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S. HRG. 107–494

OFFERING RETIREMENT SECURITY

TO THE FEDERAL FAMILY: A NEW LONG-TERM

CARE INITIATIVE

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

WASHINGTON, DC

APRIL 10, 2002

Serial No. 107–23

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

PETER G. FITZGERALD, Illinois

JOHN ENSIGN, Nevada

CHUCK HAGEL, Nebraska

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

PANEL OF WITNESSES

Bertram Scott, President, TIAA–CREF Life Insurance Company, New York,

NY ......................................................................................................................... 2

Frolly Boyd, Senior Vice President, Group Insurance/Long-Case Pensions,

Aetna, Inc., Hartford, CT, and Board Member, Americans for Long-Term

Care Security ........................................................................................................ 19

Frank D. Titus, Assistant Director for Long-Term Care, and Acting Associate

Director, Retirement and Insurance, United States Office of Personnel Management, Washington, DC ................................................................................... 31

Paul E. Forte, Chief Executive Officer, Long Term Care Partners, LLC,

Charleston, MA .................................................................................................... 46

APPENDIX

Prepared Statement of Senator Debbie Stabenow ................................................ 73

Letter from Americans for Long-Term Care Security .......................................... 74

Statement of the American Council of Life Insurers on Long-Term Care

Insurance .............................................................................................................. 75

(III)

(1)

OFFERING RETIREMENT SECURITY TO THE

FEDERAL FAMILY: A NEW LONG-TERM CARE

INITIATIVE

WEDNESDAY, APRIL 10, 2002

U.S. SENATE,

SPECIAL COMMITTEE ON AGING,

Washington, DC.

The committee met, pursuant to notice, at 9:35 a.m., in room

SD–628, Dirksen Senate Office Building, Hon. John Breaux (chairman of the committee) presiding.

Present: Senator Breaux.

OPENING STATEMENT OF SENATOR JOHN BREAUX,

CHAIRMAN

The CHAIRMAN. The committee will please come to order. Our

guests, if they will, please take their seats, and our witnesses, their

positions at the table.

Good morning to everyone. Thank you very much for being with

us this morning in the Special Committee on Aging.

Today’s hearing of our Aging Committee marks the 10th hearing

that the Aging Committee has held on long-term care during this

Congress. Our previous hearings have addressed the broken nature

of our long-term care system in this country. It is clear that Medicaid costs are skyrocketing in a system that is both inflexible and

biased towards institutional care. However, today’s hearing offers

us an opportunity to look at one of the potential solutions for our

long-term care crisis in America.

In the fall of the year 2000, Congress passed and President Clinton signed into law the Long-Term Care Security Act. This legislation charged the Office of Personnel Management, OPM, with establishing a new long-term care insurance program for all of our

Nation’s Federal employees. Like many aspects of Government,

where things move very slowly, I am pleased to report that this

program is already up and running. The program is significant because the Federal Government is the Nation’s largest employer. If

the new Federal long-term care insurance program is successful

and proves to be popular, then it will serve as a model for other

companies and other employers. The old adage of ‘‘Lead by example’’ definitely applies here.

As you will hear from our witnesses today, people are more likely

to buy the long-term care insurance and might at a younger age

if they are offered it by their employer. Since most people don’t

know that the Government won’t pay for their long-term care

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needs, the consumer education that employers offer to their employees about long-term care is critical toward educating the public

about this problem.

As 60 percent of those reaching 65 will need long-term care, the

77 million baby boomers will literally break both State and Federal

budgets unless they take personal responsibility for their care and

purchase long-term care insurance.

Financial planners now recommend that, in addition to having

401(k) plans and IRAs to plan for retirement, people should also

have long-term care insurance. This will protect their assets, offer

choices of care, and provide peace of mind for the entire family.

My wife and I plan to meet very soon with some of the insurance

agencies to discuss which type of plan is best for us.

I look forward to hearing from our witnesses today about the status of long-term care insurance and also to hear about the specifics

of the new Federal long-term care insurance program.

We are pleased to have as our panel of witnesses Mr. Bert Scott,

who is President of TIAA-CREF Life Insurance Company of New

York; Frolly Boyd, who is Senior Vice President of Group Insurance/Long-Case Pensions with Aetna; and a board member of

Americans for Long-Term Care Security and Mr. Frank Titus, who

is Assistant Director for Long-Term Care and Acting Associate Director, Retirement and Insurance, with the Office of Personnel

Management; and Mr. Paul Forte, Chief Executive Officer of Long

Term Care Partners in Charleston, MA.

Lady and gentlemen, we are pleased to have you here. Mr. Scott,

you may begin.

STATEMENT OF BERTRAM SCOTT, PRESIDENT, TIAA-CREF

LIFE INSURANCE COMPANY, NEW YORK, NY

Mr. SCOTT. Thank you, Mr. Chairman. Good morning, Mr. Chairman and members of the committee. Before I get started with my

formal remarks, I would like to congratulate you on the birth of

your first grandson.

The CHAIRMAN. Yes, we are getting into this aging process aggressively and rapidly. [Laughter.]

Mr. SCOTT. My name is Bertram Scott. I am the President of

TIAA-CREF Life Company and Executive Vice President of TIAACREF. As the world’s largest and oldest pension company, our

focus has always been to provide our participants with the financial tools to plan for a secure retirement. Therefore, at a time when

the largest segment of our population, the boomers, are entering

their retirement years, it is all the more important that we address

this critical threat that long-term care expense puts on retirement

security.

Mr. Chairman, we commend your efforts to bring attention to

this threat and your leadership in holding hearings on long-term

care insurance, in particular, the new Federal initiative. Today, I

hope to provide background on the long-term care insurance market by discussing why it is important for individuals to provide for

their retirement security by planning to cover long-term care expenses; industry data on long-term care expenses and the vital role

long-term care insurance plays in protecting and preserving retirement assets; the need to further educate consumers about longVerDate 11-MAY-2000 11:51 Jul 16, 2002 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\80169.TXT SAGING1 PsN: SAGING1
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term care costs that are not covered by Medicaid; how the Federal

initiative will stimulate consumer and employer awareness and interest in long-term care insurance; the potential benefit of additional tax incentives as a complement to enhanced consumer education.

To demonstrate a couple of key points that I will allude to in my

testimony, I have brought two ACLI charts that reference attitudes

and behaviors of long-term care policy holders. The pie chart illustrates the importance long-term care policy owners placed on owning a policy when preparing for their own retirement. An astonishing 98 percent found it to be an important part of their planning,

with a full 70 percent saying it was very important.

The bar graph shows the importance policy holders place on insurance to cover long-term care expenses as compared to those relying on personal savings. It illustrates that 86 percent of those

who place a high importance on long-term care planning rely on

their long-term care policies to cover their expense; whereas, those

who do not consider it important will rely on their personal savings.

TIAA-CREF began providing long-term care insurance to its participants over a decade ago in recognition of this emerging need.

Our position is heralded by support from the American Council of

Life Insurance and the Health Insurance Association of America.

They are focusing on the critical need for consumer education about

long-term expenses and tax incentives for individuals to invest in

their retirement security by purchasing long-term care insurance.

