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S. HRG. 107–689

LONG-TERM CARE FINANCING:

BLUEPRINTS FOR REFORM

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

WASHINGTON, DC

JUNE 20, 2002

Serial No. 107–27

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING

JOHN B. BREAUX, Louisiana, Chairman

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

JEAN CARNAHAN, Missouri

LARRY CRAIG, Idaho, Ranking Member

CONRAD BURNS, Montana

RICHARD SHELBY, Alabama

RICK SANTORUM, Pennsylvania

SUSAN COLLINS, Maine

MIKE ENZI, Wyoming

TIM HUTCHINSON, Arkansas

JOHN ENSIGN, Nevada

CHUCK HAGEL, Nebraska

GORDON SMITH, Oregon

MICHELLE EASTON, Staff Director

LUPE WISSEL, Ranking Member Staff Director

(II)

C O N T E N T S

Page

Opening Statement of Senator John Breaux ......................................................... 1

Statement of Senator Ron Wyden .......................................................................... 30

Statement of Senator John Ensign ........................................................................ 31

PANEL I

Hon. John Rockefeller IV, a U.S. Senator from the State of West Virginia ....... 33

Hon. Howard Dean, Governor, State of Vermont ................................................. 45

Hon. David Durenberger, Chairman, Citizens for Long-Term Care Coalition,

Washington, DC ................................................................................................... 52

Carol O’Shaughnessy, Specialist in Social Legislation, Congressional Research

Service, Washington, DC ..................................................................................... 91

Steven Chies, Vice Chair, American Health Care Association, Washington,

DC .......................................................................................................................... 113

APPENDIX

Statement for the Record submitted by the American Association for Geriatric

Psychiatry ............................................................................................................. 129

(III)

(1)

LONG-TERM CARE FINANCING: BLUEPRINTS

FOR REFORM

THURSDAY, JUNE 20, 2002

U.S. SENATE,

SPECIAL COMMITTEE ON AGING,

Washington, DC.

The committee convened, pursuant to notice, at 9:32 a.m., in

room SD–192, Dirksen Senate Office Building, Hon. John Breaux

(chairman of the committee) presiding.

Present: Senators Breaux, Wyden, and Ensign.

OPENING STATEMENT OF SENATOR JOHN BREAUX

The CHAIRMAN. The Select Committee on Aging will please come

to order. This morning, we have a very distinguished panel of witnesses who we are very anxious to hear. I am joined by our colleague, Senator Wyden, and other Members of the Special Committee on Aging will be with us in just a moment.

I would just point out in opening remarks that our committee

has the responsibility to look ahead and see that, as a nation, we

are prepared to handle the long-term care needs of the pending age

wave of the 77 million baby boomers. Unfortunately, our country,

arguably the strongest nation in the history of the world, still lacks

a comprehensive long-term care system, and that is why this Committee on Aging has devoted 13 separate hearings in the 107th

Congress to the issue of long-term care, examining what is currently available in our country, how we finance long-term care, and

what we still need to do to guarantee a wide range of quality, affordable services to all disabled and elderly persons.

To capture the highlights of all the expert witnesses who have

testified before our Aging Committee, we have produced a Findings

Report, which I have in my hand, which members have seen and

I think is available outside. This Findings Report is kind of a road

map. It is a road map on how we can hopefully get from here to

where we as a nation would like to be as far as providing services

to our nation’s seniors.

[The Findings Report follows:]

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The CHAIRMAN. Today, we will be hearing from another group of

expert witnesses who will talk about reform options to pay for a

comprehensive long-term care system. Much good work has already

been done and we want to take advantage of that wisdom. Other

witnesses have come up with new approaches that are worthy of

our time and attention, and equally important is the chance to

learn what other developed countries around the world are doing

to finance their long-term care service, as well.

While we have talked about this issue in terms of billions of dollars that are spent each year on services and the institutional bias

that exists and the unmet need for the services that exist, what we

really need to remember is that the issue of long-term care is very

personal for individuals and their families and their relatives and

their friends. It affects each and every one of us and our families

at some point in time. It will affect all of us, if it already has not

done so.

I would just like to read a short copy of a letter that I received

which is really typical, unfortunately, of many of the hundreds and

hundreds of letters that this committee has received from families

around the country expressing their concern. This one is from a

constituent of mine from Louisiana, and she says, ‘‘My name is

Frances Stevenson. I am 73 years old and I live in Napoleonville,

LA, with my husband, Dave. Dave is 76 years of age, is insulindependent diabetic who has had several mini-strokes, high blood

pressure, dementia, and has had a feeding tube since May 1999

when his blood sugar elevated above 400. He wears diapers and

must be bathed and changed at least twice a day. I must monitor

his blood sugar at least three times a day, must bathe him in the

evening, change his feeding bag daily, give medicine, insulin, and

tend to his oxygen tank.’’ ‘‘Last May, Dave had surgery to remove his gallbladder, and at

that time, he spent several days in an intensive care unit and a

few more days in step-down. Home health care is allowed to come

in for a few weeks at a time after each stay in the hospital and

then I am on my own. My family helps me as often as they can,

but each of them have jobs. My son is an Army officer stationed

in Washington, DC. He gets to come home only about once a year.

I have tried to get the VA to give us some aid since Dave is a

World War II veteran. He served in the Marines for 5 years.’’

‘‘I have been paying for an aide to come in and bathe him every

morning for the last 4 years. Dave and I worked very hard

throughout our whole lives and we felt that we would be all right

in our later years. I can barely make ends meet with the costs of

medicine, insurance, diapers, pads, bandages, a nursing aide, et

cetera. The Council on Aging put Dave on a program in February,

but that will end in a few weeks. He had 24-hour sessions of respite care, 34 hours of personal care, and 18 hours of sitter care.’’

‘‘I want him to be cared for at home because I know that is

where the best tender loving care will be given. I need home health

care and someone to help with home living. Please give us some

help.’’

I think you would agree with me that this story of one person

from Louisiana is far too typical of literally hundreds, and indeed

thousands of Americans throughout this country as we struggle

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with the process of aging. If it is bad today, I would only point out

that by the year 2040, we are projected to be spending some 75

percent of our nation’s entire financial budget on Medicare, Medicaid, and Social Security. If we have problems today with about 40

million Americans over the age of 65, we can only wonder what it

will be like when 77 million additional baby boomers become seniors who are going to be living a lot longer than their children

would have expected.

So we have a challenge that I think is not insurmountable, but

it indeed is one of the biggest issues facing us as a nation. Hopefully, this report will move us toward the process of looking at

what we have done in 13 hearings and hopefully be able to come

together in a bipartisan fashion to determine what some of the answers are.

I am delighted that I am joined by my two colleagues, who I will

introduce in just a minute. I want to recognize a group of intern

teachers that we have from Louisiana who work in our office for

a short period of time to try and learn a little bit about how Congress works. Hopefully, being at our hearing today will give them

a little sense of how hearings work in the U.S. Senate.

I would recognize Senator Wyden for any comments that he

might have.

STATEMENT OF SENATOR RON WYDEN

Senator WYDEN. Thank you, Mr. Chairman.

The first question, of course, that comes up when somebody talks

about long-term care is can America afford such a program, particularly now with the war on terrorism, the claim on funds in a

variety of areas. I think that is going to be the key question.

To me the question is not can America afford it, the question is

can America afford not to do it, given this demographic tsunami

that is coming. I think the answer is clearly yes. People can go

through $40,000 a year easily on long-term care now. Given the

population trends that you have outlined, it is obvious that the

costs are just going to get worse.

So I would like to just touch very quickly on a couple of areas

that I think are particularly important as we explore by way of trying to lay out a structure for new public and private partnership.

The first area that I feel very strongly about is making much

more aggressive use of waivers so that programs at the State and

local level can stretch the public dollars that are available for longterm care. One of the things that I am proudest of, when I came

to the House after 7 years as Director of the Gray Panthers—I had

a full head of hair and rugged good looks—Senator Rockefeller,

who my guess is did not even know who I was, helped me with a

program that really helped to start the assisted living field. It was

a waiver program so that you could use Medicaid dollars that were

then earmarked for nursing home care for home health care, and

a number of States around the country have used it. Governor

Dean is going to talk today about more aggressive use of waivers

with home health and I support what the Governor is talking

about, as well.

However, I think we should also look in a multi-disciplinary way

at waivers. For example, I do not see any reason why we do not

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allow waivers so that the VA, HUD, and Medicaid, could not team

up on some innovative approaches in terms of long-term care.

Those would be using existing dollars. They could come out of the

State and local level. This is an area I will want to explore with

our witnesses. So more aggressive use of waivers would be a top

priority for public funds.

Then on the private side, where I know a number of Senators

had an interest, I would like to see us allow penalty-free withdrawals from private retirement accounts for long-term care. We allow

those penalty-free withdrawals for a whole lot of other stuff that

America feels strongly about, like college and saving for a home

and that sort of thing. I would like to see us take a look at penaltyfree withdrawals from retirement plans for long-term care so that

we could shore up a little bit of what is going on the private side

in terms of saving for retirement.

