the ability of citizens to purchase State-approved long-term care insurance policies and take 

control of how and where their long-term care needs are met. 

Should the need for care exhaust the benefit of the policy, the 

partnership program provides asset protection, thus allowing individuals to qualify for Medicaid without spending down their lifetime savings. 

Mr. Chairman, expansion of the long-term care insurance market 

is especially important. It is important for patients because it allows them to choose where and from whom their care is provided. 

It can empower them and their families to receive home or community-based care services if the extensive care needs of a nursing facility are not necessary. 

Expanding the long-term care insurance market will bring about 

funding stability for this important health care sector, which will 

result in the provision of higher quality care. For States and for 

taxpayers, the inherent benefit of expanding the long-term care insurance market is reduced financial and budgetary pressure on 

Medicaid-financed long-term care. 

The partnership is a good idea that must be pursued, but there 

are other issues as well. An expansion of long-term care insurance 

that incorporates the efficiency of the marketplace with the safety 

net guarantees associated with Government involvement has the 

potential to merit strong bipartisan support in Congress. 

Specifically, through tax incentives, tax deductions and credits, 

the nation’s health care system becomes more efficient, more responsive to patient needs and individual choices and sustainability 

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ity of future Medicaid-eligible retirees to pay privately for the care 

they receive. 

This can only be accomplished by fundamentally shifting the role 

of Government from Government simply paying for services to Government helping individuals save for their own long-term care retirement needs. Enactment of the Long-Term Care Insurance Partnership Act is a critical but important step toward achieving that 

goal. 

Another initiative now serving as a bipartisan legislative precursor to a broader effort in the above-the-line tax deduction, this 

legislation has strong support in the House and the Senate. In an 

effort to see it move forward this session, this measure was included in the Ronald Reagan Alzheimer’s Breakthrough Act of 

2004, introduced just last week. 

In order to help establish the legitimacy and necessary citizen 

awareness of public-private programs, there must be a national informational effort designed to help individuals and their families 

understand their options and the consequences of inaction. The fact 

that 85 percent of Americans believe their long-term care insurance 

needs will be met by Medicare, Medicaid or their existing health 

insurance is alarming and underscores the need for government to 

help educate and inform its citizens to understand how to prepare 

for their retirement and financing their long-term care and health 

needs. 

When individuals understand the risks they face, the costs of 

care and the options before them, we as a nation should be confident that the vast majority of Americans will choose to act responsibly and plan for their own future needs and the needs of 

their families. This fundamental premise reflects Americans’ 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. 

Through the Craig-Bayh legislation and tax incentive concepts 

we have outlined and through other vehicles, we believe that the 

capacity to fend off the inevitable collapse of Medicaid and perfect 

our nation’s ability to ensure the long-term care needs of its citizens are met in a way of their choosing, but no matter how much 

wishful thinking Medicaid supporters can muster, the demographic 

realities require a change in policy and a transformation in our 

thinking. 

We thank you for this opportunity to testify before you today, 

and we look forward with you and this Committee to try and productively develop a strategy for providing long-term care needs that 

will meet every American citizen. 

Thank you. 

[The prepared statement of Mr. Chies follows:]

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The CHAIRMAN. Steve, thank you very much for your testimony. 

Let us see if we can get—we have been reprieved a bit. The vote 

has been shoved forward on us, so maybe we can get through our 

rounds of questioning prior to that vote. 

Mark, let me turn to you. If this is such a good deal for Medicaid, 

private insurers and long-term care policy holders, and you call it 

a win-win; someone else referred to it as a win-win; who is the 

loser? Is there a loser? 

Mr. MEINERS. I do not think there is a loser. I think this is one 

of those unique strategies that sort of balances different opinions 

and different perspectives and does so in a way that people can 

win. I think that people need to adjust their thinking a little bit 

differently. For example, the insurance industry is more comfortable or most comfortable probably with lifetime protection, 

maybe a little less so today. 

Marketing products that are one to 2 years or maybe 3 years is 

less common, so there needs to be some adjustment there. Agents 

will not make quite as much money on a one, two or 3-year product 

as they would on a lifetime product, but if they sell more of them, 

they are still going to do well and also do what I said before: have 

more of a way to enter someone’s home with a full portfolio of insurance interests for them, so I do not see them losing. 

States, well, I think that States, this gives them an opportunity 

to really provide a broad spectrum of options for their consumers 

as opposed to sort of being hesitant about that. In fact, with respect 

to the carrot and the stick, there has always been this sort of stick 

we have talked about, asset recovery. But States, as somebody said 

earlier, are hesitant to do that, because it is a political hot potato. 

But when you give people good options, it is a little easier to sort 

of speak in terms of carrot and stick, and so, I think that States 

can come out well with that. So and I think the consumers, the 

ones we can really help, are people—sorry Senator Kohl had to 

leave, but people like my mother, who I now next week will be 

helping to move into assisted living, people who are middle income—teachers, which she was—who could afford insurance and 

therefore help protect some of their resources. 