The industry is encouraged that Congress made long-term care

insurance available to 20 million eligible Federal workers and their

families. This initiative serves to educate many Americans on longterm care and the importance of planning ahead to protect against

the catastrophic cost of extended care.

One of the greatest risks to individual savings is the unanticipated cost of long-term care. Unfortunately, many people underestimate the cost and are shocked and unprepared when it hits home.

Although 67 percent of Americans recognize that the cost of longterm care is the greatest threat to retirement security, only 35 percent have planned for it. A recent ACLI study shows a link between retirement plan and long-term care education. It found that

when employers provided potential enrollees with education about

long-term care policies, employees were much more likely to enroll

for group coverage. What is more, those who considered coverage

tended to be much younger, thus filling a gap for employees under

60 who otherwise would not consider coverage. The report concluded that employer-sponsored education about long-term care led

employees to consider it as an integral part of retirement planning.

Despite the encouraging data among policy holders, they still

only comprise 10 percent or about 6 million of the elderly, with

even fewer younger owners. The reason may be the decision to buy

long-term care is difficult. There are many choices. There is also

the misperception that the cost of coverage is too expensive.

The reality is that long-term care insurance is the most economical solution when compared against the actual cost of service. According to the U.S. Department of Labor, the national cost of nursing home care averages $56,000 a year and is expected to rise to

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$190,000 in 30 years. The industry has adapted to meet the escalating cost of long-term care. As a result, the face of long-term care

insurance has changed significantly over the past 10 years. Insurers now offer comprehensive coverage with fewer restrictions. Consumers are buying richer coverage, including inflation protection,

resulting in higher average premiums. Premiums have risen from

1995 from $1,500 to $1,700 in 2000, but today’s policies are of more

value—you get more value for your dollar—than they were 5 to 10

years ago.

There are also significant cost differences over a 10- to 30-year

period between total premiums paid if purchased at age 45 versus

55 or 65. Lower premiums and a higher likelihood of qualifying for

coverage at a younger age should be weighted against higher premiums paid over a shorter period of time if purchased at an older

age. Some helpful considerations when deciding whether to buy

long-term care is an individual’s assets and retirement income,

their ability to pay premiums without adversely affecting lifestyle,

and their ability to absorb possible premium increases without

causing hardship.

Increasingly, a 2001 ACLI study found that 70 percent of longterm policy owners recognize the importance of planning for longterm expense. The percentage is higher among less affluent owners. Why? I believe because long-term care insurance best serves

moderate-income individuals and couples. This is illustrated in a

recent HIAA study. It shows that long-term care insurance purchasers had a median income of $42,500 in 2000 and 70 percent

of that group had liquid assets of more than $100,000. While the

income and assets of the average buyer is on the rise, the average

age for individual buyers is lowering, according to industry studies,

dropping from 69 to 67. The average age of purchasers in the group

market is even lower, at approximately 43.

As I mentioned earlier, only 10 percent of our elderly have longterm care insurance coverage. Perhaps this is because there is a

common misperception that the Federal Government covers longterm care costs for all Americans through Medicaid. In reality,

most long-term care services are paid out-of-pocket or provided informally by family and friends. The more affluent individuals have

the means to self-insure for long-term care insurance.

Regardless, many boomers, the age that will double the number

of elderly over the next 30 years, still believe that the Government

will take care of their long-term care needs. This misperception will

potentially result in burdens on the Federal Government and

States that will be impossible to meet over the next 20 to 30 years.

The industry believes that education is the key to correcting this

misperception and encouraging the purchase of long-term care insurance to address long-term care expenses. We also believe that

the new Federal initiative will complement our efforts to educate

the general public, raising awareness about the high cost of longterm care, and emphasize that the Government does not pay for

care for the vast majority of the population. It will reinforce the

message that individuals must take responsibility to protect themselves from the higher cost of long-term services. The message

should be clear: The Government will not pay for long-term care

expenses for most Americans.

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We are optimistic that the example set by the Federal long-term

care program will encourage more employers to offer long-term care

insurance as a voluntary employee benefit. There is one final benefit of the Federal initiative that cannot be overlooked. In the process of providing long-term care insurance materials to policymakers

and congressional staff, we believe that policymakers will become

sensitized to the need for long-term care insurance. As a result, we

hope that your colleagues will join you in supporting legislation

that provides a Federal above-the-line tax deduction for the purchase of long-term care insurance as well as a tax credit for individuals and their caregivers.

Thank you for inviting me to testify today. We applaud your

leadership in encouraging all Americans to use long-term care insurance as a vital planning tool for safeguarding their retirement

security.

[The prepared statement of Mr. Scott follows:]

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The CHAIRMAN. Thank you very much, Mr. Scott, for your statement.

Next, Ms. Boyd.

STATEMENT OF FROLLY BOYD, SENIOR VICE PRESIDENT,

GROUP INSURANCE/LONG-CASE PENSIONS, AETNA, INC.,

HARTFORD, CT, AND BOARD MEMBER, AMERICANS FOR

LONG-TERM CARE SECURITY

Ms. BOYD. Good morning, Mr. Chairman. Thank you for this opportunity to speak to you today. My name is Frolly Boyd. I am the

Senior Vice President of Aetna Life Insurance Company’s Group Insurance Division based in Hartford, CT. I would like to request

that the text of my formal statement be added to the record.

The CHAIRMAN. Without objection.

Ms. BOYD. I would like to thank you, Mr. Chairman, Senator

Breaux, for cosponsoring S. 627.

As one of the Nation’s oldest and largest providers of health and

related group benefits, Aetna has taken a leadership role in group

long-term care insurance. In addition to representing Aetna, I am

also here today on behalf of Americans for Long-Term Care Security, ALTCS. I serve on the board of ALTCS, a 34-member coalition

of consumer and industry organizations that seeks to build public

awareness about long-term care and advocates legislation to help

Americans better prepare for their retirement security. I believe

you have a list of the membership.

Aetna and Americans for Long-Term Care Security believe that

the Government must continue to provide a safety net for the truly

needy. At the same time, the Government should also provide incentives for private sector solutions, such as long-term care insurance.

Congress needs to act now. With the baby-boom generation preparing to retire, the cost of long-term care will place an intolerable

strain on the Medicaid program.

Contrary to popular belief, Medicare pays virtually nothing for

long-term care services. Medicaid is the one and only Government

program providing long-term care coverage and pays for over twothirds of all nursing home patients in the United States. This has

put a tremendous strain on State budgets. Because of the widespread practice of transferring and sheltering assets to achieve

Medicaid eligibility, the middle-class elderly end up in nursing

homes paid for by Medicaid monies.

For America’s 77 million baby boomers, paying future long-term

care costs is their largest looming expense. In 2020, one out of

every six Americans will be age 65 or older—roughly 20 million

more seniors than today. By 2020, the number of Americans 85 and

older—the people most likely to need long-term care—will double

to 7 million.

It is no secret that long-term care is very expensive. The average

annual cost of a 1-year nursing home stay is $55,000. But in some

areas of the country, it is closer to $80,000. It costs almost $16,000

annually for daily visits by a home health care aide. Alarmingly,

these expenses are projected to quadruple over the next 30 years,

eroding hard-earned retirement nest eggs.

