U.S. GOVERNMENT PRINTING OFFICE

57–738 CC WASHINGTON : 1999

LONG-TERM CARE INSURANCE FOR FEDERAL

EMPLOYEES

HEARINGS

BEFORE THE

SUBCOMMITTEE ON THE CIVIL SERVICE

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

MARCH 18, APRIL 8, AND JUNE 14, 1999

Serial No. 106–20

Printed for the use of the Committee on Government Reform

(

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

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JOHN T. DOOLITTLE, California

HELEN CHENOWETH, Idaho

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

CARLA J. MARTIN, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON THE CIVIL SERVICE

JOE SCARBOROUGH, Florida, Chairman

ASA HUTCHINSON, Arkansas

CONSTANCE A. MORELLA, Maryland

JOHN L. MICA, Florida

DAN MILLER, Florida

ELIJAH E. CUMMINGS, Maryland

ELEANOR HOLMES NORTON, Washington,

DC

THOMAS H. ALLEN, Maine

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

GEORGE NESTERCZUK, Staff Director

EDWARD LYNCH, Senior Research Director

JOHN CARDARELLI, Clerk

TANIA SHAND, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on:

March 18, 1999 ................................................................................................. 1

April 8, 1999 ..................................................................................................... 135

June 14, 1999 .................................................................................................... 235

Statement of:

Carr, William J., Deputy Director, Force Management Policy, Department

of Defense; Pat Freeman, associate executive director, John Knox Village Medical Center, American Health Care Association; and Kenneth

A. Grubb, president, NYLife Administration Corp., Health Insurance

Association of America ................................................................................. 185

Carver, David M., district manager for benefits planning and analysis,

AT&T; Kenneth A. Grubb, president, NYLife Administration Group/

New York Life Insurance Co., Health Insurance Association of America;

and David E. Cavanaugh, manager of business development and special

projects, Wright & Co. .................................................................................. 323

Croach, Marilyn Cobb, area representative, National Military Family Association; SMSGT Larry Hyland, USAF retired, national director, the

Retired Enlisted Association; and COL Klyne Nowlin, USAF retired,

State president, the Retired Officers Association ...................................... 147

Kramer, Judy, Silver Spring, MD ................................................................... 14

Lachance, Janice, Director, U.S. Office of Personnel Management, accompanied by William E. Flynn, III, Associate Director, Retirement and

Insurance Services, U.S. Office of Personnel Management ....................... 34

Martin, David S., American Council of Life Insurance; Kenneth A. Grubb,

New York Life Insurance Co.; and David H. Brenerman, Health Insurance Association of America ......................................................................... 70

Yocum, Charles E., senior group patent counsel, Black & Decker, resident

of Howard County, MD; Georges C. Benjamin, secretary, Maryland

Department of Health and Mental Hygiene; and Frank G. Atwater,

president, National Association of Retired Federal Employees ................ 244

Letters, statements, etc., submitted for the record by:

Atwater, Frank G., president, National Association of Retired Federal

Employees:

Letter dated June 18, 1999 ...................................................................... 318

Prepared statement of ............................................................................... 253

Benjamin, Georges C., secretary, Maryland Department of Health and

Mental Hygiene:

Information concerning long-term care expenditures ............................ 315

Information concerning requests for proposals ....................................... 271

Prepared statement of ............................................................................... 248

Brenerman, David H., Health Insurance Association of America, prepared

statement of ................................................................................................... 95

Carr, William J., Deputy Director, Force Management Policy, Department

of Defense, prepared statement of ............................................................... 186

Carver, David M., district manager for benefits planning and analysis,

AT&T, prepared statement of ...................................................................... 327

Cavanaugh, David E., manager of business development and special

projects, Wright & Co., prepared statement of ........................................... 365

Croach, Marilyn Cobb, area representative, National Military Family Association, prepared statement of .................................................................. 150

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statements of .................................................. 9, 142, 240

Freeman, Pat, associate executive director, John Knox Village Medical

Center, American Health Care Association, prepared statement of ......... 194

Page

IV

Letters, statements, etc., submitted for the record by—Continued

Grubb, Kenneth A., New York Life Insurance Co., prepared statements

of........................................................................................................... 87, 202, 340

Hyland, SMSGT Larry, USAF retired, national director, the Retired Enlisted Association, prepared statement of ................................................... 158

Kramer, Judy, Silver Spring, MD, prepared statement of ............................ 17

Lachance, Janice, Director, U.S. Office of Personnel Management, prepared statement of ........................................................................................ 37

Martin, David S., American Council of Life Insurance, prepared statement of ........................................................................................................... 73

Nowlin, COL Klyne, USAF retired, State president, the Retired Officers

Association:

Information concerning long-term care policies ...................................... 177

Prepared statement of ............................................................................... 168

Scarborough, Hon. Joe, a Representative in Congress from the State

of Florida:

Document from Fortis Insurance Co. ....................................................... 69

Prepared statements of ..................................................................... 3, 138, 237

(1)

LONG-TERM CARE INSURANCE FOR FEDERAL

EMPLOYEES

THURSDAY, MARCH 18, 1999

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON THE CIVIL SERVICE, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 9:20 a.m., in room

2203, Rayburn House Office Building, Hon. Joe Scarborough (chairman of the subcommittee) presiding.

Present: Representatives Scarborough, Morella, Mica, Cummings,

Norton, and Allen.

Staff present: George Nesterczuk, staff director; Edward Lynch,

senior research director; Garry Ewing, legal counsel; John

Cardarelli, clerk; Tania Shand, minority professional staff member,

and Jean Gosa, minority staff assistant.

Mr. SCARBOROUGH. I would like to call this meeting of the House

Civil Service Subcommittee to order.

Ladies and gentlemen, this morning we are going to consider legislative proposals to establish a program under which Federal employees may purchase long-term care insurance. Although our immediate focus is on the Federal work force, the long-term care issue

has more far-reaching implications.

As one of the Nation’s largest employers, the decisions we make

here will influence employers across the country. Employer-based

plans represent the fastest growing market for long-term care insurance. By offering this benefit to individuals in their working

years, we can help encourage the purchase of this product at

younger ages when premiums are obviously lower and more affordable.

We need some common-sense ideas to help this Nation solve a

growing problem in financing the cost of long-term care. The fact

is that most Americans now cannot afford to pay the average cost

of $41,000 per year for a nursing home stay or the $98 average per

visit fee of a registered home care nurse.

While many believe that Medicare will provide for their longterm care needs, they quickly learn that Medicare simply is not

enough to help out. For two out of three Americans needing longterm care today, that help comes from the Medicaid program, but

only after the individual is impoverished. Faced with a rapidly

aging population, Medicaid will not be able to withstand the demand for long-term care services in the near future.

As we address this problem for the segment of the population in

our jurisdiction—current and retired Federal employees, the adVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HEARINGS\57738 pfrm11 PsN: 57738
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ministration, the Congress—have already agreed on some basic

principles involving long-term care. Both bills before the committee

will rely on private insurance—privately managed and privately invested—to provide the financing for long-term care. Both bills also

call for employees to fund the cost of the premiums.

These are very important principles, and the fact that we agree

on them brings us much closer to a compromise because these

agreements effectively eliminate the budgetary considerations on

this issue from the budget. What remains for us to resolve is to

how best to ensure that Federal employees are afforded an adequate variety of planned choices at prices they can afford.

Achieving maximum participation will require affordable premiums and an ability to satisfy the widely varying needs of a diverse population. Ultimately, the success of our collective efforts

will be measured by the number of participants that decide to become engaged in this Federal long-term care insurance program.

I am a firm believer in the strength of competition to meet the

needs of a diverse market. I don’t believe that one-size-fits-all options work. Looking at the administration’s proposal, I am concerned about a comparative lack of competition, limited choice, and

seemingly limited capacity to serve our large Federal population.

As most of you know, we have a very diverse work force—1.5 million white collar employees and 250,000 blue collar workers. Our

employees range from highly paid executives and professionals to

more modestly compensated clerical and administrative support

personnel. They are scattered throughout the country and across

the world, in remote rural areas as well as large metropolitan centers where a higher cost of living is an important consideration.

The average age is in the late–40’s, and they are single, married,

divorced, widowed, some with children, some without. Add to that

2,300,000 annuitants and survivors at an average age of 74 and it

becomes obvious that their needs for financial planning and longterm security are going to be vastly different.

Variety of choice in long-term care plans is the optimum way, I

believe, to ensure broad-based participation. I also believe that providing variety of choice is also the best way to guarantee value for

the premium that each one pays.

Long-term care insurance is an important part of planning for

the future. As American’s step into the 21st century, living longer

than ever before, this type of coverage can safeguard hard-earned

savings and assets.

The Federal Government can set an example by encouraging its

employees to consider this important benefit and to provide as wide

a range of options as they might seek.

I look forward to hearing from our witnesses as we discuss these

approaches in providing long-term health care insurance to our

work force, and I am sure it is going to be very educational for all

of us.

The ranking member is not here presently, but I would like to

yield to Ms. Norton for any comments she might have.

[The prepared statement of Hon. Joe Scarborough follows:]

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Ms. NORTON. I thank you, Mr. Chairman.

I want to both thank and commend Chairman Joe Scarborough

for his work on long-term care, for bringing this problem forward

early in this session of Congress, and for continuing the work this

subcommittee began on this very important and difficult issue in

the last Congress.

The large number of bills filed by Republicans and Democrats,

and by the administration, is an indication of the need and concern

that should encourage us to pursue a bipartisan bill this session.

It is entirely appropriate for the Federal employer to take the lead

for employers everywhere. It is a workplace well-suited to help the

country develop a long-term care model.

These are unchartered waters, except for the much admired Federal Employees Health Benefits Program. Its genius has been, its

free market base, within a refereed system. That has made competition work to hold costs far better than the unrefereed costly

universe of health care which often spins out of control, in which

many Americans are forced to fend for themselves.

Federal employees and their relatives are going to have to pay

for the long-term care premium without a Government subsidy.

This does not mean that their Federal employee should throw them

to the wolves. It won’t do much good to create a long-term care program fraught with the cost problems of health care in America

today.

Both Democrats and Republicans believe that Government cannot, and should not, control costs. The question for Congress is,

what will it take to produce the kind of competitive environment

that will allow the marketplace to develop affordable, comprehensive varieties of long-term care that employees and families can tailor to their needs.

This is a very tall order, but I am convinced that there is enough

goodwill, desire, and intelligence, on both sides of the aisle, to do

the job. Let’s go to Hershey and figure this one out. [Laughter.]

Mr. SCARBOROUGH. Well, can we figure it out without going to

Hershey?

Thank you for your words, and I would like to now welcome Mrs.

Connie Morella for any opening statements she may have.

Mrs. MORELLA. Thank you, Mr. Chairman.

Mr. SCARBOROUGH. It is good to have you here.

Mrs. MORELLA. Boy, what timing; I came just in time to, also,

have my constituent be—[laughter]—one of the people on the

panel.

A lot of talk in Washington these days is about Social Security

and Medicare, and the financial crises that these problems face in

the next decade. And as economic forecasters look in their crystal

balls, they foresee one more system for seniors that teeters on the

brink of bankruptcy, and that is Medicaid. And now, more than

ever, we must take a long, hard look at that. But, also, with the

aging of our population and greater life expectancies, we need to,

also, plan for the financing of long-term care of older Americans,

and that is why I am glad that you had this hearing.

In 1995, Federal and State spending for nursing home care, largely through the Medicaid program, amounted to $34 billion,

and an additional $21 billion was spent for home care. With the avVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 E:\HEARINGS\57738 pfrm11 PsN: 57738
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erage cost of nursing home care in Maryland averaging $50,000 a

year—and I think that is pretty modest—and as high as $91,000

in some areas, long-term care can have a devastating financial impact on families, impoverishing them before a spouse, a parent, a

grandparent becomes eligible for Medicaid. Situations in which

long-term care costs force even the middle class into the Medicaid

safety net are typical and not isolated. And in my State of Maryland, alone, nearly 85 percent of nursing home residents rely on

Medicaid for their long-term health care needs.

I don’t need to go into, Mr. Chairman, the statistics with regard

to the number of people that will turn 65 and how long they are

going to live, but I would like to have my entire statement included

in the record.

Mr. SCARBOROUGH. Without objection.

Mrs. MORELLA. Thank you.

But, however, beyond nursing homes, there is a wide range of

services available in the community to help meet long-term care

needs. Care given by family members can be supplemented by visiting nurses, home health aides, friendly visitor programs, homedelivered meals, and adult day care centers, respite care for caregivers, and the litany goes on.

I sponsored in the 105th Congress a concurrent resolution, House

Concurrent Resolution 210, to call our attention to this critical

need of long-term health care financing and insurance-based approaches to relieve the financial burden already imposed on Medicaid. And now it is time for us to act.

We are making some strides in educating people and advocating

the purchase of private long-term care insurance policies, but they

have to be affordable, and that is why I introduced, just a few days

ago, H.R. 1111—easy to remember—the Federal Civilian and Uniformed Services Long-Term Care Insurance Act of 1999.

The legislation creates an innovative program to meet the longterm care financing needs of Federal employees, Federal annuitants, active and retired military personnel, and their families. It

was developed, this legislation, in consultation with, and has the

endorsement of, the National Association of Retired Federal Employees, the Reserved Officers Association, the Alzheimer’s Association, a number of organizations whose membership will directly

benefit from having greater access to affordable long-term care insurance. And, Mr. Chairman, and, members of the committee, by

so expanding the pool, we now have about 20 million people who

would be eligible.

The bill would offer participating long-term care insurers a diversified risk pool to market a variety of policies. It also empowers

OPM, that I see here, to leverage the advantages of a group of this

size to obtain significant savings in premiums. It also is attractive

because it gives OPM authority to enforce consumer protections

and to monitor carrier performance, with the authority to terminate if a carrier is not performing.

H.R. 1111 gives guidance to OPM on asking insurers in their

proposals to design benefit packages, and that would allow for care

in a variety of settings, optional coverage in case of medical necessity, and a number of other possibilities that would be crafted.

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No one likes to think of anything but a bright future, but I think

the reality is that we have got to come to grips with offering longterm care. And I think that the Federal sector is the way to begin,

and expanding the pool makes sense.

So I, obviously, am delighted that you had this hearing set up,

Mr. Chairman, and I thank you for the opportunity of making an

opening statement.

I look forward to the rest of the hearing.

Mr. SCARBOROUGH. Thank you, Congresswoman Morella.

Now I am pleased to introduce for an opening statement the distinguished ranking member, Elijah Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

Long-term care is an important priority for me, as the ranking

member of the Civil Service Subcommittee. We spent a considerable amount of time on this issue during the 105th Congress, holding one hearing and formally debating the merits of the bill introduced by former Subcommittee Chairman John Mica.

Though we failed to act on any legislation, there was a bipartisan

consensus that we would continue to work together on this issue

until we can reach agreement on a bill.

On January 6, I introduced H.R. 110, Federal Employees Group

Long-Term Care Insurance Act of 1999. My bill is one of four elements of a comprehensive long-term care package announced by

President Clinton.

H.R. 110 would authorize the Office of Personnel Management to

purchase a policy or policies from one or more qualified private-sector contractors to make long-term care insurance available to Federal employees and retirees and family members whom OPM defines as eligible at group rates. Coverage would be paid for entirely

by those who elect it.

The program would be available to Federal employees and retirees, and their spouses, a former spouse who is entitled to an annuity under a Federal retirement system, parents, and parents-inlaw. All participants, other than active employees, would be fully

underwritten, as is standard practice with products of this kind.

Coverage made available to individuals would be guaranteed renewable and cannot be canceled except for nonpayment of premium.

Though each participant would be responsible for paying the full

amount of the premiums, based on age at time of enrollment, group

rates will save an estimated 15 to 20 percent off the cost of individual long-term care policies.

OPM will be responsible for the administrative costs of the program which is estimated to be only $15 million over a 5-year period. Initial year costs include developing and implementing a program to educate employees about long-term care insurance.

The proposal would provide a substantial benefit to Federal employees and retirees by providing access to quality long-term care

insurance products at cost-saving group premiums.

H.R. 110 has been endorsed by the National Treasury Employees

Union, the National Association of Government Employees, and the

National Association of Retired Federal Employees. These organizations recognize the importance of the Federal Government setting the example for private-sector employers whose employees face

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the same long-term care insurance needs. They also recognize that

by further enhancing its benefits package, the Federal Government

will be better able to attract and retain the best and brightest work

force.

H.R. 110 helps to raise the public’s awareness of the need for

long-term care and underscores the importance of assuming personal responsibility and less reliance on public support for one’s

long-term care needs through Medicaid.

I understand that earlier this week, my colleague from Maryland, Connie Morella, introduced another long-term care bill. Her

proposal would add active-duty military personnel and their family

members as eligible participants. Further, it would index benefits

for inflation. It would include annuitants in the same risk pool as

active-duty Federal employees, thereby, potentially increasing premiums for the active employees.

I look forward to the testimony of today’s witnesses and the insight it will provide into the relative merits of the three pending

long-term care proposals.

Again, I thank you, Mr. Chairman, for placing this matter near

the top of the subcommittee’s agenda. I look forward to working

closely with you and all the members of our subcommittee to

produce a consensus legislation that can be enacted this session.

[The prepared statement of Hon. Elijah E. Cummings follows:]

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Mr. SCARBOROUGH. Thank you, Congressman Cummings, and I

would just like to add a little to what you said regarding military

retirees.

We have obviously talked to TROA and other groups. We certainly support the efforts of Mrs. Morella to add them in. And, as

with everything in 1999, we just have to figure out a way to pay

for it. And I am sure we can do that.

Mrs. MORELLA. We can, Mr. Chairman, because my bill would

not be paid for by the Federal Government.

Mr. SCARBOROUGH. Right.

Mrs. MORELLA. Yes; OK.

Mr. SCARBOROUGH. Thanks.

I would like to introduce Judy Kramer. Judy is a—well, actually,

Connie Morella claims her as her own. [Laughter.]

Mrs. MORELLA. May I?

Mr. SCARBOROUGH. She is a resident of Silver Spring, MD, and

is a private individual that has very extensive experience—personal experience—with the intricacies of the Medicaid system.

Mrs. Kramer’s parents played by the rules. They worked hard

their entire life. They saved an awful lot of money, but were placed

in a nursing home at the age of 79. Within 2 years, they had spent

their entire life’s savings of approximately about $150,000 in order

to qualify for long-term care under Medicaid.

Mrs. Kramer’s husband is a Federal annuitant so, consequently,

she would be eligible for long-term care insurance, under the terms

of the bills that we are considering here today.

As a result of her experiences, she is a consumer advocate for

long-term care reform, and I believe—as does everybody else up

here—that she has a very compelling story to tell.

As it is customary to swear in the witnesses, could you rise and

be sworn in.

[Witness sworn.]

Mr. SCARBOROUGH. If you could go ahead and testify, and I will

give you a gentle reminder that we have a 5-minute limit, but will

not have you dragged out if you go a few minutes over. [Laughter.]

STATEMENT OF JUDY KRAMER, SILVER SPRING, MD

Ms. KRAMER. Thank you.

Mr. Chairman, I appreciate the opportunity to address you and

members of the subcommittee.

I have 5 minutes to tell you about 5 years of my life; I will try

and work within those limits.

Healthy parents are both a genetic and a generational blessing.

As their children, we can then hope for long life and the pleasure

of benefiting from their accumulated wisdom and experience. But

for so many of us, when our parents’ health begins to fail, our relationship becomes one of increased responsibility—for the quality of

their lives, for their daily activities, for their health care decisions,

and for their financial management.

The ravages of age often cause us to invade both their privacy

and their personalities, as roles reverse and we offer them, or must

impose upon them, the kind of care that they once gave us.

My parents, Milton and Evelyn Lieberman, were solid citizens of

the middle class. My father was in the shoe business for most of

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his adult life, and my mother worked as a cashier in a bookstore.

Between them, they put two children through college, lived frugally, and managed to save a nest egg of $150,000. My father retired in good health at the age of 62, and my mother followed him

by several months when she was 62.

For 17 years, thereafter, they lived very carefully on Social Security and the interest from their savings. At the ages of 79 and in

failing health, both of them made the decision to move into a nursing home so that they could receive the care required for their

maintenance and their safety. My father had end-stage renal disease and needed frequent dialysis. My mother suffered from the

ravages of 40 years as a diabetic.

Although they could no longer walk safely or care for themselves,

their minds were clear, and they were able to participate in the decisionmaking process until they died 3 years later.

At the age of 52, I became their ‘‘paper persona,’’ managing their

affairs and responding to expenses that quickly devoured their nest

egg. They shared a room in a nursing home at a monthly cost of

between $3,000 and $3,500 each. Medications cost hundreds of dollars monthly for each of them. My father’s dialysis required that

he be transported to a hospital twice a week as I was working fulltime helping to put three children through college and was unable

to drive him. Private transportation bills grew to hundreds of dollars monthly. The cost of medical supplies to manage their incontinence grew. These were costs beyond what Medicare and their private health insurance policy covered.

Their health needs dried up any financial security they had been

able to establish for themselves. Costs of paying for two irrevocable

funeral trusts, bringing current their advance directives and health

care durable power of attorney, and getting help applying for Medicaid totaled more than $22,000. Their savings lasted less than 2

years once they entered a nursing home.

As their money disappeared, I began to drown in the minutiae

of their care—the bills, the laws, the regulations to be understood

and met.

I attempted to understand the requirements of a Medicaid spenddown. Much of the required 3 years of financial documentation had

been lost or discarded when my brother and I moved our parents

from their tiny, cramped apartment into the nursing home.

After months of attempting to reconstruct their past financial

lives, I applied for Medicaid on their behalf. I had not spent down

all of their resources, I was told. Certificates of deposit, long held

in trust for my brother and me, had been set up incorrectly and

were, therefore, a part of their assets. I spent them willingly and

quickly on their care.

In making a reapplication for Medicaid for both of my parents,

I was guided by an elder law attorney, and, after another denial,

the application was finally approved. My parents, with total assets

of $2,500 each, became poor on May 1, 1994. After a lifetime of saving, it had taken less than 2 years for them to become destitute.

They lived together for another year in the nursing home before

I was called upon to implement their advance directives and remove them from life support. They died within 6 weeks of each

other.

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Medicaid was not only their safety net, it was mine as well. I

could never have afforded to provide the care they required. We all

felt no shame in the spend-down of their assets. Rather, we saw

it as our obligation to the Government. Neither my brother nor I

expected or desired an inheritance. My parents’ money was to be

spent on their care. We hid nothing; we protected no revenues from

scrutiny. We felt that, as taxpayers, our parents had contributed to

the system, had supported the sustenance of others, and now it

was their turn, their need, their entitlement to be supported by the

Government and the rules they had lived by.

It is my growing understanding that Medicaid that sustained my

parents in the last 2 years of their lives will not be there for my

husband and me in the same form. My husband, a Federal retiree,

spent 27 years in Government service. We have helped 3 children

complete a total of 17 years of college and graduate studies. The

debt incurred will take us years to reduce.

Based on my parents’ experience, we would be interested in longterm care insurance but cannot afford it as presently available.

Group rates might make this possible for us. Employer contribution

in the future might make this a possibility for millions more.

The journey with my parents into their old age was a trip none

of us wanted to make. It was expensive; it was lonely; it was frightening; it was frustrating, and it was infinitely sad.

As a writer and newspaper columnist for 5 years, I have chosen

to share these feelings with thousands of readers seeking validation for their own experiences. They are responding with hundreds

of letters and calls asking for back copies of my column. They are

asking for my story because it is their story.

Thank you for the opportunity to share all of our experiences.

[The prepared statement of Ms. Kramer follows:]

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Mr. SCARBOROUGH. Thank you, Ms. Kramer, for your testimony.

You know, you are right; your story is their story for the millions

and millions of Americans who go through this. It is a story that

I know I have experienced in my family, and I am sure everybody

else has experienced something like it in their family, too, where

people play by the rules their entire life and they work hard. I can

tell you that the tragedy for me, as a father of two young boys, the

second you have children, you are thinking all the time, ‘‘How do

I take care of them? I have got to work hard; I have got to not only

worry about getting them through high school but, hopefully, to college and, hopefully, leaving them something,’’ if you work hard

your whole life.

Let me ask you this; you said you weren’t expecting an inheritance but, obviously, it sounds like your parents planned for that,

to give you some of that money to do the type of things that I

think, instinctively, parents want to do for their children. What

was it like for them?

You have told me what it was like for you, but what was it like

for them? Seeing that everything that they had worked for to try

to take care of their children, vanished in 2 years?

Ms. KRAMER. When my parents went into a nursing home, they

asked me to manage their finances. I agreed to do that. As I began

the spend-down, they did not want to know the details. They were

busy trying to maintain themselves.

What I did not tell them was that they had set aside two certificates of deposit—one for my brother and one for myself—and in

order to not impose a financial burden on us because we had three

kids in college at the same time. My parents kept those certificates

of deposit under my father’s Social Security number. Therefore, he

paid the taxes on them. Therefore, they were his assets. And my

parents died not knowing that that money had gone toward their

care.

Mr. SCARBOROUGH. You mentioned briefly about some of the administrative costs. I take it that you had to get an attorney that

specialized in elder care?

Ms. KRAMER. I did, after the first Medicaid application that I

filled out on my own was denied.

Mr. SCARBOROUGH. What did—[laughter]—did this attorney do it

pro bono?

Ms. KRAMER. No.

Mr. SCARBOROUGH. I—[laughter]—that was sort of——

Ms. KRAMER. No.

Mr. SCARBOROUGH [continuing]. A leading question there, with a

smirk.

Ms. KRAMER. No; it was not pro bono. [Laughter.]

Mr. SCARBOROUGH. As an attorney, I guess I can rib my profession. [Laughter.]

What was the price tag on legal fees?

Ms. KRAMER. You know, last year I threw away all of my records,

because I had kept them for 3 years, and it was just painful to look

at them. My recollection of the cost of the attorney was around

$4,000 for all of her help—with the advance directive, with the irrevocable trust, with the durable power of attorney for health care.

24

When I went to her, I told her that I had no funds to pay her,

that whatever her costs would be, they would have to come out of

what my parents had. And that was the arrangement that we

made.

Mr. SCARBOROUGH. OK.

And, again, you said you had no funds to pay her, you were——

Ms. KRAMER. I had none of my own funds available.

Mr. SCARBOROUGH. Right. At the time—and, again, the only reason I say this is because your story is the story of so many people.

You had three children in college at the time. It seems, again in

our families, that we see time and time again people work their

whole life, and try to get their kids to schools. Usually, if you are

lucky enough to get your kids out of school, then, unfortunately,

the attention turns to the parents.

Ms. KRAMER. That is right.

Mr. SCARBOROUGH. And the stress is absolutely incredible.

I am going to give you a little more time, because I know that

you rushed through your story to get within the 5-minute timeframe. But, could you share for the panel, for the committee and

everybody listening, what was one of the more painful parts of the

spending-down process for you?

Ms. KRAMER. I felt totally responsible for the quality of my parents’ lives.

I can remember because it was around this time of year, trying

to get together the necessary information, going to the banks with

a laundry hamper full of notebooks and papers that I had collected

from my parents’ file cabinet and saying, ‘‘Can you help me with

this? I know things are missing.’’ Trying to fill out the form for

Medicaid—night after night, I would get into bed and literally lay

there shaking because I knew that if I didn’t do this right, my parents were going to suffer. I felt totally responsible for their lives.

And it was very difficult to get the information I needed.

There is no single point of entry for this kind of information.

When most of us are first presented with this responsibility, it is

in an emergency situation.

Mr. SCARBOROUGH. Right.

Ms. KRAMER. My father had an emergency; he had to go to the

hospital. He had end-stage renal disease. The doctors came out,

they told me, ‘‘He can’t go home. He has to go into a nursing

home.’’ That day, I took over for them. And I didn’t know their finances; I didn’t know the difference between Medicare and Medicaid. I had no idea what was involved, and I began to look for answers.

And it is very hard to know where to turn. If you open the Yellow Pages and look for information to help you, do you look under

‘‘Aging?’’ Do you look under ‘‘Seniors?’’ Do you look under ‘‘Medicare?’’ Do you look under ‘‘Medicaid?’’ Do you look under ‘‘County

Government?’’ ‘‘Federal Government?’’ It is a maze to wade

through.

Mr. SCARBOROUGH. What strikes me, from what you have just

said, is that you appear to be very educated, a journalist, and obviously know your way around things and subjects. And if this

caused you to lie on your bed and shake, what in the world does

25

a less-educated person, who doesn’t necessarily know where to go

and look, do?

Ms. KRAMER. I agree.

Mr. SCARBOROUGH. OK. And, you know, if this causes you to collapse and shake on your bed, then what about those that aren’t as

equipped to handle this situation? It is frightening. What happens,

not only to them and their families, but what happens to their parents? It is very frightening.

Ms. KRAMER. When you go through this process, you can’t help

but spend those nights also thinking, ‘‘If this is for them, what is

for me?’’

Mr. SCARBOROUGH. Right.

Obviously, with an aging population and the demographics the

way they are, your story I think magnifies what is going to be happening in the next 10–15 years when baby-boomers start to retire.