I think it is a win for them, whereas, otherwise, I think they look 

at the situation where they are faced with having to end up on 

Medicaid; they will either game the system, or they will just go 

bare and take the risk. I think those things put them in much less 

of an acceptable situation. 

So after many years of looking at this and thinking about it, I 

think it has a lot of positives, and when you ask about sort of the 

array of options out there of what to do about long-term care, I 

think this one fits very much even, in my opinion, a little more 

prominently than people were talking about. It is not the silver 

bullet; it is not the only option, but I think it is something that 

goes down to the middle class, who are really at risk of becoming 

impoverished because of long-term care. Many of the options we 

talk about do not get there, and that is very important. 

The CHAIRMAN. Thank you. 

Melanie, you have been out on the front line of this laboratory 

of experimentation that Evan knows better than most of us is State 

government. If you can work it well at the State level, and we have 

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talked about now having programs out there on the market for a 

period of time and therefore clearly being able to assess it here, understanding it better, we are not very good at making intelligent 

guess estimates at what these programs will cost us when we get 

involved in them. 

But here, we may well be able to do so. Have you been able to 

estimate the cost savings to the State of Indiana since initiating 

your long-term care partnerships? 

Ms. BELLA. We are getting closer at that. It is difficult. Now that 

we have had more experience, and we have had people who are actually getting into the period where they are exhausting their benefit, it allows us to begin to quantify that. 

Prior to anyone exhausting their benefit, we would just have to 

make a set of assumptions. So we do have some pieces that we are 

putting together to help us do that. For example, as Senator Bayh 

referenced, we survey a sample size of all new policies each quarter, and one of the questions we ask is how would you have funded 

your long-term care absent having one of these policies? 

Right now, we range 15 to 20 percent who respond that they 

would have sheltered their assets in order to get on Medicaid early. 

So our first step in trying to quantify this will be looking at our 

base of policy holders, estimating how many might make a claim 

each year and assuming 15 percent of those would have sheltered 

their assets. 

Where it gets a little more difficult is knowing how long they 

would have needed care, because, as I said, the average person 

would not exhaust their benefit before they would need to turn to 

Medicaid. So the short answer is we are working on it, but we do 

know the State spends a minimum of $35,000 a year on someone 

on Medicaid in a nursing home. So at a rough guess, every year 

that we can delay or prevent each person going onto Medicaid, 

know we are saving actually the State and the Federal Government at least that amount of money. 

Senator BAYH. Can I interject, Mr. Chairman? 

The CHAIRMAN. You certainly may, and I am going to turn to 

you, because my time is up on the first round, so I will let you take 

this over. 

Senator BAYH. Melanie, is it fair to say that you are getting closer to quantifying the savings, but it is savings we are talking about 

here? 

Ms. BELLA. It is more than fair to say that. It is definitely savings we are talking about when we look at the benefit that has 

been exhausted and then look at the number of people who have 

actually gone onto Medicaid, which, as I mentioned, is only 13 people out of our pool. 

So we are working with our actuary and actually the other three 

States as well so that we can come up with a standard methodology 

to do this, but we definitely believe that the numbers show that the 

savings exceed any possible cost due to asset protection. 

Senator BAYH. So from the taxpayer’s standpoint, it is unquestionably a good thing. It is just a question of how much of a good 

thing. 

Ms. BELLA. Exactly. 

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Senator BAYH. Bob, I would like to build upon that. We focused 

here on the financial considerations. In your testimony, you spoke 

about, I think very eloquently about having run a good race and 

the emotional and psychological costs and strains that come with 

having to wonder whether that is all going to go for naught because of a health event beyond your control. 

I would like to get your reaction to the notion: even if it is a 

break even deal for the Government, that does not cost the Government; does not save the Government; does not cost the Government, is it not a real benefit to average citizens to take that worry 

off of your shoulders? So from a societal standpoint, putting the finances aside, the evidence suggests it is a good thing financially for 

the Government, but even putting that aside, from a citizen’s 

standpoint, is there not a real benefit here that, all else being 

equal, is important to society, too? 

Mr. BISHOP. I certainly think so. The emotional aspect of it is 

tremendously important. The fact you know you have taken steps 

to handle a situation that has a reasonable chance of occurring is 

in itself, comforting. If the situation does develop, it is important, 

particularly for the spouse that remains at home, to know the assets that person is relying on to provide the income that will enable 

them to continue their lives as normally as possible, remains in 

place. 

They do not have to worry about where funds will come from to 

pay the mortgage, or purchase food and other necessities. So yes, 

the emotional aspect of having long-term care insurance with the 

protection plan or the partnership plan is very important. 