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Medicaid will never be able to foot the bill for the millions of

baby boomers that will need long-term care services in the near future. Helping people pay for these services directly through quality

long-term care insurance products should be part of our Nation’s

answer to this crisis.

That is why Aetna and Americans for Long-Term Care Security

strongly support the Long-Term Care and Retirement Security Act

of 2001.

The bill would allow individuals an above-the-line Federal income tax deduction for the premiums they pay to purchase longterm care policies. Additionally, it provides up to a $3,000 tax credit for family caregivers to help cover their long-term care expenses.

Most importantly, for employer group long-term care products, it

will also permit long-term care insurance coverage to be offered

under employer-sponsored cafeteria plans and flexible spending accounts.

While not a complete panacea, this legislation will provide some

needed relief to the growing numbers of Americans who are overwhelmed by caring for their disabled parents and relatives, while

encouraging many of those caregivers to begin preparing for their

own long-term care needs.

I believe the tax breaks contained in S. 627 will dramatically increase the public’s appetite for long-term care products and provide

needed relief to Federal and State government programs.

Another important reason this legislation is needed: its very passage will generate publicity and increase public awareness. Consumer education is critical.

One of the barriers to growth in the marketplace is consumers’

misconception about who pays for long-term care and their lack of

awareness. A recent survey found that only 25 percent of people

age 55 and older think they or their family would be responsible

for long-term care expenses. The truth is most health plans do not

cover long-term care, and Medicare coverage within the health

plans is very limited.

The cost of long-term care insurance is also cited as a reason why

few consumers own a policy today. Many people assume insurance

covering nursing home costs must be expensive. In reality, longterm care insurance policies can be quite affordable, especially

when purchased at a younger age.

For example, a 40-year-old might pay an annual premium of

about $259 for a standard group long-term care policy. That annual

premium rate would apply for the life of the policy. The same policy for a 50-year-old would cost $482, and for a 60-year-old it would

cost $1,136.

Long-term care policies have also dramatically improved. Increasingly, insurers are offering comprehensive coverage for the

wide variety of benefit options and design flexibility. Today’s policies cover a variety of services, a variety of providers, and a variety

of care settings, such as both facility- and home-based care. We

strongly applaud and encourage legislative efforts to develop uniform consumer protection provisions so that the public can be assured that the benefits that they expect will be paid on time, when

needed, and without hassle.

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In conclusion, we believe that swift passage of this bill will help

families struggling with the staggering costs of long-term care and

enable others to protect themselves by purchasing private coverage.

As the baby-boom generation ages into retirement, they must be

encouraged to buy private insurance now to provide for their own

eventual long-term care needs. Continued reliance on Medicaid and

other programs is not the answer. The tax relief embodied in S. 627

will go a long way in providing aging Americans with retirement

security. Thank you, Chair.

[The prepared statement of Ms. Boyd follows:]

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The CHAIRMAN. Thank you very much, Ms. Boyd.

We have a few minutes left in this vote, which has started. I

want to recess the committee and return for the other two witnesses just as soon as we can. [Recess.]

The committee will please come to order. When we left, Ms. Boyd

had just completed her testimony.

Mr. Titus.

STATEMENT OF FRANK D. TITUS, ASSISTANT DIRECTOR FOR

LONG-TERM CARE, AND ACTING ASSOCIATE DIRECTOR, RETIREMENT AND INSURANCE, UNITED STATES OFFICE OF

PERSONNEL MANAGEMENT, WASHINGTON, DC

Mr. TITUS. Thank you, Mr. Chairman and members of the committee. Good morning. My name is Frank Titus. I am the Assistant

Director for Long-Term Care and the Acting Associate Director for

Retirement and Insurance at the United States Office of Personnel

Management, the sponsor of the Federal Long-Term Care Insurance Program. I want to thank you for inviting me this morning

and for your support of this program.

Your letter of invitation indicated that you were interested in basically five different areas: the process that OPM used that resulted in the selection of John Hancock and MetLife as Long-Term

Care Partners, the companies that will administer this program;

the composition of the Federal family that is eligible to apply for

coverage under the program; the early enrollment period that is

now underway and the open season that will begin on July 1 and

run through the end of the year; our outreach and consumer education efforts, both past and planned; and how we will know

whether we succeeded in this important offering or not. I will address each of these briefly in turn.

First, our selection process. As you know, the Long-Term Care

Security Act was signed into law in September of 2000, and shortly

thereafter we created the Office for Long-Term Care Implementation in the U.S. Office of Personnel Management, and I was selected as the Assistant Director of that office.

We began an outreach effort and held literally scores of meetings

with stakeholder groups, industry representatives, et cetera, in an

effort to understand as much as we could about the product, and

about our stakeholders’ interests, so we could develop a balanced

group policy that would meet our stakeholder needs and that would

attract very competitive bids from the insurance industry.

That process culminated in the creation of a request for proposals that was issued on June 20, 2001. That request for proposals,

which is the standard Government vehicle for contracting and obtaining services, contained evaluation criteria that were divided between technical criteria and cost criteria.

The RFP said that the technical criteria taken together would be

more important than cost, and it enumerated the criteria that were

most important. From a technical standpoint, they were: education,

marketing and enrollment, customer service, underwriting, and

claims administration.

Our cost evaluation was a bit different from standard Government cost evaluations in that this was not simply a low-cost effort.

Our cost criteria did evaluate the absolute premiums, but, more

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important, we evaluated the results that we thought those premiums would produce in actual experience in terms of something

we called an experience fund.

We also looked at the profit that carriers proposed and the proportion of that profit that they were willing to put at risk for performance. We looked at the reasonableness of the underlying economic and actuarial assumptions in terms of the NAIC model that

is designed to produce premium stability.

We assembled two interagency task forces for the evaluation of

the technical and cost aspects of the proposals we received. They

included members from OPM, Treasury, HHS, DOD, and the Pension Benefit Guaranty Corporation.

We evaluated the initial proposals. We held meetings with the

offerors. We requested best and final offers by October 15, and then

the panels met again and made a recommendation to me as contracting officer.

I am happy to say that while our competition was very rigorous

and keen, at the end of the day the Government was in a no-lose

situation. It was looking at highly rated proposals that we just

couldn’t lose on. But both the technical and the cost evaluation

panels slightly favored the proposal that was submitted by John

Hancock and MetLife as Long-Term Care Partners. My independent review of their proposal as the contracting officer concurred

with their evaluation, as did the Director of the Office of Personnel

Management, who ultimately was the selecting official.

The CHAIRMAN. Run that by me again. Who was it? You said you

had the two, Hancock and MetLife. Who was the third one you

were talking about?

Mr. TITUS. Well, MetLife and Hancock came together as LongTerm Care Partners, they formed a joint venture company to administer this policy.

The CHAIRMAN. OK.

Mr. TITUS. I will just run through the rest very quickly.

You asked who is eligible. The Federal family consists of employees and members of the uniformed services, retired employees and

retired members of the uniformed services; their current spouses,

including surviving spouses, who are in receipt of an annuity their

adult children, adopted children, and step-children age 18 or over;

and the parents, parents-in-law, and step-parents of employees.