Ms. KRAMER. There is one other thing I would like to—one other

point I would like to make.

When my parents went into a nursing home, the first year they

were there, they were there as private pay patients. Once they applied for Medicaid and were accepted, I have to tell you that their

care never changed. The services never changed. The level of attention they received never changed. I don’t know whether that is a

quality of the nursing home they were in or it is a quality, in general, but I felt that they had paid their dues, and that they were

receiving the services that they needed, and that it was done fairly

to them.

Mr. SCARBOROUGH. Well that is great news, in that instance.

Mr. Cummings.

Mr. CUMMINGS. Thank you very much.

First of all, I want to thank you, Ms. Kramer, for being with us

today and sharing your story. I think you make it abundantly clear

that we need to do something, and I am sure all the members of

our committee are committed to doing that. And what we constantly try to do up here and on the Hill, is to make sure that we

are effective.

In other words, it is wonderful for you to come and share your

testimony with us, but if we don’t do something, then you have

taken a day off of your valuable time and shared your thoughts and

shared your feelings and your experiences with us—but as I have

said, say, in meetings in my office—is that if we are still here 2

years talking about the same thing and haven’t done anything,

then I think that it is very, very, very sad. Because in the meantime, people will have gone through the same things that you have

gone through. And to that end of effectiveness, I want to just ask

you a few questions.

When you think about the things that—I take it that you had an

opportunity to kind of familiarize yourself with the proposals that

we put forth. Have you had an opportunity——

Ms. KRAMER. I have read two of them, once.

Mr. CUMMINGS. OK; all right. Are there particular things that—

I mean based upon your experiences, are there certain things that

you would look for in a long-term care policy—I mean, that you

would like to see in one?

26

Ms. KRAMER. Let me tell you, I have discussed this with my husband at length. Yes, there are two things that I would like to see— two things that would make it possible for us to consider purchasing long-term care insurance, not necessarily being able to buy

it. One is a group rate reduction of premiums and the other is employer contribution.

I am not even sure at this point, given our financial obligations

in terms of paying our debts for our childrens college educations,

that we could afford long-term care insurance without an employer

contribution.

It is something that my husband and I have wrestled with, trying to determine what our priority is. You know, what you said was

very moving. As soon as you have children, your children are your

priority. You don’t want to have to become their priority. And that

is the point at which we are stuck right now. We don’t want to become their priority when we get old, in the way that my parents

and managing their finances became my priority. But right now,

we can’t afford long-term care insurance, as we understand it and

as we have explored it.

Mr. CUMMINGS. One of the—— Ms. KRAMER. So that is what I would be looking for, and that is

what I was looking for when I read the bills that I was sent.

Mr. CUMMINGS. When you were—so I take it that there was a— did there come a time when you, when all of these series of things

began to happen with your parents, that you looked into long-term

care insurance? I mean you just said—— Ms. KRAMER. It wasn’t on my radar screen. I didn’t know—I’ll be

honest with you—I didn’t know it existed. I had not heard of it,

and I didn’t know it existed. I didn’t know the possibility existed.

Mr. CUMMINGS. One of the things that my proposal does is that

it gives OPM oversight, and it allows them to limit the companies

so that we could get possibly the best group rate—because I think

you make a very good point. I think what we—it is one thing to

have it, to have the insurance available. It is another thing to be

able to afford it. And if you can’t afford it, you might as well not

have it. I mean does that make sense?

Ms. KRAMER. It does. One of the things my husband and I discussed is that we have taken advantage of the Federal Employees

Health Benefits policy over the years, and we have particularly appreciated the choices that we had, because, at different times in

our life, we had different needs.

There was a time—we have a child with a disability—there was

a time when we selected our insurance policy from those that were

available, based on the coverage for her need. When that need lessened, we changed policies to one that would benefit more of us and

our family in other ways.

So my feeling, based on that experience, is that, as you said, different families have different needs, and the more opportunity to

tailor a long-term care policy to your desire, to your need, the better, as far as I am concerned.

Mr. CUMMINGS. You are a writer?

Ms. KRAMER. Yes, I am.

Mr. CUMMINGS. And is this your—what kind of things do you

write about?

27

Ms. KRAMER. I began writing for the Gazette newspapers 5 years

ago because I wrote, for myself, an article about my father. And I

looked at that and said, ‘‘I cannot be the only one who is going

through this.’’ So, I invested in eight stamps, and I sent the article

that I had written to eight local newspapers.

The Gazette picked up on it, published it, and received feedback

that caused them to invite me to continue writing. I had no idea

when I began writing in 1993 that I was going to document this

experience with my parents.

What I wrote about in that first article was when my father

moved into the nursing home—how I felt, how he felt. I began to

just write articles about what was happening to them and what

was happening to me. And the response was overwhelming, both

to the Gazette and to me.

I ended up being asked to give a series of dialogs at a local hospital where I would just meet with people who were going through

this experience, and we would trade success stories and share experiences and talk about strategies.

So, you know—I know that when people go through this, when

families go through this, they go through it in isolation. They don’t

talk about their finances, generally. They don’t share the difficulties of dealing with parents with whom you do, or do not, get along

for whom you are responsible. And so I found, through the articles,

that there is a tremendous market for sharing this experience, because it is lonely. It is very lonely, and it is also very painful.

Mr. CUMMINGS. I just have a few more questions.

You know, one of the things that we run into now with health

insurance is that you get to a point where there is a dispute as to

what is covered—and I am sure you know this; you may have even

written about it. And folks are—the insurance company says one

thing; the patient needs another thing.

And as I listened to you, I couldn’t help but think about something like, in this instance, I imagine we might come up with quite

a few disputes, because of costs. I mean the cost of taking care of—

I mean when you told me that $150,000 had been exhausted in 2

years, I think you said?

Ms. KRAMER. Less than 2 years.

Mr. CUMMINGS. Less than 2 years.

Ms. KRAMER. Yes.

Mr. CUMMINGS. And then the $3,000 plus, for the nursing home

room. That is a lot of money.

Ms. KRAMER. That was per month, per person, so it was really

$7,000 per month.

Mr. CUMMINGS. $7,000 per month?

Ms. KRAMER. Yes.

Mr. CUMMINGS. And so I can just imagine insurance companies

having some kind of—I mean saying, ‘‘Well, maybe we don’t want

to cover that.’’ I mean do you—have you addressed that issue in

your articles at all?

Ms. KRAMER. The articles that I—I have no expertise in this.

Mr. CUMMINGS. OK.

Ms. KRAMER. Yes.

Mr. CUMMINGS. I am just——

28

Ms. KRAMER. No, No. I am just saying I have no expertise in

this. The articles I write don’t deal with ‘‘how to.’’ They deal with

what it feels like to go through that process.

So if you are asking me if I had experiences like that with my

parents about costs that were not met, I didn’t.

Mr. CUMMINGS. OK. No, I am just going to the point where, if

the insurance was available, if you had insurance, and I was just

concerned because the bills. That is one of the key elements that

we have to deal with in the legislation, because we can’t see everything, but we certainly—I think it is kind of reasonable for us to

foresee that. The fact that we, even if you—let’s assume you are

able to afford, you have it, and then there comes a point in time

where you have to use it, and the disputes arise.

Ms. KRAMER. Let me give you an example of just how confusing

it can be. When I made application for Medicaid for my parents,

I wanted to know whether I could ask to be allowed to take out

money for their—to continue their Blue Cross/Blue Shield coverage,

their private insurance coverage, which they had carried all their

lives.

I asked the nursing home; they weren’t sure. I asked the attorney; she wasn’t sure. I asked the county; they weren’t sure. I could

not get anyone to clarify for me whether or not it was reasonable

to be allowed to continue to pay the $97, or whatever it was, for

their health insurance.

Finally, I called the financial director of the nursing home back

and I said, ‘‘I can’t get an answer for this. Please, help me.’’ And

her answer—which I will not forget, was, ‘‘Well, it can’t hurt, and

it might help.’’ So when I made the application for Medicaid, I

asked to be allowed to use, from my parents’ Social Security,

money for their private health insurance, and that was granted.

The point of what I am saying is that there was nobody to tell

me. There was nobody to advise me. There was nobody that knew,

that I could find. And that is just a tiny, tiny part of the frustration

of trying to understand what is available, what I am supposed to

do, and what they were supposed to get.

Mr. CUMMINGS. Thank you very much.

Ms. KRAMER. You are welcome.

Mr. SCARBOROUGH. Mrs. Morella.

Mrs. MORELLA. Thank you.

Thank you, Mrs. Kramer, for being here and testifying.

In response to Mr. Cummings comment, the article appears in

probably like 26 newspapers, because the Gazette goes into every

community in Montgomery County and—— Ms. KRAMER. I think they have a circulation of something like

450,000.

Mrs. MORELLA. It is incredible.

And your articles are great. They are very sympathetic, empathetic, evocative, and everybody can kind of identify with them. I

remember Browning’s poem that you all know. ‘‘Grow old along

with me. The best is yet to be. The last of life for which the first

was made.’’ But for many people, that isn’t the case.

And I can empathize with what you say because my mother died

at age 96. But when she was 95, she had to go into the nursing

home. We had cared for her at home for well over 2 years. It finally

29

reached the point where nobody could even handle her. And we

paid $200 a day, a day. The other nursing homes that we looked

at were only about a $50 difference a day, and so we vied for what

we thought would be giving the most attentive service. Well, obviously, that means that if you don’t have Medicaid, you are going

to be straining the resources, not only of the person, but of the children. And this is what we were able to assume for that period of

time. But I know she wasn’t cognizant of what was really going on.

And if she were, she would have been so heartbroken, because she

was one of those hard-working people who wanted to save for her

children. Her children were her life.

And that is the kind of thing brought out in our questioning—

and our chairman mentioned it, too—is that people in that situation lose their dignity as well as their independence by virtue of

not being able to give anything to their children if, in fact, their

resources are going to be used for that. The children, in turn, have

their own children in college, have other fact qualities of life that

are imperative that they save for, so it really is a situation where

nobody wins. And in the society where the greatest numbers, in

terms of the percentage increase of age, is 85 and over, then we

just must take note of this.

With the bills that we have, then, in terms of long-term care, I

think it is availability—people don’t know they exist because we

really haven’t brought them out on the radar screen—and affordability and the kinds of services that they would offer. So truth in

insurance is important but, in addition to that, it has to be affordable.

If, from what you know, you could have a premium that was

about 20–25 percent less than what you saw, under a group rate,

would you be interested in it?

Ms. KRAMER. That is hard for me to say because there is so much

about long-term care insurance I don’t yet understand, and I will

give you one of my greatest fears.

What happens when one spouse dies and the other—or one

spouse requires nursing home care and the other remains in the

community? You know, what kind of assets—I understand, and I

have not read it, that Senator Mikulski had legislation that allowed the community spouse to retain $65,000. I don’t know what

that means. When I think of everything, in terms of myself, that

would mean selling my house. Where would I live, if I had to do

that?

I have talked with my husband, endlessly, about this. We have

really tried to understand it. I don’t know at what percentage you

would——

Mrs. MORELLA. Now, you are talking about Medicaid and spousal

impoverishment.

Ms. KRAMER. Yes, I am.

Mrs. MORELLA. And I support Mikulski on——

Ms. KRAMER. Right, and you are asking me, if I understand you

correctly——

Mrs. MORELLA. Insurance.

Ms. KRAMER [continuing]. About insurance, and how much would

I be willing to spend? If it were offered at a 20 percent group reVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00033 Fmt 6633 Sfmt 6602 E:\HEARINGS\57738 pfrm11 PsN: 57738
30

duction, would we be willing to consider it? Yes, we would be willing to consider it. Absolutely.

Whether we could afford it or not, I couldn’t tell you because I

have no idea what the premiums would be.

Mrs. MORELLA. I am looking at a plan here that we fashioned

mine sort of after, CALPERS. California has done it, and I look

at—[laughter]—you are much younger than this, but let’s say

somebody were 59, and they wanted to take out lifetime long-term

care insurance, lifetime. At that rate, with the inflation that would,

you know—— Ms. KRAMER. Yes.

Mrs. MORELLA [continuing]. Be entered into it, it would be $64

a month. So, I am not saying that this would ultimately be what

would happen with my legislation or any other, but the point is,

I think it can be affordable—and it depending upon what age you

take it out, obviously. If you took it out at age 50, it would be like

$35 a month.

Ms. KRAMER. Right.

Mrs. MORELLA. So I guess I am saying that if you felt it were

affordable, you would be willing to—— Ms. KRAMER. Exactly.

Mrs. MORELLA [continuing]. Particularly, with your experiences?

Ms. KRAMER. If I felt it would be affordable, it is something I

would do, not only for myself, but for my children.

Mrs. MORELLA. I don’t know of any employers that subsidize

long-term care, maybe in the future they will. I just don’t know; I

will have to learn more about that, but at this point, the bill that

I have introduced expands the pool to allow the best rates and requires certain things like consumer protection with a variety of

choices, in order to get the Federal Government moving toward

something which, ultimately, could end up being in national—even

go beyond the pool that we have suggested.

I just want to thank you very much for sharing with us such a

poignant experience, in the hopes that we all learn.

Thank you, Mr. Chairman.

Mr. SCARBOROUGH. Thank you.

Ms. Norton.

Ms. NORTON. Just briefly, Mr. Chairman. It is interesting that Mrs. Morella has spoken about $64 a

month, and would that be affordable?

One wonders why there isn’t long-term care, since many employers are paying a great deal more than that per month for health

care, for example. And we are all paying much more than that because everybody now knows, and has known, that the taxpayers

are going to spend $40,000 and $50,000 a year unless there is an

incentive for people to buy their own long-term health insurance.

I found your testimony absolutely compelling. And I found it

compelling because I had, in my mind’s eye, your parents who, in

the real sense, I think would be like my own. These are the generations that they are now beginning to write about as the ‘‘best generation’’—I think they probably are—in the entire 20th century.

These are people who saved. The people today aren’t saving for

their old age; many of their children will not have money and are

not putting aside any money for their old age.

31

They, indeed, put aside money for their old age, and they put

aside money for their children. Or, if there had been long-term care

insurance, I bet they probably would have spent the money for

long-term care insurance.

Ms. KRAMER. You are right; they would have.

Ms. NORTON. The importance of what you are initiating here, Mr.

Chairman, cannot be overemphasized. Because the real question is,

how are you going to pay for it? Because you are going to pay for

it.

There is a safety net there for each and every one of us, and that

safety net is Medicaid, which has become a giant benefit, essentially for the middle class in this country, and well should it be.

Until we find a way to encourage people to buy their own long-term

care insurance, there is no other solution. But that is the most outrageously costly solution. It is one of the great problems of this

Congress. That is why it behooves us to quickly set the example

by coming forward in, I think, this session of Congress so that employers can see that this will not break them, that in many ways

it can save them, ultimately.

Ms. KRAMER. Do you know what they would benefit—what my

employer would benefit from, if they provided that for me?

Ms. NORTON. Could you tell us? [Laughter.]

Ms. KRAMER. Well, I would feel very cared for, very loyal. There

is a lot of give and take between an employer and an employee

when you are caring for ill parents. And I am very happy to see

that our society is becoming more cognizant of that, and more flexible about that.

But for an employer to contribute to a long-term care insurance

policy that would potentially include me and my parents; I could

feel very loyal to that employer.

Ms. NORTON. At the very least, you would think that employers

would want to have, among their benefits, long-term care benefits,

and more employers would want to do that—if we break the ice,

Mr. Chairman, I think that may well happen.

Thank you very much.

Mr. SCARBOROUGH. Thank you, Ms. Norton. I agree with you that

I think one of the most positive aspects not only of this hearing,

but also this exercise that we are going through is hopefully to get

one bill passed. I mean I think just about everybody has a bill now

on the floor, except for you, Ms. Norton—[laughter]—up here, so— [laughter]—you need to go back and get to work on it.

Ms. NORTON. Mr. Cummings has my bill. [Laughter.]

Mr. SCARBOROUGH. Oh, he has your bill? [Laughter.]

OK, great.

So, anyway, I think that it is important as we do this, as we debate which is the best way to go, that we engage in an educational

process. There are a lot of people like you who, before, had not even

heard of long-term care. I know I certainly wasn’t aware of it too

far back.

So, I think you are right. I think we can certainly educate a lot

of people across this country and, hopefully, put in a plan that

works for the Federal Government and that sends a message to

employers across the country about the importance of long-term

care.

32

In closing, I just wanted to emphasize something that you said

earlier in your testimony, when asked by Mr. Cummings, about

what you would prefer in a package. You talked about choices and

plans that were flexible—and, also, regarding what Mrs. Morella

said, in talking about what you could afford and what you couldn’t

afford.

I certainly think, hopefully, we could get a package out that

would provide as many choices as possible, so we could tailor it as

much as possible to individual needs, and certainly allow beneficiaries to determine whether they want to be in an inexpensive

plan, a mid-range plan, or what they call a ‘‘cadillac plan.’’

Ms. KRAMER. May I ask you a question?

Mr. SCARBOROUGH. I probably can’t answer it, but go ahead.

[Laughter.]

Ms. KRAMER. I had——

Mr. SCARBOROUGH. As I explained in a previous meeting, I went

to the University of Alabama, undergrad.

Ms. KRAMER. My understanding of long-term care insurance is

that you buy it in increments of time. If I were to purchase 2 years

of long-term care insurance—2 years, or any amount of time—and

outlive that, what happens? Who pays? Where does the money

come from?

Mr. SCARBOROUGH. I would guess it would go back to Medicaid,

but Mr. Cummings is an expert in this area. [Laughter.]

He will answer it for you now. [Laughter.]

Actually, I believe it would go back to Medicaid.

Ms. KRAMER. At that point, if you had set aside money for your

children, purchased long-term care insurance, utilized your longterm care insurance, outlived your long-term insurance, your

money is already in your children’s hands, but it would be—fall

within that 3-year period for which a Medicaid application requires

that you not give away your money to your children.

Mr. SCARBOROUGH. Right.

Ms. KRAMER. What happens?

Mr. SCARBOROUGH. I think the average stay is 4 to 5 years in

nursing homes.

Ms. KRAMER. My parents stayed 2; my father-in-law lived 5

years.

Mr. SCARBOROUGH. Right.

Ms. KRAMER. So, you know, that is another thing that my husband and I have talked about. If you buy it, you have limited coverage, you know. I guess they are betting you are going to die—

[laughter]—or you are betting you are going to die within 2 years.

Mr. SCARBOROUGH. If I am not mistaken, you can buy lifetime

coverage which, obviously——

Mrs. MORELLA. Would the chairman yield, please?

Mr. SCARBOROUGH. I certainly will.

Mrs. MORELLA. Or you pay a certain amount per month as long

as your lifetime and, therefore, you get a lower amount that you

pay. So when you die, you pay no more. I mean you will get the

coverage that you negotiate for at the very beginning, so if you

start young——

Mr. SCARBOROUGH. Right.

33

Mrs. MORELLA [continuing]. You are paying a very small amount

for the rest of your life for that same kind of coverage that you

would get later, but you would have some choices, and you could

change the choices.

Ms. KRAMER. Yes.

Mrs. MORELLA. That is the simplest way.

Mr. SCARBOROUGH. I will tell you what, we are going to have

some testimony from insurance people that will really expand upon

this and I think probably will answer a lot of those questions.

Ms. KRAMER. There is only one other question I have, in closing,

and that is, if you do this, if there is any way possible to make a

single point of entry, for people like me, a number that they could

call, as a beginning place to get information? That would be very

helpful.

Mr. SCARBOROUGH. That is a great idea, and that is certainly

something that I am sure most members on this committee, I

think, would agree is a great idea, and so we appreciate it.

We certainly appreciate your testimony. It was moving, and I

think it was something that all of us certainly can relate to and

is going to help us frame the debate, I think, not only in today’s

hearings but also throughout this process.

Mrs. MORELLA. And, Mr. Chairman, the next panel with OPM

would be the point of contact. It would be a very good one.

Mr. SCARBOROUGH. Exactly; that is right. Except, start asking

them some questions, OK? [Laughter.]

Actually, I guess I should say two things before we go to our next

panel.

The first thing is, if there is anybody from the University of Alabama, it was self-deprecating humor—[laughter]—which always

seems to work—[laughter]—especially when you are talking about

Alabama.

The second thing is we have a lot of people standing in the back,

so why don’t we take a 5-minute break? We will move some more

chairs in before we have our next panel come up.

Thanks, again.

Ms. KRAMER. Thank you.

[Recess.]

Mr. SCARBOROUGH. All right. If we could start back up.

In our next panel, we have two distinguished guests from OPM.

We have the Honorable Janice Lachance, who is Director of the

U.S. Office of Personnel Management, and we have Ed Flynn, III,

Associate Director of Retirement and Insurance Services for the Office of Personnel Management.

If you could, please, stand and take the oath.

[Witnesses sworn.]

Mr. SCARBOROUGH. Thank you.

Ms. Lachance.

34

STATEMENTS OF JANICE LACHANCE, DIRECTOR, U.S. OFFICE

OF PERSONNEL MANAGEMENT, ACCOMPANIED BY WILLIAM

E. FLYNN, III, ASSOCIATE DIRECTOR, RETIREMENT AND INSURANCE SERVICES, U.S. OFFICE OF PERSONNEL MANAGEMENT

Ms. LACHANCE. Thank you, Mr. Chairman, and members of the

subcommittee.

It is extraordinary for us to have the opportunity to work with

people who are committed to getting a bill through, the way all of

you apparently are, and I am very, very grateful for that.

I think we can all agree that this is an idea whose time has

come. There are too many Mrs. Kramer’s out there who are struggling with this problem, and I hope that we can move quickly to

bring some relief to them and their families.

Before turning to my statement, I would like to note that your

invitation did contain a number of questions, some of them rather

complex, and we are working hard to put together those answers

which aren’t addressed in my statement, but we will get those to

you as soon as we can, for the record.

Mr. SCARBOROUGH. Thank you.

Ms. LACHANCE. With your permission, I would like to summarize

my remarks and ask that my full statement be submitted for the

record.

Mr. SCARBOROUGH. Without objection, so ordered.

Ms. LACHANCE. On January 4, of this year, President Clinton announced an initiative to improve access to long-term care for all

Americans. H.R. 110, entitled, the Federal Employees Group LongTerm Care Insurance Act of 1999, is one component of the President’s proposal.

The bill would authorize the Office of Personnel Management to

contract for long-term care insurance on behalf of the Federal Government, the Nation’s largest employer.

The proposed statutory framework would enable the Government

to offer more affordable coverage on an enrollee-pay-all basis to

Federal employees and annuitants and their families. By negotiating group rates, we estimate that we can provide an attractive

long-term care product at a cost that is some 15 to 20 percent lower

than a comparable policy purchased in the individual market.

We expect that, initially, some 300,000 eligible participants

would enroll in such a program.

We have seen a dramatic evolution of long-term care insurance

products since the 1980’s. H.R. 110 gives us a framework to work

with stakeholders, including the insurance industry, employee and

retiree groups, and Federal agencies, to design a flexible long-term

care benefit. This would be coverage with the ability to evolve over

time as the market changes, thereby, allowing the Federal Government to keep the policy consistent with industry standards.

The fact of the matter is that group insurance products are less

costly than individual insurance. Economies of scale mitigate both

administrative costs and underwriting risks, so if we offer longterm care on the same basis as employers in the private sector, the

discounts available to Federal enrollees will be at least comparable.

Under the authority given OPM in H.R. 110, we would seek competitive bids for long-term care insurance that meets specified qualVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 E:\HEARINGS\57738 pfrm11 PsN: 57738
35

ity and price criteria in order to select the best contractor or contractors possible.

Now, under H.R. 602, the Civil Service Long-Term Care Insurance Benefit Act, OPM would be required to accept virtually any

long-term care insurance product that meets only basic requirements. Our role would be reduced to ensuring that adequate payroll deductions are made and making information available on all

offerings. There is no real advantage to this approach, since it gives

our Federal population the same choices already available on an individual basis in the private market, with little or no additional financial incentive to enroll. This is decidedly contrary to existing

employer practices. We would not be able to take advantage of the

economies of scale that work in our favor, and we would not be able

to pass any savings on to our enrollees.

It is our belief that H.R. 602 makes an incorrect assumption,

that product and vendor competition will reduce costs, but I ask

you to look at the numbers, since only about 6 percent of the eligible population typically purchases long-term care insurance. Segmenting the risk pool even further is more likely to increase, rather

than reduce, premium rates.

Under H.R. 110, OPM would be able to offer a long-term care

benefits package that not only reflects the requirements of the

Health Insurance Affordability and Accountability Act, but also

meets the standards endorsed by the National Association of State

Insurance Commissioners in its long-term care model regulation.

The coverage would be more attractive because it would provide

for a variety of services and offer flexible options to participants.

Eligible participants would pay the full cost of the benefit, based

on age at time of enrollment. This is consistent with the practice

among private employers who offer this benefit now. Our early estimates indicate that annual premium costs could range from $200

to $3,000, depending on the insured’s age.

Consistent with other Federal benefit programs, H.R. 110 would

require financial and program accountability from contractors and

would give OPM the authority to determine the reasonableness of

premium rates established.

We estimate OPM’s cost to administer the program at approximately $15 million over a 5-year period. Initial costs cover the solicitation process, including actuarial analysis, to determine the

reasonableness of rate proposals, as well as implementation of an

extensive education program.

We feel very strongly that communication will be a major factor

in determining the success of the program. We must make a commitment to inform employees about the costs of long-term care, the

need for long-term planning, and the benefits of purchasing coverage sooner rather than later in life.

We firmly believe that the employer-sponsor model of H.R. 110

offers the best vehicle for delivering a quality product. We urge you

to give it early and careful consideration. A new long-term care

product, such as the administration is proposing, will certainly

mean greater financial stability and peace of mind for Federal anVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 E:\HEARINGS\57738 pfrm11 PsN: 57738
36

nuitants, employees, and members of their families.

This concludes my statement, and I will be happy to answer any

of your questions.

[The prepared statement and followup answers of Ms. Lachance

follow:]

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Mr. SCARBOROUGH. Thank you, Madam Director.

You talked about cost, and you said that right now you estimated that there was approximately $15 million in administrative startup

costs. This really goes back to something that Mrs. Morella and I

were talking about briefly at the beginning, I think, and before you

stepped in, about the plans to possibly bring in active and retired

military.

Do you have any estimates? Obviously, we have got to concern

ourselves with the jurisdiction of HASC, the House Armed Services

Committee, and, also, DOD.

Let me ask you, do you have any rough estimates on the administrative costs that would add to it, so we know what we have to

offset?

Ms. LACHANCE. I am afraid we don’t. That proposal is relatively

new. We had been looking at this as part of the overall compensation package for Federal employees, as another benefit to enable us

to attract and retain the best people. We have no objection, on the

surface, to broadening the pool. There are benefits to being a Federal employee, whether you are in uniform or not—— Mr. SCARBOROUGH. Right.

Ms. LACHANCE [continuing]. And, obviously, retirees.

So we would have no objection and think it may actually help the

risk pool to have it larger and include more people. So we would

be glad to work with the Department of Defense on that and maybe

get back to you with some specific numbers.

Mr. SCARBOROUGH. Great.

Do you foresee any underwriting problems, by adding this group?

Ms. LACHANCE. Not that we can see on the surface. When we

look at underwriting, what we are hoping is that active employees

will be able to have access to this insurance with either no or minimal underwriting, and then, certainly, all of the family members,

as is customary practice in the industry, would undergo underwriting. And so, if we had a comparable rule for the additional population—or a comparable practice—it probably would be a ‘‘wash’’

and——

Mr. SCARBOROUGH. OK.

Ms. LACHANCE [continuing]. And probably would work out, but

we would be glad to look at that.

Mr. SCARBOROUGH. Great. And if you could get us any of that

information—— Ms. LACHANCE. Certainly.

Mr. SCARBOROUGH [continuing]. As soon as possible, that would

be great.

I am already getting ‘‘letters to the editor’’ at home, why we

didn’t start with that process. [Laughter.]

So, the sooner the better.

You know, we have talked before about—in my opening statements—about how diverse the Federal work force is. Obviously,

you have got full-time employees, part-time employees. You have

got blue collar; you have got professional. Let me ask you, should

all of these employees be permitted to purchase a long-term care

program through the Federal Government?

Ms. LACHANCE. Absolutely.

Mr. SCARBOROUGH. Any areas at all——

55

Ms. LACHANCE. Absolutely.

Mr. SCARBOROUGH [continuing]. That should be excluded at all?

Ms. LACHANCE. I can’t think of any offhand.

What Mrs. Kramer faced is what anybody faces and it, frankly,

doesn’t matter how much you make when you are faced with these

tremendous bills. It is just a matter of how quickly your own personal savings run out.

This is something that makes sense for everyone, at every income level.

Mr. SCARBOROUGH. What about intermittent part-time employees—intermittent employees?

Ms. LACHANCE. Well, I think that they should be given an opportunity to have access to this as well. Since the administration proposal has no—or none of the proposals have an employer

contribution——

Mr. SCARBOROUGH. Right.