Senator BAYH. It sounds like one of the lessons that we should 

take away from your testimony is that you probably would advise 

your children or your grandchildren to buy these policies a little bit 

earlier in life; is that correct? 

Mr. BISHOP. I think that is clear. I waited until I was 67 years 

old, and that was too late. That is not to say I should have not purchased it, but had I purchased it earlier, it would have been a 

much less important segment of my monthly expenditures. 

In fact, we have five children, the oldest is 50 and the youngest 

is 42. The one that is 50 and I have talked about long term care 

insurance with him. He was very pleased that I made the decision 

I did in 2001, but he is not really enthusiastic about doing so himself. 

However, to be perfectly fair with him, he is putting two children 

through college right now, so he is a little preoccupied. 

Senator BAYH. We can all relate to that. You might be interested 

to know we have another piece of legislation that would make several thousand dollars of the premiums for these policies tax deductible to incent people. That might get your son’s attention. 

The CHAIRMAN. I was going to say, Evan, he may be preoccupied, 

but his money is really preoccupied if he has got kids in college. 

Mr. BISHOP. Absolutely right. 

What you just spoke of is important. As you know, Indiana has 

that feature, and the premiums for a partnership plan are deductible from the State gross tax. That is an incentive. The partnership 

is an incentive. Then, if the Federal tax code was modified, as you 

81

suggest, that would be another push toward furthering this program. 

Senator BAYH. Thank you, Bob. By the way, you are correct. We 

did start—the 1991 figure I referred to is when the Federal Government gave us approval to go forward, 1993 is when the first 

policies were made available. So thank you for bringing that to all 

of our attention today. 

Mark and Melanie, let me ask both of you: from your testimony, 

it sounds like both of you, really, everybody we have heard from 

today, there really is no evidence that wealthy people are using 

this as a way to access Medicaid. Is that a fair statement? 

Mr. MEINERS. Yes, I think that is a fair statement. I mean, it is 

something that we were confronted with early on and thought a lot 

about it. I will give you——

Senator BAYH. It is a theoretical concern, but in fact, it does not 

sound as if it has been borne out. 

Mr. MEINERS. Right; I mean, there are several ways to look at 

it. First of all, wealthy people; this protects assets, not income, OK? 

So if someone has a lot of assets out there, it is going to be generating the kind of income that is going to have to be used to pay 

for the claim. So that is one protection. 

Another thing is, you know, none of us truthfully aspires to get 

our long-term care through Medicaid. I mean, it is just a fact. We 

want it to be as good as it can be, but it is not as good as if you 

can buy it on your own. Then, the other part of why I think the 

States have opted to, you know, not exclude high end people is because it is nice to have folks like that as part of the risk pool, 

frankly, because they are very, very unlikely to ever need Medicaid, 

and yet, their premiums are contributing to the pooling that you 

need to share the risk. 

So there are a lot of reasons to not, I think, worry about that 

particular concern and make this sort of a more or less a one size 

fits all. I personally favor the dollar for dollar approach, because 

it really gets to the middle and modest income people, but I was 

a fan of what Indiana did with the hybrid of the two models. 

Senator BAYH. Melanie, our experience has not been one where 

the more well to do are accessing Medicaid through this mechanism; is that correct? 

Ms. BELLA. That is correct. We do not have any reason to believe 

that it is not appealing to our target group, which is the middle, 

low-upper middle income group, who is really going to be caught 

with having just enough assets that they could be in a position 

where they would be spending those down to get on Medicaid yet 

not enough to never have to worry about it, which it is that group 

that they really do not need this protection as much, because they 

have the means there to pay for their nursing home care and still 

be able to preserve their assets, because they are at such a high 

level. 

But it really does appeal to that group right in the middle who 

really have a need to protect those assets. 

Senator BAYH. The final thing I would say, Mr. Chairman: I was 

asking one of my very able assistants about the 16 States that 

have applied. 

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This deals with reciprocity, Melanie. Florida has not yet applied, 

so maybe we need to get the word to the people in the great State 

of Florida. There may not be many folks retiring between Connecticut and Indiana, Melanie. I suspect if we conducted a marketing campaign in Connecticut about the lower tax rates in Indiana, maybe we could promote some of that, but it has not happened to date, but that is something that a nationwide system 

would clearly enable people to move and retire and still access this 

kind of protection, so that is a good point. 

Mr. Chairman, I thank you for your leadership, and it is a pleasure working with you, and Bob, Melanie, all of you, I want to thank 

you for your expert testimony here today. It really does help shine 

a light on this, and hopefully, we will get some momentum behind 

what I think all of you have just described as a win-win idea. 

The CHAIRMAN. Evan, thank you very much. 

Kevin, let me turn to you: what is the motivation for insurers to 

offer State-approved long-term care plans over their current longterm care plans? 