The total Federal family is estimated to be some 20 million.

Our early enrollment period, as I say, is now underway. It runs

until May 15. It is for people who are already educated about longterm and long-term care insurance and are in a position to make

an informed decision today.

The primary difference between the early enrollment and the

open season that will begin in July will be a tremendous education

and outreach effort that is designed to educate the vast majority

of people who are not knowledgeable about long-term care and

long-term care insurance so that they will be in a position to make

an informed choice during the open season.

The CHAIRMAN. You have another open season later on?

Mr. TITUS. Yes, beginning July 1 and running through the end

of the year.

The CHAIRMAN. OK.

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Mr. TITUS. Now, finally, you asked about the consumer education

and outreach. As I say, during the early enrollment period there’s

relatively little. During the open season that commences in July,

it will be the largest ever educational campaign. It will be comprehensive and continuous. We have established implementation

coordinators at each agency. We will be issuing 5 monthly bulletins

entitled ‘‘Get Smart about Your Future.’’ We already have 750,000

subscribers for those bulletins, and thousands more are coming in

each week.

We have conducted one satellite broadcast on March 6. We have

a satellite broadcast coming up on May 15 and another on July 17.

They increasingly focus on long-term care, long-term care insurance, and then the Federal product. We have posters, fliers, brochures, magnets for your refrigerators, all those kinds of things.

We will have a big kick-off before July 1, and after that we will

have some 2,000 workplace meetings and community meetings nationwide. Finally, we will have a website, interactive decision support tools, and a toll-free number.

Finally, you asked how will I know and how will OPM know

whether we succeeded. Well, I was gratified to learn that you and

your wife are interested in purchasing a policy, and I was very

happy to deliver to you this morning an open enrollment kit and

a personal letter of invitation to become what we are calling a

charter member of the Federal Long-Term Care Insurance Program. So I guess one of the ways I will measure my success is to

see whether you and your wife sign up.

The other way that I will measure my success is to look at how

many other charter members there are and the market penetration

that we achieve among the total Federal family.

GAO will be conducting independent reviews of our program during its third and its fifth years, and there are possible studies

planned by HHS and others.

That concludes my remarks. I thank you very much.

[The prepared statement of Mr. Titus follows:]

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The CHAIRMAN. Thank you very much, Mr. Titus.

Mr. Forte.

STATEMENT OF PAUL E. FORTE, CHIEF EXECUTIVE OFFICER,

LONG TERM CARE PARTNERS, LLC, CHARLESTON, MA

Mr. FORTE. Good morning, Mr. Chairman and members of the

committee. Thank you for this invitation to testify. My name is

Paul Forte. I am the Chief Executive Officer of Long Term Care

Partners LLC, a new joint venture company between John Hancock

Financial Services and MetLife. Long Term Care Partners is the

exclusive administrator of the Federal long-term care insurance

program. I am pleased to be able to participate in this important

hearing on the need for private long-term care insurance, one of

the key markets in the future, and on the Federal program, a landmark event in the development of that market.

Since the mid-1980’s, John Hancock and MetLife have labored to

perfect our respective long-term care insurance products and to

serve our ever expanding books of business. We have simultaneously participated in public policy initiatives, recognizing that

without them, the private long-term care insurance market was not

likely to grow.

But of all the public policy initiatives in which we have been involved, none in our opinion is as significant to the future of the private long-term care insurance market as the establishment of the

Federal program. This program will have far-reaching effects on

the entire U.S. population, not just the 20-million-member Federal

family.

More than 3 years in the making, the Federal program is distinguished for its quality, its comprehensiveness, and its value. I

would like to present some evidence for this assertion, but before

I do, allow me to say a few words about the entity that will be administering the Federal program since that is near to my heart.

John Hancock and MetLife first began working closely together

on the Federal program in the fall of 2000. Our two companies discussed the best way to support it if we were fortunate enough to

win the award. After much discussion, we decided to build a dedicated company from scratch.

This company would have all of the expertise needed to manage

a large national long-term care insurance program, to make it

strong and to keep it strong. It would be responsible for everything

from marketing and underwriting to customer service and claims

adjudication. Further, it would make extensive use of the Internet

and other technology so that it would be easy for Federal family

members to access information and benefits quickly, wherever they

were. It would give OPM and Federal family members a single

point of contact. In short, it would take the best of everything from

both companies and put it together under one roof.

Needless to say, this approach took a lot of thought and a lot of

hard work, and Long Term Care Partners is now underway. We are

building our organization, recruiting talent, setting up systems,

and developing service protocols. We are supporting the early enrollment program, which began March 25 and will run through

May 15.

Now to the reasons that I think the Federal program is so good:

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First, a generous allowance for informal care benefits, bringing

friends, neighbors, and other non-professionals, including relatives,

into the caregiving process;

Second, care coordination and counseling services to help insured

consider the many options they have before them and to access

benefits when they need them;

Third, the right to appeal all disputed claim decisions to an independent third-party examiner;

Fourth, flexibility in moving from a periodic method of adjusting

for inflation to an automatic compound increase method, without

evidence of insurability and with appropriate adjustments to rates;

Fifth, international insurance coverage so that insureds may receive benefits anywhere in the world.

These features illustrate the quality of the Federal program and

distinguish it from other long-term care offers available in the market. Since I have commented on several of these in my written testimony, let me say a few words about rates.

The Federal program represents an excellent, overall consumer

value, but in order to see this, you must compare Federal program

benefits with those of other policies, because long-term care insurance is not a commodity. Every policy is different, with its own provisions, its own terms, its own limitations. If adjustments are made

in the rates of other policies to allow for the benefits the Federal

program offers—for example, generous informal benefits, care coordination for insureds and family members, assisted living facilities covered at 100 percent of the daily benefit amount—the Federal program will come out on top.

We estimate that Federal program rates are at least 15 percent

less expensive on average than comparably designed policies on a

standard single-issue basis, and we expect these rates to be stable.

OPM’s recommendation that we set rates based upon ‘‘moderately

adverse’’ actuarial assumptions means it is likely that these rates

will be sufficient to support experience over the long term.

This approach to setting premiums is fully consistent with the

rate stabilization initiatives in the current National Association of

Insurance Commissioners model. In any event, all rates quoted are

guaranteed not to increase for the initial 7-year contract period unless OPM approves the increase.

I would like to note, Mr. Chairman, that neither John Hancock

nor MetLife has ever raised long-term care insurance rates on any

employer group contract, and we have hundreds of them.

Before closing, I would like to assure this committee of the commitment that Long Term Care Partners brings to the Federal program. Some of us have been involved in long-term care insurance

for the better part of our adult careers and have waited a long time

for a stimulus of this magnitude. Many of us have felt satisfaction

at watching the Federal program develop from its initial legislation

into the impressive structure it is becoming. All of us are dedicated

to making the Federal program a success because we believe in it

and in the people who are making it happen here in Washington.

On behalf of the staff of Long Term Care Partners and of my associates at John Hancock and MetLife, I would like to thank you

again for this opportunity to appear before your committee and for

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your valuable time. I will be happy to answer any questions you

may have.

[The prepared statement of Mr. Forte follows:]

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The CHAIRMAN. Thank you for your testimony.