Ms. LACHANCE [continuing]. We certainly could open it up to a

much broader range of employees.

Mr. SCARBOROUGH. Which actually expands that pool——

Ms. LACHANCE. Yes.

Mr. SCARBOROUGH [continuing]. And, obviously, drives down the

cost for everybody—which brings me back to something. Again, this

is something I certainly hope that we can work out and negotiate.

Obviously, one of the areas that we need to compromise on is the

administration’s view that is sort of a more ‘‘one-size-fits-all’’ approach, and our view where we offer the consumer as many choices

as possible.

You had said earlier that—I think you had said 6 percent? What

was it? I think——

Ms. LACHANCE. Yes, 6 percent.

Mr. SCARBOROUGH. Only 6 percent purchases now.

Ms. LACHANCE. Typical.

Mr. SCARBOROUGH. So fragmentation of those groups would drive

costs up. Certainly I want to offer you an opportunity to rebut it.

My only point would be, if we bring in this huge Federal work force

and allow the military and everybody else in and, obviously, we expand our pool.

Don’t you think the more we expand our pool, the more possibilities we have to offer choices without driving up prices.

Ms. LACHANCE. I think that fundamentally we agree, but we just

have a different way of going at it. We do agree with you that one

size does not fit all, but we think that we can get at that by the

way the benefits are designed and providing the maximum amount

of flexibility in the plans that we offer. We think it can be done

without having to expand the number of insurers and then, consequently, keeping the price up. We think we can do both. And we

would love to work with you on that, and maybe show you some

of the studies, and introduce you to some of the experts who we

have worked with who have given us information on this.

We think we can accomplish your goal.

Mr. SCARBOROUGH. Great. Well, I would look forward to doing

that—and I see the red light is on, and I will pass it on to our

ranking member, Mr. Cummings.

56

Mr. CUMMINGS. Tell me something, when you talk about—first of

all, thank you for being here.

Ms. LACHANCE. Thank you.

Mr. CUMMINGS. We appreciate what you do everyday.

Ms. LACHANCE. Thank you, sir.

Mr. CUMMINGS. When you talk about limiting the pool, talk

about—explain to us why you see that as being beneficial. In other

words, the number of insurers.

Ms. LACHANCE. I think it is important for a number of reasons.

And, as you know, Mr. Cummings, your bill and Mrs. Morella’s bill

both limit the number of insurers that are involved.

We are trying to accomplish a number of things with this legislation. First of all, we have to not only make it available, but we

have to make sure that employees understand the need for it, and

that they understand what is being offered to them.

Our experience, and the experts that we have worked with in developing our proposal have informed us, is that when people are

faced with a complex array of choices, they have a tendency to just

walk away. If things get too hard, if they are bombarded with too

many choices, it is going to be very, very difficult for people to decide, or they will decide to just postpone the decision. And, obviously, what we need to do is get people enrolled early and soon.

So we think we can achieve a flexible package of benefits that

will meet the needs of individuals with very diverse health backgrounds and still keep the premium down and keep the take-up

rate as high as possible.

We think it can be done, but we are very concerned that having

too many insurers involved would just defeat the purpose. And, in

fact, Federal employees have access to all of those products now.

And part of the problem this country is facing is that Federal employees aren’t buying them.

So we have to do something better, something different, something to try to get employees to take a second look at this option.

Mr. CUMMINGS. You think one of the factors—and if you listened

to Ms. Kramer, she talked about the cost. Do you think one of the

major factors of this 6 percent that you talked about a little bit earlier, then, taking advantage of long-term care insurance—do you

think a lot of it is the cost?

Ms. LACHANCE. I think that is a lot of it. I think that is what

Mrs. Kramer talked about. That is what my parents talk about,

and they end up postponing the decision, they end up just putting

it off for another day.

We think that we can achieve a great advantage. It is a win-win

for everybody. Our employees and their families can get a better

deal if we limit the number of insurers that are involved in this.

Mr. CUMMINGS. How would you see the contracting process working? How would that work?

Ms. LACHANCE. Well, first of all, we have already started, and we

are very excited about this, our stakeholder conversations. We

want to bring everybody in who has a viewpoint in this. Yesterday,

for example, we met with over 15 representatives in the insurance

industry to start talking about the very problems that you are discussing among yourselves.

57

What we want to do is make sure the employee organizations are

involved—NARFE, the retirement organizations, the management

organizations. Of course, we want to work with you and try to find

a broad consensus, with respect to product design and some of the

other options, and make sure that there is industry capacity to

handle this. There, hopefully, will be a great wave of people signing

up for this insurance.

Once we have arrived at that consensus, which we believe we can

achieve, we will issue a request for proposal which will look at each

company’s financial strength and their underwriting arrangements.

We are going to look at the company’s demonstrated success for offering insurance of this type to other large employers and how well

they have done with that, their capacity to deliver top-notch services to our employees, the features of the product that they can

bring to the table, and, finally, the price.

Mr. CUMMINGS. Ms. Norton spoke a little bit earlier about the

cost that society pays when we don’t have this. And I mean—I

think we all see the urgency and we want to make sure this happens. What do you see, I mean the longer we put this off? Let’s say

it is put off for 2 or 3 years. I mean do you have any idea what

that is costing society?

Ms. LACHANCE. I don’t.

Mr. CUMMINGS. The taxpayers?

Ms. LACHANCE. Unfortunately I don’t have a dollar amount, but

I think—like Mrs. Kramer—I can talk about the emotional toll of

that kind of strain, that kind of pressure, that is happening every

day to families all across this country. And if we, collectively, can

do a little something to alleviate it, I know I will sleep better at

night.

Mr. CUMMINGS. I see my time has run out. Thank you.

Ms. LACHANCE. Thank you.

Mr. SCARBOROUGH. Thank you, Mr. Cummings.

Mrs. Morella.

Mrs. MORELLA. Thank you, as usual, for not only your testimony

but the cooperation that we get from OPM. I value that very much.

And I know that my bill was reintroduced earlier this week and,

therefore, you didn’t have a chance to have it included within your

testimony, but you were there at the press conference, and you’ve

already alluded to some parts of it. It goes beyond the other bills

that have been introduced that have merit. And I do want to see

us come out with one bill. But let me point out—so I want you to

feel free to comment on that bill. I mean do you think that that

gives OPM the appropriate role?

Let me point out a few things that that bill has in terms of—

and then ask you how you would respond to it.

Long-term care insurance policies are guaranteed renewable as

long as the premiums are paid on time. What will be the procedure

for dealing with the rights and responsibilities of the carriers,

OPM, and the policyholders in the event that OPM terminates a

contract? Have you had a chance to think about that?

Ms. LACHANCE. We are confident that—and I apologize, Mrs.

Morella, for not knowing the specifics of your bill—but, in our

scheme that we are proposing, the contract would expire every 5

years. But we are confident that if there is a change in carrier or

58

carriers, our beneficiaries and our employees will not suffer any adverse consequences for that—that the pool of money, their benefits,

all of the premiums that have been collected can be appropriately

transferred from one insurance company to another.

Mrs. MORELLA. And I would direct you to consider about what

OPM would do, with respect to the valuation and the disposition

of the reserves.

Ms. LACHANCE. Yes. Do you want to——

Mr. FLYNN. I might try that, just real quickly, Mrs. Morella.

Whether a contract terminates during the period or every 5 years

on renewal, we look at this as something where individuals are

building up the value of this insurance over a long period of time,

and we would want to make sure that there was separate accountability and that the value that people built up, if a contractor

changed, didn’t diminish. It would just simply transfer to a new insurer, and we would move on from there.

Mrs. MORELLA. How do you see OPM satisfying its obligation to

administer the program on behalf of those particular individuals

who enroll with the carrier, once OPM terminates the carrier or allows the carrier to leave the program after that 5-year period?

Mr. FLYNN. The insurer? It would certainly be our intent to

maintain an insurer or insurers in the program so as to make longterm care insurance available to all eligible individuals on a continuing basis.

There are always circumstances when a particular insurer pulls

out, and we have seen that, of course. We have examples of that

in the health insurance program. And we have always been successfully able to make arrangements to ensure continued coverage

for the individuals that are participating. And I don’t believe that

there is anything in the proposal that would inhibit our ability to

do that.

Mrs. MORELLA. You would have to do something like that——

Mr. FLYNN. Exactly.

Mrs. MORELLA [continuing]. In terms of preserving, you know,

the consumer protections that would be absolutely necessary.

Ms. Lachance, you want to comment on that?

Ms. LACHANCE. No, I agree that I think there is a way to do this

so that our employees would see a continuation of their coverage

without interruption. And we are confident that we could resolve

any administrative issues that may arise from that.

Mrs. MORELLA. And dispute resolution——

Ms. LACHANCE. We think that is an important——

Mrs. MORELLA [continuing]. Adjustments you could——

Ms. LACHANCE [continuing]. Feature of both——

Mrs. MORELLA. I think it is, too.

Ms. LACHANCE [continuing]. Your bill and our bill, that consumers have a place to go when there is a problem. There is not

always agreement. We deal with insurance companies every day,

and they are honorable people, doing their best to provide a very

important service, but there are disputes, and we would like to

make sure that people have one place to go to try to get a resolution for that.

59

Mrs. MORELLA. Do you think OPM could handle all of those

points that I have mentioned—which I think are critical points in

that what my bill would allocate to you—[laughter]—to handle.

Ms. LACHANCE. Yes.

Mrs. MORELLA. And handle well.

Are you familiar with the process of negotiating employer-based

group long-term care insurance programs? I guess I am asking,

what role does the employer play, acting on behalf of the group, to

make these programs more affordable than an individual acting

alone?

Ms. LACHANCE. We have looked at a lot of private-sector experience in this, Mrs. Morella, and what we find is that, generally, the

employer will act as an advocate to try to get the most flexible benefit, at the best price. I think there is a recognition, particularly

in the long-term care arena that individuals just aren’t entering

the market and aren’t buying these policies as much as they should

be. And this is a way to get those costs down and still provide flexibility that individuals need to enhance the enrollment rates. We

feel we could replicate that if the Federal Government—— Mrs. MORELLA. So what I am getting at in my question is, here

are elements that I think are important—— Ms. LACHANCE. Yes, ma’am.

Mrs. MORELLA [continuing]. That I have allocated to OPM. Can

you handle them? And, you know, we go from there.

My final question; how will NARFE be involved in your process

of working this out?

Ms. LACHANCE. NARFE is one of our most important stakeholders in this arena. Obviously, they have a lot of personal experience with these issues. They also have a wonderful amount of institutional knowledge and talented staff that they can bring to the

table and they have shown their willingness to do that. So we are

looking forward to continuing to work with them on this.

Mrs. MORELLA. I agree with you, and I thank you for that statement.

Ms. LACHANCE. Thank you.

Mrs. MORELLA. Thank you, Mr. Chairman.

Mr. SCARBOROUGH. Thank you.

Ms. Norton.

Ms. NORTON. Ms. Lachance, I am trying to see the difference between what you are proposing in the bills that would have you operate differently from the role you play in the FEHB program.

What role would you have if you had—if any company could simply

come forward and claim Federal employees? What role would OPM

have, then?

Ms. LACHANCE. We would have a limited educational role because if there were competing companies, we could not, in fact,

then, be the cheerleaders that we would like to be for this.

Part of the reason we want to do this is to get more people to

buy at an earlier age. We are very concerned that, much like the

FEHB program which has a variety of insurers involved, that we

would have to stand back and be neutral. We think that is the

wrong approach for this product, and we would like to be able to

go in and be cheerleaders and encourage people to get that, so we

would have a limited——

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Ms. NORTON. You could not comment—are you saying you

couldn’t comment on the practices of the particular insurers?

Ms. LACHANCE. I think it would be very difficult to do that if we

had people who were competing against each other.

Ms. NORTON. Even if you knew some things that people ought to

know? Even if you knew some things that the employees ought to

know?

Ms. LACHANCE. I think so.

In addition to that, we obviously would be the people who would

withhold the premium payments from employees’ paychecks or retirees’ annuity checks and forward those on to the various insurance companies.

Ms. NORTON. So you, in a sense, would be doing the administrative work for the insurance company?

Ms. LACHANCE. Yes, ma’am.

Ms. NORTON. Because they would be working through you, rather

than on an individual basis? So that would relieve them of, I take

it, substantial amounts of money and administrative costs?

Ms. LACHANCE. That is possible.

Ms. NORTON. But those administrative costs would be paid by

whom?

Ms. LACHANCE. OPM.

Mr. FLYNN. And the individual departments and agencies with

their payroll systems.

Ms. NORTON. Would the employee pay any part of those administrative costs?

Ms. LACHANCE. I don’t think so.

Mrs. MORELLA. If the gentlelady would yield?

Ms. NORTON. I will yield.

Mrs. MORELLA. In my bill, they would. I mean that is one of the

differences, is that mine does not depend on governmental exigencies and vicissitudes. It has the stability in that it is passed on and

is leaned away as possible because it would be—— Ms. NORTON. Oh, but listen to this.

Mrs. MORELLA [continuing]. To the employees.

Ms. NORTON. Well, listen to this.

Under Mrs. Morella’s bill, the employee gets stuck with the administrative costs. [Laughter.]

And without her bill, the taxpayers get stuck with the administrative costs. But who does not get stuck with the administrative

costs are the insurance companies.

Ms. LACHANCE. That is correct.

Ms. NORTON. I say this so my friends in the next panel will already know—[laughter]—I say this, although——

Ms. LACHANCE. They can leave now. [Laughter.]

Ms. NORTON [continuing]. Before I came to Congress, I was on

the board of the Metropolitan Life Insurance Co., and I don’t think

life insurance companies—at least the ones at that level—are hurting terribly much. I do know some Federal employees that are

hurting much. And I do know that—look, the health care dollar— the thing that kills me about the health care dollar is the way in

which administrative costs eat it up. Not, of course, in Medicare,

where the Government plays a role, but the administrative cost of

health care and this problem, I would not like to see repeated for

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long-term care, where we don’t do what is necessary to contain

those costs and end up paying those costs which could, otherwise,

go to the underlying care.

Let me ask you about the premiums. If you enroll early and pay

a low premium, would your premium go up, or would it remain stable because you enrolled early?

Ms. LACHANCE. We are trying to envision a system where it

would remain stable, although we would like to give the opportunity, at various points in time, for the enrollee to purchase inflation protection. But the premium would remain stable, and that is

the advantage of coming in early.

Ms. NORTON. This is a huge incentive.

Ms. LACHANCE. Yes.

Ms. NORTON. Especially when people know what it could cost if

they don’t come in early, and especially since you are apparently

talking about low premiums.

And you think low premiums would work because of the nature

of our risk pool? That is to say that, because it is so diverse, that

you could contain these premiums, because of the age diversity of

the risk pool?

Ms. LACHANCE. That is exactly right, Congresswoman. We anticipate savings of 15 to 20 percent. And that has to be a better deal

than what is available now.

Ms. NORTON. But how would this work if, in fact, these people

were spread across hundreds of companies? I mean how could the

low rates be maintained?

Ms. LACHANCE. Then we would lose the advantage of a group

rate.

Ms. NORTON. So what we want is to encourage as many people

to choose the best companies as possible—as many people as possible to choose the best companies because, together, they keep the

cost down.

Ms. LACHANCE. And that would be very, very hard if we had a

lot of companies, which is why we are very interested in limiting

the number of insurers who are involved in this benefit plan.

Ms. NORTON. Well, how many companies are in this business

anyway? I mean, a lot? [Laughter.]

Ms. LACHANCE. There were 15 yesterday. [Laughter.]

Mr. FLYNN. Good answer. [Laughter.]

I think that the number that offer group insurance policies run

about a dozen, but there is a much larger number of companies

that offer individual policies in the market.

Ms. NORTON. In your investigations, have you found the group

insurance business growing at any particular rate? I mean is this

something that is a growth industry in this country?

Ms. LACHANCE. Well, it is growing because I think employers see

the need to offer this benefit to their employees, so that seems to

be growing. I would have to defer to the insurance companies to

find out how they are doing on their individual business.

Ms. NORTON. Are you modeling your group notions after anything that is now in the marketplace?

Ms. LACHANCE. We are using as a standard and as a model, the

plan that has been developed by the Association of State Insurance

Commissioners who have been working on this situation very hard

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and who incorporate a number of the features that are in both Mr.

Cummings’ bill and Mrs. Morella’s bill.

Ms. NORTON. Thank you.

And thank you, Mr. Chairman.

Mr. SCARBOROUGH. Thank you, Ms. Norton. I am glad to know

that you were on the board of MetLife, and I am sure they are still

pleased with their wise decision. [Laughter.]

Especially after your questions today. [Laughter.]

Any MetLife representatives here?

Now, returning to us again is former chairman, Mr. Mica. Glad

to have you back.

Mr. MICA. Thank you, Chairman Scarborough.

Ms. NORTON. Would the gentleman yield for a moment?

I would just like to note for the record that the youngsters coming into the room are from Barcroft Elementary School, and these

are children from the District of Columbia who are part of a program that I have in the Congress called ‘‘D.C. Students in the Capitol’’—so you won’t grow up in Washington, DC, and never been to

the Capitol, or seen a hearing, or met your own Congressman, or

met Chairman Scarborough. [Laughter.]

Mr. SCARBOROUGH. All right. [Laughter.]

Which let me tell you, children, is a very important thing.

[Laughter.]

[Applause.]

A very important thing for your education. Unfortunately, we are

going to hurt your education now by letting you—— Ms. NORTON. Oh, no. [Laughter.]

Mr. SCARBOROUGH [continuing]. Speak to Chairman Mica.

[Laughter.]

I am just joking. Go ahead. [Laughter.]

Actually, I would like to turn it over to Chairman Mica who has

been extremely helpful in getting us to this point and also helping

me out.

Mr. MICA. Thank you, Mr. Chairman. And I was going to say

some nice things—[laughter]—but I will get right to my regular

standard operating procedure which is to pick on OPM.

Where are we on our life insurance project? [Laughter.]

Are we still studying it?

Mr. FLYNN. We have a deadline of May 1, I believe, to submit

a report. I believe that is the correct date and should have it in

plenty of time for you, sir.

Mr. MICA. What disturbs me about your proposal for long-term

care is it almost models what we are trying to do away with, with

the life insurance fiasco that has been in place for 40 years without

real competition and to me served a great disadvantage. I happen

to be a Federal employee, believe it or not, and I don’t like the

terms of my life insurance, and I am not looking very kindly on

what is being proposed to either a single system or very limited

competition for long-term care. That wasn’t my idea in the beginning.

I don’t know how anyone can look at a group of 1.8 million Federal employees, 2.2 million Federal retirees, a pool of that number,

and not be able to provide some access to very competitive rates

in life insurance and long-term care insurance. And the people who

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are part of employee groups ought to be just astounded that you

can go back and face your Federal employees and tell them that

it is March 1999 and they don’t have lower life insurance costs, better benefits. The provisions in law are absolutely pitiful for spouses

in the life insurance area.

Then we got by with this study which further delays the process.

And now to not have long-term health care and access for a group

like that—if this was a private organization and any of you all

worked for me, I would fire every one of you.

So, those are my sort of—[laughter]—opening statements. And to

come with a proposal like this today, to take us back to the dark

ages of no competition, little access, and probably higher premiums,

I think is a step in the wrong direction.

I don’t know if that is a question, Mr. Chairman, or not, but——

Mr. SCARBOROUGH. That doesn’t sound like one to me, Mr. Chairman, but——

Mr. MICA. But I am really stunned.

OK, Ms. Lachance, how can you tell me that having one carrier—

and, again, how can we have the Government administer anything

more efficiently than the private sector? You are going to do the administrative work you are saying? OPM is going to do it?

Ms. LACHANCE. Yes, sir.

Mr. MICA. Is there any calculation how many people will be involved?

Ms. LACHANCE. Approximately 15 full-time.

Mr. MICA. Oh, yes; we hear that. I want that—that should be encoded. We ought to get a chisel and stone and say, ‘‘approximately

50.’’ If they could administer any program with 50 people, I would

love to live to see the day, to service those kind of folks.

The intent here was to get the private sector to offer a group

rate, get as many people competing, because we have hundreds of

thousands of potential participants in this, not just in Washington,

DC, but across the land, possibly overseas, and getting organizations out there to give us some benefit because we have a large viable group.

So you all are taking a simple idea and making it into a potential

bureaucratic nightmare and delaying the process. So I just don’t

see, for the life of me, how a proposal that, again, relies on Government to administer, it limits the choices, and it does not create

competition that can be effective.

Would you want to comment?

Ms. LACHANCE. Well, we certainly appreciate your perspective,

Mr. Mica. And we enjoyed working with you for the last several

years on some of the——

Mr. MICA. Unfortunately, I am still around.

Ms. LACHANCE. Well—[laughter]—and I am happy for that, because you do provide a unique perspective—[laughter]—on some of

these issues that I think is important for us all to deal with.

But we believe, sir, that we can find a way to design these benefits that provide enough flexibility to meet the individual needs of

all of the different kinds of people who are going to need access to

this insurance.

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We also believe that Federal employees have access to much of

what you are describing today, and they are not buying it. Nobody

is buying it, because it is so expensive.

Mr. MICA. Well that was the purpose for having a group come

together.

Ms. LACHANCE. Well—— Mr. MICA. And also maybe offering some options, some benefits

for assistance in payment from their Federal partner, their employer, so that this is available: One, on a more cost-effective basis;

and, two, that we are a participant in making this available.

I don’t know what kind of impact this will have on some of the

other Federal health care systems, but I am sure some of our Federal employees are now relying on other Government programs for

that assistance—so, some creative ways in which to access that

care.

Ms. LACHANCE. Well, unfortunately, it has alluded us about how

we would arrive at a group discount using your system. So perhaps

we can sit down with you to try to talk to you more about what

it is you are trying to achieve. But the way we look at it—— Mr. MICA. Well, I could achieve it in 30 to 60 days sitting down

with some carriers and say, ‘‘This is basically what we want to

offer. We have this many folks, and we would like to make this

available. What kind of a group rate, if people enroll, can you give

us? What kind of a special deal can you give us for people to participate?’’ Not turning this into some complex bureaucracy. It is

just like life insurance.

It is appalling that we do not offer more options to our Federal

employees. They are paying higher premiums and getting less.

They are getting screwed.

Ms. LACHANCE. I believe—— Mr. MICA. The kids have gone. [Laughter.]

Ms. LACHANCE. Thank you. [Laughter.]

You made me nervous. [Laughter.]

Mr. MICA. And what are we doing? We are studying it more. All

I want is to provide—and I have a selfish interest; I am a Federal

employee. I need life insurance. I am getting older. You all are

causing me great stress and pain. [Laughter.]

I could go at any minute, or I could end up in a long-term facility—[laughter.]

So I am very parochial about my interest in this. Just make it

available; OK? And usually the private sector can do it, administer

it, very well. And I think part of our role, or OPM’s role, would be

to monitor the quality, see who—set the standards for this, see that

they are performing well. And we keep those pools available of life

insurers, of long-term health care—and it is just like we do with

FEHBP, to a degree. We have a small—it is a great program. It

services 4 million people, retirees and employees——

Ms. LACHANCE. With 160 employees.

Mr. MICA [continuing]. And 5 million dependents, almost 10 million, Mr. Chairman. You oversee the largest health care system for

employees in the country, with 100 employees?

Ms. LACHANCE. 160.

Mr. MICA. 160. Well, that is getting a little bit big but, in any

event, that is what I had envisioned.

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Mr. FLYNN. Mr. Mica, if I could offer just one observation. You

cite the FEHB. I would simply say that if you looked at the Federal

Employees Health Benefits Program and the number of insurers

that offer products there, the type of market and the evolution of

that market for long-term care is in striking contrast.

And one of the things that we want to do, given the fact that

take-up rates for long-term care insurance are about 6 percent, is

to focus a really good comprehensive, flexible benefit program on

one or a handful of carriers so that we can do everything in our

power to be a cheerleader, to get people to enroll, so that we can

get to a level of maturity where perhaps some day, any number of

carriers could participate because the products were, more or less,

standards, the benefits were well-understood, and we could come

in, like we do with the FEHB—— Mr. MICA. Well—— Mr. FLYNN [continuing]. Where you could see that work that

way.

Mr. MICA [continuing]. I would rather that we opened it to all

who qualifies, set those qualifications and do it now rather than

later.

And, also, you find a changing market, just like in health care.

In health care, 15 years ago, my sister called me from California

and she told me that she was joining an HMO, and we thought

she—the Kaiser plan or something. We thought she had joined a ‘‘hippie’’ farm—[laughter]—in California. I had never heard of an

HMO, and I hadn’t heard of Kaiser.

And today, you know, HMO’s control a large portion of the market, so I don’t see any reason why we can’t make this available,

sooner rather than later, have more competition rather than less,

and, again, provide it across the broad spectrum. And some people

don’t fit into our neat Washington, DC environment. We have got

Federal employers, as I said, all around the world, and if they want

to access this, now, on these terms, we should do that and then

make it flexible as we go along.

So, I have taken too long in my—I tried, Mr. Chairman, but——

Mr. SCARBOROUGH. Oh, I didn’t even notice that the red light

was on.

Mr. MICA. A former chairman gets some minor leeway. I thank

you and yield back—[laughter]—the balance of my time. Extended

time. [Laughter.]

Mr. SCARBOROUGH. Thank you, Mr. Mica, for making your presence known to the committee once again—and OPM. We actually

have changed things. We actually have one of these little green

lights now that when it gets to 5 minutes—this year.

But I do thank you for your insight, and I think you bring up

a good point about FEHBP. In fact we have 300 insurance carriers

right now to cover a pool of 4 million which, I think, that is a better approach, myself.

Mr. Allen.

Mr. ALLEN. Thank you, Mr. Chairman. My apologies for being

late. This is a difficult morning. As other Members know, you

sometimes have everything going on at once.

But I want to thank both of you for being here and the others

who have already testified.

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I would like to continue a little bit along the lines that were

being discussed when I came in. Mr. Mica said that he favored

more competition rather than less, and I want to think about this

question of price and how we get the best deal for employees. Because it seems to me, from my private-sector experience, that the

existence of long-term care insurance does not mean that people go

out and buy it. It is still a product that is not widely purchased.

And it seems to me that we would be mistaken to equate more

competition with more companies. Because I would believe that if

you add, say, a handful—one or two or three or a handful—of carriers, who are able to offer long-term care insurance to this vast

pool of people, that that is how you get the most competition, that

is how you get the best price.

I would really be interested in your reaction to that. And please

respond to the suggestion that you have 300 insurance carriers, I

take it, under the FEH——

Ms. LACHANCE. BP—[laughter.]

Mr. ALLEN [continuing]. BP. What you think the differences are

between the health care insurance and the long-term care insurance that you envision providing.

Ms. LACHANCE. I am sure that Ed could help me with more detail, but we agree with you Mr. Allen, that in fact trying to work

with a small number of companies to come up with a flexible benefit designed at a group rate would be much more financially advantageous to our potential enrollees than just having a variety of

choices, all of which are available now and which I think everyone

will acknowledge, we are having a difficult time convincing people

to buy.

It also would help us in our ‘‘cheerleader’’ role, as we have called

it here. If we are involved with a number of companies, as we are

with FEHBP, we maintain a neutral posture. What we have to do

with this is go out there and convince people to spend extra money

on this very important coverage, and do it at a young age when

they are far more likely to think they will never need anything like

this.

So there is a formidable challenge ahead of us, and we have really looked at this and thought this was the best way to achieve it.

One of the differences with the Federal Employees Health Benefits Plan is that 85 percent of those who are eligible to buy health

insurance through the Federal Government do so. We don’t have a

penetration problem there. People understand the system; they

have been doing it for years. Everyone wants health insurance. We

make the information available. It is a very different kind of effort.

This time, we have to convince people to even do this. That is not

a hurdle that we have with the health insurance benefit.

Mr. ALLEN. Mr. Flynn.

Mr. FLYNN. Couldn’t do any better than that, sir. [Laughter.]

Mr. ALLEN. OK.

I don’t know whether this has been covered before, but I assume

that inevitably, at some point down the road, there will be some

sort of claims disputes that would typically happen, I assume, after

someone has left Federal employment. Is there any role for OPM

dealing with claims disputes?

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Ms. LACHANCE. It could happen at any time, because what we

are hoping is to try to get benefits that are so flexible that if something does happen to you during your work life and you need some

additional assistance with it, you can use the benefit to pay for

that. So, it could happen while you are still working.

But what we would like to do is similar to what we do with the

health benefits plan, try to sort things out between the enrollee

and the plan. We have a great, successful record in that, in trying

to resolve issues, trying to explain the situation to all the parties,

and we have been very, very successful. And we think we could do

it with this benefit as well.

Mr. ALLEN. In the case that would come up when someone is still

in Federal employment, is that a case of a severe disability, or am

I missing something about the long-term care insurance?

Mr. FLYNN. Mr. Allen, it could be any of a variety of needs. The

benefits of this type of insurance typically engage when you are unable to perform two or more of what are commonly known as activities of daily living, and that can occur for a variety of reasons, not

just older age.

Mr. ALLEN. Right.