Mr. CORCORAN. Well, what we are seeing is that as Mark had 

said, long-term care is in a lot of cases still seen as a niche market. 

The opportunity to access a broader marketplace by having programs in all the States, by having a program of reciprocity that 

will allow them to aggregate their risk and aggregate the participants in the program is appealing to them. 

There is obviously a lot of interest in long-term care, and anything that can be done to expand the size of the marketplace is 

going to be appealing to them. The partnership program is something of a built-in marketing program for them, because the State 

will be explaining the benefits of it, and if they are participating 

in the program, that gives them an opportunity to address those 

consumers, to be able to get in front of them and sell their products 

that they are trying to sell now, but it gives them another step in 

the door. 

The CHAIRMAN. Well, what is the greatest reservation, then, for 

carriers to participate in long-term care partnerships? 

Mr. CORCORAN. At the outset, we had some carriers that were 

concerned about some of the issues as far as the administrative expense, making sure that there is uniformity and administrative efficiencies across all of the different lines, and they are concerned 

that they may end up with a lot of fragmented products. 

But that has pretty much evaporated. Those issues have been addressed. They have worked them out for themselves, so we are not 

seeing that as an issue anymore. I do not believe there really are 

any. 

The CHAIRMAN. We have heard talk of two models here: the total 

asset model and the dollar for dollar model. Which model is best 

for the consumer from your point of view? 

Mr. CORCORAN. I am not sure that there is a best. I think that 

the different models have different pros and cons, and for different 

individuals, they are going to serve folks in a different way. I think 

Indiana’s approach of offering both programs is an innovative way 

to be able to address all aspects of your marketplace. In fact, Governor Pataki in New York has put forward a proposal in his budget 

83

to create a dollar-for-dollar model to complement the total asset 

model that New York currently has. 

NAHU has prepared language and model language for States to 

use, and we do typically represent or present to them the dollarfor-dollar model as the model of choice, but again, it is one that 

each State and each individual will need to see what options work 

best for them. 

The CHAIRMAN. Thank you. 

Steve, what is the strongest motivation for providers to support 

State-approved long-term care plans over current long-term care 

plans? 

Mr. CHIES. Well, Senator, I think it is basically to see the expansion of the long-term care insurance market. We believe this is one 

tool, one more mechanism to educate the public in terms of the risk 

factors that they have. The partnership programs are good because 

it goes in partnership with the State and the Federal Government 

and the private sector to assure that there are not any missing elements here for an individual who may run through a policy. 

I think that is probably the key issue is that if, in fact, you have 

a truly catastrophic event, somebody is not going to run through 

a policy and then have to get into their asset base at that point. 

The CHAIRMAN. Does private pay allow facilities to provide better 

care to the people dependent on them, depending on them? 

Mr. CHIES. That is a tough question. I think that——

The CHAIRMAN. That is why I ask it. 

Mr. CHIES. I know; it is a good question, Senator. 

I think that we know in the studies we have done of the Medicaid systems across the country is that the States are under incredible fiscal pressure, and they have had to short the Medicaid 

program, and that does put pressure on facilities. 

We know that 70 percent of our costs are wage and wage-related, 

and so, as I talked with public policymakers around the country 

and in my State of Minnesota, I have said that when you have to 

cut providers’ rates, you are really balancing the budget on the 

backs of our employees, because that is where our expenses are. If 

we cannot get high quality employees because of pinches in the 

Medicaid program, it makes it more difficult to provide quality care 

and services. 

The CHAIRMAN. So it is a net benefit to all parties involved. 

Mr. CHIES. Yes, Senator. 

The CHAIRMAN. In this case, of course, the quality of care. 

Evan, do you have any further questions you would like to ask? 

Senator BAYH. I am fine, Mr. Chairman. 

The CHAIRMAN. All right; lady and gentlemen, thank you all very 

much for being with us. We appreciate your work in helping us 

move this issue. We think it is very important as one of those 

many things that we need to do, recognizing the States’ problems 

and recognizing that future large wave of people my age and a little older who are heading toward these kinds of care needs that 

America recognizes. 

So convincing a majority is going to be important here. We think 

that can be done for all the reasons you have just stated: that it 

is a relatively easy sell in what we have to do here, but your help 

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will be greatly appreciated, and we thank you for being with us 

today. 

Senator BAYH. I would only add one final thing, Mr. Chairman. 

As you can see, this is a bipartisan effort——

The CHAIRMAN. Absolutely. 

Senator BAYH [continuing]. Which is somewhat rare in this town, 

but it shows how strong the merits of this are, and I am just 

pleased to work with Senator Craig to help make this happen. So 

I think that is important to note. 

The CHAIRMAN. Evan, thank you very much, and the Committee 

will stand adjourned. 

[Whereupon, at 11:21 a.m., the Committee adjourned.]

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