Mr. Forte and Mr. Titus, I want to be a charter member of your

program. We will sit down and we will negotiate on the premiums.

[Laughter.]

I thank all of you. I just think this is so important. I think the

Federal effort with OPM and the partnership between MetLife and

Hancock is incredibly important because hopefully we will get a lot

of coverage on this, affecting not just Federal employees but, as you

said, Mr. Scott, all of the civilian employees who also will be made

better aware of the nature of the problem and the need for insurance.

I am a very strong believer in insurance to spread the risk and

to deliver products at an affordable price. I think you have all

made some really good points, and most people think the current

programs cover long-term care. Most people think they don’t have

a problem with it because they have Medicare, and they don’t have

a problem with it because if they really get poor, they have Medicaid.

The truth is that Medicare, being as inadequate as it is, covering

only 53 percent of an average senior’s health care costs in this

country, simply doesn’t provide any real long-term care coverage.

We have had hearings before this committee in this room with Governors—the Governor of Kentucky was the last one—who said their

Medicaid program is going broke. Why is it going broke? Principally because it is being used as a stop-gap measure to provide

long-term care. It was never intended to do that. We are trying to

put round pegs in square holes and square pegs in round holes,

and it just doesn’t fit. Medicaid was never intended to be a longterm care program for the Nation’s elderly, and yet, by default, it

has become so. We embarrass people and families by requiring

them to spend all their assets so they can become poor enough for

the country to give them some help.

So I really believe that hopefully this major effort on the part of

OPM is going to add to the coverage and publicity and knowledge

that individuals need about what they should be purchasing and

how they should go about doing it.

Let me ask you, Mr. Titus, the FEHB insurance for Federal employees gives the employees a number of different options with a

number of different companies. I take it that with regard to longterm care we have only one provider, which is the partnership between the two companies we have been speaking about.

Mr. TITUS. That is correct.

The CHAIRMAN. Why do we not have a choice for employees to

pick, you know, amongst more than just one provider?

Mr. TITUS. Well, as the name implies, long-term care insurance

is just that: You are establishing a long-term relationship with the

company. That is very different than health benefits where your

premium is based on the plan’s experience in only one year.

The premiums that have been set for long-term care are premiums that basically have a life of more than 40 years, and they

are designed to be stable and to be level.

It is just a very different product, and we looked at both models.

There was a legislative proposal which would have attempted to

replicate the FEHB program in terms of long-term care. In conVerDate 11-MAY-2000 11:51 Jul 16, 2002 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6633 C:\DOCS\80169.TXT SAGING1 PsN: SAGING1
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sultation with industry and experts and in surveying what was

done by other employers, we could not find any model where employers were offering basically competing insurance products.

As you know, and as has been testified this morning, not many

people purchase this product because it is not well understood; and

we felt that if people had to choose between five or six different

competing products, the result would be not only much higher marketing and administrative costs in terms of rolling out the program,

but probably lower participation rates.

We wanted to be in a position where we could stand up and be

advocates and cheerleaders for a very comprehensive and flexible

product, and we couldn’t do that if we had competition in the marketplace.

The CHAIRMAN. How long is the contract with the joint venture

program for?

Mr. TITUS. It is a 7-year contract. We will be evaluating their

performance each and every year. As we approach the seventh-year

anniversary, we will do an industry survey to make sure that the

carriers are performing on a par with the best available in the industry. If that determination is positive, if we determine that there

is no enrollee interest to be served by a recompetition, then we will

renew.

If we determine that we could get better performance at a better

price by recompeting the contract, then that is what we will do.

The CHAIRMAN. I am a big believer in giving people as much information as possible about products and then giving them choices

to pick the one that best fits their particular needs and their family

needs. But I understand the point that you make is from a standpoint of efficiency and cost, et cetera.

Let me ask Mr. Scott and Ms. Boyd, is that, from your knowledge, sort of a typical arrangement with large employers where

they would go out and negotiate and pick a particular long-term

care provider? Or is it more likely that they would have several different choices?

Ms. BOYD. It is the former. Certainly an employer, particularly

in the area of life insurance, long-term care, and disability insurance, these areas, an employer would pick one supplier.

The CHAIRMAN. You would agree?

Mr. SCOTT. That is correct. I would agree, yes.

The CHAIRMAN. So they are consistent with what the private

market has been doing in this area.

Ms. BOYD. Yes.

Mr. SCOTT. That is correct.

The CHAIRMAN. It is really interesting that 5 million people, I

think is the figure that I had, approximately, have long-term

health care insurance being provided by 100 companies. What do

you all in the private sector think that the potential realistically

is? I think this is a market that is going to explode. If I was in the

insurance business, I would be running as fast as I could to design

programs that are going to be available for this explosion of seniors

that we are about to have in this country.

What do you think? Anybody, either one of you, have an idea

about the potential out there for what a program that today covers

5 million people can be in the next 20 years? Any projections?

64

Ms. BOYD. I think that it is indeed potentially explosive, and for

a couple of reasons. I think that, first of all, awareness is growing

because of the aging of the population. But I believe the industry

would reflect what Aetna has experienced, and this goes back to

under HIPA tax relief. It was very limited. But even after that, certainly at Aetna we saw a 40 percent increase in enrollment in our

book of business.

Now, as I said, part of that, I think, was due to general awareness, but also I think even though those tax breaks were limited,

the signal was sent that individual accountability was very, very

important. So I think the Federal program will indeed support

that.

Second, the publicity and awareness and education around the

Federal program will send a very strong message. Employers are

beginning to look at, as Mr. Scott referred to, voluntary products

as they transfer costs to employees, and long-term care bought on

a group basis is very affordable.

So there is a great deal of interest, I think, in looking by employers at this opportunity.

The CHAIRMAN. Do you have a number that you all could tag to

this potential number of people that might be involved in purchasing this?

Ms. BOYD. Well, the population that is growing, you know, those

65 or older, I think I mentioned was going to be 20 million in my

testimony. So that is the extent. I don’t think we would expect to

see that happen overnight. We saw a 40 percent increase in our

own book. I think you could expect to see that in this.

The CHAIRMAN. From your perspective as insurance people, is

there anybody who shouldn’t have this insurance? I guess the answer is probably obvious, but could you elaborate on that?

Ms. BOYD. Well, I think that like other parts of other insurance

coverages, there is always a need and there are always different

ways to solve that need. I think, again, Mr. Scott referred to the

average age as certainly most suitable for somebody with a moderate income. But I have it, and I think that anybody who wishes

to protect their assets would want to look at this seriously.

Mr. SCOTT. Mr. Chairman, I am remiss not to have a specific

number for you, but I am sure we can get some better feel for that

as time goes on here. I think the boom is quite significant, though,

and I think we are all trying to position ourselves to take full advantage of that increase.

The CHAIRMAN. I really think it is something that would be recommended, I mean looking at it, for people of all income levels. If

you are fortunate enough to be wealthy, you would want to protect

your assets, not have to spend them all.

Mr. SCOTT. Absolutely.

The CHAIRMAN. Have something to pass on to your children and

grandchildren, et cetera. If you have a moderate income, you need

it. Obviously you need it if you are very poor.