Mr. FLYNN. And so it is conceivable that you could have employees participating and getting benefits from this program, though,

clearly, it is expected that the large majority of people would need

it in their later years.

Mr. ALLEN. Thank you, Mr. Chairman.

Mr. SCARBOROUGH. Thank you so much, Mr. Allen.

We need to let you all go on, and I would say that anybody else

that has questions, feel free to submit them.

Ms. LACHANCE. We will be glad to answer.

Mr. SCARBOROUGH. I do want to ask you just one final line of

questions, very quickly, because it is not exactly clear what the administration’s position is, and I don’t think Mr. Cummings bill really addresses this directly.

Do you believe that the Government should require carriers to

offer policies on a guaranteed issue basis? If so, wouldn’t that have

a pretty substantial impact on the actual price of these policies?

Mr. FLYNN. Let me try that, if I could, Mr. Scarborough.

That is an essential component of the benefit design, and so all

of those questions have not been fully flushed out right now. I

think that what we are trying to do—and I think everybody is trying to do the same thing—is craft a benefit design and eligibility

to participate in the program that, particularly for employees, offers the most access for the most people possible.

If we get into a situation where policies are issued with guarantee issue, no underwriting whatsoever, that will have an effect

on premium, and we need to find the best balance of that. So we

are looking at anything that ranges from guarantee issue to some

form of minimal underwriting and trying to understand the implications of that, in terms of benefit design and premium.

As the Director has noted, we will be meeting, have started, and

will continue to meet, on these issues and develop a consensus

around that to meet that objective. So that is not something that

has been completely nailed down at this point.

Mr. SCARBOROUGH. Well, great.

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Mr. FLYNN. And I think that it is part of why we think it is very

important to have a flexible benefit design because: One, we want

to make sure that it reflects consensus, and, two, that as time goes

on, we want to make sure that it remains contemporary.

Mr. SCARBOROUGH. OK. Well, thank you. We certainly can ask

our next panel what, in fact, they believe that is. I have heard that

having that in would possibly increase premiums anywhere from

25 to 35 percent for everybody. If this Federal Government plan is

going to serve as a model for the private sector and employers, that

causes me grave concern, because it prices almost everybody out of

the market.

So thanks a lot. We certainly appreciate it and look forward to

seeing you again soon.

Ms. LACHANCE. Thank you.

Mr. SCARBOROUGH. Thanks.

Now we will call up our next panel.

Before we start with our next panel, I would like to ask unanimous consent that the document from Fortis Insurance Co. that is

contained in everybody’s packet be entered into the record.

Without objection, we will order that.

[The information referred to follows:]

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Mr. SCARBOROUGH. Our third and final panel includes David

Martin, of the American Council of Life Insurance; Kenneth Grubb,

New York Life Insurance Co.; and David Brenerman, also from Mr.

Allen’s home State, on behalf of the Health Insurance Association

of America.

We certainly welcome all of you and like to ask that you, please,

rise to take the oath.

[Witnesses sworn.]

Mr. SCARBOROUGH. Thank you.

Mr. Martin, why don’t we start with you.

STATEMENTS OF DAVID S. MARTIN, AMERICAN COUNCIL OF

LIFE INSURANCE; KENNETH A. GRUBB, NEW YORK LIFE INSURANCE CO.; AND DAVID H. BRENERMAN, HEALTH INSURANCE ASSOCIATION OF AMERICA

Mr. MARTIN. Good morning, Mr. Chairman.

Mr. SCARBOROUGH. If you could move the mic further over.

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

committee.

I am David Martin, general director of long-term care at John

Hancock Mutual Life Insurance Co. I also serve as chair of the

long-term care committee for the American House of Life Insurance.

The ACLI represents 493 member companies; 88 percent of the

long-term care insurance marketplace is represented by ACLImember companies.

On behalf of the ACLI, I want to thank you for the opportunity

to talk about the legislation introduced by you, Mr. Chairman.

ACLI supports the efforts of the subcommittee and the administration with regard to offering long-term care insurance to Government workers as an employee benefit. This benefit is an integral

part of employees’ retirement security. Without this protection, retirement savings can be wiped out with just one long-term care episode. We look forward to working closely with you and your subcommittee members on this issue, as well as with the Office of Personnel Management.

Within 30 years, 32 States will have the demographics that Florida has today. ACLI’s 1998 study on ‘‘baby boomers’’ indicates that

Medicaid and the individual out-of-pocket long-term care expenditures could rise by over 360 percent by the year 2030. That study

was presented to the subcommittee last year. The aging of the population has focused national attention on long-term care, including

bills to extend further favorable tax treatment such as an abovethe-line deduction or tax credit.

Turning to the legislation introduced to offer long-term care insurance to Federal employees, we note that Senators Grassley and

Graham have introduced S. 36, the same measure introduced in

the last Congress by Mr. Mica, the former chair of the subcommittee. In addition, Senator Mikulski has introduced S. 59, the

administration’s bill, as Mr. Cummings, the ranking member of

this subcommittee, has introduced H.R. 110, the administration’s

bill on the House side. Within the past couple of days, Mrs. Morella

has introduced a long-term care bill as well. Your bill, Mr. ChairVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00074 Fmt 6633 Sfmt 6602 E:\HEARINGS\57738 pfrm11 PsN: 57738
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man, H.R. 602, has been introduced this year, along with Mr. Mica

and others.

ACLI’s long-term care committee believes that a competitive bidding process, where group and individual insurance carriers have

the opportunity to compete on a level playing field, will result in

the most successful Federal program.

Clearly, individuals have different long-term care needs. Based

on our experience dealing with large employers, it is appropriate to

offer employees a variety of options. We believe the criteria for offering long-term care insurance to Federal employees should also

include the following.

Only HIPAA-qualified plans should be offered to Federal employees. In addition to their tax-favored status, qualified plans include

strong consumer protections. The Federal long-term care insurance

program should also reflect the June 1998 NEIC models which contain additional consumer protections. There must be a reasonable

and affordable plan design and risk selection process that recognizes current practices in the private sector. The process used to

evaluate and select carriers should be consistent so that there is

a level playing field. Any program and participation requirements

should be consistent for all carriers.

We believe OPM may choose a group of carriers, including a consortium of carriers, to ensure the program. We believe that the best

way to provide for a successful program is for the risk to be spread

over several carriers, since a group this large is many times greater

than any group underwritten by a single carrier today.

A competitive bidding process will ensure that the Federal employees, annuitants, and other eligible family members will have a

high-quality, long-term care insurance program with appropriate

features and plan design options at reasonable rates.

Carriers participating in the Federal long-term care program

must describe their care and claims management practices to OPM

and to plan participants. A key service is assistance by RN’s and

finding services, that coupled with 800-numbers, oftentimes, with

24-hour service.

There must be a reasonable claim appeal process that will deal

fairly with disputed claims. Carriers will be the final determinant

of eligibility for benefits. This is in keeping with standard practice

for ensured long-term care products today. Carriers must individually, or in a consortium, be licensed to provide long-term care insurance nationwide. Carriers must describe the resources they

would commit to marketing the program, and overall administration of the program should recognize legitimate expenses and reasonable risk margin of the insurers.

Successful marketing efforts for the long-term care insurance

program require a strong partnership between the employer and

the carriers. We both share the common goal of maximizing participation in the plan, and both play an active role in developing and

implementing a successful enrollment.

Carriers must describe their performance standards for their administrative services. OPM would have the authority to monitor

the performance of the selected carriers and authority to terminate

for cause. Once carriers are selected there should be a fixed period

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of time during which those carriers are designated carriers for the

program, except for termination due to cause.

An educational component is critical to the success of the program. Offering private long-term care insurance, as a core Federal

Government benefit for its employees, needs to be coupled with an

educational program to increase awareness among Federal employees and their families about the importance of planning ahead for

long-term care.

The Federal Government can take a leading role in ensuring that

people plan for their future by offering this benefit to its employees

and their families.

Thank you, Mr. Chairman, and members of the committee. And,

again, we look forward to working with you.

[The prepared statement of Mr. Martin follows:]

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Mr. SCARBOROUGH. Thank you very much, Mr. Martin.

Next we have Kenneth Grubb, and Mr. Grubb, from New York

Life Insurance, will present the views of carriers who sell individual, as opposed to group, insurance products.

Mr. Grubb.

Mr. GRUBB. Thank you, Mr. Chairman, and members of the subcommittee.

Those of us who believe in the importance of long-term care insurance appreciate your leadership in calling today’s hearing to examine ways to bring this important benefit to Federal employees.

We, at New York Life, are very interested in working with you

and the Office of Personnel Management to make long-term care

insurance available to the largest possible number of people

throughout the country.

Wide acceptance of long-term care insurance, on a private basis,

is a win-win for taxpayers and the Government, especially in view

of the fact that most Americans continue to mistakenly believe that

Medicare and Social Security will cover their long-term care needs.

Through the committee’s efforts, more people will come to understand that Medicare and Social Security do not cover the cost of

long-term care, except in very limited circumstances.

Under a Federal employee program, thousands of people will

take it upon themselves to arrange for their own coverage, saving

the Medicaid program billions of dollars and easing the financial

burden on family and friends.

I am confident that the committee members are well aware of

the high cost of long-term care; 2 million Americans are in nursing

homes today, and nearly $56 billion of Medicaid’s $161 billion

budget is spent on long-term care. Combine the rapid growth of the

over-age-65 population with the fact that 70 percent of single individuals and 50 percent of couples with one partner in a nursing

home are impoverished within 1 year, then you quickly see the burden facing us all if insurance against this risk is not used on a

broad basis.

Prompt availability of long-term care insurance to millions of

Federal employees and annuitants will go a long way toward

spreading the positive message about the availability of this product and the peace of mind it can provide.

Sadly, many relatively young people who are aware of private

long-term care insurance believe this product is just for older folks.

But think about this; of those currently in nursing homes, 40 percent are under the age of 65. Who would have imagined that actors

Christopher Reeves, Superman, and Michael J. Fox, the picture of

perpetual youth, would be facing years of long-term care need?

I am just like Mrs. Kramer; when she was telling her story, I

was really moved because I have lived that same story myself. My

parents—first my dad with Parkinson’s and then my mother with

emphysema—were faced with very painful choices. Blue-collar

workers all their lives, with only Social Security and personal savings for support, they had very few options. They could spend-down

their limited assets and take Medicaid coverage or—and this was

the really good one that I could never bring to my parents’ attention—get divorced, after 62 years of marriage and pass all my dad’s

assets to my mother so that he could qualify for Medicaid. Hardly

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attractive choices for proud, hard-working taxpayers who never

wanted a Government handout.

I was lucky enough to be able to pay for the care my parents received, but for millions of Americans, financial hardship in one’s

later years is all too real. That is why this effort to bring long-term

care insurance to so many is a cost-effective way to help people

maintain their dignity and give them the choices that they have

earned after years of hard work.

Mr. Chairman, we are pleased to note that some of your colleagues are promoting bills to offer tax incentives and to encourage

public education toward the purchase of long-term care insurance.

The strengths of your legislation are many. Wide eligibility—including spouses, parents, in-laws, children, and step-children of

Federal employees and annuitants—means a broader, younger risk

pool and lower overall costs.

The use of a competitive, multi-carrier model that lets the marketplace dictate costs and benefits is key to both wide acceptance

of the product and long-term commitments from strong, reliable

carriers.

We are concerned about limiting the program to group policies.

Many companies currently offer discounts on individual contracts

or have specific, individual policy forms priced for offering on a

sponsored group basis. These individual contracts are competitive

with group coverage and ought not to be excluded from consideration of the program.

But most importantly, please ensure that the coverage is totally

portable. H.R. 602 preempts State mandates, giving us the opportunity to offer a uniform package of benefits at the lowest possible

price on a nationwide basis.

Like the American Council of Life Insurance and the Health Insurance Association of America, we strongly endorse the use of

qualified long-term care insurance contracts, as defined in the

Health Insurance Affordability and Accountability Act of 1996.

We urge that the committee move expeditiously to approve a

long-term care insurance program for Federal employees. The

longer it takes, the older we get, and the more it will cost.

Thank you for the opportunity to participate. And with my colleagues, I will be happy to answer questions.

[The prepared statement of Mr. Grubb follows:]

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Mr. SCARBOROUGH. Thank you, Mr. Grubb.

Mr. Brenerman.

Mr. BRENERMAN. Yes. Good morning, Mr. Chairman, and members of the subcommittee.

I am David Brenerman, second vice president of Government Relations for UNUM Life Insurance Co. of America, based in Portland, ME. I am also the immediate past chairman of the long-term

care committee of the Health Insurance Association of America.

HIAA is the Nation’s leading health insurance trade association

representing members that provide health, long-term care, disability, and supplemental coverages to more than 115 million

Americans. My company, UNUM, is the Nation’s leading provider

of disability income insurance and is a leader in both the employer

and the individual long-term care insurance markets.

I am here to comment on the bills H.R. 602 and 110, which propose to offer long-term care insurance to Federal workers and annuitants. And, also, I want to comment on the critical role this insurance can play in financing our Nation’s long-term care needs.

I would first like to commend the subcommittee and the Clinton

administration for realizing the potential of the long-term care insurance market. Today, more than 100 companies provide longterm care insurance to over 6 million people. In addition, over

1,800 employers have now sponsored a long-term care insurance

plan for their employees. Long-term care-related expenses cost employers $29 billion a year in lost time, employees, and productivity.

Many believe that long-term care insurance can have its greatest

impact in the employer-sponsored market. With the Federal Government, the Nation’s largest employer, offering this benefit to its

employees, this impact would be magnified tremendously.

HIAA would like to raise the following points, with respect to

these bills.

First, the key to a successful Federal long-term care insurance

program is an effective education and marketing campaign. Successful employer plans invest in multifaceted education and marketing programs. The Federal Government’s endorsement and active role in educating employees is critical to the success of this

program.

Second, it is essential that market competition determine carriers that will offer plans under the Federal program. All interested companies should be allowed to freely compete in a fair selection process that will determine eligible participating carriers.

Third, using artificially low premiums as a major determinant of,

‘‘good’’ long-term care products is a dangerous route to take. A policy with rich benefits at low premiums, offered with minimal underwriting, is a sure sign of disaster. Integrating such concepts for

Federal employees signals a program with unstable premiums in a

market that cannot be sustained. Such a scenario would likely discourage responsible companies from participating, thus, attracting

only companies that participate to gain quick market penetration,

but with the intention of raising premiums in the near future.

Fourth, the Office of Personnel Management should not be responsible for adjudication of disputed claims for benefits. HIAA opposes any type of third-party claims adjudication. There is little

evidence of abuse in this area, but more importantly, there is no

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precedent for this in any public or private long-term care employer

plan. Given the exposure insurers face in paying potentially enormous amounts of long-term care benefits, it is an unwise and unfair public policy for the employer to make claims decisions. Instead, HIAA supports a fair appeals process within the insurance

company for contested claims.

Fifth, program funds should not be maintained separately from

a carrier’s other contracts or lines of business. This requirement is

unnecessary. The financial stability of a company’s long-term care

business is enhanced because of the diversity provided by the entire company’s portfolio. This is especially important for the Federal program during its initial stage when its viability is still not

proven. A more appropriate requirement would be that reporting of

this program’s claims experience be available and that this report

be separate and apart from the carrier’s other business.

Long-term care is the largest, unfunded liability facing Americans today. HIAA applauds long-term care programs that encourage personal responsibility, help people currently in need, and increase educational efforts.

The administration and congressional proposals have an important common factor. The recognition that private long-term care insurance plays is a vital role in helping people pay for their future

long-term care costs.

I would like to commend Congress for passage of long-term care

insurance tax clarification in the HIPAA law passed a couple of

years ago. These have improved the climate for private long-term

care insurance. Nevertheless, we believe that other tax-related

changes could make long-term care insurance more affordable for

a greater number of people—like Judy Kramer, who spoke earlier.

In summary, over time, HIAA fully believes that private longterm care insurance will give millions of people an opportunity to

be financially independent throughout their retirement years. Recognition of the private long-term care insurance market in this

hearing is a solid step in that direction.

Thank you, Mr. Chairman, and members of the subcommittee.

And we look forward to working with you on this legislation.

[The prepared statement of Mr. Brenerman follows:]

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Mr. SCARBOROUGH. Thank you, Mr. Brenerman. We certainly appreciate your testimony and the testimony of the panel.

I want to start my questioning with the question that I ended

with our friends from OPM, and that has to do with the guaranteed issue basis. There is some question right now whether the administration is going to want to move in that direction or not. That

means, as you all know, if they do, that everybody is eligible. It

doesn’t matter how young or how old, how healthy, how unhealthy.

Our approach is more modified for active employees, and we allow

underwriting for everybody else that applies.

Could you delve into this issue? I think this is a critical issue for

us to clean up. What type of impact would it have on premiums for

employees, not only in the Government, but employees in the private sector if their companies had a guaranteed issue requirement?

Mr. MARTIN. Yes, actually, you know I think you have to look at

guaranteed issue as a plan design feature that does carry with it

some price consequences. You know, what you want to do, I think,

is certainly have as many insureds as you can reach in the Federal

program, but you want stability of premiums for those insureds.

And the looser the underwriting is, then the more likely it is going

to be that you will have some immediate claim exposure.

So there are examples in the private sector of both guaranteed

issue for employees. Some plans will not allow guaranteed issue

employees to come immediately into claim. There are alternatives,

perhaps, what is called, ‘‘modified guaranteed issue,’’ where there

are three short-form questions that are answered—basically, a

statement that you are not currently receiving long-term care services. And there are different ways to do it and still keep the plan

simple and not put the plan at the risk of having higher premiums.

But they are all options that you would have in designing the plan.

Mr. SCARBOROUGH. If we did have a guaranteed issue, that

would drive the prices up fairly radically, in your opinion?

Mr. MARTIN. It would drive them up, certainly. I think I would

have to rely on actuaries to look at the demographics of the Federal

population, but I would certainly think that you are talking, at a

starting point, at least a 10 percent premium increase because of

some immediate exposure.

Mr. SCARBOROUGH. Right.

Mr. MARTIN. But looking at, you know, what the demographics

of your population would be, I think would give you a better feel

for that.

Mr. SCARBOROUGH. Mr. Grubb, or, Mr. Brenerman, I have heard

that it would cost as much as 25 to 35 percent increases. Have you

heard any numbers like this? Does that make sense to you?

Mr. BRENERMAN. Go ahead.

Mr. GRUBB. I am sorry.

I would think 25 to 30 percent would be on the high side, but

I think that you are faced with some other dilemmas. All three of

us here represent companies that have been in the guarantee-issue

business. And, in fact, we have current accounts that we have written on a guarantee-issue basis.

One of the dilemmas that you face is that you are considering offering this to multiple carriers. And one of the things in a guarantee issue program that is very important is the participation

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level. Obviously, the higher the participation level, the more minimal the risk. If you spread the risk amongst a number of carriers,

and you have a guarantee issue program, how would the three of

us distribute the risks fairly and equitably. If we were the three

carriers—maybe David gets all the bad risks; I get all the good

risks. His premiums are going to need to be increased dramatically.

So you layer a level of complexity in the guarantee issue program.

I think we all support the multiple carrier model, and guarantee

issue would make that a little bit more complex.

Mr. SCARBOROUGH. Should each company in that model have the

freedom to underwrite, based on their own policies?

Mr. GRUBB. I think I would agree with David, in that you can

come up with simplified underwriting for actively at-work employees. I think that is a more reasonable solution to what you are facing and really gets most of what it is that you would like to accomplish.

Mr. SCARBOROUGH. Who should—I am sorry, Mr. Brenerman.

Mr. BRENERMAN. I would agree with the comments that we just

had. Typically, in the employer group market, there is only one insurer selected—and we are talking about cases that are much

smaller than this one—and guaranteed issue for basic amounts of

coverage, not for the entire amount that someone might buy, may

work well in that setting. But when you have more than one carrier, which we recommend here because the case is so big, guaranteed issue, would be difficult for the reasons that were stated, such

as anti-selection. This means that people may find the company

that they think works best for them and they are soon to be in benefit status.

So I think some kind of modified guarantee issue where we ask

three or more questions to find out whether there are some people

who are close to being disabled, or are already disabled, will work.

Mr. SCARBOROUGH. Great. I think this might be why the administration just wants one carrier, to have a monopoly. If that is the

case, they may actually be able to force whatever policies, including

guaranteed issue, on that company.

My concern there is, what sort of an example does that leave to

the private sector and private-sector employers that we want to get

into this business?

Mr. BRENERMAN. I think we all believe that this case is too large

for one carrier, and so we think that a number of carriers could

handle it together.

Mr. SCARBOROUGH. From my understanding, only about 15 carriers right now could even afford to get into this, because of the expensive costs up front.

Mr. Cummings.

Mr. CUMMINGS. Just trying to figure out, first of all, when you

say a ‘‘multi-carrier,’’ I just want to make sure I understand because I didn’t understand you, Mr. Martin, as being—I think we

have two different—I have got a different definition of ‘‘multi-carrier.’’

The one situation would be where you have OPM limiting it to

a number of carriers—whatever you call that. Let’s call it ‘‘limitation,’’ a limited pool of carriers. And, then, on the other hand, you

have the world, all carriers. Which would you prefer to see?

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Mr. MARTIN. I think in my remarks and comments, we were talking about more than one carrier.

Mr. CUMMINGS. Right.

Mr. MARTIN. So it could be a small number of carriers, as we

have heard from OPM. I think all of the issues that we have heard

about, you have a huge variance in the expected penetration for the

long-term care plan than for the Federal health plan. So, to the extent that you have, you know, a smaller number of carriers so that

you can effectively administer the plan, you would want to have a

level playing field. Whatever the rules are for—you know, if one

carrier has guaranteed issue, then, certainly, you would want similar rules for everyone.

If there are three underwriting questions for the whole population—or maybe for spouses or however you did those plan design

features—you would want those consistent, so you don’t advantage

one carrier over the other or shift, you know, the risks, so that your

premiums for the groups become unstable.

Mr. CUMMINGS. Now, you heard the testimony earlier from OPM

where they were talking about trying to keep rates down. When we

have the universe as the insurers, do you all disagree or agree with

OPM that it is harder to keep the rates down?

Mr. MARTIN. I think if you have—— Mr. CUMMINGS. In other words, when you, say, do what you just

said when you talked about having all insurers, as opposed to a

limited pool of insurers?

Mr. GRUBB. I am sorry if I left the impression that it should be

all insurers. My view of multi-carrier would be some limited number of highly qualified carriers.

I think it is critical, and one thing that I would absolutely recommend to you, is that whatever selection process you or OPM

goes through, that the financial strength of the company be an

overwhelming factor. Before you look at anything else, you should

look at the overwhelming financial strength of the company. That,

in itself, is going to limit the number of carriers. There are 120,

130-some-odd companies that currently are selling long-term care

insurance today. Pick the ones that are financially strong, because

you are buying a coverage today—I bought it for my three kids who

are in their early-20’s—I want that company to be there to pay

benefits 50 years from now when they are going to need it. So be

very careful in that. I think that, in itself, will limit the number

of carriers. It would be parochial to say that, you know, ‘‘pick the

carriers that were in the meeting with OPM yesterday.’’ That

would be the easy way to do it. [Laughter.]

Or the three of us; that would be good, too. [Laughter.]

But, pick carriers that are very well-qualified. And that is going

to get it to a reasonable and limited number of carriers. I don’t

know if the number is 6 or if it is 10; I don’t think it would be a

whole lot more than that. Maybe—I don’t know, but it wouldn’t be

the universe of carriers. If I left that impression, I apologize.

Mr. CUMMINGS. So, automatically, we get just a few insurance

companies doing this and based upon what you have just said. So

as far as what is in the policy, the benefits, right now, is there a

lot of leeway, with regard to—I mean is there a broad scope?

Mr. GRUBB. Very wide, very wide.

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You can select benefit amounts in increments of $10. You can get

nursing home only; you can get 2-year, 5-year, unlimited; you can

get nonforfeiture; you can add inflation protection. You can customize a plan to fit whatever your particular needs are. All of our

plans provide those kinds of options and benefits.

And we would strongly recommend that you do that, to simplify

it, as we have done in our normal marketing. We could work with

OPM on developing what they view as the most commonly available plan, or something that most people would like to use, and

make it easier for people to make that choice. But there is an unlimited number of choices, and that is one of the things that we

could certainly recommend that you endorse.

Mr. CUMMINGS. Mr. Chairman, just one more question.

Can you just give us, in a kind of snapshot, brief way, if you

can—I mean what is that average plan? What is the kind of things

that would be in that most common plan?

Mr. GRUBB. What does it look like now?

Mr. CUMMINGS. Yes.

Mr. GRUBB. I will speak for us and let these gentlemen speak for

themselves, but our average plan is a 90-day elimination period— which is like a 90-day deductible—a 5-year benefit, $100 a day,

without inflation. That is the typical plan that people buy. Now you

go to California, you go to Alaska, you go to New York, people are

going to buy a lot more than $100. And the younger you are, the

more you ought to buy inflation protection. My children have inflation protection on their plan.

Mr. BRENERMAN. And we do similar things. We offer a basic plan

which would include nursing home coverage, let’s say $100 a day or $3,000 a month. And then the applicants would have a choice

of higher amounts, depending on where they live. In the case of the

Federal plan, if they live in New York, they can buy up to $300

a day. If they live in North Dakota, they may want to buy the $100

a day, as an example. UNUM also offers professional home care as

one plan, and another plan is total home care, which pays for informal care provided by relatives at home. So there are various kinds

of care settings, including assisted living. Those are all benefits

that you can get, and there are many more than that. Inflation protection is an offer.

Mr. MARTIN. I would just agree the typical plan is $100 and the

care can be in a nursing home, institutional care, community-based

care. That is the real focus of today, a choice of where the care is

delivered, where the insured picks where that care is delivered.

That is a key piece of where policies are today.

Mr. CUMMINGS. Thank you all very much.

Ms. NORTON. Could I yield for 1 second—on that question about

if you go into a nursing home, what percentage of nursing home

care today does this $100-a-day standard policy pay?

Mr. GRUBB. It depends on where you are.

Ms. NORTON. I mean the average—we have average figures for

nursing home care for—— Mr. GRUBB. About $100 to $120 a day for nursing home care—

California is a lot higher; New York is a lot higher; Alaska is a lot

higher.

Mr. SCARBOROUGH. Thank you.

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Mrs. Morella.

Mrs. MORELLA. Thank you.

Thank you, gentlemen.

Mention was made in the testimony that approximately 10 million people currently have long-term care insurance; pretty accurate?

Mr. GRUBB. Six.

Mrs. MORELLA. Six million?

Mr. GRUBB. Six million.

Mrs. MORELLA. OK. [Laughter.]

Take a look at H.R. 1111. [Laughter.]

I think you have already, but this was not part of what you were

advised, with regard to this hearing, because it was just introduced

earlier this week. But actually in it, it would increase the pool to

20 million. Obviously given that, you would expect that you would

be able to offer a group rate—I mean you speak in general—a

group rate that would be, not only competitive with what is currently offered, but it could beat it by a mile? A half a mile? Significantly—[laughter]—dramatically? [Laughter.]

Just say, ‘‘Yes.’’

Mr. GRUBB. Yes. [Laughter.]

You are just so easy to say ‘‘yes’’ to. [Laughter.]

Mr. SCARBOROUGH. Do you have anything else? [Laughter.]

Mrs. MORELLA. Well, OK. Among the array of plans that you

might propose, is there any reason why you could not offer a nonHIPAA-qualified plan, such as a plan that would pay benefits for

medical necessity, only if there was a demand for that kind of coverage and individuals that would be willing to pay for it?

Mr. BRENERMAN. I think ‘‘medical necessity’’ benefit triggers are

not ones that many carriers would prefer to offer because the current typical plan uses activities of daily living or cognitive impairment as the triggers for benefits. Those are the most objective

measures of disability that we know of; ‘‘medical necessity’’ is not,

and so it is more—the potential in a ‘‘medical necessity’’ trigger for

abuse is far greater. And as I said, it is a less objective measure.

The doctor says you need care and, that would be the extent of the

‘‘medical necessity’’ trigger. I think most companies would prefer to

use the activities of daily living and cognitive triggers as the only

triggers.

Mrs. MORELLA. But you wouldn’t want to see a prohibition to

being able to offer it if you thought you could?

Mr. BRENERMAN. I wouldn’t want to see it mandated that we

have to offer it.

Mrs. MORELLA. Oh, no, no, right. But you would not want to see

it prohibited by law either, that you offer it?

Mr. MARTIN. One thing, just in response. Looking at the current

employer market now, and within my company at John Hancock,

we do not have any clients that have asked for a non-qualified

plan, and that is in their role as the employer. I think there is a

concern certainly that they don’t pass muster relative to HIPAA.

You get into a dilemma as to what you tell the certificate holders

and individual policyholders as to the tax status. And I think some

of the employers have some fiduciary concerns about that, too.

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Mrs. MORELLA. I think that is absolutely true. It is just simply

that one of the pieces of legislation that you have looked at says

that it has to be a HIPAA-qualified plan, and I am just saying that

it seems to me that if you wanted to offer one of the others, recognizing the difficulties that, you know, under certain circumstances

you might be able to do it.