Finally, a third area that I know Senator Rockefeller has a lot

of history on, I would like to see us go back to explore the idea of

a voluntary Part C of Medicare. As all you know, we have got Part

A, the hospital portion, Part B, the outpatient portion. We have

talked over the years sort of sporadically about a voluntary Part C

of Medicare that could be designated for long-term care, where perhaps government contributions could be matched by private contributions, as well.

Your report in my view, Mr. Chairman, gives us a very good outline. I am looking forward to having a lot of people at that witness

table who I have worked with over the years give their views and

working with you, and Senator Ensign has had a long-term interest

in this, as well, so I think we have got some bipartisan opportunities here.

The CHAIRMAN. Thank you, Senator Wyden.

Senator Ensign of Nevada?

STATEMENT OF SENATOR JOHN ENSIGN

Senator ENSIGN. Thank you, Mr. Chairman. I will keep my remarks brief. I am looking forward to hearing from the panel.

Anybody who has gone around their States—who has spent any

time at all looking into this issue-realizes that there are some serious concerns not only today, but even more so into the future. I

think the demographics show as the Chairman mentioned this

morning, as we go into the future, that if we do not start addressing this problem now, we are going to be behind the biggest eightball that we could possibly imagine.

The continuum of care that is out there, and there are a lot of

innovative things being done in the continuum of care, is such a

big issue. This is because almost everybody is thinking about their

continuum of care as they are getting older. Obviously, the closer

you get and the more gray hair that you get, or the less hair,

whichever the case may be—— [Laughter.]

The more that we have the fear that we may be in a situation

where the care is not good. The care is something that is not only

inadequate, but sometimes neglectful. There are a lot of people

doing a lot of good stuff out there, but I think a lot of people, as

they get older, have a big fear of the type of care that is going to

be available.

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So I think that this is an incredibly important issue for us. Unfortunately, we are not getting enough younger people thinking

about the issue yet and I think that that is going to be one of the

keys. Government has an important role in this, but the more that

we can get the private sector involved and get individuals when

they are younger to start saving and buying long-term care insurance—I think that that has got to be a big part of the answer.

Then as innovative ideas come forward and we figure out the

best ways that we can use preventative medicine to keep people out

of assisted care, the better off that we are going to be. This is because more people will be able to take care of themselves. A great

example of this is the physical therapy cap. Now, there is a budgetary reason. If we do not get people back to being more on their

own or maybe in a less-intensive health care situation, the more

expensive it is for us and the worse their quality of life is.

So preventative medicine, to me, as part of this whole thing, has

to be stressed, where we have dietitians teaching diabetics and

cancer patients and heart patients how to eat better, not only how

to shop for the food, how to buy the food, how to prepare the food.

We have got to have physical therapists and speech therapists and

occupational therapists involved in these things and then communities and non-profits involved. I think that if we look at this from

a holistic approach, I think that we are all going to be better off

and that is all going to be part of the solution for the future.

I appreciate the Chairman’s interest in this issue. I think you

need to be applauded for this because this is such an important

issue.

The CHAIRMAN. Thank you, Senator Ensign.

You mentioned long-term care insurance. I would note for the

first time that the Federal Employees Health Benefit Plan will be

offering long-term health care insurance for the nine million Federal employees, not only Members of Congress, but also nine million others. As well, and I think that will be a very important test

to see how it works. It is already available in the private sector and

I think people are just becoming aware of the need for it.

We have a very distinguished panel of witnesses, as I mentioned.

I will introduce them all collectively. It starts with a very distinguished colleague who has a long history of service in the health

care areas. He chaired the Pepper Commission a few years back

which dealt with the question of providing health insurance for the

millions of Americans who are uninsured, outlining a blueprint for

the future. Unfortunately, Congress has not really acted on those

recommendations. We still have about 44 million Americans who

have no insurance at all. We talk about Medicare not being enough.

There are 44 million Americans who have nothing and that is still

a problem and Senator Rockefeller was one of the leaders on that

Pepper Commission.

Howard Dean will be our next witness. He is back to the Aging

Committee. He has been before us on a number of occasions with

his ideas and suggestions. He is testifying on behalf, really, of his

own views, but also representing the National Governors Association, which has really gotten involved in this issue, and is incredibly important. We are looking forward to his testimony.

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Our former colleague of this committee, as well as, and the Senate Finance Committee, David Durenberger, is back as Chairman

of the Citizens for Long-Term Care Coalition, which has done outstanding work in trying to put together all of the health care

groups to address this problem collectively because, really, we all

have the same goal in mind. So your work in that coalition is outstanding.

Carol O’Shaughnessy will be testifying. She has been around on

the Hill a number of times before this committee, and has a real

expertise in health care and aging issues in particular. The work

that they have done over at CRS, the Congressional Research Service, which provides us with information, has been most helpful.

Steve Chies is Vice Chairman of the American Health Care Association, which is a federation of all of the nonprofit as well as the

for-profit assisted living facilities, nursing homes, residential services, et cetera, who have a major role in this area of helping us

with long-term care. He also will be testifying.

I know Senator Rockefeller has a busy schedule, so Jay, if you

would like to give your testimony, maybe we can ask you a few

questions and you can leave. Welcome to the committee.

STATEMENT OF HON. JOHN ROCKEFELLER IV, A U.S. SENATOR

FROM THE STATE OF WEST VIRGINIA

Senator ROCKEFELLER. Actually, I do not have a busy schedule,

Mr. Chairman, but I am delighted that——

The CHAIRMAN. But you want to get out of here anyway? [Laughter.]

We are glad to have you.

Senator ROCKEFELLER. Thank you, Mr. Chairman, and both of

your colleagues here. I am very happy to be here.

We did, in fact, and Senator Durenberger was a member of the

Pepper Commission, which passed out a long-term care policy 11-

to-4, and this was a very, very split commission ideologically, but

not split on the concept of doing long-term care and doing it in a

real and workable way.

We are delivering what I would say would be fiscally irresponsible tax cuts for the next decades. Americans throughout this

country are dealing with other kinds of problems, and that is when

are they going to sell their homes? When are they going to raid

their savings, get rid of their retirement benefits because of longterm care problems? Families come in to take care of them, and

then their assets get depleted, exhausting personal resources, having to get rid of properties in order to get people qualified for Medicaid.

So government coverage for nursing home care operates primarily and substantially through the Medicaid program, which is

fraught with problems, as Governor Dean knows better than anybody, and it is the safety net for the poor, always has been, and

is now grossly underfunded and States are suffering because of unwise actions on our part here in Congress.

Medicare, and everybody knows this, is not designed to do longterm care. It does lots of things, but it does not do prescription

drugs and it does not do long-term care and those are probably two

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of the biggest needs in the country, along with mental health coverage.

So accessing the Medicaid program, by definition, getting into it

requires impoverishing yourself. We know that, but it needs to be

said and said and said again. It has not changed since the late

1980’s when we were dealing with this. It is still the problem of

demeaning yourself and giving up what you have.

We have serious issues of quality. We are faced with a system

which encourages care in institutions rather than homes. People

want to stay at home. I had a mother who died from Alzheimer’s

and she wanted to die at home, or we wanted her to die at home.

She was not sure at that point where she wanted to die, but we

wanted her to die at home. That becomes an enormously emotional

things within families.

It was more than 10 years ago that this bipartisan commission

called the Pepper Commission issued its ‘‘Call to Action’’ and nothing has really changed. We had three basic concepts which we put

forward. Home and community-based care should be available and

they should be affordable, that is No. 1. No. 2, those who need

nursing home care for short periods should have enough resources,

$30,000 for a single person, $60,000 for a couple, preserved intact

in order to return home, so they are not depleted entirely. That

was true then, is still needed now. No one should fear impoverishment if they must end their lives in a nursing home. Now, woven

throughout the recommendation is the requirement that people

would have to pay some, according to their ability to do so. That

seemed fair then, the same now. So I want to talk just briefly

about each of those ideas.

First, a strong home care benefit was included in the Pepper

Commission recommendations because people who need long-term

care want to stay at home. They do not want to be in an institution. They want to stay at home. Individuals with three or more

impairments—and we used to call those, and still do, measures by

acts of daily living, ADL, it is a way of measuring how impaired

people are—should be eligible for home care services. Our expansion did not cap the hours of service, but we did include individual

budgeting caps set for each beneficiary. The trick is to encourage

informal caregiving rather than to displace it, and researchers believe that a strong home health care benefit would help on this.

Today, the home health care benefit offers skilled care and possibly home health aides on a part-time or intermittent basis. Under

current requirements, beneficiaries also must be confined to the

home, despite the fact that many could leave home with assistance.

So you get this question, if they are home, they cannot leave. So

24-hour care is not covered, nor is personal care covered, and if

that is the only care a person needs, we can do a whole lot better.

Today, in fact, I am going to be introducing legislation which is

the first step to improve home care, the modernization of the benefit, which allows for increased mobility out of the home. Let us not

forget that the next step must be to change the home care benefit

fundamentally to allow those in need to remain in the home and

then to fix this bias that we have, which we are, incidentally, curing in the Veterans Administration where we have taken this on.