Mr. SCOTT. That is the way we try to counsel people when they

inquire about long-term care. Obviously we sell direct. We don’t

have intermediaries representing us in the marketplace. So when

we counsel people about long-term care, we try to stratify them basically in the way you just indicated.

65

If you happen to be independently wealthy or can self-insure

some of this, we still try to encourage you to protect those assets

so you can pass those assets on to your heirs and not have them

eroded by paying for long-term care—open-ended actually, because

you don’t know how long you are going to be paying for this, so you

don’t know what the impact will be on your assets.

For those that are in greater need, we try to offer a more comprehensive program where it would cover more of the risk for them,

and certainly for those that are on the lower end, we talk about

Medicaid but we still try to talk about the importance of them buying coverage, too.

The CHAIRMAN. I would like some discussion, if I can, on the type

of long-term care that these insurance programs would cover. As

we all know, there is a huge bias toward institutional care, which

drives me crazy. You basically in the public now get Medicaid, and

Medicaid covers nursing homes.

Now, for some people a nursing home is absolutely essential, and

there are wonderful facilities that take care of people who need 24-

hour-a-day, 7-day-a-week care from an institutional setting and

with medical professionals being on call the entire time. But there

is a large number of people who are elderly who don’t need 24/7

care.

What does the Federal program cover when you say that we will

provide $150 or $100 a day benefit? What type of care and who selects it and how does that work under the plan? Paul, do you want

to elaborate on that?

Mr. FORTE. Yes. Well, the Federal program, Mr. Chairman, will

offer enrollees a wide variety of options for how they get long-term

care in the future. It will cover, of course, all kinds of institutional

care, for example, nursing care and assisted living facilities care,

and other kinds of care that would be provided in an institution.

But it will offer, we think, an unprecedented degree of flexibility

for home- and community-based care.

I noted earlier in my remarks that this program will not only

have a generous home care benefit, but it will have an informal

care benefit that is really strong, namely, you will be able to get

a significant amount of benefit each day from people who are nonprofessionals. These could be people living in your community.

They could be neighbors. They could be friends. They could even

be family members—provided that those family members are not

living in your household at the time that you become benefit-eligible, in other words, at the time that you submit your claim.

So you will have an opportunity to get care from people who are

known to you, with whom you are comfortable, people who may be

available, retirees, others in your neighborhood.

The CHAIRMAN. Is the Federal Government going to have a formulary of providers that you negotiate with, say, in order to get the

price down? Or do you say anybody in assisted living you can take

your money and go into where you want to go?

Mr. FORTE. We will have, through our information and counseling service, we will make people aware of networks of providers

who are willing to offer, say, assisted living at lower than market

rates.

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The CHAIRMAN. All right. When you have coverage for prescription drugs, the providers negotiate with the suppliers to get the

best price, et cetera. Are we going to do that with your companies?

Can they pick any nursing home they want? Can they pick any assisted living facility? Can they pick any home health care deliverer

they want?

Mr. FORTE. They have total freedom to choose any facility that

they want.

The CHAIRMAN. Do you look to a point when you would negotiate

with the providers to establish formularies from a price standpoint

to say, all right, whoever is going to make the best offer, we will

cover them, but we will restrict who you can go to?

Mr. FORTE. This is something that hasn’t been strictly formalized

right now, but we are in the process of discussing that.

The CHAIRMAN. OK. How do the private companies deal with this

issue?

Ms. BOYD. Mr. Chairman, as a health company, we certainly are

able to—we also pay out a dollar amount or reimburse services, so

we do not restrict where someone can go for care. But we are able

to leverage the buying power that we have to create discounts for

them.

The CHAIRMAN. How many customers do you have in your longterm care?

Ms. BOYD. We have 90,000.

The CHAIRMAN. 90,000?

Ms. BOYD. Yes. We would expect in the future to really leverage

that ability.

The CHAIRMAN. So if you are leveraging 90,000, you have got a

potential 20 million. Can we talk? [Laughter.]

Mr. FORTE. We have every expectation that not only in terms of

the cost of services but in terms of the quality of services, we will

certainly have negotiating leverage, and we expect that one of the

things that this program is going to do is raise the bar for all providers across—— The CHAIRMAN. I mean, you have the ability to do that. You are

going to be the largest provider of long-term care by far. You have

the ability to influence the quality of the services as well as the

price. It is not just who can do it the cheapest. You can do it the

cheapest if you do it, you know, in your back garage somewhere

and say that is a long-term facility. But I don’t think anybody

would want to go there, although it might be the cheapest. So, I

mean, it is a question of quality and price together, which I think

is very, very important.

We are trying to get as much information out there to people to

make, you know, educated decisions about where they want to go.

Mr. Scott, how about your operation?

Mr. SCOTT. We operate pretty much in a similar vein. However,

we try to intercede with the participant to get them some direction

as to what the best level of care and the most appropriate care

might be for them. A little bit of the early version of the managed

care activities that we have seen.

I see this business kind of evolving over time to looking a little

bit more like managed care, where from the standpoint of working

with the participants and making sure they get the appropriate

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level of care at the right type of institution, in addition to that negotiating arrangements with those institutions to make sure that

the price is fair and you are buying volume.

The CHAIRMAN. I take it in the private sector the insurance enrollee can pretty much decide what facility they need to go to.

Mr. SCOTT. That is correct.

The CHAIRMAN. Whether it is assisted living or whether it is a

nursing home.

Mr. SCOTT. That is correct.

The CHAIRMAN. You just have a blanket amount. What is the

normal—I mean, I think in the case of OPM, at least the thing

they printed out for me, daily benefits amount—under three different plans, Plan A is $100, Plan B is $150, Plan C is $150 daily

benefit amount. How does that compare to what your policies are?

Is that in the ballpark?

Ms. BOYD. Very similar.

Mr. SCOTT. Very similar to what we offer.

Ms. BOYD. Ours range from $150 to $300.

I would just like to make one correction point. We talked about

this buying power. From an Aetna perspective, we have 50 million

health members, so it is the leverage on the health.

The CHAIRMAN. The total thing.

Ms. BOYD. So we have already proved that negotiating power, so

I think it will be very valuable.

Mr. FORTE. Mr. Chairman, I would like to make one observation.

Since long-term care insurance is a relatively new form of protection and many people who are buying the product now may not

have need of that product for many years, as Frank was indicating

earlier, we think it is very important to give them the assurance

that they are going to have an enormous amount of control over the

kind of care that they get and how they get it.

Now, we use care coordinators who will be working with the insured’s own health care practitioner, and we will make a number

of recommendations for how that person could get care in an optimal fashion, the best care for the best needs. But we want to indicate—I would like to indicate that this is what we consider patient

advocacy and not gatekeeping. We are not going to prevent people

from accessing care because they do not use providers or facilities

that we have designated. This is extremely important. I think we

can all agree that in the world of health care where there are, you

know, millions of claims each day and costs going up, that might

be a necessity. We all will use our health plan at any point. It

could be today. With long-term care, that is not desirable from a

marketing or management viewpoint.

The CHAIRMAN. Well, can you all make recommendations as to

which plan is suitable? You can, can’t you?