What I envision is that a limited number of insurers offering a

multitude of plans, each one of them. Is this the kind of thing that

you think is quite workable? Maybe one insurance company could

offer seven different kinds of plans, you know?

Mr. GRUBB. We do today.

Mrs. MORELLA. Right; right.

Mr. GRUBB. That is exactly right.

Mr. BRENERMAN. Well, you could consider a——

Mrs. MORELLA. So, instead of a broad number of insurers, you

see offering different things.

Mr. BRENERMAN. You could consider it one plan with a broad

range of choices.

Mrs. MORELLA. That exactly—absolutely. OK; great.

Let’s see, are you familiar with the process of negotiating employer-based group long-term care insurance programs? And I wonder, what role do you see the employer playing? In this case, probably OPM.

Mr. MARTIN. Yes, I am familiar with it and, you know, I think

what you would expect to have happen is certainly a discussion of

what is best for the employee population that you are talking

about. And we are talking about the most diverse population of any

employer that is out there. So you do want flexibility of options. I

think at the same time, as you have a back-and-forth on what is

a good plan design, you want it to be affordable. If there is a common goal, it should be that there should be a successful penetration

of this group, if you want to provide valuable coverage at affordable

rates, and stable rates, rates that aren’t going to bump out because

they are racheted down too far. So there are concerns, I think, in

clearly negotiating issues that have to be contended with.

Mrs. MORELLA. Could I just, very briefly, ask you, are there companies that pay for long-term care for their employers?

Mr. GRUBB. Yes.

Mrs. MORELLA. I mean, such as—give us some examples that we

could—any that we could look at?

Mr. BRENERMAN. Well, I guess I am not here to promote my company, but while I am here—[laughter.]

Of the 1,800 cases that I mentioned that have been sold, UNUM

has 1,400 of them. And most of them are small employers. In half

of our small employer cases, the employer pays something toward

the premiums, usually for a base level of coverage, maybe some

nursing home coverage, and then the employee can buy additional

coverages from there. So there are a number of employers in the

less than 500 employee companies that do pay premiums.

Mrs. MORELLA. They probably have choices that the employees

make, in terms of do you want some help here or here or——

Mr. BRENERMAN. If you want, I can——

Mrs. MORELLA. Smorgasbord.

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Mr. BRENERMAN [continuing]. Get the committee the names of

some of those companies if you—— Mrs. MORELLA. I am curious about any experiences with that, basically.

Mr. GRUBB. We have had similar experiences in that, just to give

you a couple of examples. We are finding a number of school districts that are interested in providing a minimal level of care, and

they fund that, and then the employee, with underwriting, can buy

up. We have also had significant success in selling to archdiocese

who are interested in no longer self-insuring priests.

Mrs. MORELLA. I can understand that.

Mr. GRUBB. They are—the archdiocese is—— Mrs. MORELLA. I wish they would include nuns in that category,

too. [Laughter.]

Mr. GRUBB. Well, they haven’t so far, but they offer it to them

on a voluntary basis. [Laughter.]

I don’t understand that.

But it is the same thing as David was speaking about.

Mrs. MORELLA. I would like you to, at some point in the very

near future to get me your response to the bill that I mentioned

to you—1111. I would appreciate it.

Thank you, Mr. Chairman.

Mr. SCARBOROUGH. Thank you, Mrs. Morella.

And, again, we certainly want to get that information in front of

all of our—— Mrs. MORELLA. Yes.

Mr. SCARBOROUGH [continuing]. Committee members today, obviously. She dropped it a few days ago, and our material had gone

out before that.

Let me just say, briefly, one concern that I have and one problem

that we are going to have in this committee is, if we go outside the

HIPAA requirements, obviously, we are talking about the possible

tax liability on $3,000 worth of benefits, and that is obviously

something that Mr. Archer is going to want to have to say something about it in Ways and Means.

So, let me now turn it over to Ms. Norton.

Ms. NORTON. Thank you very much, Mr. Chairman. I think I

ought to say that I very much endorse the notion of OPM paying

for administrative expenses, as it does under FEHBP, notwithstanding the chairman’s joke at my expense. [Laughter.]

But I would think that when the Government picks up those expenses, that the employee has to get something for it, as it does

in FEHBP, and as I think it would in the way your testimony has

discussed the plan.

I was interested—I guess it was you, Mr. Brenerman, that talked

about small employers—— Mr. BRENERMAN. Yes.

Ms. NORTON [continuing]. Actually giving this as a benefit, and

that is not what we are doing. We are simply saying, ‘‘We will form

a group,’’ and—[laughter]—we will say, ‘‘Go for yourself.’’

Mrs. Morella implied that this may be because they choose this

rather than something else, but I wonder. I think most people

would have to have health insurance. So I would like to know

something more about that, especially since you mentioned smaller

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employers here. We are the grand daddy of them all, not coming

anywhere near that. And I would like to ask what the premium— what is the average? Here we go to averages again—premium cost

of a long-term care policy?

Mr. BRENERMAN. Well, premiums are based upon the benefits

that are selected, as well as the age of the person selecting the policy. So for a typical policy of $100 a day with half of that for home

care coverage, a 4-year benefit, for example, an elimination period

or deductible period of—in this case, the numbers I have are based

on a 20-day—most companies have more than that. A 40-year-old would pay, with inflation coverage, would pay about $500 a year.

A 50-year-old would pay about $650—this is all with inflation coverage; it is much less if you don’t have it. A 65-year-old would pay between $1,500 and $2,000, and then it goes up from there, if you

are over 65.

Ms. NORTON. This is very interesting, because I think most probably pay far more than that in health insurance, even though the

Government picks up about 70 percent of our payment. I just think

that one of the things we need to do is to find out how much of

this cost is myth and how much of it is real. You heard Ms. Kramer’s testimony. She just assumed that this was way out of anything that she or her parents could have afforded. It may not be

the case.

I also want to clear up this notion about monopoly. OPM has testified one or more companies and has not said it should be only one

company. I certainly would hope there would be more than one because I want to see as much competition and to have something to

choose from, and because I am used to FEHBP, which gives me

something to choose from.

I would like to hear what you might have to say about the scenario if there were not competitive bidding, if it was, you know,

open to everybody. What kind of scenario do you see developing?

Mr. MARTIN. Well, I think you can get to a point where you have

high-quality competitive plans if you have a good competitive bidding process. And that is what the companies are used to.

Ms. NORTON. When you say ‘‘competitive bidding,’’ you mean

based on what factors, for example?

Mr. MARTIN. Well, I think you would have to look—as, you know,

as Ken mentioned—you know, how the companies that are able to

meet the criteria of some of the things we have talked about like

being able to offer singly or in consortium, nationwide coverage,

meeting whatever the specifications of the plan design would be,

and carrying—— Ms. NORTON. Would OPM set broad parameters, or would people

simply come forward with notions?

Mr. MARTIN. Well, I think you would want to have some measuring stick so that you could assess all the players equally. So that

you would want some standards in there. Typically, what happens

in the private sector is, you know, 8 or 10 companies may respond

to a bid proposal. And you have to maybe hit 90 percent of the

things they are asking for in there in order to be considered for a

finalist presentation. So there is a selection process; there is competition, and what you want to do is have good competitive rates,

high-quality coverage, but you want to be able to explain the plan

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design options. And you can have quite a number of them in either

scenario, certainly, but you want it to be understood by people

when the plan rolls out.

Mr. BRENERMAN. When we say ‘‘competitive bid,’’ we don’t mean

that you only have to say how much coverage is going to cost. You

get a whole booklet that employers ask you to fill out. It includes

financial information about the company. What is your marketing

plan? What is your experience in the employer market or whatever

market you are competing in? What is your claims paying experience? And how do you deal with reserves? Just a whole group of

questions upon which the employer makes a decision about which

company to select for the program.

So, in this case, we are saying individual and group carriers

ought to be able to compete for the final selection that OPM would

make of the carriers to participate in the program.

Ms. NORTON. Mr. Chairman, thank you.

Mr. SCARBOROUGH. Mr. Allen.

Mr. ALLEN. Thank you, Mr. Chairman.

I want to welcome all members of the panel and say particularly,

David Brenerman, who lives in Portland, ME, and works for one

of the leading companies in my district that we are very glad to

have you here.

I would be interested in what the current industry practices are

with regard to dispute resolution. How does that aspect of the business work now, in the private sector?

Mr. BRENERMAN. I guess I was the one that raised it so—so the

few times that there are disputes about benefit payments, there is

an internal appeals process that the insured is educated about. It

is in their policy. When a claim is denied, they are alerted to the

fact that they can appeal the claim. And sometimes there are even

second appeals, within the company. And then after that, the

choice for the insured, in all cases, is judicial.

There are no employers that I know of that settle disputes.

Mr. ALLEN. That settled, that arbitrate them, or do you

mean——

Mr. BRENERMAN. Right. Employers—— Mr. ALLEN. No employers, or no employers that settle

disputes—— Mr. BRENERMAN. On behalf of their employees, they don’t have

the employee come to them and say that they can’t get benefits and

they want the employer to settle the claim with the insurance company. They don’t have the expertise to do that. And, also, I guess

we reserve the right to make decisions on claimants.

Mr. ALLEN. Sure, and I take it from that, there wouldn’t be a

practice of having some form of external appeal or arbitration or

mediation? It is, basically, you have got an internal appeal and

then you have an ordinary judicial remedy.

Mr. BRENERMAN. Yes. The judicial remedy often leads to arbitration or mediation.

Mr. ALLEN. Of course.

Mr. BRENERMAN. They don’t always have to end up in court.

Mr. ALLEN. Right. OK.

Mr. MARTIN. Just one thing, Mr. Allen, on that. Most employer

groups—the Government wouldn’t fall into this category—are subVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00128 Fmt 6633 Sfmt 6602 E:\HEARINGS\57738 pfrm11 PsN: 57738
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ject to ERISA; so there is a formal claim appeal process that is in

place there. And, you know, certainly something like that I think

is what companies are used to doing. A big difference, too—as Dave

has pointed out—we are talking about a fully insured block of business, as opposed to a self-funded arrangement, which is more typical with health benefits.

Mr. ALLEN. Are there any numbers out there about how often

claims are disputed? Does the industry collect them, or does the

Government collect them?

Mr. MARTIN. Well, it is interesting—— Mr. ALLEN. I would think it would be far less than your ordinary

health insurance?

Mr. MARTIN. Yes, and Dave might have some comments on this,

too, but a part of what happened with the passage of HIPAA was

a requirement that insurance companies have to report information

every year to State insurance departments. Certainly, the feeling

we get from the regulators, as well as talking among ourselves, is

this isn’t a problem. But the National Association of Insurance

Commissioners is working on a form that would be used to be a

model filing for any of these claim issues that would go in yearly.

So I think the information can be obtained. And there is a mechanism within HIPAA for that.

Mr. BRENERMAN. First of all, long-term care insurance is a relatively new business. So, while we do have a number of claims, you

don’t nearly see the number of claims as you would have in the

health insurance policy where most people some time take advantage of their policy. But people would hope never to take advantage

of their policies if they had long-term care insurance.

Mr. ALLEN. Like fire insurance, sir.

Mr. BRENERMAN. Exactly, yes.

So claims disputes are not as frequent, because the benefit triggers are more objective. While we do have disputes over whether

an insured is disabled or not, they are not nearly as great as they

are in disability insurance or in health insurance.

Mr. ALLEN. Thank you.

Thank you, Mr. Chairman.

Mr. SCARBOROUGH. Thank you, Mr. Allen. The chairman appreciates your questions and appreciates the panel’s testimony. I just

want to conclude.

I am sure we might have some questions that we will be sending

to you to address.

In particular, Mr. Brenerman, you had cited a 5 percent decline

in the cost of premiums for long-term health care because of some

innovation and competition. Obviously, that is something that we

are very interested in. OPM has said in their testimony that, I believe, vendor competition and product competition would actually

make prices more competitive is something that they disagree with,

and would certainly appreciate you filling us in, in that area.

Mr. BRENERMAN. I think what we meant was that, since longterm care has been sold, price of the policies has gone down, because of innovation and competition.

Mr. SCARBOROUGH. Right.

Mr. BRENERMAN. Sure, we will provide you some more information.

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Mr. SCARBOROUGH. Great. All right, thanks a lot. We appreciate

it.

This meeting is adjourned.

[Whereupon, at 12:10 p.m., the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]

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LONG-TERM CARE INSURANCE FOR FEDERAL

EMPLOYEES, PART II

THURSDAY, APRIL 8, 1999

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON THE CIVIL SERVICE, COMMITTEE ON GOVERNMENT REFORM, Jacksonville, FL.

The subcommittee met, pursuant to notice, at 10:04 a.m., in the

Officers Club, Jacksonville Naval Air Station, Jacksonville, FL,

Hon. Joe Scarborough (chairman of the subcommittee) presiding.

Present: Representatives Scarborough and Cummings.

Staff present: George Nesterczuk, staff director; and John

Cardarelli, clerk.

Mr. SCARBOROUGH. I would like to call this meeting of the House

Civil Service Subcommittee to order.

Ladies and gentlemen, this morning we are going to continue our

deliberations over legislative proposals to establish a program

under which both civilian and military personnel may purchase

long-term care insurance. This is the third hearing that this subcommittee has held on long-term health care. The first hearing was

held in March of last year and gave rise to a bill that was introduced by then-Chairman John Mica, also from Florida, to establish

a long-term health care insurance program for Federal employees

and their annuitants. Later in the fall of 1998, Senators Chuck

Grassley and Bob Graham introduced a bipartisan companion bill

in the Senate. Unfortunately, the 105th Congress adjourned without acting on either bill.

I am pleased that the President has now joined Congress in proposing to make private long-term care insurance available to Federal employees and annuitants. In addition to my own long-term

health care bill, H.R. 602, our ranking member, the Honorable Mr.

Cummings, and Representative Morella have also introduced longterm care bills. I certainly hope that by working together, we will

also make this an important benefit and make it affordable and

available to all Federal employees.

I want to emphasize too that I recognize that active duty service

men and women and military retirees have performed valuable

service to our Nation as employees of the Federal Government. In

fact, they and their families have endured great sacrifices to perform the most valuable service that any government employee can

provide—keeping our Nation strong and free. Neither I, nor I am

sure my colleagues in the House and the Senate, will lose sight of

the fact that even as we conduct today’s hearing, American service

men and women are putting their lives on the line to serve our

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country in the Balkans and in other dangerous regions throughout

this world.

Prior to the introduction of H.R. 602, my staff and I clearly stated my intent to include both active and retired members of the uniformed services in the long-term health care insurance program at

the appropriate time. Being from the district in northwest Florida

that I believe has more military retirees than any other district in

the Nation, I do not think I would be very well served to exclude

them. I have heard their needs and concerns and certainly I know

that long-term health care is very, very important.

I continue to welcome the opportunity to work with organizations

representing military retirees and military families to ensure their

inclusion in a long-term care insurance program. In particular, I

am interested in how this program might contribute to the recruitment, retention, and morale of military personnel. Inclusion of the

uniformed services will require the coordination of the Department

of Defense and the House Armed Services Committee, on which I

serve. It is my hope that we can begin this process with the testimony received today from the Department of Defense.

With 1.4 million active duty and 1.6 million retired uniformed

services personnel plus their families, the eligibility pool would

grow significantly. When you combine the 1.8 million Federal civilian employees and the 2.3 million civilian annuitants and survivors, the expanded pool may also serve to lower premiums for all

participants. I believe that is what would ultimately happen.

As one of the Nation’s largest employers, we can encourage our

Federal workers to assume personal responsibility for their future

long-term care expenses through the purchase of this insurance

product. Competition among carriers and the volume of sales

should generate group discounts that would keep premiums affordable for all participants. And in making long-term care insurance

available to individuals in their working years, the Federal Government can help encourage the purchase of this product at younger

ages when premiums are lower and more affordable.

Appealing to people during their prime working years is a common sense approach to solving a growing problem in long-term care

financing. The fact is that most Americans simply cannot afford to

pay the $41,000 average annual cost of a nursing home stay or the

$98 average per visit fee of a registered home care nurse. Most people mistakenly believe that Medicare will provide for all of their

long-term health care needs. They quickly learn that it will not.

For two out of three Americans today, that help will only come

from the Medicaid program but only after the individual is impoverished. We have heard testimony in Washington, DC on this issue,

and I know each one of us has a family member or relative or

friend that we have seen their life savings completely diminished

before they were eligible for any help. It is a heartbreaking procedure and one that I think we should do without. If we can create

a program that will allow us to avoid that tragedy late in one’s life,

we need to do it. With a rapidly aging population, Medicaid will not

be able to withstand the demand for long-term care services in the

future, so we must do something about it today.

In crafting legislation to address this problem, we should build

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ure of success for the long-term care insurance program will be the

extent to which Federal employees will purchase this needed protection. In order to meet the varying needs of the diverse population, we have got to have competitive benefit plans at affordable

prices.

I look forward to hearing from our witnesses to make the case

for expanding the participant pool to include members of the uniformed services, and also to clarify some remaining issues concerning access to benefits.

I pledge that I will work in good faith with all Members of Congress, any organization of employees and retirees, insurance carriers, the administration, and any other interested party to make

the promise of affordable long-term care insurance a reality for the

Federal community.

I thank everybody for showing up today. I am looking forward to

a very productive hearing. Right now, I would like to recognize the

ranking member, the Honorable Mr. Cummings from Maryland.

[The prepared statement of Hon. Joe Scarborough follows:]

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Mr. CUMMINGS. Thank you very much. I want to thank you, Mr.

Scarborough, for bringing us together today here in Jacksonville,

and I think it is an appropriate place for us to be.

Long-term care is an important priority for me as ranking member of the Civil Service Subcommittee. A few weeks ago, the subcommittee held a hearing on three legislative proposals for longterm care for Federal employees. At the hearing, we discussed the

merits of long-term care bills introduced by myself, Chairman Scarborough and Congresswoman Connie Morella of Maryland. Though

the differences between the bills are significant, the subcommittee

is committed to working in a bipartisan manner to reach agreement on a consensus bill.

On January 6, I introduced H.R. 110, the Federal Employees

Group Long-Term Care Insurance Act of 1999. My bill is one of

four elements of the comprehensive long-term care package proposed by President Clinton.

H.R. 110 would authorize the Office of Personnel Management to

purchase a policy or policies from one or more qualified private-sector contractors to make long-term care insurance available to Federal employees, retirees and eligible family members at group

rates. Coverage would be paid for entirely by those who elect it.

The Clinton administration and I support modifying H.R. 110 to

extend long-term care coverage to active duty military personnel,

military retirees and their families. And I want to thank Mr. Scarborough for being so sensitive to the issue of military personnel

and retirees and their families. I believe that extending coverage

to military personnel would make the risk pool larger and more diverse.

All participants other than active employees and active duty

military personnel would be fully underwritten, as is standard

practice with products of this kind. Coverage made available to individuals would be guaranteed renewable and could not be canceled

except for non-payment of premiums. Though each participant

would be responsible for paying the full amount of premiums based

on age at time of enrollment, group rates will save an estimated

15 to 20 percent off the cost of individual long-term care policies.

OPM will be responsible for the administrative costs of the program which is estimated to be only $15 million over a 5-year period. This would include developing and implementing a program

to educate employees about long-term care insurance. I am convinced that a lot of people do not even know it exists. Extending

OPM’s marketing efforts to active duty military personnel and retirees would further increase the costs.

I believe that H.R. 110 will help to raise the general public’s

awareness of the need for long-term care insurance and underscore

the limitations associated with reliance on Medicaid for one’s longterm care needs.

With an aging society, the need for good long-term care facilities

is rising. Nursing homes, where most elderly Americans receive

long-term care, are increasingly coming under fire for

malnourishment of residents, inadequate treatment of bed sores,

records falsification, and lack of qualified supervision.

Cuts in Federal Medicare payments and difficulty in finding satisfactory employees are contributing to an increase in nursing

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home complaints. In addition to cracking down on nursing homes

by stepping up inspections and imposing tougher sanctions, this

problem can be addressed by more Americans investing in longterm care insurance.

Federal employees that enroll in the Government’s long-term

care program will be able to choose home and/or community based

care to meet their long-term care needs. They will have a greater

say in the type and quality of care that they and their family members receive, and they will not be dependent on government subsidies or affected by program cuts. No doubt, the non-federally employed who obtain long-term care insurance would realize the same

advantages.

By 2025, the number of Americans over 65 will be over 60 million. Many families will find it impossible to afford nursing home

care which will increase from $40,000 to an estimated $97,000 by

the year 2030. Under current law, a family would deplete all of its

financial resources to qualify for Medicaid which would only pay for

a portion of needed long-term care services. By offering long-term

care as a benefit option for its employees, the Federal Government,

as the Nation’s largest employer, can set the example for other employers.

Just a few days ago, I had an opportunity to meet with some representatives of the insurance industry and the nursing home industry in Baltimore, and one of the things that they echoed, and it was

very clear, and I assured them that we were listening on both sides

of the aisle in Congress, is they said you have got to do it, but

make sure you do it right; make sure you do it right because you

are setting the example for the entire country and for the civilian

population.

So I am looking forward to hearing from today’s witnesses. I

want to thank all of our witnesses. Just in case we do not say it

enough, we are going to say it over and over, and do not get upset

with us, we really appreciate you taking up your time to be with

us today. Because it is your testimony that will help to do it right.

So we thank you.

And again, I thank you, Mr. Scarborough.

[The prepared statement of Hon. Elijah E. Cummings follows:]

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Mr. SCARBOROUGH. Thank you, Mr. Cummings. I just want to

echo your sentiments of how important this is. A lot of times, we

lose sight of it, but the Federal Government obviously is one of the

largest employers in the country and what we are doing here today

is not going to affect the Federal work force. What we want to do

is implement a plan and a program that will be a good example to

private employers across the country. With the aging population,

with the baby boomers, the so-called baby boomers, moving toward

retirement in the year 2010, we are going to be facing an aging crisis that this country is not going to be able to handle with just the

Federal Government. It is going to require the Federal Government

and private employers stepping in and standing in the gap and filling the holes.

That is why it is so absolutely essential that we put a program

together that works for Federal employees, that will be a guide for

hopefully private employers and so this long-term care crisis can be

resolved before things get especially difficult in the year 2010.

Right now, I want to ask our distinguished panel if they could

please rise; I want to swear you in.

[Witnesses sworn.]

Mr. SCARBOROUGH. Be seated. We have with us today Marilyn

Cobb Croach, the area representative for the National Military

Family Association; we have Senior Master Sergeant Larry Hyland,

U.S. Air Force retired—I cannot believe they let you on the base,

an Air Force man—national director of the Retired Enlisted Association, he is actually a constituent of mine. We also have Colonel

Klyne Nowlin, he is also U.S. Air Force retired, State president of

the Retired Officers Association. We are certainly honored by all of

your presence.

Ms. Croach, if you could begin your testimony.

STATEMENTS OF MARILYN COBB CROACH, AREA REPRESENTATIVE, NATIONAL MILITARY FAMILY ASSOCIATION; SMSGT

LARRY HYLAND, USAF RETIRED, NATIONAL DIRECTOR, THE

RETIRED ENLISTED ASSOCIATION; AND COL KLYNE

NOWLIN, USAF RETIRED, STATE PRESIDENT, THE RETIRED

OFFICERS ASSOCIATION

Ms. CROACH. Thank you. Mr. Chairman and members of the subcommittee, my name is Marilyn Cobb Croach and I am here before

you today in my role as a volunteer area representative for the National Military Family Association.

I appreciate this opportunity to express the views of the association and the uniformed service families we represent. Although the

area I represent is Orlando, FL, the staff at NMFA headquarters

asked if I would be able to travel to Jacksonville to represent military families on this very important issue. Ironically, on the day

that headquarters called, I was chauffeuring my father-in-law to

and from a hospital visit with my mother-in-law.

I am in Jacksonville today not only to represent the uniformed

service families at this hearing, but to accompany my mother on

a visit to the Mayo Clinic. Needless to say, the subject of long-term

health care for my mother and the parents of my Air Force retiree

husband are in the forefront of my mind.

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At the same time, the situations with our parents has made both

my husband and me realize that we too could become vulnerable.

National statistics indicate that at some time in the future, we may

be unable to provide the care needed for each other and one or both

of us could be reliant on some form of long-term health care.

NMFA understands that current proposals for long-term care for

Federal civilians do not include any subsidy by the Federal Government. We believe that including the relatively young, active duty

military force in the eligible population can only serve to increase

the buying power for the total community and thus reduce premiums. Since few military families have significant disposable income after the basics of housing, health care and food are purchased, they would be unable to afford a policy with high premiums, no matter how wise an investment they thought it would

be. Mr. Chairman, military families need the ability to purchase

such care at affordable group rates.

NMFA also firmly believes that service members and their families should not, once again, be left out of a program for all other

Federal employees and retirees. My association has long supported

an initiative that would allow military families to have access to

the Federal Employees Health Benefits Program. We strongly believe that such an option is of particular importance to those unable to fully participate in the Tri-Care Program, the over 65 dual

Medicare-military eligibles, and active duty members and retirees

and their families who do not live near a military health care facility. With long-term health care a possibility for Federal civilian

workers and retirees, we implore this subcommittee to remember

that we too are part of the Federal family.

Mr. Chairman, NMFA is also aware that the proposals for Federal civilians would extend coverage to their parents and their parents-in-law. This coverage would be of particular importance to the

active military force. The advent of the all-volunteer force has undoubtedly given us the brightest and the most well-educated armed

force this country has ever seen. It has also brought us a force that

is married. Service members are not just concerned about their

own families, but the parents of both the member and the member’s spouse. Department of Defense statistics reveal that over 8

percent of the total active force and 12.7 percent of senior career

enlisted—E–7 through 9—and 14.3 percent of career officer—O–4

and above—have responsibility for elderly relatives.

Since thousands of miles and often an ocean separate military

families from their parents, significant stress occurs when the parents can no longer care for themselves. How does the military family stationed in Japan care for an elderly parent in Florida? As difficult as caring for elderly parents may be for any family, such distances make a difficult situation an almost impossible one for a

service family. The high operations tempo the armed forces are currently facing often puts the care for both sets of parents squarely

on the shoulders of the military spouse—a spouse who is already

trying to balance a needed job and being a single parent to the couple’s children. When this spouse is living in Washington State, adding the care of an elderly parent or parent-in-law in Orlando may

be a task the spouse just cannot adequately perform.

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Unfortunately service families have few alternatives in these situations. They are unable to spend weeks and months away from

their own children caring for an elderly parent located at a great

distance from their duty station. They are hesitant to uproot such

a parent and make them endure the nomadic military lifestyle, and

they do not, in most cases, have the financial reserves to assist

their elderly parents with the enormous costs of long-term care.

The safety net of an affordable policy for such care would relieve

the frequent nagging worry that often accompanies orders to remote areas. NMFA also believes these relatively young families

who might ordinarily consider the expense of a long-term care policy would quickly realize its advantages for themselves.

NMFA represents the interests of all seven uniformed services

and therefore requests that not only military families but the families of those in the uniformed corps of the U.S. Public Health Service and the National Oceanic and Atmospheric Administration be

also included.

Thank you, Mr. Chairman, for this opportunity to express the

strong desire of uniformed service families to be included in any

long-term care proposal.

Mr. SCARBOROUGH. Thank you, Ms. Croach.

Mr. Hyland.

[The prepared statement of Ms. Croach follows:]

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SMSGT HYLAND. Good morning, Mr. Chairman and Mr.

Cummings. My name is Larry Hyland and I sit before you today

as both a national director of the Retired Enlisted Association and

also as a constituent of the chairman, who resides in Crestview,

FL.

On behalf of TREA, we thank you for the opportunity to address

the issue of long-term care as it relates to the concerns of our members. TREA has over 100,000 members and an auxiliary representing all branches of the armed services, retired, active duty,

guard and reserve. Their concern over the accessing of health care

in the future stems from cost implications in medical care, not only

for themselves but, also their families.

With base closures, military treatment facilities downsizing, demographics changing, the need to provide access to health care to

our ever-growing number of aging retirees creates anxiety with

those that were promised lifetime health care. The support from

this subcommittee for the Federal Employees Health Benefit Plan

for Medicare Eligible Military Retirees Test Program is very much

appreciated. This expands an equitable benefit to the men and

women who have patriotically served this country. As this committee is aware, this is only one part of the matrix for accessing

health care for our aging war heroes and heroines, long-term care

is becoming a particular topic of concern for both our members and

also this Nation.

As this committee reviews the current legislation for long-term

care insurance, I ask that you include the active duty, the guard,

the reserve and retired members of the uniformed services in your

final legislative proposal. The administration and Congress have

proposed different legislative initiatives to providing long-term care

insurance products to Federal employees, including your bill, Mr.

Chairman, H.R. 602, and Mr. Cummings’ bill, H.R. 110. As men

and women who have served and continue to serve in the uniformed services, we feel we should be included under the same population as Federal employees and retirees for accessing long-term

care insurance products. As you are already aware, Congresswoman Connie Morella’s bill, H.R. 1111, long-term health care, includes members of the armed services, both active duty and retired.