We have made the first change in long-term care in the VA system

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since the 1960’s without a whole lot of fuss, not that they have implemented it, but we have changed the law and they are in the

process of rules and regulations, getting people out of institutions.

Second, the Commission members recommended coverage of

short stays in nursing homes regardless of income and we allowed

at that time, I think, David, it was about 3 months and you did

not have to pay. Income was not a factor. Most people who enter

nursing homes can return home and public insurance for a 3-month

stay provides the protection to do that.

At present, nursing home residents with any savings simply do

not qualify for Medicaid-financed nursing home care, and under

certain limited conditions, Medicare will pay some nursing home

costs for Medicare beneficiaries—this is Medicare—but that is sort

of the skilled nursing and rehabilitation services caveat which does

not get at the basic problem.

So again, in this legislation, we are going to provide options to

nursing home care under the Medicare benefit that would be payment for adult day health care. Paying for adult day care will provide a measure of respite, will reduce the bias toward institutionalization, and encourage people to stay at home. The next step, obviously, will be full coverage of a short stay in a nursing home without the condition of poverty.

Third, the Pepper Commission recommended a measure of asset

protection, and I discussed that. That is the idea that one in four

Americans who have to stay 3 months or longer, that you do not

deplete them. They can go to the nursing home, but you allow them

to keep $30,000 if they are single, $60,000 if they are a couple,

keep their assets. It is so horrible, what we do to people.

In this legislation, we are going to give States the option of

whether or not to pursue and sell off the homes of Medicaid recipients, and Governor Dean will probably have something to say

about this. It is something that can be done in the short term. In

the future, we will have to address the larger problem, as I say,

of spending down to poverty.

I was going to talk about the Pepper Commission is relevant

today, and you did. You basically said, Mr. Chairman, yes, they

are. It is just that everything is worse. The cost of nursing homes

has doubled, all the rest of it.

So I will close with a final thought. A long-term fix cannot be

done without the government. That, we have to understand. We

cannot ignore the government. The government is already involved.

We need the Federal dollar and we need Federal leadership. The

Pepper Commission concluded that Federal action is, ‘‘essential to

change the nation’s fundamentally flawed approach to long-term

care financing.’’ End of testimony.

The CHAIRMAN. Thank you very much, Senator Rockefeller.

[The prepared statement of Senator Rockefeller follows:]

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The CHAIRMAN. I think if we have a question or two for Jay, we

can go ahead and do it now, if the other panel members do not

mind.

One of the things you put in your testimony that I find very interesting and I think a lot of Americans do not really understand

is the chart that you put on the last page about how things have

changed just since the Pepper Commission, in terms of the demographics of how this nation looks in the year 2000 as opposed to

what it looked like in 1990. We have a 12 percent increase in the

number of people 65 years of age and older over 1990. We have a

38 percent increase in the number of people 85 years of age and

older, which is the fastest-growing segment of our population and

therein lies part of the problem. There is a 17 percent increase,

Senator Rockefeller points out, in people living alone and a 70 percent increase in the total U.S. expenditures on nursing home care

just in that 10-year period. I mean, those are astronomical numbers that are only going to continue to get worse.

Jay, let me just ask one question, and that is you mentioned the

question of providing in the home health care areas. You also recommend, I think, as the Pepper Commission did, apparently, the

coverage of short stays in nursing homes by Medicare, and you

point out, regardless of income. It seems to me that we have to face

a problem that we are looking at prescription drugs for seniors

which I support, but it is going to come out of Social Security surplus. If we increase other Medicare benefits like covering nursing

home stays, it is going to come out of Social Security surplus. We

are rapidly spending the surplus for retirement on these programs

that are very, very worthwhile.

It seems to me at some point we have to consider, with the limited amount of money we have, are we, in fact, going to use tax

dollars to take care of the nursing home for Warren Buffett? I am

just using him as an example. I could probably use the Senator.

Senator ROCKEFELLER. Somebody else. [Laughter.]

The CHAIRMAN. I could probably use someone else as an example,

but it seems to me that as a nation, when we have limited resources, we have to say, all right, we are going to take care of those

who need the help, but we are not going to use tax dollars to subsidize someone who is financially well off. Can you comment on

that? I’m talking about means testing.

Senator ROCKEFELLER. Yes, I would be happy to. I think your

point is well taken and adjustments like that could be made. I remember I started something called the Golden Mountaineer Discount Card program when I could not think of anything else to sort

of help West Virginia during the depths of the recent recession and

the legislature was all over my case because they said, what do you

mean? We have got all these rich people who are going to be taken

care of. So we did a little survey of that and discovered about 2 percent of West Virginians qualified as being wealthy and everybody

else did not.

But that still does not answer your point, and your point has

merit and I can live with that. I think the important part, however,

is that when people need to go for a short period of time, we talk

about 3 months to a nursing home, that they should not have to

go through all of what you would otherwise have to go through if

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you were going to qualify under Medicaid for long-term care and

have to strip down everything, you know, get rid of your car, get

rid of your house, all the rest of it. So you sort of create this window for people who are short-termers wherein you say, OK, you

have got your 3 months based upon your acts of daily living analysis and for that we are going to go ahead and pick up the cost, not

6 months, not 5 months, not 10 months, but for 3 months.

Yes, that is social cost, and yes, we have budget problems, and

yes, we have terrorism, homeland security, and I cannot help you

in that, Mr. Chairman, except to say that if we are talking about

long-term care, these are the kinds of things you have to do.

The CHAIRMAN. Thank you.

Are there any questions of Senator Rockefeller?

Senator WYDEN. Just one. I think Senator Rockefeller has done

an excellent job in terms of outlining the history and I think particularly your last point was important. This is an area that absolutely must have a useful government role. There are steps that

can be taken in the private sector. I mentioned one I am interested

in, and that is the idea that you could have penalty-free withdrawals from private retirement accounts in order to pay for long-term

care, so it moves toward what Senator Ensign was talking about,

which is trying to use the private sector to the greatest extent possible. But there must be a role for government here and the question is really whether government is going to be smarter or whether the government is going to continue to just sort of dawdle along.

My question for you, Senator, is given the history here, why do

you think that there has been commission after commission and

yet nothing seems to happen after the latest report——

Senator ROCKEFELLER. I think the answer to that, Senator

Wyden, is that Americans have a virtually unlimited capacity for

denial on certain very tough issues that have to do with health

care. We are also risk averse when it comes to health care. We

were made risk averse by two events. One was catastrophic health

care, which was a fantastic program which the House shot down

after all those people chased Danny Rostenkowski down the street.

We denied that from happening in the Senate three times and finally had to give up, so that was one. Then along comes the Clinton plan. Everybody goes ballistic, and now we have become totally

incrementalist.

In the process of that, we do CHIPs, but we cannot take it on

to the parents, so that we are sort of frozen, one, by risk aversion,

second, by always the excuse that this is going to cost money, it

is going to come out of Social Security, going to come out of Medicare, et cetera. We have all these other new things going on postSeptember 11.

But I think the most important thing that needs to be said is I

do not think there is a bigger health care problem in this country

that we have absolutely failed to deal with, face up to, even discuss, because it does not make for a particularly interesting discussion. You know, prescription drugs, you can get into some really

good battles. The verbal part is colorful and all the rest of it.

Long-term care affects everybody at some point. It is the most

overwhelming health care problem, in my judgment, in the country

and is entirely unaddressed because it is considered too expensive,

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it is considered too oriented toward the government for whatever

number of reasons, and so we choose simply to deal with lesser

problems, a little bit like mental health, except mental health is

now changing. People are getting more friendly toward mental

health. Nothing has happened in long-term care except, as I say,

what we have done in the Veterans Administration, nothing.

Senator WYDEN. I think your answer is a thoughtful one. There

is no question that part of this has just been being risk averse and

being unwilling to take on tough issues. I think the one thing that

I hope will be different now is that the country does have a history

of moving when there is a crisis on the porch. In other words, you

put it off if it looks like the crisis is even three doors down the

block. I think you and others have laid out that the crisis is on the

porch and I commend you for all of your good work and look forward to working with you.

Senator ROCKEFELLER. Thank you, Senator.

The CHAIRMAN. The system is hanging on a string. I just hope

we do not have to wait for the string to break before we do something.

Senator Ensign, do you have a question for Jay?

Senator ENSIGN. Yes. I actually want to explore with you maybe

just a little different angle because I think it is something that we

need to think about. The cases are so individualized, and we have

talked about the continuum of care, as well, some type of shortterm solution, and in my opening remarks, I talked about the need

for physical therapy and the need for preventative medicine.

But what I want to explore with you is the family responsibility.

My grandmother, just turned 82 years of age. My parents are in

their mid–60’s, and between myself and my brothers and sisters,

We are looking at the potentials for her care. She is still living on

her own and she still wants to live on her own. However, if she did

not want to live on her own, we are in a position to be able to afford to do those things. I agree with Senator Breaux as far as my

grandmother goes she should not be one of these people that are

helped by a government program. It should be some type of a

means testing for this. But I still want to use her as the example.