Mr. FORTE. Absolutely. We——

The CHAIRMAN. You can?

Mr. FORTE. Pardon me?

The CHAIRMAN. You can.

Mr. FORTE. Yes, we have——

The CHAIRMAN. I have got three choices, A, B, and C. You can

look at my situation and recommend A over B or B over C?

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Mr. FORTE. We will—we can certainly ask questions about where

you are living, what kind of care you might be interested in, what

kind of care we think might be appropriate for your particular

health condition, and we can make recommendations as to how you

set that benefit.

By the way, those are just three pre-packaged options. You can

buy under the early enrollment program, Mr. Chairman, up to

$300 a day on the Federal program. Under the open season, you

will have an option for an unlimited plan. There will be no length

of time that you can receive benefits, and I just thought I would

mention that since that is a little unusual with respect to group

programs. Most group programs do not offer unlimited coverage.

What you are looking at is just sort of some pre-packaged options

to sort of help you get a read on it quickly. But you can customize

a plan by either calling our 800 line or going to our website.

The CHAIRMAN. The $100 to $150 is just a particular concept, it

is not only features that you are offering? You can buy $300 a day

if you want it?

Mr. FORTE. You could certainly buy $300 a day. I mean, people

are going to be eligible for this program all over the world, and

costs vary from place to place.

The CHAIRMAN. In the private sector, can you recommend which

is the best one for an individual?

Ms. BOYD. I think this is an important point, that long-term care

is very complex and it is not only which plan but it is what are

your circumstances. The trend certainly that we are following is

that we will profile.

The CHAIRMAN. What is the Boehner bill all about, if you can

make recommendations on what you are selling, is it just different

from retirement plans?

Mr. FORTE. This is different than retirement plans. The Boehner

bill would allow us to make broader recommendations on some

of——

The CHAIRMAN. That doesn’t make any sense. We have got one

standard if you are selling a retirement plan or a different standard if you are selling a long-term health insurance as far as what

you can do with your customers?

Mr. FORTE. We can make recommendations to people today on

health insurance. We have just chosen not to do that in many ways

because what we are trying to do is allow the person to kind of

walk down the path to make their own decision.

Mr. SCOTT. The Boehner bill is an investment advice bill, so that

is different.

The CHAIRMAN. This is advice on long-term care. It is just as important as investments. I mean, I don’t see the distinction. It is a

distinction without a difference that companies that sell products

for pension retirement cannot advise their clients as to which one

is the best. But if you are selling long-term health care insurance,

which is an investment for the rest of your life, you can. That

doesn’t make any sense, does it?

Ms. BOYD. Well, I think that what you are actually advising on

is not necessarily which facility to use, but based on your family

situation and your needs——

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The CHAIRMAN. You tell them which plan best fits them. That is

advice.

Mr. SCOTT. Yes.

Ms. BOYD. Which plan.

The CHAIRMAN. Yes.

Mr. SCOTT. What we should be doing and what we do often is

walk through the person’s background, what they have, what are

their assets, what are they able to afford in retirement, if they are

annuitized, like many of our participants are, how much money do

they get each year in their annuity plan, can they afford the premium, and what is the likelihood—what is their health history.

The CHAIRMAN. You make a recommendation.

Mr. SCOTT. We make—well, we will give them several choices.

We may not make a specific recommendation. We could. We are not

limited.

The CHAIRMAN. You can do that?

Mr. SCOTT. Yes.

Mr. FORTE. We could—one of the first things I would want to

know, for example, is what part of the country you plan to retire

in and whether you think that—— The CHAIRMAN. South. [Laughter.]

Ms. BOYD. Right on.

Mr. FORTE. That would be Louisiana, sir?, The Chairman. Maybe

even further south.

Obviously, if you were going to retire to a very high cost area,

like Miami Beach, you know, you are going to be looking at a plan

that is closer to $300 a day. You would want maybe the top level

daily benefit that was currently offered. Then, of course, you would

also want to think about how you were going to adjust for inflation.

The CHAIRMAN. I understand everything you are telling me, but

the point I am trying to figure out in my own mind is why we have

Federal laws that say if you are selling a pension plan to people,

to a person, that you can present what you have to offer but you

can’t recommend which aspect of it is best for that client. If you

are selling long-term care insurance to the same client the next

day, you can show him all the options and you can recommend

which one is the best for them, but you can’t do it if you are selling

a pension plan. It ought to be the same, as far as I am concerned,

one way or the other.

All right. Let’s go to restrictions. If I am 58 years old and have

early stages of Alzheimer’s, are you going to sell me a long-term

care plan?

Mr. FORTE. Mr. Chairman, each person’s underwriting profile is

different, and our underwriters will take a look at your profile. If

you are already an Alzheimer’s patient, it is likely that you would

not be accepted for coverage. The application that you have in front

of you, which I believe is what we refer to as the short form——

The CHAIRMAN. You have seven questions.

Mr. FORTE. It has got seven questions. Those begin by asking you

about your ability to perform certain activities of daily living. Then

it goes on to make inquiry into any one of a number of very serious

illnesses that might cause you to become dependent in the activities of daily living and so forth.

The CHAIRMAN. If you answer any one of these——

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Mr. FORTE. If you answer yes to any one of those, we recommend

that you do not go any further with your application. You should

wait for the open season, at which time we may be able to offer

you something else, a non-standard policy whose underwriting

terms you could pass successfully.

The CHAIRMAN. OK. How close are we to adverse risk selection

in this?

Mr. FORTE. Pardon me?

The CHAIRMAN. How close are we to adverse risk selection if you

are only going to insure people who are fairly healthy?

Mr. FORTE. Well, this is not—this plan will cover people who do

not have perfect health. There are a number of health conditions,

of course, that you might have that are not on that part of the

seven questions. We will, of course, accept people whose health is

not perfect.

Take someone, for example, who has diabetes, whose diabetes is

controlled through oral medication, it was adult onset. That person

might very well be accepted for coverage. Someone, on the other

hand, who was an insulin-dependent diabetic from childhood might

be declined.

So it really depends on your situation. But to your point about

not accepting people who are currently not healthy, this is a true

insurance program. We are accepting people into the program

whose health is reasonably good. We are not accepting people who

already constitute a potential claim. In fact, the statute expressly

makes reference to the fact that this program is not for people who

will become—either are now a claim or will become a claim almost

immediately. If we were to do that, sir, it would be almost impossible for us to offer this program at competitive rates and to make

it attractive enough to those people who are in very good health

and who would have the option to go to an individual long-term

care insurance underwriter and get a policy for them.

The CHAIRMAN. How does it work in the private sector, Mr.

Scott?

Mr. SCOTT. In the group business, we have what we call simplified underwriting, something very similar to what you have in

front of you. If we are offering to a group employer, we ask a limited number of questions to get a sense of the health history. Because it is group, you are going to be spreading the risk among a

larger number, so, therefore, you can take people with a somewhat

questionable health history because you assume you will have

healthier people.

On the individual side, we have a much more extensive health

care questionnaire where we ask detailed questions about the person’s history and background and then make an underwriting decision based upon how they answer those questions.

The CHAIRMAN. How many people do you think that currently

are applying for long-term health care insurance are denied access

to it because of pre-existing conditions?