It includes as well their spouses, parents, parents-in-law and other

annuitants.

Incentives to purchasing long-term care now at lower premium

rates would ensure some financial security in the future for those

of the uniformed services. Offering long-term care insurance at a

group rate, which includes both Federal employees and uniformed

service members, could further reduce the cost of private insurance

products and lower premium rates.

As we know, one can never plan fully for the diagnosis of a deteriorating health condition or of an accident resulting in a lifetime

disability to one’s self or a family member. However, paying into

an affordable long-term insurance product can reduce some of the

financial burden associated with either of these.

Living here in the State of Florida, one cannot read a newspaper

or turn on a TV without seeing something about planning for your

senior years. Being able to have affordable access to long-term

health care, if needed, is part of that planning.

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I am no expert on this subject, but I come before this committee

to help ensure that as a military retiree and a member of TREA

that I have the same choices in long-term care as my civil service

neighbor. I realize that potential risk to my wife’s and my own

health increases with age. This forces me to look for ways to reduce

the financial destruction to not only our own life savings, but those

of our children as well, due to costly medical bills out of long-term

care. Also, I do not desire to exhaust all our assets in order to be

left on Medicaid.

Planning now for the unexpected is as important as planning for

our retirement—actually they go hand in hand. In my profession

as a business owner, I have—and in order to ensure success, must

plan for the future and assess all risk. This is true not just in business but in life as well.

Today, I speak to you as a military retiree, but let us not forget

the active duty member stationed overseas. This member may be

burdened with the additional responsibility of a parent or a parentin-law, who requires skilled nursing care. He or she needs reassurance that a benefit exists to ensure the family’s needs are met.

My wife and I both served on active duty with the Air Force. I

am now retired and she continues to serve as a reservist. The benefit promised us upon our enlistment and re-enlistment ceases to

exist as it pertains to the promise of lifetime health care. As military careerists, we both feel betrayed. Let us correct this wrong by

not forgetting to offer a truly good benefit package to our young

new recruits as well as our retirees, by providing a long-term care

benefit equal to Federal employees.

In closing, we are requesting that the uniformed service men and

women who are serving now or are retired have the choice to purchase long-term care at a group rate alongside Federal employees.

This again is an equity issue. This committee has worked with us

diligently to have 66,000 military retirees included in FEHBP and

we appreciate the hard work associated with that. We now ask that

we have access to the same long-term care benefits as other Federal employees.

Mr. Chairman, on behalf of the Retired Enlisted Association and

all military retirees, I would like to offer my sincere appreciation

to come before you today to request the inclusion of the uniformed

services participation into the Federal employees long-term health

care proposal.

Thank you.

Mr. SCARBOROUGH. Thank you, Senior Master Sergeant Hyland.

I certainly appreciate your testimony. You talked about the sense

of betrayal that many military retirees felt because they did not receive the health care promised, and I have got to tell you that is

something that is very important to us on this panel and needs to

be a message that we do take back with us to Washington, DC. I

certainly know last year and the year before when we held TriCare hearings in my district, there was that recurring sense that

the Federal Government had not kept their word to those men and

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women that served so ably throughout the years and that is certainly something that we will remember as we agree on a final bill.

I thank you for your testimony.

Colonel Nowlin.

[The prepared statement of Mr. Hyland follows:]

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COL NOWLIN. Mr. Chairman, distinguished members of the committee, on behalf of the Retired Officers Association, TROA, I am

pleased to be here today to address the important issue of longterm care for our almost 400,000 active duty, retired, reserve officers of the seven uniformed services. Included in our membership

are approximately 71,000 auxiliary members who are survivors of

former members of our association. This subject is not only of great

importance to our members, but to all uniformed service members

everywhere, regardless of their status and their rank.

I want to thank you, Mr. Chairman, for allowing us to present

our views on long-term care and its importance to military members and their families. I am most pleased that you decided to hold

these hearings in Jacksonville Naval Air Station in Florida.

Mr. Chairman, the hearings today are important to the 44,600

TROAns living in Florida, of which 6,400 live in your district, and

of the 173,200 military retirees in Florida, of which 30,600 military

retirees live in your district. Worldwide, there are 1.8 million military retirees plus their dependents and family members who, if included, are potential participants in a government-sponsored longterm care proposal. Like many Floridians, uniformed service members, active, reserve, guard and retired are concerned about their

health care and the potential need for long-term care in case of a

debilitating illness or injury which can happen at any time.

Please allow me to digress a little now. I want to take this opportunity to state our sincere appreciation to you for supporting the

congressional efforts to restore health care equity to uniformed

service retirees who lose Tri-Care at age 65. Curtailment of military health care services because of legislative restrictions, staffing

drawdowns, reduced operating budgets or base closure actions like

that in Orlando and Homestead areas, is a breach of the promises

made to retirees that health care would be there for them if they

served a career in uniform.

Historically, Mr. Chairman, you have been a strong supporter of

the military and for the people issues so important to all of us. So

thank you for being a friend and a strong supporter of the military

community.

Now I want to address the growing concern among our older

Americans, and those who have to care for them, that long-term

care insurance is also a health care imperative. Without such insurance, most Americans who are responsible for caring for a parent, a parent-in-law or a disabled spouse who is suffering from debilitating illness or injury will not have the resources to do so.

Medicaid and Medicare are not the answers. The solution for many

Americans is to promote enrollment in group long-term care insurance plans to make such coverage available to more senior citizens.

Every incentive that Congress can give toward enrollments in

group long-term care insurance will lessen the demands that may

otherwise be placed on Medicaid, the government and the taxpayer.

There are different approaches in how a Government-sponsored

long-term care plan could be structured and what role OPM should

play. Which is the right one is for your committee to resolve? I do

not or I am not an expert to address these matters. What concerns

us is that until recently, each long-term care bill introduced in

Congress has excluded the uniformed services community.

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TROA greatly appreciates the lead of Representative Morella for

developing a more expansive bill which includes members of the

uniformed services.

Let me highlight an experience that I had, and it is one which

is similar to many—to some of my friends who have run into the

same situation. My particular case was with my mother, but some

of the people that I know it has been with their spouses.

A few years after my father passed away, my mother, Kathleen

M. Nowlin, age 77, suffered from acute myocardial infarction, diabetes, blindness and incontinence. Her physician determined that

she required 24-hour skilled nursing care. She was placed in

Medic-Home Health Center, a nursing home in Melbourne, FL on

November 9, 1982.

At the time, the cost of nursing home care was about $2,000 a

month, not including pharmacy, physician costs, personal needs

such as laundry, clothes, et cetera. My father had been an automobile mechanic most of his life and my mother a homemaker or

a housewife. They did not have much to live on after retirement except for Social Security and interest earned on their meager savings which, to the best of my knowledge, was around $50,000 to

$60,000. With mother’s medical problems, it did not take long for

my mother’s assets to be drawn down to a point where she had to

apply for Medicaid to be able to stay in the nursing home. At that

point, all of her valuable possessions were gone and she became

property of the State. She remained property of the State until she

died on January 12, 1988.

My mother was very fortunate, as was me and my family, to

have Medicaid as an alternative when her assets were depleted. At

the cost of about $30,000 to $35,000 a year at that time, which has

grown now, we could not have afforded the huge cost of nursing

home care without going into poverty ourselves. And this is true for

many whose spouses have gone into nursing homes.

Most military retirees cannot afford current long-term insurance

on our own. Thus, today we take the gamble that we will be one

of the lucky ones who will not need long-term care. And if we do

need it, I am afraid we will go down the same path that my mother

experienced.

Mr. Chairman, your support of the military members has been

very apparent over the years and I must say that we were heartened during hearings that you conducted last month when you

gave your endorsement for including us in whatever legislation the

committee reports out to the full House. Your endorsement is truly

appreciated by all of us in Florida.

According to DOD—I’m not sure our figures match, but they are

close—according to DOD, there are 3.4 million active and retired

service members and survivors who could participate in a Government long-term care plan, if offered. Last week, I ran a survey of

just my chapter in the Cape Canaveral area, and in that survey

there were—of the 100 that I passed out, I received 78 responses,

88.5 percent said they want the option to have long-term care. Now

that is a large number. Now if that is true across the State, or if

only half, say 42 percent would want it, it tells you that our people

are concerned about long-term care and they are concerned about

their health coverage and they are willing to sign up for it.

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According to OPM, there are about 4 million active and retired

Federal civilian employees and survivors who would be eligible to

participate in a government long-term care plan.

Based on these figures and using the national participation rate

of 6 percent conservatively, we expect that the participation rate

for military members could be around a little over 200,000, probably higher given favorable premiums available through a group

plan. The participation for Federal civilian employees could be

about 243,000 using the national rates. However, OPM projects the

participation to be closer to 300,000 given the favorable premiums

under the Government group plan.

If active and retired uniformed service members are included in

the Government’s long-term plan, it is likely that a more favorable

group rate could be achieved and thus make long-term care coverage affordable for service members.

In closing, I want to reaffirm for you, Mr. Chairman, that uniformed service members want to be treated equally and fairly in

programs developed for Federal employees. We want to have an opportunity to participate in the Government’s long-term care program on the very same basis as other Federal civilian employees.

Uniform service members are proud people who, like Federal civilians, do not want to burden their sons, their daughters or their

spouses with having to care for them when their health declines

and they become too infirmed to care for themselves. For the defenders of this country—and I think you spelled that out—past and

present, please reassure us again today that you will include us in

the long-term care legislation this committee reports out to the full

House this year.

Mr. Chairman, on behalf of TROA’s members and all the military

retirees here in Florida, I want to thank you for allowing me the

opportunity to present the views of the Retired Officers Association

on this very critical and important issue.

I thank you.

[The prepared statement of COL Nowlin follows:]

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Mr. SCARBOROUGH. Thank you, Colonel. We certainly appreciate

your input and want you to know that we do wholeheartedly support military members and military retirees into this plan. Not

only does it make good economic sense, it is what the Federal Government has to do to keep its word.

The numbers that you were kind enough to give regarding the

number of military retirees that are in my district right now would

suggest that I would be stupid not to include them and would have

trouble actually driving back to my district if I did not include

them.

But actually, when we were holding the Tri-Care hearings, I

heard so many heartbreaking stories across northwest Florida

about this breach of faith that I think the Federal Government

really engaged in with those men and women that have done so

much for this country in protecting our shores and the Constitution. You can see the heartache.

I want to assure you and everybody on this panel, it is very personal to me. My grandfather was on the Maryland on December 7,

1941 in Pearl Harbor, and survived the attack. He was an enlisted

Naval officer throughout that war and also throughout the Korean

War and served in the Navy until the early 1970’s when he retired

in China Lake. But as he was dying, he was very bitter toward this

country and toward the government that he had fought for his

whole life and given his whole life for. I remember asking my uncle

out in California, I said, ‘‘What is it with grandad, he devotes his

entire life to the Navy and to this country and now as he is dying,

he is bitter toward it.’’ And he said well, you know, Joey—and only

my family can call me that—he said, Joey, you know, your grandad

is a pretty simple guy, he is from Oklahoma and he believes that

if a man gives him your hand and you shake on it and gives you

his word, if he does not keep his word, he is no good. And that is

what your grandfather thinks of the Federal Government right

now. That is something that we carried throughout Tri-Care, that

the Federal Government had broken its word on military health

care.

We are here and I know all of us believe that this is the right

thing to do and it makes sense for everybody involved. We are not

going to let it happen again on this bill.

So we certainly appreciate your testimony.

Now let me ask you, and I open this up for the entire panel, does

the military or does the VA right now, as far as any of you know,

provide any type of long-term care coverage for any class of participant in the military or any military retirees?

COL NOWLIN. Well, the only thing I can answer is, I guess, if

there is a person—a veteran who I think has 100 percent disability

and there is room in a nursing home, I think they will be accepted,

but that does not cover everybody. And as I understand in Florida,

our facilities are overcrowded in many cases and there is not, particularly in nursing homes in the area, there is just not room for

these people.

So I cannot speak any further than that.

Mr. SCARBOROUGH. Are you all aware of any?

SMSGT HYLAND. No, I am not.

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Mr. SCARBOROUGH. Let me ask you, have your organizations ever

offered a long-term care coverage policy, or group policy, to members of your organization, or have you ever considered it?

COL NOWLIN. Yes, TROA National has a long-term care policy.

If you need some specifics, I would have to look into it. The only

thing I have heard is it is kind of limited in coverage and it is very

expensive.

Mr. SCARBOROUGH. OK. I am sure it is very expensive because

the pool is not as expansive. If we bring in Federal employees, if

we bring in—you were retirees and the National Guard, and also

reservists then I think we all believe that expanding the pool, especially with some of the younger, more healthy, active duty members

right now, that are obviously not going to need long-term care for

30 or 40 years, will drive down the price. So that inclusion makes

a lot of sense.

COL NOWLIN. You know, it sounds like a win-win situation for

the Federal employees and for the military, because they are both

pooling together the resources to bring those prices down. It appears to me it would be a win-win situation.

Mr. SCARBOROUGH. Are you aware of anything in your long-term

care policy—and I know again that there are other specialists and

this is not your specialty—but have you heard of anything that

could be helpful to us as we are trying to craft a plan for long-term

health care about what has worked with your plan or what has not

worked with your plan?

COL NOWLIN. I really cannot answer that specifically. I can get

that information.

Mr. SCARBOROUGH. OK, if you could provide that for us and we

will put it in the record.

COL NOWLIN. OK.

Mr. SCARBOROUGH. That way, when we have a record of the

hearing, it will be included.

[The information referred to follows:]

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Mr. SCARBOROUGH. Let me ask you all a question about choice,

and I think this is one of the differences right now between the

competing bills and something that I am very confident that we are

going to be able to work out. Right now, the question is whether

we are going to provide more choice to our Federal employees and

retirees in purchasing long-term care. Our approach is a bit more

expansive and we want to open it up and allow more insurers to

come in and I know that Mr. Cummings’ bill, like the administration’s, believes in narrowing that focus. Obviously—and he will certainly be able to talk on this more—obviously OPM and Mr.

Cummings think it has more to do with quality control. Our belief

is the more you open it up, the more expansive the choice, the more

opportunities for members whether they are wealthy or whether

they have a little more trouble paying.

Let me ask you, do you all have any feeling on whether your

members would prefer to be able to choose from a variety of options

offered by competing carriers or have the more limited choice that

is among the benefit packages right now that is being dictated by

OPM?

COL NOWLIN. Well, I think it would depend on cost, would be the

big driver, whether by offering more opportunities, whether that is

going to drive the cost up, I do not know. But I know in our organization, the people I have talked to, some would like nursing home

care coverage, some want just to have home care coverage, things

like that. So, you know, it has different options there.

But again, I think the main driver in this whole thing is what

is the cost going to be. And if you have a lot of options which is

going to make the cost drive up because you have got people that

are—well, whatever the reason, just like most insurance, that

would be the determining point. But I think there is a lot of interest in knowing what are the options. And that is something I find

I think most of the people are not too familiar and they don’t know

too much about long-term care and what the program is going to

be.

Mr. SCARBOROUGH. Right.

COL NOWLIN. What are those options going to be? We sort of

went through this I guess with Medicare, who recently has opened

a lot of options and a lot of people did not know what the options

were and it took awhile for it to get out from Medicare itself, to

get it published to the people.

Mr. SCARBOROUGH. Right.

COL NOWLIN. And I think this is the same situation. I think

there needs to be an education program to educate the people as

to what is going to be offered or what is being planned.

Mr. SCARBOROUGH. I think you are right, I think the education

process is important. In fact, one of the concerns from OPM would

be if you opened it up to a lot of different organizations, that it

might be confusing to participants. Let me ask you all, for the organizations that you all are members of, is this the sort of thing that

you would help provide education for, sort of like Tri-Care. When

Tri-Care was implemented, I know everybody was scrambling to

try to educate as quickly as possible. But if we were able to give

your members a variety of choices and open it up and make it very

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expansive, is this the sort of thing that you all would provide education for, to help guide your members through this process?

COL NOWLIN. Definitely. We did this with Tri-Care, we have

done this with Medicare and we have done it with the FEHBP program. You bet our organization is going to publicize that highly.

Mr. SCARBOROUGH. Larry.

SMSGT HYLAND. I would like to piggyback on that, Mr. Chairman. Our organization would also, we would definitely get it out

in our magazine and provide that information to our members because we know the benefit and the return on it.

Mr. SCARBOROUGH. Ms. Croach.

Ms. CROACH. Absolutely, NMFA would fully support, absolutely.

Mr. SCARBOROUGH. All right, at this point, Mr. Cummings, do

you have any questions for the panel?

Mr. CUMMINGS. Oh, definitely.

First of all, let me again thank you all. Your testimony has been

very meaningful. I agree with Mr. Scarborough, as I said a little

bit earlier, I think that the military enlisted people, uniformed and

retirees should be included in this proposal.

But I want to just piggyback on a few of the questions that Mr.

Scarborough asked, particularly with regard to education. One of

the things that has become real clear from your testimony and just

from my experience in studying this legislation is that that education piece is so important, it really is, because as I think all of

you have pointed out, if you are expanding the group of people who

can benefit, then that is important, but it is also important that

they take advantage of it. And so I am glad to hear you all say that

and you are absolutely right, Mr. Hyland, when you said that it

would inure to your benefit by doing this extensive education piece.

One of the things that—we had some testimony before at an earlier hearing where the insurance industry came forward and basically said that because of the nature of this insurance, that it

would probably be only between five and six companies at most

that would even be willing to offer it, be in a position to do it, in

the country, which, you know, kind of surprised me, but after I

began to look at it, I could kind of understand that. But I wanted

to go to you, Ms. Croach, and just ask you, you were talking about

your mother-in-law, I think it was.

Ms. CROACH. Both my mother-in-law and my mother, over the

last 3 weeks I have taken leave to take care of.

Mr. CUMMINGS. When you see what is going on in your life, I

mean what kind of things would you like to see in a long-term care

policy? In other words, what are the things that are foremost in

your mind, the things that you would like to see. I mean Mr.

Nowlin—I do not have my glasses on—Mr. Nowlin spoke about

there are a lot of questions as to what the terms are. You are absolutely right, when you talk to people even in the industry, sometimes they have some questions, to be frank with you. We want to

make sure that whatever we do, we do it right and try to make

sure that the things that you are concerned about, that we see how

we take those and then make sure that we have some type of benefit package that fits that, but at the same time taking into consideration what you have all talked about and that is cost. Because

if it is too costly, we still have a problem.

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So I was wondering, you know, in light of what you see yourself—I do not know whether you are just beginning this process of

problems or whether it has been ongoing for a good while, but what

are the kind of things that stand out most in your mind that you

would like to see?

Ms. CROACH. From a personal standpoint, my mother is a NASA

retiree, after 30 years, so she would be the Federal employee that

you are talking about, retiree, civil service. I am a product of an

Army father, an Air Force husband and an Air Force father-in-law.

As I spoke with my mother last night about—she wanted to be

here today but she has very important tests at Mayo this morning—I told her, I said you know, it just seems that if we were to

go from this hearing on a tour, and I think we will, that if we go

into the Naval facilities around here, we will see civil servants sitting shoulder-to-shoulder with a person in uniform. We have spent

our lives working together as part of the Defense family in support

of the national security of the United States, and therefore, anything that would be afforded to one should be afforded to all.

I think if we need due diligence on policy providers, to make sure

that whoever comes to the table offering, that it be clear that as

Members of Congress, what are the kinds of things that you would

look for in your own policy? What you would take home to your

kitchen table and sit with your spouse and your families? What

would you select as important things for a plan that you would

subscribe to? These are the kinds of things that we also would like

to have. What works in this zip code does not work in another zip

code. Many of us are—as military retirees, we migrate to the three

most popular States of former military personnel, which would be

California, Texas and Florida. So clearly, a provider, in my personal opinion, would be asked to come to the table and say that in

collaboration with the Department of Defense, with the Veterans’ Administration, with the Office of Personnel Management, how do

we develop a program so that collaboratively, particularly with the

military coalition because we represent 23 associations I believe,

that we basically are in touch with those who have served. If we

collaboratively work to help educate, to bring that information to

every person who has served, through retiree pay stubs, through

direct deposit announcements that come with our retired pay—

whatever it is to be able to touch the life of every person who has

raised their right hand and sworn to protect our country, or their

family members, or family members that are left behind, I think

that if we show the cost/benefit in real terms, speaking to them in

language that they can understand so that you give examples of

what it would be like. When you tell me that the cost by the year

2030 will be almost at the $100,000 level, I will be 44 years old in

June, and in the year 2030, you can put the numbers together. I

would, depending on how well I take care of myself and what God

has bestowed upon me inside my genes and what I have propensities to grow to be ill perhaps, much of which I have learned in

the last few days at Mayo because of my mother, I can tell you that

I would perhaps be a candidate for this program and I just believe

that clearly if we are embarking on—I remember I worked at the

Pentagon when we put together the family policy office. Mr. Weinberger wanted very desperately to make sure that as we looked at

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recruitment and retention—and you mentioned that earlier about

quality of life issues, recruitment and retention—it was clear that

we could recruit a member, but we had to retain a family.

We talk a lot about quality issues for families but at that point,

and this was posed to ABF in 1976 when we went from conscription to an all volunteer force, we looked very carefully at what

kinds of things, in terms of childcare and other things that make

it very difficult for military families to serve when they are deployed and many of them are single parents and there are children

involved. I can tell you that in putting together the family policy

office, it was very clear to those of us working on staff at the time

that we had to be able to help a military family understand that

it was really worth their while to be deployed to places where they

could not go home for holidays, where it was a long distance phone

call to talk to any family member back home, where these kinds

of things where—it was more important for us to serve than it was

to have our personal lives put first.

But now, in order to equalize that difference for that service, I

think that a policy—the opportunity to participate in a policy that

takes into account the differences in geographic location, the differences in services that can be provided in every zip code, I think

that we can all come together. We all have bright minds and I

think that we can put together a program that makes really good

sense, make providers sit at the table and work together to provide

something for this unique population, that it be something that a

retiree’s family can benefit from. They are no different than other

Americans, we are just like everyone else. I always said, we—and

not to endorse any products, but we put air in the tires of our cars

just like anyone else does, we use Pepto-Bismol, we do the whole

thing just like everyone else, we are just like everyone else. We just

happen to be persons who decided to give a lot to our country as

a member of the services and as spouses of those who also fell in

harm’s way.

Mr. CUMMINGS. Well stated.

One of the things, as you were talking, I was just—and this is

opened up to all of you all—it is true that if we—I guess like health

insurance, the more you expand your pool, the more—you know,

the younger people that you have in, the more you are likely to—

and healthy people—the more you are likely to reduce premiums

in the end. And I think it may have been you, Ms. Croach, or one

of you all mentioned the fact that when you are talking about military people, they have a limited amount of income and when you

think about say a young family, a young military person thinking

about maybe two or three children, trying to support them and do

all the things that go along with raising a young family, how do

you all see educating someone to say well, look, it may not really

be upon them, maybe their parent has not gotten but so old and

they are saying well, wait a minute, I have got a choice, do I put

money in a long-term care policy or, you know—in other words,

how do you get that message through when you have got all these

other competing forces? I mean you touched on it a little bit just

a moment ago, but I guess that is one of the things that I wonder

about, how do you get that message through that, look, this is

something you really need to do and you should not wait until it

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is right at your doorstep, because if you wait until it is right at

your doorstep, we do not even know exactly how all of this—the

premiums will work out, but it is probably going to be pretty high.

The other thing is that you—certainly if people are waiting until

it is at their doorstep, then the premium, the thing that all of you

are concerned about, that is that the cost be reasonable, sort of

goes out the window.

So I was just wondering, when all of you said that you would be

willing to do what you have done in the past, educating your constituencies with regard to this product, I was just wondering how

do you see getting that kind of message through, because like you

said, MSGT Hyland, that inures to your benefit, you know.

Ms. CROACH. Could I make a statement?

Mr. CUMMINGS. Sure.

Ms. CROACH. I read at one point in time that often when we are

active duty, if we are transferred from one duty station to another,

young enlisted families ask a very different question than a family

that is more established, perhaps an officer’s family, in the military. A young enlisted family will say I wonder if the car will make

it. I understand your point about the fact that there is always not

enough money to go around for housing and basic expenses.

But how will we educate? One of the things that has always fascinated me is in the Department of Defense, about the time that

the Gulf war began, there were stop loss gates engaged so that

there would not be a massive drawdown of strength. During that

time, the services, excluding the Army, developed transition assistance programs to help transitioning military families, the member

and family, to transition from civilian life to active service. These

programs—the Army contracts its out to the private sector, but the

other services provided theirs in-house. And what that program

consisted of is an opportunity to help a person package themselves

to be competitive in the marketplace. It might also consist of looking at educational credentialing or other training and those kinds

of things that a person might need to re-engage in the private sector.

These programs are very successful and it appears that oftentimes we might require that as part of a training program, that a

member and their family be afforded an opportunity to come to a

training session, which is part of a family’s opportunity to learn

what this could mean for them, real scenarios where we show over

time the purchasing power of your dollar and what that means for

you.

It cannot be a lot different than our discussions that we have

with young enlisted members to say to them, you know, if you participate in the new Montgomery GI Bill, the good news is you will

have an opportunity to go to college after your years of service; the

bad news is we are probably going to have to take about 25 percent

of your pay once a month, about $100 a month, for 1 year. And

when you tell a young person that has just been sworn in that 25

percent of their pay will go to the GI Bill for their portion, that

sometimes can be difficult. But I can tell you as a person who is

Director of Federal Relations for a university here in Florida, that

we have no problem—you know, we have lots of people who are interested in going to college and they are going on their GI Bill, our

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Veterans’ Affairs office is teeming with people who are using that

which they co-invested with the Government to be able to provide

educational opportunities for them post-service.

This can be done. It is not something that we cannot do for ourselves and collaboratively with the Federal Government and with

the private sector, the associations, particularly the Military Coalition which represents all of us. Clearly you have to somehow have

an interest in what is going on, you have to read the Service Times

or you have to read the local newspapers or you have to read association information, and most of them are membership-based. But

for those of us who do volunteer work, we see people throughout

the community that are interested in getting the word out.

I think there is no question that we will not try to do that, but

trying to reach everyone, I think it is an opportunity for the services to engage and to talk about the kinds of things that give comfort to a person while they serve. If these things are taken care of,

even though we understand compartmentalization in thought,

clearly if we know that we have an opportunity to participate in

a program that others have and that is something, one less worry,

I can assure you that those kinds of things will pay off in our dayto-day work and those who are particularly in harm’s way that it

is also in the back of their minds wondering whether or not their

aging parent—if Meals on Wheels made it before it was time for

them to take their medicine or whatever. It needs to be brought

down to the level of two fingers right here, bump, bump, bump over

your heart—the real world. It needs to be provided by people who

are credible—the educational process I am speaking of—needs to be

provided by people that we can count on and depend on to be telling us the truth.

Mr. CUMMINGS. Thank you.

Mr. SCARBOROUGH. Thank you.

We want to finish up this panel and get to the next because I

know there is one member of the next panel that needs to catch

an airplane and we certainly do not want to be responsible for

making him miss that plane. Before we do that, I want to ask a

couple of very quick questions, just for the record, to help us as we

prepare this bill and prepare the inclusion of military retirees.

First of all, regarding demographics, one of the complaints that

we might hear is that the inclusion of military retirees would actually might not help the cost of the programs. Do you all believe

that there is anything about the health or age of your groups that

would complicate the long-term care program if they are added?

COL NOWLIN. I can answer that from a military standpoint I

guess, retirees. We are normally considered pretty healthy for the

organization, when we look—I should say, across the age groups.

We are going to need that care though, but I do not understand

why that would have any effect on it. I think adding us, our organizations, into it I think are going to help in the cost area and I do

not think it is going to be detrimental in the health area.

Mr. SCARBOROUGH. OK.

SMSGT HYLAND. I would also like to say the same, Mr. Chairman. I believe if we open it up to the military retirees, I do not

think we are any different than the ‘‘Federal employees’’ that it is

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going to be offered to. And again, across the full spectrum, I think

probably our health care is probably a little bit better.

Mr. SCARBOROUGH. Great.

Ms. CROACH. I think that if you have a job where you have to

be able to be mobilized and show up to have an annual physical

every year, that is probably—you are getting persons who are drug

free, their entire career they have had physical training, physical

fitness. I am not saying that we are 100 percent healthy and all

of that, some of us are more than others, but we still reflect that

cross section of the world that I mentioned earlier.

Mr. SCARBOROUGH. OK, great.

And one final thing regarding recruitment and retention. And

again this has been touched on before, but just for the record, do

you all feel that adding long-term care as a benefit will help us

with recruitment and retention of those in the military?

SMSGT HYLAND. Mr. Chairman, I would like to address that,

speaking as a former enlisted, I definitely believe that would help.

Because currently, as we all well know, one of the problems or one

of the creations of the exodus that we are seeing in the armed services, especially in the junior ranks, is that there is a feeling, a compelling feeling, that there is no support out there, mainly in military retirement benefits. By instituting something like this and

bringing it forward and having it on the table, I think that would

convey back to the people who are considering to go to the career

status or those who are debating whether to even join the military,

I think it would definitely help us in that area.