Let us just say we could not afford what we can afford. Maybe we

are questionable.

We know that older people, and you mentioned this, want to stay

in their own homes. My grandmother does not want to move even

into some of the wonderful private assisted living facilities. She

does not even want to go to that first step. I have been to many

of those places and they are absolutely wonderful and I think she

would actually like it there, but she does not want to, so we are

working with that right now.

But there is this mentality with younger people, in how they are

looking at this type of situation. It is a long way to say this, but

it is easy to just kind of ship grandma off, and that is what I want

to kind of explore. If we get more and more into, ‘‘Well, the government can take care of them, that relieves me of my responsibility,’’

that will we, in fact, be setting up a situation where families will

be taking less and less responsibility for grandma or grandpa just

because it is easier.

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It is hard work to take care of our elderly relatives. At a certain

point, you cannot do it with Alzheimer’s patients. I mean, you

know that the family cannot do it. But there are a lot of times

where it is hard work, but that is what part of life is. When you

are a parent, you have children. Then when you are a parent and

you get older, you have got your parents or your grandparents, and

part of that is just the responsibility as a human being to help in

those situations. But if there is a government program, you know

what? We are such a selfish society that we will just let the government do it.

Senator ROCKEFELLER. I am anxious to reply to that. I do not

think we are. I think we can be a society which ignores problems

and which denies problems, but I do not think we are a selfish society. In fact, I think the families that you referred to have, in fact,

been the government because it is—and I do not think that West

Virginia is particularly unique, but those who know Appalachia

know that it is extremely family oriented, but everybody can say

that.

Kids come back. First of all, kids are dispersed all over. I have

three sisters. When my mother had Alzheimer’s, they were in four

different States, all of them long ways away from where she was.

So they are dispersed. They did not used to be.

Families come back. I mean, the history of long-term care, say

where I live, is families coming back from Oregon, from Ohio, from

Kentucky, and they bring their kids for whom they have been saving for college tuition money desperately, they move into the house,

they take the responsibility. They become the government. They relieve the government. They do this almost without exception, and

then they get destroyed psychologically, financially, emotionally by

this process of caregiving, which they cannot measure up to because of the lack of respite care, because of the lack of experience,

because of the lack of people, because they are meant to be working, and they get caught up in it.

My response would be somewhat the opposite, that the American

people have been bailing out the government through their

caregiving for all of these years. I am not saying that the government has to do all of this. That is why we put in that the people

should pay something. Everybody should pay something.

But, no, I do not buy that at all, Senator, that the American people would choose the easy way out. I think people do try. It is not

Ozzie and Harriet anymore, and I recognize that, but people are

pretty serious about their parents when they get in trouble and

they are pretty willing to come back and do everything that is required. As long as that happens, there is less pressure on the government, and the explanation of that is who talks about long-term

care? You have got a group of people here who are going to talk

about long-term care, but how often do you hear it discussed at

your town meetings and other things? People are talking about prescription drugs, they are talking about other things, but they are

not talking about long-term care.

Senator ENSIGN. Just to conclude, I guess we will have to agree

to disagree. I think that there is some potential for that, for what

I laid out to happen. I agree with you, though, it is very difficult

on a lot of families depending on the level of need. That is why I

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believe that there is a need out there—a severe need—for more

long-term care assistance.

I guess all I am trying to raise is cautionary flags that we do not

make it so easy, to not take responsibility. My grandmother was

incredible when my parents were divorced when I was very young,

letting us live with her for summer after summer after summer

while my mom was trying to save a little money as a single mom,

carrying change at Harrah’s in Reno. I will never forget what my

grandparents did for us, and so because of that, I feel a very, very

strong commitment to her to making sure that she is taken care

of.

But in a situation where if the help can be like respite care,

when you see people with disabled kids or with parents or grandparents or whatever it is, I think that is the way to go. All I am

saying is that when we are going forward, I think that we need to

be very careful that we do not just say, OK, here is the benefit, you

are relieved of all of your responsibility at this time, instead of trying to set it up to where we can give the help that is needed, but

still the family has the responsibility. That is all I am trying to

raise as a point.

Senator ROCKEFELLER. All I would say back, and I do not want

to abuse my time, is that that is, Senator, with all due respect,

kind of the classic way that legislation thereby never takes place,

because it is the cautionary flag. If we do this, is there a chance

that the government becomes a substitute for the family? If people

are disposed to worry about that sufficiently, I guarantee you there

will not be anything happening in terms of a long-term care policy

that works.

So that is what I would fire back at you. I mean, it is the same

thing, and the Chairman can remember this on Medicare reform.

I remember we had a vote in the Finance Committee and I was one

of two who voted against means testing. Now, should my mother—

obviously, she should have been means tested. But what I did not

want—the reason I voted against it, Senator, was because I did not

want Medicare reform, and the means testing back at the time of

this vote would have saved $3 or $4 billion, but it became sort of

the way you defined, were you serious about doing something about

Medicare. Were you a serious player in this intellectual and cerebral and emotional argument. So if you were for means testing,

that meant you were, and it was $3 or $4 billion.

So it became an excuse, and what I do not want is the so-called

cautionary red flag that you raise, I do not deny that possibility

episodically, but I do not want it to become something which then

prevents us from dealing with what I consider to be the largest

most intractable health care problem in this country.

Senator ENSIGN. Thank you.

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

and for responding to a very interesting series of questions and dialog. We thank you very much, and if you have to go back to work,

we will be happy to excuse you.

We will next hear from Governor Howard Dean. Howard, thank

you and all the witnesses for being patient.

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STATEMENT OF HON. HOWARD DEAN, GOVERNOR, STATE OF

VERMONT

Governor DEAN. Thank you, Mr. Chairman. I want to thank the

Senator from West Virginia, who is very good on these issues and

has been for a long time.

I have written testimony which I will submit and I am just going

to go through some of the talking points.

In our State, we have 120,000 people on Medicaid out of a population of 600,000. I did that on purpose. We insured 96 percent of

all our children under 18, and of the 4 percent that are not insured, 3 percent are eligible for the program. So we essentially

have universal health insurance in our State for those under 18.

More than 50 percent of all Medicaid recipients, because we have

universal health insurance, are under 18. They use 14 percent of

all the money. Out of the 120,000 people we have on Medicaid, we

have 2,500 receiving long-term care assistance. They use nearly 50

percent of the money. This is an enormous financial problem for

the States, and since you match our money in every State—different rates, obviously, for different States—it is an enormous problem for the Federal Government.

We have actually done some of the things that you are talking

about doing. Let me make some suggestions. First of all, I think

the notion that you have to be very careful that was raised by Senator Ensign is a very good notion. I agree with Senator Rockefeller

that we ought not to let cautionary red flags prevent us from doing

anything about this, but I think if you create the wrong program,

you are going to create a need that is going to eclipse any ability

to finance any of this, so we have to do this right.

I am going to recommend two things, one of which we have done.

Institutions use up a huge amount of money. We do not think we

need any more nursing home beds in this country for the foreseeable future, because if you do what we did, you will not need it.

We passed a bill about 5 or 6 years ago that reduces the number

of nursing home beds by 10 percent and we think we can take another 10 percent of our nursing home beds out. How can we do this

with an aging population? Because of a waiver.

Now, we do not want more waivers. What we want is a law that

allows us to do what we are doing without any waivers and allows

every State to do it. We have basically said, we will take the Medicaid money that is going to skilled nursing facilities and we will use

it in assisted living facilities. I think we are the only State in the

country that uses Medicaid in assisted living facilities, and more

importantly, in home health care. I think we have now 1,000 slots

where we can take care of people in their own homes and they can

get Medicaid assistance. The qualification is that you have to be eligible for nursing home entry.

The CHAIRMAN. Do you have a waiver for both of those?

Governor DEAN. Yes.

The CHAIRMAN. For home health care and for assisted living?

Governor DEAN. Yes. So we are basically able now to use the financing that we have to take care of more people. For every Medicaid dollar that we get, we can take care of twice as many people

as we can if we did not have this waiver. So with the money that

we get, we can simply take care of a whole lot more people.

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Now, something like 30 percent of all the people in nursing

home-type care are, in fact, taken care of in their own homes by

using Medicaid dollars for skilled nursing care that needs to come

into the house, respite care, which I think everybody agrees is necessary because families really do struggle when they are taking

care of their folks, and it really is not easy on these people.

I think we all have our stories. I certainly have seen people, particularly with Alzheimer’s, who are otherwise healthy but who are

very difficult to take care of. If you try to do that on your own without any kind of support, you are basically asking for a situation

where you and your family and your kids get burned out as you

are trying to take care of your elderly parent whose Alzheimer’s is

deteriorating.

So these services are necessary, but even if you have respite

services and even if you have long-term care in the home and

skilled nursing care in the home and all these things, you can still

take care of twice as many patients as you can inside a skilled

nursing facility because the money is reallocated.