Mr. SCOTT. About 10 percent. That is our number. Our number

is about 10 percent.

The CHAIRMAN. Ms. Boyd.

Ms. BOYD. I mostly would agree with that, yes.

The CHAIRMAN. About 10 percent?

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Mr. FORTE. Mr. Chairman, that is also true on the group side,

about 10 percent, particularly for actively—on the retiree side, it

could be a little higher.

The CHAIRMAN. OK. A final point. What—maybe two points.

What would be the optimum age, if there is one, for someone to

purchase these packages? Is there an optimum age, best age?

Mr. FORTE. I am not sure that there is an optimum age. I would

say that if you are approaching age 50 and you haven’t yet purchased long-term care, you really ought to give it very serious

thought because you are close to retirement, because at that age,

actuarially, your risk of contracting some kind of illness goes up

fairly significantly.

The CHAIRMAN. Your thoughts?

Ms. BOYD. In the employer market, I would say average age,

about 35 to 40 would be a very good age.

The CHAIRMAN. 35?

Ms. BOYD. Yes. The earlier that you purchase, the cheaper and

more affordable the product is going to be. Although you would be

accumulating over a long period of time, you still would be paying

in a lot less than you would have to pay out. Remember also that

the need for long-term care is not just an elderly issue. You can

have a need for long-term care at any time in life. There are as

many people under the age of 65 in need of long-term care or in

nursing homes as there are over.

The CHAIRMAN. Could something like what we are offering here

in the private sector be a way to provide this type of coverage to

Medicare patients through the Medicare program with the Government paying a portion of the premium? Could it be adaptable to

that? Mr. Forte?

Mr. FORTE. I am not sure I understand the question, Mr. Chairman. Are you asking——

The CHAIRMAN. Medicare doesn’t cover long-term care, and, you

know, I am thinking about trying to see—there is a big debate on

adding prescription drug coverage to Medicare, and many of us are

fighting for a private delivery system of prescription drugs instead

of having a micromanaged, top-to-bottom, federally run, federally

fixed prices on prescription drugs, to do it through an insurance

program. If we were to want to add long-term care to Medicare,

couldn’t we just incorporate this type of delivery system as a portion of Medicare, have the Government pay a portion of the premium?

Mr. SCOTT. That is a good question. I really haven’t thought

about that. I am not sure. I would have to take a little bit of time

to think about it.

I guess funding would be an issue and how you would underwrite

that would be two issues that come to mind that could be problematic.

The CHAIRMAN. Well, the way this would work would be the

Medicare program would just do what OPM did, do a request for

proposals from various providers and select one or several that we

would make part of the Medicare program; and a Medicare recipient would pay a portion of the premium, the Federal Government

would pay a portion of the premium, and private companies would

deliver the product. Most of the people that you are going to be

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selling this to are Medicare-eligible. They just won’t get it through

the Medicare program.

Mr. SCOTT. That is correct.

The CHAIRMAN. This is like a Medigap add-on, what we are talking about here. I would just like to make it part of Medicare itself.

I think Medicare should cover prescription drugs. Medicare should

cover long-term health care. If we are going to have a program that

takes care of seniors’ health needs, obviously prescription drugs is

one of them. Also, obviously, long-term care is another. Yet Medicare doesn’t cover either one of them. You know, we have got a program that is frozen in the 1960’s. What was needed in the 1960’s

is not what the priorities are in the year 2002.

Mr. SCOTT. Again, not having given this a lot of thought, but the

only thing I can—another item that I think might be problematic

is the fact that people might wait now until they are Medicare-eligible and then assume it is going to get paid for and not buy longterm care insurance and then increase the burden of Medicare disproportionate to what you might think it would be initially.

You know, one of the nice things with that—‘‘nice’’ maybe is not

the best term—is that because Medicaid and Medicare don’t pay for

this, we have a better opportunity to try to educate people about

the need to do this earlier in their lives and to pay for it now. If

you eliminate that, then we put a lot more pressure on all of us

to educate people about the importance of doing it early.

The CHAIRMAN. Well, this has been very, very helpful. I think we

have made a good record for what you all are attempting to do. I

congratulate OPM for moving aggressively in this area, for the

companies that have participated in the joint venture. I think that

getting this information out will be a lot easier now that you have

got a potential target of 20 million people who are Federal employees and their families that will be able to benefit from it. I think

that will be helpful to the private sector because more people will

know about it who are not Federal employees.

I just think this is a huge, huge potential area that we are going

to be moving into in the future because it is absolutely essential

and necessary, and I think we have got some positive things that

are happening in regard to this.

With that, this will conclude our hearing. We thank you all very

much for being with us.

[Whereupon, at 11:01 a.m., the committee was adjourned.]

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A P P E N D I X

PREPARED STATEMENT OF SENATOR DEBBIE STABENOW

Chairman Breaux and Senator Craig, thank you for holding today’s hearing on

‘‘Offering Retirement Security to the Federal Family—the Long Term Care Initiative.’’ As a member of the Budget Committee, and a strong supporter of many health

care and senior programs, I think it is critically important that we not only examine

these issues but also celebrate success.

For the first time, approximately 20 million members of the Federal family—federal and postal service employees and annuitants, members and retired members

of the uniformed services and qualified family members—can apply for federallysponsored long term care insurance. This benefit was created under the Long-Term

Care Security Act, Public Law 106–265, which was enacted in September of 2000.

One of the greatest threats facing older people and their families today may be

the financial, social, psychological and family consequences of needing long term

care. Long term personal or ‘‘custodial’’ care is not covered by most health care programs, including the Federal Employees Health Benefit Program and TRICARE. In

making this important long term care insurance program available, OPM has

worked carefully to ensure the insurance coverage offers the kinds of benefits and

features that would be most beneficial to members of the federal family. This includes key benefits for care in the home, care in nursing homes, in assisted living

facilities and a variety of other facilities.

According to statistics reported by OPM, six out of every ten Americans who reach

the age of 65 will need long term care services. In addition, 40 percent of people

receiving long term care today are between the ages of 18 and 64. This points up

the importance of long term care insurance not only for older Americans, but for

our population in general. Data indicates that long term care insurance is as necessary as homeowner’s, automobile or medical insurance.

An example of how important it is recently came up in terms of the Farm Bill.

While the Farm Bill terminates certain federal appointments of Extension Service

employees, it retains eligibility for some specific federal benefits, such as the Federal Employees Health Benefits Program, the Federal Employee Group Life Insurance Program and the Civil Service Retirement System.

Some constituents contacted me and told me that they had concerns about the

Farm Bill because it did not include the federal long term care benefit on the list

of programs these people would continue to be eligible for. While chances are that,

by virtue of their continued eligibility for the Federal Employees Health Benefit Program, these individuals may have been determined to be eligible for the long term

care benefit, I was advised by OPM to specifically add language to the Farm Bill

to ensure that this benefit was explicitly available to these employees. I am currently working with my Agriculture Committee colleagues during conference negotiations on the Farm Bill to make sure long term care insurance is added to the

list of benefits. It will not cost the federal government any money, but will provide

a very important benefit to members of the federal family.

I look forward to hearing from all of our witnesses today.

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