Mr. SCARBOROUGH. Thank you, I appreciate—— Mr. CUMMINGS. Just one thing.

Mr. SCARBOROUGH. Oh, sure.

Mr. CUMMINGS. I just wanted to take a quick 30 seconds to thank

you all again as volunteers for your organizations. You know, I

often say that there are a lot of people who stand on the sidelines

of life and they are high on opinion and low on information, and

they never do anything to make a difference. But the fact that you

all took your time to come here today to help us make some very

crucial decisions, and all of you spoke so well for your organizations

and your organizations are truly blessed to have you. And I just

wanted to take a moment to thank you, and compliment you also.

COL NOWLIN. Thank you also.

Mr. SCARBOROUGH. Thank you very much, we appreciate it.

Why don’t we call up our second panel now. We will let the audience try to guess who has the plane they have to catch by how

quickly the members read their testimony. And we will not reveal

that until the end.

Mr. GRUBB. I plead guilty.

Mr. SCARBOROUGH. You plead guilty already?

Mr. GRUBB. But this is more important than an airplane.

Mr. SCARBOROUGH. Oh, thank you, correct answer.

We have—while they are being seated—we have Mr. Bill Carr,

who is Deputy Director, Force Management Policy for the Department of Defense. We are certainly honored by your presence. We

have Pat Freeman, associate executive director of the John Knox

Village Medical Center, American Health Care Association, we certainly appreciate you being here, thank you so much. And we have

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Kenneth A. Grubb, president, NYLife Administration Corp., Health

Insurance Association of America, who has already testified and

been very helpful in Washington, DC.

We thank all of you for being here today, and because Government Reform is an investigative committee, we do require that you

stand and take an oath.

[Witnesses sworn.]

Mr. SCARBOROUGH. Director Carr.

STATEMENTS OF WILLIAM J. CARR, DEPUTY DIRECTOR,

FORCE MANAGEMENT POLICY, DEPARTMENT OF DEFENSE;

PAT FREEMAN, ASSOCIATE EXECUTIVE DIRECTOR, JOHN

KNOX VILLAGE MEDICAL CENTER, AMERICAN HEALTH CARE

ASSOCIATION; AND KENNETH A. GRUBB, PRESIDENT,

NYLIFE ADMINISTRATION CORP., HEALTH INSURANCE ASSOCIATION OF AMERICA

Mr. CARR. Thank you, Mr. Chairman, Mr. Cummings, in deference to my colleague to my left who has to make a flight, I will

be brief.

In behalf of the Department, I welcome the opportunity to be

with you today to discuss the proposed extension of long-term care

insurance to people in the uniformed services. The Department appreciates the subcommittee’s interest in the possibility of including

active and retired uniformed service personnel and their families in

the population of individuals that would be eligible to purchase

long-term care insurance.

We are prepared to study and work on how to pursue the inclusion of the uniformed service people in long-term care proposals

that might contribute to the recruitment, to the retention and to

the morale of those who serve the Nation. There is no comparable

program in place today that could serve as a model for the program

to really know how it could operate, so we need to work with OPM

in helping to shape those requirements. The DOD requirements are

nonetheless unique, as the demographics of the active and retired

uniformed service populations are different from the population at

large, as the previous panel pointed out.

We do believe that it is important to consider whether to include

uniformed service personnel should a program for Federal employees, such as H.R. 110, be enacted. And we look forward to working

with the appropriate committees in the development of these issues

and in the pursuit of this very valuable addition to the benefits

package.

Thank you, Mr. Chairman.

Mr. SCARBOROUGH. Thank you, Mr. Carr.

Ms. Freeman.

[The prepared statement of Mr. Carr follows:]

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Ms. FREEMAN. My name is Pat Freeman and I am associate executive director at John Knox Village in Orange City, FL, which offers both nursing and assisted living services for approximately 160

residents. I would like to thank you on behalf of the those residents

for continuing to address the very important issue of long-term

care insurance. On behalf of the American Health Care Association,

I applaud you, Congressman Scarborough and Congressman

Cummings, along with your colleague Congresswoman Morella, for

giving such time and effort in your proposed legislation to fix a

very big problem.

I am testifying today on behalf of the American Health Care Association, a federation of 50 affiliate associations representing

11,000 non-profit and for-profit nursing facilities, assisted living

residences and subacute providers nationally. My organization,

much like your legislation, is working to educate Americans and

policymakers about the urgent need to reform the way long-term

care is financed in this country.

The plan that is decided upon by this subcommittee can be used

as the model for private employers who want to help baby boomers

protect their retirement savings. Without the opportunity to purchase long-term care insurance through an employer, three out of

five baby boomers who fall ill could see their retirement savings

strained by the cost of long-term care.

On March 18, this committee began debate on a key aspect of

President Clinton’s long-term care initiative—providing Federal

employees long-term care insurance as a part of their benefits

package. This field hearing today in Jacksonville continues debate

on three important pieces of legislation; H.R. 602 and H.R. 110 are

designed to make long-term care insurance available to Federal

employees, while H.R. 1111 would provide members of our Nation’s

military access to long-term care insurance as well.

Offering long-term care insurance to Federal employees, including extending this benefit to members of our Nation’s armed forces,

will set an important precedent and will encourage private businesses to offer this benefit to their employees.

Holding this hearing at the Naval Air Station here in Jacksonville is particularly fitting. Many of our Nation’s veterans, who

risked their very lives to keep this country free, face impoverishment should they need long-term care as they age. Giving military

personnel the ability to purchase long-term care insurance at group

rates is an important step in helping them protect their and their

families’ life savings and assets.

Long-term care insurance is a very important employee benefit

that we hope will signal the private sector employers across the

country. Long-term care insurance provides tremendous security

for individuals and their families. In fact, later this afternoon, during your tour of the Heartland Healthcare Center, you will meet

several individuals who have benefited from owning long-term care

insurance. Juanita Russell and her husband William have personally benefited from owning such a policy. After Juanita was admitted to the Heartland Center in February 1998 for a fractured hip,

Medicare covered the first 100 days of her stay. Past that, she,

along with her husband, would have had to pay out of pocket were

it not for long-term care insurance. You will have the opportunity

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to ask Mr. and Mrs. Russell yourselves about the excellent care

Juanita has received and how long-term care insurance has made

that all possible.

My own father, who just passed away 6 years ago, was a retired

Naval officer and was cared for by my mother and myself in the

latter stages of his fight with lung cancer. I truly believe if he knew

the option existed, he would have invested in long-term care insurance, to both assure a consistent, high level of care for himself, and

to alleviate some of the burden of his care from my mother and myself.

This field hearing is particularly timely, given a new survey released in New York and Washington this week that finds baby

boomers—particularly boomer women—are headed for financial

ruin in their old age. The survey found that while boomers are concerned about their retirement security, they are not saving adequately for potentially devastating long-term care costs that nearly

three of five of them will encounter as they grow old.

Let me give you a little background on the survey. The American

Health Care Association commissioned the Republican polling firm

Fabrizio, McLaughlin & Associates and the Democratic polling firm

Penn Schoen & Berland to conduct a national telephone survey last

fall of 800 adult Americans between the ages of 34 and 52 years— the baby boomers. Fabrizio then conducted a followup national survey of 800 baby boomers to gauge their reaction to the administration’s long-term care initiative outlined in President Clinton’s State

of the Union address.

The overall conclusion from this survey is an alarming reality

gap in how baby boomers view their retirements needs. Retirement

is not all travel and golf—in fact, three of five baby boomers will

become ill enough to require long-term care, but almost none of

them are taking steps to address this threat to their retirement

savings. Only now are baby boomers just beginning to realize the

sheer size we will have on the Medicaid and the Medicare systems.

In fact, over 80 percent of baby boomers applaud the President’s

plan for a national public education program about long-term care

services and financing.

The survey found that boomers get a flunking grade in retirement planning. In addition, four out of five boomers interviewed

are totally confused about how health care and long-term care are

paid for in their retirement. While 91 percent of boomers are covered by health insurance, many boomers incorrectly think their

health insurance policies will pay for long-term care or they believe

that Medicare will pay for their long-term care costs as they grow

older. They are wrong, absolutely wrong.

Just 15 percent know the principal source of long-term care funding assistance is Medicaid—the Government program for the

poor—not Medicare. Only one in four Americans can afford private

nursing facility care and two out of three nursing home residents

must rely on Medicaid for their care.

Failure to provide for the cost of a nursing facility stay or other

long-term care needs is the primary cause of impoverishment

among the elderly. In fact, two out of every three nursing home

residents must rely on Medicaid to pay their bills. To qualify for

Medicaid, individuals must spend down their total assets to the

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poverty level of $2,000. They then need to give up control over

where and how they are going to live.

The survey also uncovered a number of startling findings that do

not bode well for boomer women.

As women, we live longer than our male counterparts. We still

typically earn less than men, and therefore save less for retirement. We receive lower Social Security payments but we are the

primary caregivers when a loved one becomes ill. We are emotionally and financially torn between the demands of a busy career,

raising our children, taking care of our households and providing

care—either directly or indirectly—to our aging parents.

Perhaps the most troubling finding from the survey is that 41

percent of boomer women who have provided care for a family

member or friend were forced to quit their jobs or take a leave of

absence to provide that care. The financial drain of having to provide care to aging relatives and spouses is only a part of the burden boomer women face. Once they have cared for their parents

and spouses, who will take care of them? Who will pay for that

care?

By our sheer numbers, baby boomers have dramatically impacted

society and increased the demand for services at every stage of our

lives.

By 2030, when the last of our generation reaches retirement, our

generation will virtually double the current nursing home population to 5.3 million individuals. And because 70 percent of nursing

home residents rely on Medicaid to pay for their long-term care

costs, our generation threatens to bankrupt the Medicaid system.

In fact, by 2030, Medicaid expenditures for nursing home costs are

expected to increase 360 percent. This massive cost will require either significant cuts in the program or a major overhaul of our system for funding.

The legislation being debated today stems from the long-term

care initiative announced by President Clinton in January. The

survey found that boomers are very receptive to the administration’s proposal to address long-term care financing. In particular,

boomers favor proposals for a tax credit for caregivers, a national

program to educate Medicare beneficiaries about the program’s limited long-term care coverage, as well as long-term care insurance

for Federal employees, to help set an example for American businesses. They also favor the administration’s proposal to create a

national family caregiver support program that would allow States

to establish centers for one-stop shopping for information and support on long-term care concerns.

While the administration’s initiative and your legislation are a

good start, more must be done to assure baby boomers will be able

to afford long-term care when they need it. To accomplish this,

major changes must be made in how we finance long-term care.

A Federal commission, similar to the Medicare Commission,

should be convened to develop additional meaningful solutions to

the current long-term care financing system. The long-term care industry welcomes the opportunity to work with the administration

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and Congress to develop meaningful solutions to the long-term care

financing crisis.

Thank you.

Mr. SCARBOROUGH. Thank you, Ms. Freeman.

Mr. Grubb.

[The prepared statement of Ms. Freeman follows:]

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Mr. GRUBB. Thank you. First of all, let me apologize for my voice.

Everything is blooming back home and it is allergy season. So if

I cough a little, please excuse me.

Good morning, Mr. Chairman and Mr. Cummings. I am Ken

Grubb, president of New York Life’s long-term care subsidiary.

Today I am testifying on behalf of the Health Insurance Association of America, the Nation’s leading health insurance trade association representing members providing coverage to more than 115

million Americans. Today, more than 100 companies provide longterm care insurance to over 6 million people, with over 1,800 employers sponsoring this type of insurance program.

I purchased long-term care insurance for myself, my wife and our

three children, who are all in their 20’s, through our company’s

sponsored plan. It is very easy to understand why my wife and I

have coverage, but why did we buy it for our children? As I said

to you in Washington, DC, it is really important to note that longterm care insurance is not just for the elderly—40 percent of the

people in nursing homes are under the age of 65.

I am keenly aware of the problems families face because of longterm care. My parents both needed long-term care and had no insurance coverage. They had saved about $100,000 during their

working years and had only Social Security as a source of income.

I paid for their care to allow them the dignity they deserved and

to avoid the painful choices they would have had to make to apply

for Medicaid.

In addition to being associated with the insurance industry—and

I kind of hesitate to mention the word Air Force at the Jacksonville

Naval Air Station—but I am also a retired Air Force Reserve Colonel. As such, I am pleased that consideration is being given to offering the Federal long-term care insurance program to military

personnel and their families. No pun intended, I salute offering

these fine people an affordable option for protecting themselves and

their families from the financial ravages of long-term illnesses. Long-term care related expenses cost employers $29 billion a

year in lost time and productivity. Many believe that long-term

care insurance can have its greatest impact in the employer-sponsored market. As the Nation’s largest employer, the Federal Government would magnify this impact tremendously through its program.

HIAA would like to make the following points with respect to the

bills under consideration.

No. 1, the key to a successful Federal long-term care insurance

program is an effective education and marketing campaign. And

you have spoken very eloquently to that this morning. Successful

employer plans invest in multi-faceted education and marketing

programs. This would be critical to the success of the Federal program.

No. 2, it is essential that market competition determine the carriers that will offer plans under the Federal program. Interested

companies should be allowed to freely compete in a fair selection

process that will determine eligible participating carriers.

No. 3, this point I think is very important. Using artificially low

premiums as a major determinant of good long-term care products

is very dangerous. A policy with rich benefits, low premiums and

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minimal underwriting is a sure sign of potential disaster. This

could lead to a program with unstable premiums and would likely

discourage responsible companies from participating. Only companies looking for quick market penetration with the intention of

raising premiums over time would be attracted.

No. 4, OPM should not be responsible for adjudicating disputed

claims. There is no precedent for this in public or private long-term

care plans. Given the exposure that insurers face in paying potentially enormous amounts of long-term care benefits, it is unwise

and unfair public policy for the employer to make claims decisions.

Instead, the HIAA supports a fair appeals process within the insurance company for contested claims.

No. 5, program funds should not be maintained separately from

the carrier’s other contracts or lines of business. This requirement

is really unnecessary. The financial stability of a company’s longterm care business is enhanced because of the diversity provided

by the entire company’s portfolio. It would be appropriate to require that the program’s claims experience be available for reporting, separate and apart from the carrier’s other businesses.

Long-term care is the largest unfunded liability facing Americans

today. HIAA applauds long-term care programs that encourage personal responsibility and increase educational efforts. The administration’s and congressional proposals have an important common

factor—recognition that private long-term care insurance plays a

vital role in helping people pay for their future long-term care

costs.

I commend Congress for passing long-term care tax clarifications

under HIPAA. Examples of other tax incentives that would make

this insurance more affordable are included in our written testimony.

HIAA fully believes private long-term care insurance will give

millions of people the opportunity to remain financially independent through their retirement years. This hearing is a solid

step in that direction.

Thank you, Mr. Chairman and Mr. Cummings. We certainly look

forward to working with you on this very important issue.

[The prepared statement of Mr. Grubb follows:]

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Mr. SCARBOROUGH. And thank you, Mr. Grubb.

I want to start with you. No. 3—you do not mind us starting

with you, right?

Mr. GRUBB. Good.

Mr. SCARBOROUGH. Mr. Cummings actually said he is going to

save yours to the end and talk very slowly.

Mr. GRUBB. I like that you said, ‘‘I am going to start with you.’’ Mr. SCARBOROUGH. On your third point, you talked about we

should not go after the companies that just talk about providing artificially low premiums with rich benefits and basically no underwriting.

Mr. GRUBB. Yes.

Mr. SCARBOROUGH. Or very little underwriting. That brings up

the guarantee issue that we talked about at the last hearing. And

I want to clarify an important issue from our last hearing concerning the automatic coverage of any participant in the long-term

care insurance program.

OPM’s testimony at our last hearing suggested that the administration is giving serious thought to providing this guaranteed issue

by any carrier in our program. Whether OPM is contemplating

guaranteed issue for annuitants or just active employees is still unclear, but OPM did seem to imply that the question of guaranteed

issue is a relatively minor benefit design question and basically one

with which Congress should not concern itself. I wanted to ask if

you agreed with OPM’s assessment that Congress need not be concerned with the guaranteed issue, or if they should. Just how important is this issue in determining whether this program basically

sinks or swims?

Mr. GRUBB. With all due respect, I think I would disagree that

it is a minor issue. The guaranteed issue is a big issue. Basically

what you are doing is opening the entire population to acceptance

under a program that is generally medically underwritten, and it

does have, it would have a major impact on the cost.

Guaranteed issue means that you accept anyone who applies. I

am not aware of any program in the long-term care industry that

guarantee issues policies to people who are retired. We have guaranteed issue programs in our company as do some of my colleagues, but none of them offer guaranteed issue to retirees, because in essence, you would be offering people who already need

nursing home care or home health care the opportunity. It is like

winning the lottery. With your application, you could submit an application to go into a facility.

Guaranteed issue also, if you have multiple carriers, would get

very difficult. If you are going to have a guarantee issue program,

it almost mandates the selection of a single carrier because I am

sure—I think in our last testimony, my colleagues agreed with

this—that if you have five or six carriers, how would any of us

know that we were not being anti-selected against. Ultimately the

people who are paying the premiums pay the price. So, if a company got all the bad experience, they would be forced to raise their

premiums.

I think guaranteed issue is not something to be taken lightly.

Typically the way guaranteed issue works is you will—if the employer funds the entire premium themselves, which you are not

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contemplating, then you get everybody and you get a broader

spread of risk. On the other hand, if it is a voluntary basis, then

there are participation levels that are required. And the way we do

it in our company depends on ages, lower participation levels for

lower ages. But typically over 50, the participation level will go up.

So it makes the administration of the program somewhat more

complicated.

I think in a multi-carrier environment, you would have a very

difficult time convincing insurance carriers that guaranteed issue

is viable.

Mr. SCARBOROUGH. Do you think there are any particular groups

in the Federal marketplace that should undergo full underwriting?

For example, should we provide the same underwriting criteria to

everybody or should some be fully underwritten and some be less?

Mr. GRUBB. Well, again, I will go into my experience in the employer marketplace. Typically what we will do is if it is not a guaranteed issue program, you can have simplified underwriting for

people that are actively at work. Simplified underwriting basically

means you complete your application, you answer some basic medical questions, somebody will call—a lot of times it is a nurse—and

just go over the questions on the application. If there are no apparent major health problems, then the policy is issued. Only if the application reveals or the interview reveals that there are significant

medical problems do you do complete medical underwriting.

Then for people who are over age 65 typically or retirees, you do

medically underwrite those. That is really for the protection of the

entire plan. Everybody has talked today about how important affordable premiums are. Excluding people initially who already need

care will have a positive impact on that. The good news is that as

people buy it in their active years, it never goes away because it

is guaranteed renewable. So, over time, you would have everybody

in the program.

Mr. SCARBOROUGH. Should each carrier be free, in your opinion— and again, we are talking about what is in the best interest of the

entire population, to use its own underwriting standards, or do you

believe that all carriers are going to need to follow the same standards?

Mr. GRUBB. I would think in a program of this kind that if there

is oversight provided by OPM or the legislation, that there should

be similar rules that are followed by all of the carriers in terms of

how the underwriting is done.

Mr. SCARBOROUGH. Who do you think should provide that oversight—Congress, OPM, OPM and the carriers?

Mr. GRUBB. I would think OPM and the carriers.

Mr. SCARBOROUGH. Jointly?

Mr. GRUBB. Yes.

Mr. SCARBOROUGH. Let me ask you, Ms. Freeman, your testimony referenced the boomer survey and you highlighted how baby

boomers are confused—what a surprise. [Laughter.]

Baby boomers are confused or just beginning to realize the impact the sheer size of the demographics will have on the Medicaid

and Medicare systems and the incorrect belief that their health

care insurance policies are going to be paying for their long-term

health care costs.

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You also brought up some important points about how women

typically earn less than their male counterparts, therefore are not

able to set aside as much money for savings and retirement. I know

I have seen my mother in a crunch that all women seem to be in

where they go from raising their children, getting them in college

and getting them out of college, then immediately having to move

on and most likely caring for their parents, being the primary caregiver. Somewhere in the middle they get torn between children and

parents and it is just an awful situation.

Some of us have been concerned about the possible limitations on

the variety of benefits in the plans that would be offered. In your

opinion, what effect would a limited choice have on the number of

lower income Federal employees and annuitants that would benefit

from this program? And I want you to emphasize women in particular—if we limited the choices.

Ms. FREEMAN. Well, I think you heard earlier from the earlier

testimony, you know, premiums are a big concern of everyone, as

well as the coverage issues. And I think now that we know, you

know, from the survey and the studies that have been done, that

women do earn less, obviously they have to set priorities in terms

of where their money goes and they would end up looking possibly

for a cheaper premium. It may not necessarily be the best quality

plan for them in terms of having had some choices, but at least

they would end up with some coverage.

Mr. SCARBOROUGH. Let me ask you, from your experience, you

have had the opportunity to see this first-hand probably I think as

well as anybody here—let me ask you, could you just provide us,

provide the committee and all those in attendance today your experiences on comparing the difference. Give us a contrast, a real life

contrast between somebody or a family that has been fortunate

enough to plan ahead and invest in long-term care, compared to

the horror stories that we hear all the time about those that have

to spend down their life savings and basically become broke and

poor and have to depend on Medicaid. What is the difference in

just sheer quality of life, especially in those last final years?

Ms. FREEMAN. Let me share a little bit about my background

with you. I am a registered nurse and I have worked in the field

of long-term care for about 15 years on both for-profit and the nonproprietary side.

Prior to rejoining John Knox Village just 6 weeks ago, which is

a continuing care retirement community, which essentially was the

forerunner of long-term care insurance—those of you who know

anything about CCRCs. Approximately 47 percent of the premium,

the monthly service fees and the endowments that residents pay go

toward future care or long-term care because we take care of them

for the rest of their life, regardless of their financial situation.

So people who can afford to come to that kind of setting such as

John Knox Village have the financial resources and have already

thought about what their long-term care needs will be. Obviously

they come to a setting like that for a very active retirement, but

the services are there should they ever need them—there by the

grace of God go I.

Many of them are living away from their families. Children, as

you well know our children and our families are separated, not just

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sometimes across town, but States and even around the world, and

they do not want to be a burden. So many of the same issues that

we talk about people who have financial resources or those who do

not, they are many of the same issues, of wanting to pay their own

way, not be a burden to their children and be well taken care of.

For the past 6 years, I have worked for Genesis Eldercare, which

is a national nursing home, eldercare company. They have nursing

homes and assisted living facilities. Most our—30 of our facilities

are here in Florida, and approximately 70 percent of the residents

in our facilities are—their care is paid for by Medicaid.

As an administrator, as a nurse, as a caregiver, I have had to

counsel many residents and families through this very difficult

process of spending their life savings and now having to essentially

become impoverished, go on what they deem to be welfare, to take

care of them in their later years. They really thought all the years

that they worked, they saved their money, that they would have

enough income to take care of their needs. And it is just overly devastating.

I guess the biggest issue for most of our residents is one of maintaining dignity. As we grow older—and being a baby boomer and

working in the field, I am very sensitive I think to many of these

issues—trying to maintain one’s dignity after you have had to give

up so much is very, very difficult, regardless of your financial circumstance, but especially for those who are having to become impoverished.

Mr. SCARBOROUGH. It really is heartbreaking. We had testimony

from Ms. Judy Kramer at our first hearing on long-term care in

Washington. She told the story of her parents, I think they went

through about $145,000 in a year or so until they became impoverished and were eligible for Medicaid. It is just heartbreaking, and

I was saying to her you talk about losing your dignity—as a parent,

I have got an 11 year old boy and an 8-year old boy and you are

thinking all the time, OK, how do I care for them to get them

through college, how do I care for them through their entire life,

and these parents of Ms. Kramer had set aside $140,000–$145,000

to pass on to their children, only to see in their last 2 years of life

this entire amount of money going away and then as a witness on

the last panel said, basically becoming property of the State in the

final months of their life. It is heartbreaking, it is something we

have to take care of.

Ms. FREEMAN. You lose the right to make choices about where

you want to live, how you want to live your last days, and to know

that you are dependent now on the State to take care of you and

to provide for your care has got to be devastating.

Mr. SCARBOROUGH. It has got to be devastating, and because of

demographics, this is not just a Florida problem. Florida is the future. How Florida looks today, the rest of the country is going to

look 15–20 years from now. You are right, the State—obviously everybody is grateful that Medicaid has been there for them. Ms.

Kramer was grateful, but Medicaid is not going to be there for everybody 20 or 30 years from now if we have the entire baby boomer

population retiring and nobody planning for their retirement and

their future and for their long-term care. So that is why this is so

absolutely critical.

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I thank you for your testimony because it highlights that.

Let me ask you, Mr. Carr, one of the issues that really has been

highlighted in Washington over the past 4 or 5 years since I have

been on the Armed Services Committee, has dealt with quality of

life issues. We have been talking about recruiting and retention.

Numbers for recruitment have gone down. In fact, I believe two

services right now are below their recruiting levels for the first

time in a long time.

Mr. CARR. That is true.

Mr. SCARBOROUGH. What two are those, do you know offhand?

Mr. CARR. The Army and the Air Force are off on their numbers.

Mr. SCARBOROUGH. Army and Air Force, and—— Mr. CARR. And it is unusual for the Air Force to be off on its

numbers, as they are this year.

Mr. SCARBOROUGH. Yeah, very unusual.

Let me ask you this question, do you see the possibility of longterm care as something that would actually help recruitment and

also help in retaining the top quality personnel that we need to get

us into the 21st century?

Mr. CARR. Probably more on the retention side. I was struck by

a comment Ms. Croach made, and it is accurate, we hear it often

and it is that you recruit a member and you retain a family.

Mr. SCARBOROUGH. Right.

Mr. CARR. Now I would suspect that most recruits consider themselves relatively invincible and so this may not be at the forefront

of their thinking, but with respect to retention discussions taking

place at the kitchen table, recall that when one’s family believes

that the organization that their partner is a member of has a real

interest in their long-term welfare, then they identify more easily

with that institution and that could do nothing but help retention.

So I am not confident that it would produce a hike in recruitment,

but with respect to retention, there it would have the more pronounced effect I believe.

Mr. SCARBOROUGH. That is a great point that you make, talking

about the conversations around the dinner table and what sort of

attitude family members and friends have toward a service or toward the armed services in general. As you know, I told this story

before of my grandfather. I cannot tell you how many grandfathers

and how many fathers in northwest Florida have been complaining

bitterly at the kitchen table about Tri-Care, complaining about

health care problems, complaining about how the military is not

keeping their word.

Now I can tell you, as a college student hearing my grandfather

talk about how the military let him down and how they broke their

word, if we are getting that on one side of it and then on the other

side, you have, let us say somebody’s older brother or sister saying

well, you know, I am not getting paid as well as my friends are getting paid and I am gone 8 or 9 months straight and then I come

home for 2 months and then I am gone again—I think you are

right, I think that may be why we have the problems, but while

those 18 or 19 year olds who feel invincible and do not think they

will ever need long-term care, while it may not hit them immediately, I think they will pick it up, like you said, from the conversations at the dinner table and it will sort of help with loyalty.

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Let me turn it over to Mr. Cummings for any questions he has.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

Mr. Grubb, you said something that kind of struck me. You said

in your No. 3 of your things that you said you wanted to make sure

we were careful about, that there are no artificial premiums. Is

that what you said?

Mr. GRUBB. Let us see exactly what I said.

Mr. CUMMINGS. OK.

Mr. GRUBB. A policy with rich benefits, low premiums and minimal underwriting is a sure sign of potential disaster.

Mr. CUMMINGS. Right.

Mr. GRUBB. This could lead to a program with unstable premiums.

Mr. CUMMINGS. OK.

Mr. GRUBB. And would likely discourage responsible companies

from participating.

Mr. CUMMINGS. I am concerned about that too and I am sure Mr.

Scarborough is too. You heard the testimony of the previous panel

with regard to the military.

Mr. GRUBB. Yes.

Mr. CUMMINGS. Can you just give us an opinion on that, on your

feelings about making sure the military is included? I am just curious, do you have any opinion on that?

Mr. GRUBB. I would support what the panel said in that probably

the entire military population on average would be more healthy

because of the kind of lifestyle they have led. They are also a true

cross section of the rest of the American population. So I think including the military would certainly have no negative impact on

the program and potentially a marginally positive impact.

Long-term care insurance is age-rated, so whatever age you buy

the policy at is what determines the premium that you are going

to pay, hopefully for the rest of your life, or for as long as you pay

the premiums. The healthier you are when you get the policy, the

lower your premiums are likely to be.

I see no detriment whatsoever to including the military, from either an insurance perspective or from a public policy perspective.

Mr. CUMMINGS. Help me make sure I understand this, connected

with what you just said.

Mr. GRUBB. Yes.

Mr. CUMMINGS. Let us say Ms. Croach, I think she said she is

44.

Ms. CROACH. I said 43. [Laughter.]

Mr. GRUBB. I had to admit on national television my wife just

turned 50, so if I can do that, I guess we are safe.