Now, this is not to say we do not need skilled nursing facilities.

Of course, we do. This is a gradual aging process. People who have

serious conditions like Alzheimer’s or many conditions when you

get to be in your 70’s, 80’s, and 90’s, these conditions are not usually reversible. So as folks continue to transition, they do need

more care and they do need to go from home into assisted living

or oftentimes into a skilled nursing facility.

But right now, we put folks in this country into skilled nursing

facilities who do not need to be there and we do it because everybody lives in Ohio and the mom is in Nevada and they cannot come

back and they cannot leave their lives and they cannot, for most

people, cannot decide they are going to move to Nevada or move

her to Ohio or whatever, and so they end up in the nursing home.

The most common way people get in the nursing home is they

go into the hospital. They get sick. They do not need to be in the

hospital anymore, and then everybody wants to get them out of the

hospital. They cannot go home because we do not have the backup, so they end up in a nursing home. Once you are in a nursing

home, it is almost impossible to get out, because basically what

happens is that the level of care that a patient needs will rise to

the level of the institution that they are in.

This is why I started off by saying, be careful what you create,

because if you simply create a long-term program that stresses

nursing homes, guess what? You are going to have a whole lot

more nursing home beds and you are going to be able to take care

of half the number of patients.

So the first thing I would ask for, Mr. Chairman, is a program

which actually eliminates the necessity for us to get waivers and

allow people and encourage States to put people in their own

homes with the kind of back-up care that is necessary, augmenting

the kind of family care that Senator Rockefeller and Senator Ensign were talking about, because if you augment the family care,

most families do want to do the right thing, but they cannot because it is just an overwhelming task in many cases. You can eliminate the need for a skilled nursing facility in many, many cases by

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simply supporting the desire of families and the patients themselves to stay in their own homes.

The next piece is more controversial. I am going to start out

speaking for the NGA, but let me just be really clear that I really

do not, because I am going to go beyond what the testimony is. I

believe we ought to have health insurance for every American.

That is something I have been very up-front about for a long time

as a physician. It is something that I got into politics because of.

One of the pieces of that is this so-called swap which has been

talked about for many years, which is the notion that States ought

to be responsible for making sure all children, I think up to the age

of 22, get health care, and we ought to have some flexibility as to

how to do that and we ought to have some financial responsibility,

and then the Federal Government ought to take over responsibility

for all those over 65, including dual-eligibles.

The numbers work very well. If you tell States they have to insure everybody up to 22, they will yell and scream and say it is

an unfunded mandate, but it turns out that you are within $1 billion in the States’ favor if the Federal Government, in turn, takes

over responsibility for dual-eligibles and nursing home/long-term

care.

So I would urge the committee to look at that, although look at

it carefully, because the biggest single problem here is that States

generally, I think, do a better job than the Federal Government

will be able to do in terms of inspecting and regulation of nursing

homes. If you have one enormous entity regulating all the nursing

homes in the country, I think you are going to have some problems.

Now, you have problems in States. From time to time, there is

a big issue in one State where there is an investigation and the

people are being treated badly in nursing homes and so forth and

so on, but while that is going on in that State, presumably 40 out

of the other 50 are doing a very good job.

We do a pretty good job. We make mistakes and so forth. Everybody makes mistakes. But I think having that flexibility of somehow keeping the regulation at the local level and having some partnership aspects, or at the State level, will serve you and serve the

Federal Government and, most important of all, of course, serve

the patients best.

But the biggest reason for the Medicaid costs being out of control

in this population is the institutional bias of the program. The program is biased, heavily biased toward institutional care and it

makes it very, very difficult without going through the hoops that

are required in the waiver program to get the OK to spend the

same amount of money taking care of more people in the area that

they want to be taken care of, which is their own home.

Let me just close by thanking you very much for doing this, by

saying this is a very difficult area, because when you are talking

about long-term care insurance, what you are talking about is not

making sure people get adequate health care, you are talking about

asset preservation.

We have long-term care insurance in this country. It is called

Medicaid. If you go to a nursing home in this country, you do not

get kicked out if you suddenly cannot pay the bills. Most States—

all States, as far as I know—prevent that from happening. MedicVerDate 11-MAY-2000 15:17 Oct 24, 2002 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 C:\DOCS\81856.TXT SAGING1 PsN: SAGING1
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aid simply takes over. The issue is, for middle-class people, do you

want to force them to impoverish themselves and impoverish their

spouse in order to survive in a nursing home?

I am not trying to say we do not need long-term care insurance.

We do need long-term care insurance. But I think we have to recognize that this is not an issue like universal health care, where

there are 40 million people who do not have it and, therefore, they

get bad care because they end up in the emergency room after ignoring a problem for 3 months and it ends up costing the system

more money. This is an issue where it is not access, where it is

asset preservation. It is an important issue. There is a role for the

private sector here. There is a role for the government here and I

wish you good luck in sorting it out.

The final word is that I think Senator Rockefeller is absolutely

right. This is an issue that somehow has been pushed to the back

burner for a long time. It is a major issue confronting this country.

It is certainly a major issue confronting the budgets of all of our

States, every single one of which is in one form of deficit or another

these days. Medicaid is the biggest driver in the State budgets, all

50 of our budgets, and in Medicaid, the biggest drivers are longterm care and pharmaceutical prices.

So I think these hearings have been very timely. I know you

have put an enormous amount of effort and time into this and I

sincerely hope that you will get a bill that will give the States more

flexibility to spend both your money and our money more wisely,

cover more people in the circumstances that they want to be covered, and also to be careful when you create a long-term care program that it not have a bias that is contrary to the wishes both

of the patients and of those of us who end up budgeting for the

care. Thank you.

The CHAIRMAN. Thank you, Governor. As a medical doctor, you

certainly bring a unique perspective to this issue.

[The prepared statement of Governor Dean follows:]

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The CHAIRMAN. Next, we will hear from our former colleague,

Senator David Durenberger. David.

STATEMENT OF HON. DAVID DURENBERGER, CHAIRMAN, CITIZENS FOR LONG-TERM CARE COALITION, WASHINGTON, DC

Senator DURENBERGER. Good morning. Thank you, Chairman

Breaux and members of the committee. Thank you for holding this

hearing today, but more importantly, thank you for your continued

leadership on long-term care issues. You will eventually be honored

for all 13 of those hearings. I greatly enjoyed my years of service

on this committee and I am honored to be testifying.

As Chairman of Citizens for Long-Term Care, I have been privileged to represent more than 60 national organizations representing seniors, people with disabilities, long-term care providers, labor

unions, insurers, and other professionals. Last year, this diverse

group of organizations coalesced behind the development of a national framework for reforming long-term care financing. Among its

recommendations was the strong assertion that long-term care is

an insurable event, and so it requires an insurance-based solution

as opposed to the current welfare-oriented approach.

Today, we are releasing an analysis that provides a new perspective on how policymakers should view long-term care within the

context of national entitlement program reform. In short, it concludes that as the nation’s population ages, it has become increasingly clear the Nation needs an expanded national financial security policy for access to both health and long-term care just as

much as it needs a national energy policy or a national defense policy.

The major findings are: long-term care spending is growing rapidly and the costs threaten Medicaid and family budgets. In 2002,

40 States anticipate budget shortfalls because of growing Medicaid

budgets.

Second, Social Security and Medicare reform will be threatened

unless long-term care financing is included.

Third, we must develop a national commitment to long-term care

financing that includes a limited social insurance cash benefit, generous incentives for private insurance, increased personal savings

and some of the tax policy changes that Senator Wyden mentioned,

and a Medicare program better designed to treat chronic illness.

Finally, the inclusion of long-term care in Social Security and

Medicare reform will increase efficiency, promote family caregiving,

increase private resources, lower the cost of care per beneficiary,

and better treat chronic illness, among other benefits.

The fiscal challenges Federal and State legislators face with the

growing pressures on financing, on workforce issues, and on the

care quality have been articulated both by Governor Dean and by

the NGA’s request for a Commission on Medicaid. Our report

makes the case for including long-term care financing reform in the

Social Security and Medicare reform dialog over our nation’s financial security goal.

In our judgment, the time to begin is now. The chairman referred

earlier to how do we deal with spending the surplus. The reality,

Mr. Chairman, is it is time to bring 1935 and 1965 programs into

the realities of the 21st century. It is that simple.

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In the past, when health and income security of our seniors and

people with disabilities were threatened, society responded with

the development of Social Security in the mid-1930’s, and Medicare

and Medicaid in the mid-1960’s. These programs were designed

and built on what we knew in the early and mid-20th century. But

by the end of the 1970’s, policymakers were well aware of new realities and the need for change in the programs’ responsibilities.

In 1982, President Ronald Reagan proposed a new federalism as

his effort to clarify inter-governmental responsibility for financial

security. The heart of this proposal, endorsed by the National Governors’ Association and led by Dick Snelling, would have made the

Federal Government responsible for financing supportive services

for the elderly and for people with long-term disabilities. State government would have taken responsibility for the financial commitment to non-disabled low-income individuals, those eligible for

short-term public assistance, or as we know it, welfare.

In 1990, under the direction of Senator Rockefeller, the Pepper

Commission made a recommendation that was much like the CLTC

recommendation, that there be an insurance premise under longterm care financing. The need for long-term care would exceed the

ability of Medicaid State-Federal financing system to keep pace

with demand, and we said in 1990, you have to move to an insurance system.

As a member of the Senate’s Committee on Finance, I participated in both of these efforts and I am well aware of the politics

of health and financial security. I am convinced that President

Reagan and the NGA were right in 1982, that the Democrat and

Republican House and Senate leadership on the Pepper Commission were right in 1990. I am convinced the many national longterm care associations who make up CLTC are right today.

The combination of demographics and cost increases that are

driving calls for Medicare, Medicaid, and Social Security modernization require we look for new solutions to address the future

needs of people with disabilities and our aging population. We cannot expect our elected officials to undertake the bruising political

battles associated with Medicare and Social Security reform only to

have the same issues again several years later in the form of longterm care financing reform.

If Congress reforms Social Security and Medicare without addressing long-term care financing, they will have missed a unique

opportunity to fully address the health and financial security of society’s most vulnerable members.

The important analysis that CLTC releases today represents the

consensus of nearly every association with a stake in improving access to and the quality of long-term care services and supports in

this country. Despite the usual differences between the many associations, they all share the belief that long-term care financing

must be reformed before the current situation becomes more critical, and to that end, they recognize they inherent reasonableness

and the rationality of integrating this issue with any entitlement

reform discussion. We hope the work that CLTC has produced

helps generate much-needed interest and understanding in this regard.

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I thank you for the opportunity to testify and will be happy to

answer any questions.

The CHAIRMAN. Senator Durenberger, thank you very much for

your work as well as your testimony. It is very, very critical to finding a solution.

[The prepared statement of Senator Durenberger follows:]

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The CHAIRMAN. Next, we will hear from Ms. O’Shaughnessy.

STATEMENT OF CAROL O’SHAUGHNESSY, SPECIALIST IN SOCIAL LEGISLATION, CONGRESSIONAL RESEARCH SERVICE,

WASHINGTON, DC

Ms. O’SHAUGHNESSY. Thank you, Senator Breaux. Good morning,

Senator Breaux and Senator Ensign. Thank you for the opportunity

to testify. Today, I am going to take a little different tack and talk

about international trends for long-term care financing, which I

know you are interested in.

The first point is that population aging is a worldwide phenomenon. The aging of societies over coming decades has commanded

the attention of policymakers worldwide and will have dramatic

implications on pension plans, income programs, and health and

long-term care systems. While growth of the elderly population in

industrialized countries of North America and Europe is well recognized, developing countries are also experiencing rapid growth in

their older populations, predicted to increase by two- to fourfold by

2030.

By 2015, in 9 of 11 Western European countries, older persons

will represent 18 percent or more of the total population, and by

2015, an astonishing one-quarter of Japan’s population will be 65

and older. While the United States, Canada, and Australia are relatively young by world standards, a large growth rate will come in

coming years, as members of the panel have discussed.

These demographic factors will have immense impact on public

and private spending for pensions, social welfare, and health and

long-term care systems. Policy makers worldwide are planning, or

have already taken steps to change their long-term care financing

and service delivery systems. Although countries differ in approach, many have recognized that the provision of long-term care

is one of three pillars of social support for the elderly, along with

retirement income and medical care.

Comparison among countries is challenging because of the different economic and political circumstances of each country and the

nature of the social contract that each country shares with its citizens. For example, two countries that have instituted long-term

care reform, Germany and Japan, have certain characteristics that

differ from other countries. Germany has more than a century-old

tradition of public responsibility for health care of its citizens.

Japan unlike many other countries, has a long tradition of filial responsibility for older family members. Older family members usually go to live with their oldest son, with the daughter-in-law providing most of the care.

A landmark study prepared for the Organization for Economic

Cooperation and Development, OECD, for its 29 member nations,

indicated that comprehensive reform to address the economic and

social implications of aging populations will be necessary, and

OECD noted that there is a limited window of opportunity for

many nations to take action.

Regarding long-term care, OECD recommended a number of

things that have been talked about in the hearings over the course

of the last year. First, OECD recommended that financing schemes

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should be developed to share the financial burden jointly by the

working age and older populations.

Second OECD recommended coverage of catastrophic costs,

which Senator Rockefeller just spoke about; third, there should be

wide support for home care programs and family care rather than

institutional care, and, fourth, there should be a harmonizing of

long-term care services with health care policy.

A key challenge according to the OECD for its 29 member nations is to develop systems that can provide chronic care and improve the balance between health care and chronic care, between

family and formal care systems, and between medical and social

services. As in the United States, many nations have found this

very difficult to accomplish.

During the 1990’s, a number of nations enacted major legislation

to change long-term care systems. Some details of some of those

systems are in my written testimony, but I would like to highlight

certain aspects of programs in Germany and Japan that have

drawn attention in the U.S.

In 1994, Germany created an employer-mandated social insurance program where employer and employee share in a 1.7 percent

tax on wages to pay for long-term care on a pay-as-you-go basis.

The program is a capped entitlement with maximum per person

benefits; it provides nearly universal coverage. Over 90 percent of

persons in Germany are covered by the plan, and eligibility for assistance is not related to income and assets.

However, the program was not intended to be fully comprehensive. Cost sharing by recipients is a key element. When costs of

care exceed the benefit maximums, the difference must be paid by

the individual or his or her family, and if the individual cannot

pay, a means-tested welfare system kicks into place.

The German plan provides both cash and services up to maximum amounts for various multi-levels of care; home care services

are specifically designed to supplement family care. Cash has been

a predominant choice of long-term care clients, but recent trends

show that people prefer a combination of cash as well as formal

services.

Japan, which has a very large elderly population implemented a

social insurance program in 2000. The program provides both home

care and institutional care according to five levels of need. As in

the German program, benefits for care are fixed, depending on the

level of need that is required, and public subsidies pay for one-half

of the care. The other half of the cost is funded through incomerelated premiums and a flat 10 percent copayment by individuals.

So there is a mix of public-private funding in this program.

In summary, Mr. Chairman, reviews of various countries have

found some similarities in the goals of reform. These include the

following. Policymakers are attempting to find the right balance between public and private responsibilities, as in the U.S. Countries

are striving to create a more balanced approach to home and community-based care. In some cases, the desire to control institutional

care, as Governor Dean had mentioned, has been a propelling reason for seeking out home and community-based care.

Countries recognize the important role of unpaid care provided

by family and friends and a key feature of these designs in various

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countries is to avoid creating, as Senator Ensign was talking about,

disincentives to family support and to supplement the informal

care that is provided. A number of countries are developing systems that allow consumers greater choice between services and

cash payments, as we are experimenting with in this country.

Responsibilities for administration are generally decentralized.

Also, in terms of financing, in some countries, eligibility is based

on need, not ability to pay. But on the other hand, as in Germany

and Japan, those reform programs require individuals to pay for a

portion of their costs, either through fixed or variable rate schedules, either through premiums or cost sharing.

Just to conclude, Mr. Chairman, Senator Rockefeller talked a lot

about adult day care programs; adult day care is a blossoming industry in this country. We actually got the idea for adult day care

from Britain and from Russia in terms of the experimentation that

they had done, in the early part of this century. This is an example

of a model that we have transferred from other countries.

So that concludes my statement. I will be glad to answer questions.

The CHAIRMAN. Thank you very much, Ms. O’Shaughnessy.

[The prepared statement of Ms. O’Shaughnessy follows:]

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The CHAIRMAN. Our final witness will be Mr. Steve Chies.

STATEMENT OF STEVEN CHIES, VICE CHAIR, AMERICAN

HEALTH CARE ASSOCIATION, WASHINGTON, DC

Mr. CHIES. Thank you, Senator. Let me also extend my thanks

to the committee for the substantial amount of time that you have

invested in examining the many aspects and future implications of

our nation’s long-term care financing crisis.

As baby boomers approach retirement age, millions of Americans

will be confronted by the need for long-term care and confounded

by the inability to pay for the care that they will demand. Consider

this fact. The average cost of a year’s stay in a nursing home is in the range of $50,000, far too much for many Americans to pay, and

it is fair to say that in America, the greatest long-term care risk

that you face for financial and societal is to stay in a long-term

care facility, as Senator Rockefeller mentioned.

It is also fair to say that the heart of the nation’s long-term care

financing structure, Medicaid, is quickly becoming one of the most

underfunded government programs we have in relationship to its

mission and mandate. A recent report by BDO Seidman showed

that the Medicaid program is underfunding skilled nursing care by

approximately $3.7 billion in the year 2000.

AHCA and NCAL have spent a great deal of time and resources

examining the nation’s long-term care financing structure. To assist us, we engaged the health policy experts of Abt and Associates,

a well known, highly regarded public policy research firm based in

Boston. Working with Abt, we developed a sophisticated micro simulation model that we have been using to test and analyze various

approaches toward long-term care financing reform, and here are

some of our observations.

Because of demographic changes, Medicaid spending for longterm care as a percentage of gross domestic product will double

during the first half of the 21st century. The continuum of longterm care services will need to be greatly expanded to meet the

needs of aging baby boomers, and access to this continuum is essential. Reliance on family caregiving will be strained simply because there are too few family members available to provide the

care.

To address these challenges, we concluded the following. Congress must not only continue to endorse and support the growth of

a long-term care insurance market through changes in the tax

code, but it must do so in a specific way to target assistance to lowand moderate-income Americans to help them purchase and maintain insurance. We believe a public-private program should be created to help all Americans prepare for their long-term care needs.

Not only will this entail changes in the tax code to promote longterm care insurance, but should also include restructuring of our

current patchwork system of financing long-term care into an effective, efficient public policy program at the Federal level.

Mr. Chairman, our research shows that a national voluntary

public-private program for financing long-term care is possible and

can provide better access to the range of long-term care needs for

Americans elderly and disabled. We believe it is possible to ease

the growing dependence on Medicaid with policies to make it posVerDate 11-MAY-2000 15:17 Oct 24, 2002 Jkt 000000 PO 00000 Frm 00117 Fmt 6633 Sfmt 6633 C:\DOCS\81856.TXT SAGING1 PsN: SAGING1
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sible for a majority of individuals to pay privately for care they receive in the future. This could be accomplished by shifting the role

of government from government paying for care services to government helping individuals and families plan for their long-term care

needs.

Tax incentives can be an important component in shifting the

role of government. One incentive is the above-the-line deduction

now being considered by this Congress and supported by you, Mr.

Chairman, and other members of the committee. But more importantly, we see a critical need for a refundable tax credit, one that

is targeted toward low- and moderate-income Americans, those who

have the greatest need for government-paid long-term care services

by Medicaid. If a major goal is to reduce dependency on the Medicaid program, then we see this as the best way to reach it.

Once tax incentives allow for greater reliance on long-term care

insurance, it becomes much more feasible to shift the government’s

role of the coverage of long-term care to the Federal level, thereby

relieving the States of the increasingly onerous budgetary burden.

This restructuring will allow for the coordination of both acute and

long-term care services of the elderly and long-term care for the

disabled. Coordinating the long-term care at the Federal level will

eliminate today’s failed patchwork financing system, thus creating

a more efficient and seamless system for covering the care.

Finally, Mr. Chairman, the key element necessary to establish

the legitimacy and awareness of this program must be public education. The comments from Senator Rockefeller really hit home for

me. A national effort designed to help individuals understand the

risk they face and what options they have. Once they do, we believe they will choose to act responsibly and plan for their longterm care needs.

That being said, we neither support nor advocate any system in

which individuals do not take some financial responsibility for their

care. This is the American way, and if you want to control your

destiny, you must take some responsibility. This approach provides

all Americans with the means to do just that. AHCA and NCAL believe the components of this financing model are viable and maximize the best the public and the private sectors have to offer for

the good of all.

This obviously cannot be implemented overnight but is likely to

take several years. This is why it is important for all elected officials to recognize the severity of this problem, just as you do, Mr.

Chairman and the members of the committee, and begin addressing this situation today, regardless of what the final approach we

ultimately decide on.

Again, thank you for this opportunity and for your dedication to

try to help the elderly and disabled in this country.

The CHAIRMAN. Thank you very much, Mr. Chies, and all the

members of the panel for excellent testimony.

[The prepared statement of Mr. Chies follows:]

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The CHAIRMAN. Governor Dean, I think that the story in Vermont has been unique and I think it has been highly successful.

I was really impressed with the fact that you said that because of

the waivers you have received, that you have been able to essentially spend the same amount of money and I think you had talked

about actually covering almost twice as many people with the same

amount of money through the use of alternatives other than just

skilled nursing facilities. Do I understand that correctly?

Governor DEAN. That is true, although you have to throw in costof-living, so it is not the same dollar amount, but it is the same

adjusted dollar amount. We can take care of twice as many people

outside a skilled nursing facility as we can inside and they are just

as sick.

The CHAIRMAN. You have had to come to the Federal

Government——

Governor DEAN. Excuse me. They are just as sick as the ones

who would have been in. We are not talking about really ill people

who clearly need to be in skilled nursing facilities.

The CHAIRMAN. Now, you have come to the Federal Government

to request the authority to have those waivers, right?

Governor DEAN. Right. I think the first waiver is not uncommon—I am pretty sure there are other States that have it—which

allow us to spend Medicaid money on home health care. We happen

to have a fair number of slots. It is about a third of all our slots.

The CHAIRMAN. You can also spend it for assisted living facilities?

Governor DEAN. Yes. That, I think, is relatively unique, and certainly some of the members of the panel have more expertise than

I do, but I am not aware of another State that has that, although

there may be—— The CHAIRMAN. Your recommendation is that you should not

have to come to Washington to get the waivers, that the State

ought to have the flexibility to use the money as they see fit within

the options that are out there?

Governor DEAN. Not only that, although I am never in favor of

Federal mandates. Certainly, anything that you can do to push

States to take care of the maximum number of people outside the

skilled nursing facilities and even assisted living. Somebody mentioned the least restrictive environment. That is what people want.

People want to be in their own homes if they can be.

Obviously, at some point, it does not make sense to spend $250,000 keeping somebody in their own home when they could do

it for a good deal less in a skilled nursing facility. But for most people, we can keep them in their own homes for about half of what

it costs to put them in a skilled nursing facility, and they can be

pretty sick, particularly if family is willing to participate in their

care, or able or they are present in town, which is the case for most

people.

The CHAIRMAN. Mr. Chies, you have heard Governor Dean’s recommendations. On behalf of your association, what do you think

about them?

Mr. CHIES. We have supported waivers in the past and will continue to support the waiver process. I think, Governor, I am aware

of at least 38 States that have similar waiver programs for assisted

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living and home-based services, so it is being done extensively out

there and I think the Governor’s recommendations probably to

allow States to do that on a much more broader basis is probably

indicative of what the States are demanding out there.

The CHAIRMAN. So I take it what Governor Dean is suggesting

is that the current waiver process, whereby they have to come to

Washington and officially request a waiver to use Medicaid funds

for things other than skilled nursing facilities, that that be made

a sort of permanent waiver? I take it you are not trying to get

away from some kind of Federal guidelines—— Mr. CHIES. No.

The CHAIRMAN [continuing.] Because that is not going to happen.

I mean, if we are going to have my State get 70 percent of the Medicaid money, from the Federal Government, then we want to make

sure that we have a responsibility to see that the money is being

spent responsibly. I mean, this is a partnership here. We do not

just toss it up in the air and hope it comes down and does good,

but we have a responsibility to make sure that we are doing what

we intend to do. Do you support that concept, Mr. Chies?

Mr. CHIES. Yes. Mr. Chairman, I think you will find that most

long-term care providers would agree substantially with what the

Governor has presented here. I think the Medicaid waivers is a

short-stop effect here. It is not really where we need to be as a society. We need to look at a much broader program of getting people

the resources and letting them control it. The discussions from

Carol about Germany and Japan, about the ability for people to

have cash payments to go out and buy the service that they want

makes a lot of sense from our perspective and allow the marketplace to drive the quality and the quantity of services that people

receive.

The CHAIRMAN. Are your nursing home owners moving into other

types of long-term care facilities? If I was in the nursing home

business, I would be broadening my base of operations as fast as

I possibly could into assisted living facilities and home health care,

as well as the traditional 24-hour-a-day, 7-day-a-week skilled nursing facilities. In some States, there is a group of operators of nursing home facilities operators that are very much against the being

able to use waivers for other types of facilities, because they feel

it takes business away from them. Can you comment on that?

Mr. CHIES. I think that is a fair rendition of what is going on

in the field out there. I think the reason you will see a lot of operators oppose assisted living is because of the pinched State budgets

we have had in the Medicaid program and a concern that there will

not be sufficient funding to adequately care for the people that do

require nursing home care. But many long-term care providers who

are in various segments of the business—the organization I work

for right now has a number of assisted living and housing units

and we believe they are very compatible in terms of how you move

people through a continuum of providing care and services.

The CHAIRMAN. I thank you for that answer. I would just suggest

that all of them look to the future and that is where some of the

answer is going to be, not only from a service standpoint, but also

from an economic and business standpoint. People are going to be

demanding that type of care. They are already demanding that

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type of care. So it is good to hear that they are moving in that direction and that the association essentially supports the waiver

process that Governor Dean, I think, has so well outlined for us.

Governor DEAN. Mr. Chairman, if I might just add one thing,

just to make sure this does not get glossed over, because this was

a real point of contention between ourselves and the industry when

we did this, we did pass a bill mandating that over a period of

years we reduce the total number of nursing home beds by 10 percent and we are now in the process of taking it down another 10

percent and nursing homes, smaller, weaker ones, have started to

close.

The CHAIRMAN. That does not mean 20 percent less care.

Governor DEAN. No.

The CHAIRMAN. It means——

Governor DEAN. It actually means 20 percent more care because

you take down 20 percent of the beds and you can add 40 percent

more care capacity outside the system by using the money. But this

is not painless for nursing home operators. The smaller ones cannot get into the health care business because they are mom-andpop organizations with maybe 30 beds. The larger chains could, if

they wanted to, and some of them have done that and some of

them have not.

The CHAIRMAN. David, you know the problem we struggle with

up here. We are trying to add a prescription drug benefit to Medicare and we have got ranges from $1 trillion to $190 billion on how

much we are going to spend in that area. We still have 44 million

Americans who have no health insurance at all. At least if you are

on Medicare, you have got about 53 percent of your health care

being paid for through Medicare. If you are one of the 44 million

Americans who have no health insurance, you are subject to emergency rooms as your principal provider for health care in the country. Now we are talking about long-term care.

The money is coming out of the Social Security trust fund, and that is where it is coming from. You can say, well, I want a $1 trillion drug program. I can write you a great drug program for $1 trillion, free drugs for everybody, and some would endorse that. But

you have got to realize where it is coming from. It is coming from

your children and our grandchildren’s Social Security retirement.

All of this is a money problem as much as anything. Long-term

health care insurance, which Steve has endorsed and I think I have

introduced, is a refundable tax credit approach. That is going to

cost money. That money is going to come out of Social Security retirement funds right now.

Do you have any suggestions? You have outlined some really

good suggestions. The question is, how do we pay for it? If you had

the answer, we would make you king for a day or maybe for the

rest of your life.

Senator DURENBERGER. First, if you take a look at this Abt-produced study called Life Plan, I think it gives you an example of

how you might do this, if you want something other than my opinion. There is an example of how, over time, we might do it.

Second, and I am speaking only for myself, part of the reason

that we are all recommending dealing with long-term care financing reform at the same time we deal with the others is there are

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a lot of resources available. They may not all be in the Federal

Treasury, but the Federal Treasury decisions are being run by our

predecessors in 1935 and 1965, basically. So you have to tackle the

realities of that in the context of the 21st century. What do we

know now compared to what we knew then?

We have in retirement today, including myself, I guess, although

I am not retired, a huge amount of wealth that is about to be

transferred to another generation. We have something like $14 trillion in home equity in America today. I do not know what we have

in savings and 401(k)s and (b)s and all that sort of thing, and I

think Ron Wyden already spoke to that. Some changes in the tax

code enable people to make different decisions.

So the point of changing this from a ‘‘wait until you have got a

problem and then make a decision’’ to a system in which we make

the financial security decisions when we are young or when we go

to work, and then when the occurrence of need comes—maybe

within a year, you have a developmentally disabled child, or 7

years from now, when like my mom, you have a dementia called

Alzheimer’s, but you have prepared financially for that eventuality

and you have not waited until the need arises to make these decisions.

That is why, when I listen to this conversation, with all due respect to all my colleagues who are in government, much better decisions are made by people in families than are made by Governors,

or Congressmen, or Tommy Thompson at HHS, or Tom Scully at

CMS, and the idea of an insurance system which is partially social

insurance, partially private insurance, the idea of the Germany

system, which, at Carol’s suggestion, I went over and looked at last

week, is that families make these decisions, and if they make them

in advance, there are lots of resources in this country, privately

held as well as the retirement plan surpluses, that can, over time,

be committed to meeting these needs.

The CHAIRMAN. Senator Ensign, any questions?

Senator ENSIGN. First of all, I just want to say thank you to all

of you. It has really been a terrific hearing and I think some great

suggestions here. Obviously, there are some incredible challenges

for us as policymakers up here.

Governor Dean, I think that your suggestion is probably the easiest one of everything that has been talked about up here as far as

being able to do, and if the only thing we can do is incremental,

that is at least an incremental step we ought to be taking. I want

to try to work with you on that and the Chairman trying to be able

to do that in a bipartisan way. It is short term but it has shown

real progress. You have shown leadership on this, and that it could

be done across the country.

Ms. O’Shaughnessy, I thought it was really fascinating, some of

the things that you were talking about. I am glad that you studied

them and I want to follow up with a question on the experience.

I was talking to Senator Rockefeller about the family incentive.

What have those other countries found, because, for instance,

Japan is famous for how they take care of their parents, their

grandparents. They are known all over the world for how they revere the elderly. We sometimes are a throw-away society for our elderly and that is the cautionary flag I was trying to raise is that

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we do not encourage more of that, but that we actually get more

to the incentive of keeping family to-family decisions and types of

care as much as we possibly can.

What has been the experience of Japan and Germany as far as

that? Has anybody looked at that aspect of it?

Ms. O’SHAUGHNESSY. Well, in terms of Japan, with the demographic factors and the lower fertility and increasing number, I

mean, 25 percent in just a few years of the total population will

be elderly, and what has happened is that women in Japan going

into the workforce more dramatically than before—all these factors

have put a huge amount of pressure on the family structure there.

So they recognized after some years of thought, that they needed

to incrementally assist individuals through a formal care system.

I looked at it a little bit in terms of evaluation, which the Japanese government puts out, and basically, they are saying that people seem to be very satisfied with the care that they are getting

through the formal system, but, you know, you still have this

strong family network that has got to be there just to serve the

number of people.

Also in Germany, realizing that the German plan is not comprehensive—it is universal but it does not provide comprehensive

coverage—the levels of care, I think the highest they can pay, ex- cept for one exception, is something like $1,400 a month for care.

Most people are either at level one or level two, so you are still relying upon the informal support system a great deal even though

you have a minimum benefit that helps take off the pressure, and

perhaps is for nursing care at home that the families do not know

how to do.

In terms of looking at countries, Austria and Australia also enacted national family caregiver programs in terms of a limited benefit. I think that is the way at least OECD sees the issue going— enact programs that will assist families, not supplant them.

Senator ENSIGN. Mr. Chairman, I will just conclude with an observation. My son has a wonderful piano teacher and they have a

severely disabled son who is now about 16 years of age. A couple

of comments on them.

First of all, it is unbelievable to see the difficulties that they go

through with this child. He is the typical child that most families

would probably not be able to handle and would institutionalize. A

lot of families would, anyway. Maybe not most, but certainly a lot

of families would. But to see the relationship with him and his siblings, who are younger, and the way that they interact with him

is awesome to see, and I know that these kids are going to be better people because of learning to serve him.

But also, watching mom and dad and financial hardships that it

has been on their family, there is no question about that. They are

making it through it. They are doing OK. But part of the help that

is really needed is a lot of what has been talked about, here such

as respite care.

I do not want to get away from encouraging people, and that is

the point I was trying to make, by setting up a system where it

is just easy. You know, just put them in an institution where it is

more expensive, the care and all that kind of thing. Rather let us

get people the help that they need so they can stay together as a

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family with much home care as is needed. If they need to go into

a facility or whatever, get them out as quickly as possible. But

keep as much of the incentive there as possible to keep families together.

I think, overall, if we set that out as one of our main goals, I

think that we can form the right policies up here to take care of

the problem that people are concerned about. The problem of impoverishing themselves by going in and then once they go into a

facility they are stuck there, and they know they are going to be

there for the rest of their lives. We need to go toward where they

know that there is some hope, where they are not afraid to get the

help because maybe they can end up worse than before; where they

were actually a little more independent and those kinds of things.

I think that if we put our heads together and not let ideology get

in the way we can get there. It is just a question of how we get

there, and I think that if we are willing to work together, I think

we can really come up with some policies that will be good for the

country and that will be more affordable. I do not think any of it

is affordable, especially with our aging population. But it is a question of what is going to be more affordable, and I think that doing

the right thing and trying to keep family as much together as possible and doing the things like Governor Dean is doing, is a more

affordable way to do those things. You help more people and you

keep them in situations where the quality of life is better as well.

So I think, overall, all of those goals can work together and I

really want to applaud your leadership, Mr. Chairman. You have

really done a great job.

The CHAIRMAN. Thank you very much, Senator Ensign, and

thank you for being with us for the entire hearing.

I think today’s hearing really represents a wake-up call to America about the enormous challenge and the enormous problems, but

also at the same time the enormous opportunities that those challenges present us in addressing something that is not going to go

away. The Congress can talk about it, but until we start acting, the

problem will only increase in its severity and the challenge of helping to solve it.

Again, the Aging Committee has done a summary of all 13 hearings we have had with ideas and concepts, and hopefully, we can

build on that report that we have presented and move forward aggressively with legislation to try to address this problem. It is one

of the top priorities, I think, that this Congress should face.

I want to also recognize the son of Frances Stevenson, a woman

from Napoleonville in Louisiana. Her son, Major Stevenson, is here

and we thank him for attending our hearing, and also, again, my

wife and our teacher interns from Louisiana who have sat through

this long hearing and hopefully have an idea of how their government works.

The panel has just been terrific. We thank each and every one

of you very much for your presentations, and with that, the committee will stand adjourned.

[Whereupon, at 11:06 a.m., the committee was adjourned.]

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