Mr. CUMMINGS. I must admit I was surprised when she said

that, I thought she was a lot younger than that, but 44.

Mr. SCARBOROUGH. He is good. [Laughter.]

Mr. CUMMINGS. Let us say her mother, I do not know the age,

but let us say her mother is 64. Now if she went to get this type

of insurance, you have got to look at the fact that her mother is

64.

Mr. GRUBB. Absolutely.

Mr. CUMMINGS. And so—and I guess what I am trying to go to

is it is not just her age, but it is her mother’s age. Am I right?

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Mr. GRUBB. Each person would be rated individually, so she

would be rated based on the fact that she is 44.

Mr. CUMMINGS. That is for her own.

Mr. GRUBB. For her own.

Mr. CUMMINGS. And her mother would be rated—— Mr. GRUBB. At 64.

Mr. CUMMINGS. All right. Now you said something very interesting about you do not know of any policies that would insure—these

kind of policies that would insure retired people—was that correct?

Mr. GRUBB. What I said was I am not aware of any company

that guarantee issues—— Mr. CUMMINGS. Guarantee issues, all right.

Mr. GRUBB [continuing]. People who are retired. We issue up to

age 85.

Mr. CUMMINGS. OK.

Mr. GRUBB. So we will issue people in reasonable health up to

age 85.

Mr. CUMMINGS. So that means that if her mother is 64, she is

in reasonable health, then she is OK.

Mr. GRUBB. Absolutely.

Mr. CUMMINGS. But let us say her mother had a chronic disease,

then that throws her into a whole other category, is that correct?

Mr. GRUBB. That is true. In our company, for example, we have

four tiers of rating. We have preferred, which are people who are

very healthy; standard, which is most of us; and then we have tiers

three and four for people who have some illnesses but are still insurable. We do everything that we can do to bring in as many people to the program as we possibly can. And depending on what the

chronic disease would be, they may or may not be accepted.

Mr. CUMMINGS. So then I guess that goes back to what you said

about the military and it was an interesting point that the previous

panel made, that the military—our military folks, because of the

lifestyles that they have to lead because of what Ms. Croach said

about making sure they have physicals and things of that nature,

then it is quite possible that they could bring premiums down.

Mr. GRUBB. Could be. When we look at this, we will look at the

demographics of the total population and make some determinations based on the size of the group and also what we know about

them demographically.

Mr. CUMMINGS. Now you know, I think when we look at the carriers, I want you to talk just briefly about the factors that—you

have testified to this before—the things that you—factors that you

think are important in keeping the premiums low. In other words,

trying—not low, but as low as we can get them. What are the

things that we have to look at to do it right? Because it seems like

if you really listen to the testimony at this hearing and the last

hearing, there becomes a question of affordability.

Mr. GRUBB. Yes.

Mr. CUMMINGS. If you cannot afford it, it seems like it is not

going to do us too much good anyway, so what are the things that

you see as those key things that we need to look at when we are

talking about trying to keep this insurance at some type of affordable rate so that when, as everybody talked about, sitting at the

kitchen table, you can say well, we can do this.

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Mr. GRUBB. Let me speak to a couple of different issues. I would

like to talk about the affordability because I think it is a huge issue

and could not have been more eloquently presented, but I think

there is a lot of misconceptions about affordability.

First of all, the thing that you ought to consider, to do it right—

I said this before and I will reiterate it again—the financial stability of the company or companies that you deal with is critical to

that, because—and that is why I made the statement that you are

asking about. Financial stability of the company, because these are

benefits that you are buying that hopefully you will maybe not ever

use, but will use 20, 30, 40 years from now. So you want to make

sure that the company is stable enough and has done its work

right, so that those premiums remain level throughout that entire

period. So I think the do it right part is the financial stability and

strength of the company and its ability to stay the course with you.

In terms of affordability, let me just give you some examples, because I hope this will be, hopefully eye-opening to some degree and

these are generalizations, but I can speak specifically for my family

and for policies that we issue. My wife and I have a $300 a day

unlimited benefit policy, that is the best you can buy in the industry.

Mr. CUMMINGS. How long have you had it so we can put it all

in context.

Mr. GRUBB. About 3 years.

Mr. CUMMINGS. OK.

Mr. GRUBB. My wife pays about $450 a year for that, and I am

sure my colleagues here would agree that this is a pretty rich benefit. Since I am significantly older than she, my premium is about

$1,100.

Our kids have $100 a day with inflation protection, so by the

time they are 50, 60, 70 years old, that will be a $700, $800, $900,

$1,000 a day benefit. They pay $207 a year.

Now there are very few families who cannot afford $207 a year,

that is less than they spend at McDonald’s. One of the marketing

pitches that we make to people, when you are talking to a grandparent, the 64 year old to 75 year old, who has just bought a policy

and is paying $2-, or $3-, or $4-, or $5,000, when you tell them that

they can buy the same coverage for their 25 year old grandson or

granddaughter for $200. It really opens their eyes. It is something

that is very affordable at an early age. It only becomes

unaffordable if you wait.

In my last testimony, I talked about the cost of waiting. So I

think one of the benefits of your proposal is to encourage, to educate people to buy this at a young age when it really is affordable,

so that you are not looking at the $100,000, $150,000, there are

other forecasts out there that go up to $300,000 a year—there are

not many people who can write checks for that.

So affordability is a very critical issue. But it is affordable.

Mr. CUMMINGS. For the benefit of the wonderful people who have

come out here today, can you kind of—you told us before what pretty much the standard kind of benefits package looks like. Now

could you kind of share that with us so that they might have the

benefit of that?

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Mr. GRUBB. Let me tell you another little aside, which hopefully

will help. We actually have somebody who is a client of ours who

has bought a nursing home only policy and it costs him $5.07 a

month. Now that is affordable.

The standard policy right now, what most people buy, is a $100

a day benefit, because in most parts of the country, New York,

Alaska and some other places excluded, the average nursing home

cost is about $100 a day. So the thing that most people buy is a

$100 a day, a 5-year plan, 90 day elimination period, which is like

a deductible, so you pay yourself for the first 90 days that you are

in the nursing home, with 50 to 80 percent home health care benefits. What that means is your maximum daily limit of $100 a day,

if you have home health care, it would be 80 percent of that. So

your bucket of money is $100 a day times 365 times 5. So if you

only spend $80 a day in the nursing home, your bucket of money

really is extended beyond 5 years. That just sets the limit of your

bucket. Or in my case, I bought an unlimited plan and I certainly

recommend it for younger people. My dad’s roommate in John Knox

Village nursing home was a 41 year old man who had been there

for 18 years because of a car accident. People cannot afford to pay

that kind of expenses for that period of time. So for a young person,

unlimited makes all the sense in the world.

Mr. CUMMINGS. Do prescriptions come in there at all?

Mr. GRUBB. No, no. That is covered by your health plan.

Mr. CUMMINGS. OK. That is all I have.

Mr. SCARBOROUGH. Thank you, Mr. Cummings.

I want to end with a question, and Mr. Grubb, if you would like

to sprint out now, you are certainly welcome to do that.

Mr. GRUBB. This is entirely too much fun.

Mr. SCARBOROUGH. Too much fun. [Laughter.]

Well then we are going to do a couple more rounds.

Mr. GRUBB. I would be happy to participate.

Mr. SCARBOROUGH. You know, as we are envisioning this program for Federal employees, obviously one of the questions that we

have in Washington has to do with the cost, and we have been very

conscious trying to make sure that the costs of our program, the

administrative costs, are low. We believe that our program is less

expensive than the administration’s right now, but let me ask you,

what sort of impact does the cost of the program have on the decision on whether DOD would support implementing it or not?

Mr. CARR. I think the support is probably contingent on the popularity with and the availability of the members—is it something

that they would use and that would advantage them? I think for

the cost, if we are talking officers versus enlisted, the enlisted obviously as a community are going to be more challenged by cost.

Probably the pattern you would see among the enlisted force is initially with discretionary money—well, the first thing you would see

is investment in education, in Montgomery GI Bill, along with a

concern for life insurance. When those are taken care of, there

would be interest in other types of security, of which this would be

one, but the pay that the enlisted—the military generally, but the

enlisted particularly feel is so tight that we could easily price them

out of this, and despite the best education program and the noblest

of intentions, they would look and compare that with other uses

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and near term risks and threats to their family and the ability to

have a car that runs, and we could easily lose that population. And

so for that reason, out of our concern for the soldiers and sailors

would be a concern for the price because they could be excluded if

we are not careful.

Mr. SCARBOROUGH. Thank you, Mr. Carr and Ms. Freeman and

Mr. Grubb for your testimony, it certainly has been helpful. I am

going to have some followup questions that I will submit in writing.

Mr. CUMMINGS. I have some too.

Mr. SCARBOROUGH. OK, Mr. Cummings will also have some, and

if you all could answer that, we will make that part of the record.

I would certainly like to thank everybody for coming out today

and thank the fine people at Jacksonville, and certainly want to

thank NAS Jacksonville for allowing us the opportunity to hold

this hearing today. In particular I want to thank Captain Smith

and Captain Dudley for their warm welcome as well as Lieutenant

Tim Weber for his assistance in preparing for this hearing.

It is always exciting for me, I have participated in a few of these

outside of Washington, DC, and even though the cherry blossoms

are in full bloom in Washington, DC, I would rather be in Florida

any day of the week. So I thank you all. It is so critical, because

like I have said before, if you look at the demographics, Florida is

the future, we need to figure out how to make it work and figure

out how to make it work for Florida in 1999 because that is how

the rest of the country is going to look 10, 15, 20 years from now.

Thanks again for coming out, we appreciate it, and we are adjourned.

[Whereupon, at 12:12 p.m., the subcommittee was adjourned.]

(235)

LONG-TERM CARE INSURANCE FOR FEDERAL

EMPLOYEES, PART III

MONDAY, JUNE 14, 1999

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON THE CIVIL SERVICE, COMMITTEE ON GOVERNMENT REFORM, Baltimore, MD.

The subcommittee met, pursuant to notice, at 1 p.m., at the War

Memorial Building, 101 North Gay Street, Baltimore, MD, Hon.

Joe Scarborough (chairman of the subcommittee) presiding.

Present: Representatives Scarborough and Cummings.

Staff present: Garry Ewing, counsel; John Cardarelli, clerk; and

Jennifer Hemingway, policy director.

Mr. SCARBOROUGH. We will call to order this meeting of the Civil

Service Subcommittee. Ladies and gentleman, it is great to be in

Baltimore and I certainly am grateful that Congressman

Cummings suggested this and has worked tirelessly with his staff

to see to it that this hearing in Baltimore happened. I think his

commitment to this hearing is an extension of his commitment to

the people of Baltimore, the people of the 7th Congressional District and to the people of Maryland. He has been a tireless advocate not only for people in this area but especially on this issue for

those who are going to be affected by this long-term care legislation.

It’s extremely important, whether you’re talking about residents

that are suffering from this humidity in Baltimore today or residents that suffer from humidity in northwest Florida just about

every day, that this legislation pass.

This is our third hearing now that this subcommittee has held

on long-term care, and I’m pleased with the level of importance

that Members, not only of this subcommittee, but across the entire

span of Congress have put toward making this long-term care pass

into law.

In addition to my proposal, of course, H.R. 602, the ranking

member, Mr. Cummings and Representative Morella have also introduced long-term care legislation. While we have some issues

that are still out there that need clarification, and while we need

to bring our two bills together, in the spirit of compromise, I continue to believe that we can work together and make this bill a reality.

It’s an employment benefit that needs to come to pass now. Employees’ needs for long-term care insurance are as diverse as their

occupations, their duty stations and their family status. The decision to buy long-term care insurance is a very personal one. AchievVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00239 Fmt 6601 Sfmt 6601 E:\HEARINGS\57738 pfrm11 PsN: 57738
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ing maximum participation is going to require that the premiums

are affordable, and that we have a benefit structure of sufficient

variety to satisfy the diverse needs of our Federal population.

I can’t emphasize enough the need to let beneficiaries and not

just government officials make their own long-term care decisions.

By offering beneficiaries choices among competitive plans I believe

we can best offer the range of options employees might seek for

themselves and their families. The long-term care benefit we’re discussing can safeguard Federal employees from having to deplete

their assets through the painful Medicare spend-down process.

To be fully viable, the Federal program must learn from the successes of the current marketplace and follow this lead. Above all,

long-term care insurance must remain flexible. The insurance industry continues to innovate as it develops products and this marketplace evolves and matures.

Today we hear about policies that offer the benefits of long-term

care insurance and life insurance combined in a single policy. Longterm care insurance exists in a very rapidly changing environment

and I think we all want to ensure that legislation we put forth will

allow that creativity to flourish.

I look forward to hearing from our witnesses as we discuss the

current proposals to provide long-term care insurance to our work

force. Again I thank Congressman Cummings for his fight in this

battle. I thank our witnesses and certainly thank everybody that’s

come to attend this very important hearing.

And now I would like to turn it over to the ranking member of

the Subcommittee on the Civil Service, Congressman Elijah

Cummings.

[The prepared statement of Hon. Joe Scarborough follows:]

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Mr. CUMMINGS. I want to thank you, Mr. Scarborough, for making it possible for this to happen today. It did not have to happen,

our subcommittee, which probably sets an example that I wish the

entire Congress would follow of bipartisanship. We are probably

the epitome, we display the epitome of bipartisanship in our subcommittee, and I think that says a lot for you, and the fact that

we are here says a lot for our spirit of bipartisanship.

And the legislation that we are here talking about today is one

that deserves a bipartisan effort. Helping Federal employees and

all Americans afford the cost of caring for elderly family members

without losing their life savings, their family homes or their dignity

is a bipartisan objective. President Clinton, Chairman Scarborough,

and I, along with other Members of Congress, are determined to

achieve that objective.

My bill, H.R. 110, the Federal Employees Group Long-Term Care

Insurance Act of 1999, is the Federal employee portion of the administration’s four-prong initiative to help all American families afford the cost of long-term care. H.R. 110 would authorize the Office

of Personnel Management to purchase group insurance policies for

Federal employees, retirees, and family members from qualified

private sector insurers at the more affordable group insurance

rates.

Senator Barbara Mikulski has introduced the Senate’s companion bill to H.R. 110. I look forward to working with her, Chairman Scarborough and the other members of this subcommittee to

move long-term care legislation through the Congress this session.

Affordable long-term care insurance and the other components of

President Clinton’s long-term care initiative, including President

Clinton’s proposed $1,000 tax credit to help with the cost of caring

for ourselves or our family members, reflect the financial burden

which long-term care costs will present to an aging America as we

find ourselves or our relatives unable to perform daily living activities without assistance.

Addressing the problem of paying for long-term care requires accurate factual information; therefore, I asked the staff of our House

Government Reform Committee to prepare a report, estimating the

future long-term care needs of the Baltimore area residents.

With the assistance of Mike Nolan and Virginia Thomas of the

University of Maryland in Baltimore County Center for Health Program Development and Management, and Dr. Joshua Wiener of

the Urban Institute, committee staff was able to prepare an eye

opening and enlightening analysis entitled, ‘‘Future Long-Term

Care Needs in Maryland’s 7th Congressional District,’’ which I am

releasing to the public and the media today. On behalf of the citizens of Baltimore, I thank everyone whose hard work contributed

to the report.

Based on the demographics of Baltimore City and County and

using estimates of life-span and projected nursing home use, we

now know that 420,000 current residents, nearly one-third of us,

will spend time in a Baltimore area nursing home. While many of

us will stay in the nursing home for only a short period of time,

our analysis predicts that over 200,000 Baltimoreans will spend

over 1 year in a nursing home, and approximately 70,000 of us will

spend over 5 years in long-term nursing home care.

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We also believe that the costs of long-term nursing home care

will continue to increase faster than the inflation rate. In 1996, the

median cost for 1 year in a Maryland nursing home was approximately $37,000. Even when adjusted for inflation, moreover, the

costs of a 1-year stay in a nursing home could increase by approximately 40 percent by the year of 2020, and more than double by

the year of 2050.

Based on these projections, by the year 2020, when many of today’s 50-year-old Baltimore residents will require long-term care, a 1-year stay in a nursing home could cost approximately $108,000.

By the year 2050, when many of today’s 20 to 30-year-olds will require long-term care, the costs of a 1-year stay in a nursing home

could be as high as $400,000, and so it’s clear that this legislation

is needed.

I’ve had an opportunity to review the testimony of our witnesses,

and I want to thank all of you in advance for the tremendous effort

that you put in to preparing the documents that have become and

will become a part of this record.

By taking the time to prepare your testimony and to be with us

today, you give us the basis for making sound decisions. When we

were in Florida, someone came up and gave some testimony, I

think a lady who had some problems similar to those of Ms. Pika,

who is here today, where she was not able to get long-term care

insurance at one point in her life and she managed some very difficult problems when her husband became ill, but she said one

thing that I will never forget, and it sticks in my mind and she

looked us in the eye and she says, when you do it, make sure you

do it right, do it right. And that’s what it’s all about, we just want

to do it right.

Because we realize that what we do with this Federal legislation

will probably impact the private sector also. So we want to have

this legislation that is an example of what it should be, what longterm group insurance efforts should be about and policies should

be about.

And so we want to thank you again, Mr. Chairman, and I look

forward to hearing from our witnesses.

[The prepared statement of Hon. Elijah E. Cummings follows:]

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Mr. SCARBOROUGH. Thank you, Congressman Cummings.

I would like to ask our first panel if they could rise to be sworn

in. But before you do, let me introduce you. We have Charles

Yocum, a resident of Maryland who, along with his wife, has a responsibility of being caretaker for their parents and other elderly

relatives. Currently he serves as senior group patent counsel for

Black & Decker.

We also have Dr. Georges Benjamin. Dr. Benjamin currently

serves as secretary of the Maryland Department of Health and

Mental Hygiene. Maryland is planning and implementing a series

of initiatives to control the growth of public long-term care spending.

And finally we have Frank Atwater. Mr. Atwater serves as president and CEO of the National Association of Retired Federal Employees. He’s a life member of that organization and is a member

of Chapter 583 in New Port Richey, FL.

And now, gentlemen, if you would, please rise to take your oath.

Because we are an oversight committee, we’re required by the rules

to swear you in. If you could raise your right hands.

[Witnesses sworn.]

Mr. SCARBOROUGH. Please have a seat. Thanks.

Mr. Yocum, if you could, go ahead and begin your testimony. We

ask everybody if they can limit their testimony to 5 minutes, because we’re going to have a long, hot hearing. You can submit any

additional statements to the record, and, obviously, any questions

that we have or anything you want to amplify in the questioning

and answer session, you can.

So, Mr. Yocum, please begin.

STATEMENTS OF CHARLES E. YOCUM, SENIOR GROUP PATENT

COUNSEL, BLACK & DECKER, RESIDENT OF HOWARD COUNTY, MD; GEORGES C. BENJAMIN, SECRETARY, MARYLAND

DEPARTMENT OF HEALTH AND MENTAL HYGIENE; AND

FRANK G. ATWATER, PRESIDENT, NATIONAL ASSOCIATION

OF RETIRED FEDERAL EMPLOYEES

Mr. YOCUM. Good afternoon, my name is Charles Yocum. Congressman Cummings, Chairman Scarborough, thank you for giving

me the opportunity to testify today on my experiences with longterm care, with Medicaid and on the need for affordable, portable

long-term care insurance.

Although I’m speaking as a citizen employed in the private sector, my hope is that the Congress will enact legislation enabling

Federal employees to acquire long-term care insurance, and that

this example will encourage insurance carriers, employers, and employees to participate as well.

My wife and I are members of the sandwich generation; that

means that although our children are not yet fully on their own,

we have the added responsibility for seeing to it that our parents

and other elderly relatives are cared for. We now have plenty of

practice, in locating and dealing with hospitals, hospice care, shortand long-term custodial care and assisted living facilities as well as

helping our relatives find independent living apartments.

And I also would like to say that the last 3 years, especially 1998

and 1999, have been the most demanding and the most emotionally

245

wrenching that we can remember. I’m 55, my wife Kathy is in her

early 50’s, we have two sons, 20 and 23. I’m an active member of

the Maryland Bar and am registered to practice before the U.S.

Patent and Trademark Office. My wife is a media assistant in the

Howard County Public School system.

But this testimony is primarily about my father-in-law Otts

Denchler. Otts is an 87-year-old gentleman, strong as a bull. Physically fit, great appetite, who has worked practically his entire life

as a refrigerator mechanic and all around fix-it genius. Just a few

years ago, he was diagnosed with Alzheimer’s disease. Up until the

middle of August 1998, he was living with his wife, Liz, in Baltimore City. His dementia caused him constantly to want to go home

to his childhood house in Baltimore on Ridgely Street. That house

no longer exists. Nevertheless, because he was constantly wandering off, we installed deadbolt locks on all the outside doors in

his house in Baltimore.

He also would get quite agitated if he was restrained in any way.

At this point, including their home, their total assets amounted to

$63,200. In late August 1998, my wife had to rush to Baltimore to

be with her mother who was bleeding internally. Because Otts

could not be left alone, my sister-in-law took him in. We always

worried that if he did wander off, he would forget what red or

green meant and be hit by an automobile.

The hospital diagnosed my mother-in-law with advanced liver

cancer and her heart would not permit surgery. She was moved to

a nursing home in Catonsville, MD, which was less than satisfactory, but we were fortunate to get her into a more satisfactory

nursing home, St. Elizabeth’s Rehab and Nursing Center. She had

hospice care there and she died the end of September.

Now, while her mom was dying, my wife was faced with another

crisis, her sister had to return to work to support her own family,

what to do with Otts. None of us could stay with him around the

clock, so the VA placed him in a contract nursing home in Catonsville. He escaped from there twice. The second time they didn’t

even know he had left. He had gotten easily a mile away before a

good samaritan family took him in, called the police and he was returned.

My wife at this point was frantic. We had to find a safe place

for Otts. By the grace of God, an opening occurred in St. Elizabeth’s Alzheimer’s unit and we were able to move Otts into the

same nursing home in which his wife, Liz, was staying. A few days

later, she died.

Now even though I’m an attorney, it took several consults with

an elder law specialist to help navigate the medical assistance

process, starting with cashing in Otts’ assets, then filling out the

applications, then going to my in-take interviews on North Avenue

in Baltimore City. Here’s where life got even tougher. Otts isn’t

going back to his home in Baltimore City; that means his house

has to be counted as an asset that must either be drawn down or

liquidated to pay back the State for medical assistance in the event

medical assistance is awarded.

That has meant that my wife and I and occasionally some other

relatives have had to empty the house and do a lot of fix-up to prepare it for going on the market, and it’s still not ready. Inasmuch

246

as the medical assistance office has given me notice that they may

place a lien on Otts’ house, I’m faced with yet another dilemma, it

will be some time before the house actually sells. It’s very likely

that the back balance at the nursing home will exceed the net proceeds from the sale. But to whom do I send the check?

Assuming the State grants medical assistance to Otts, if I send

it to the nursing home, the State can come after me for the money,

because they have a lien for reimbursement of any funds they’ve

expended on his behalf. If I send it to the State, the nursing home

could argue that the sale of proceeds should go to pay Otts’ bills

incurred prior to the month that Medicaid had set in.

So not knowing which way to go, I called the nursing home. They

were most understanding. They said if the State grants medical assistance and then enforces a lien on the proceeds, so be it. As far

as the application process goes, the biggest hurdle was getting the

reams of documentation together. I had most of it in time for my

interview on March 19th at Broadway and North Avenue; however,

the intake person correctly pointed out that I still needed to get

about 6 more months of back bank records of the 36 months that

the rules require, plus some other records.

I finally got those and I sent them in. I’m now awaiting a decision from the Department of Social Services. At this point, I would

like to mention to Congressman Cummings that all of the people

with whom I have worked at the North Avenue location were most

helpful, very friendly, and patient with me.

So here I am. My wife feels that because we believe Alzheimer’s

has a genetic link, she may contract the disease. Her family lives

well into their 80’s and 90’s. It certainly is conceivable that she

would need long-term care for a long, long time. That’s why, ladies

and gentlemen, I ask the Congress to enact legislation to enable

Federal employees to obtain portable, affordable long-term care insurance.

Ideally the insurance should not have a cap on the maximum

benefits paid for the reasons I’ve just stated; at $50,000 to $60,000

a year, a cap is exhausted pretty quickly. Also, it should cover the

care, whether provided as medical or custodial care, and whether

it is in a nursing home, in assisted living or at home.

This is not the first time I have had to exhaust a family member’s entire resources. With your help, perhaps it will be the last.

Thank you for listening.

Mr. SCARBOROUGH. Thank you, Mr. Yocum. Dr. Benjamin.

Mr. BENJAMIN. Chairman Scarborough, Congressman Cummings,

let me just tell you that certainly this bill and this concept is very

important. It is appropriate, and it’s absolutely necessary. The

State of Maryland strongly supports all efforts to encourage individuals to prepare for their long-term care future, and that certainly includes the purchase of long-term care insurance.

This proposal to offer private and long-term care insurance for

Federal employees would benefit at least 128,000 Federal employees here in the State of Maryland and, of course, you may want to

add their beneficiaries that are appropriate to that number.

Now currently back in 1993, the Maryland General Assembly authorized the State to look at a proposal under the Robert Wood

Johnson Foundation to develop incentives to support long-term

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care insurance in Maryland, but that program we were not able to

participate in, because the Omnibus Budget Reconciliation Act of

1993 limited that program demonstration to the four original

States, which were California, Connecticut, Indiana, and New

York.

However, we pressed on, and the State of Maryland is currently

soliciting bids for companies to provide group long-term care insurance for our State employees to purchase insurance very similar to

what is being offered here or proposed for Federal employees.

We certainly agree that if more people assume responsibility for

their current and future long-term care expenditures, public spending on long-term care would certainly be able to be reduced, and

we believe this will become extremely important as many of us,

and I’m a baby boomer, about to enter seniorhood. So we’re very

much concerned about that.

Now during the fiscal year of 1997, Maryland’s Medicaid program spent close to $557 million on long-term care for recipients

21 years of age or older. That represents about 22 percent of our

total Medicaid budget. We spent $503 million on nursing facilities

for about 24,000 adult recipients. Almost $31 million was spent on

medical day care for about 3,300 adults and another $22 million

was spent on personal care for almost 5,000 adults.

Now, what we’re beginning to look at are new and creative ways

to deliver long-term care in Maryland. We think that the potential

of expanding insurance coverage would allow us certainly to do

that. So that when you look at long-term care coverage, you have

to make sure that we expand the capacity of that coverage to allow

for, not only institutional care, but community-based care. In many

ways, as you know, community-based care can be cost effective, to

be very, very creative we can provide wraparound services for seniors in their homes. We all believe it’s a terrible, terrible tragedy

for someone to have to exhaust all of their resources to do that.

As Congressman Cummings knows, I also run the Developmental

Disabilities Administration in Maryland, and we have committed

millions of dollars recently through our Governor for implementing

his initiative to provide services for individuals with developmental

disabilities in the community. We have found this program over the

last year to be terribly cost efficient, to provide adequate services,

wraparound services, and significant support services for individuals with developmental disabilities. I believe our seniors in Maryland deserve the same kind of compassionate, aggressive and assertive care.

I thank you very much for allowing me to speak today, and we

absolutely support you in your efforts.

[The prepared statement of Mr. Benjamin follows:]

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Mr. SCARBOROUGH. Thank you, Dr. Benjamin.

Mr. Atwater.

Mr. ATWATER. Mr. Chairman and Congressman Cummings, I’m

Frank G. Atwater, president and chief executive officer of the National Association of Retired Federal Employees. I represent some

430,000 active members in my association and perhaps 2.4 million

in Federal employees and retirees. I appreciate the opportunity to

participate in today’s hearing, and I commend you, Mr. Chairman,

and you, Mr. Cummings, for your interest in making long-term

care insurance available as a Federal employment benefit.

Absent a national response to long-term care needs, many private and public sector employers have begun offering group longterm care insurance to their employees. In fact, half of the current

Fortune 500 companies make private long-term care insurance

available to their workers. Many employers realize that they have

to provide a competitive benefits package to attract the best and

the brightest, and many corporate leaders have come to understand

that more employees are faced with the challenge of caring for a

disabled family member.

Employer provider long-term care insurance helps some employees shoulder that burden by providing a full range of long-term

care options, including community and home-based care. Although

employees usually pay the full amount of long-term care insurance

premiums, the premiums they pay are less expensive and the benefits they receive are better than similar products available to individuals in the private market, because of the economy of scale

achieved through purchasing long-term care insurance on a group

basis.

The availability of group long-term care insurance is consistent

with NARFE’s goal of ensuring financial stability in retirement for

government employees. The knowledge that retirement benefits

and hard earned assets will be protected while long-term care services are guaranteed cannot be overstated for NARFE members.

NARFE commends Representatives Mica, Cummings, Morella and

you, Mr. Chairman, for introducing long-term care bills in the

House. Without your leadership, we would not be having this conversation today.

Although everyone agrees that long-term care insurance should

be offered, NARFE has concerns regarding how the program will

be managed. NARFE strongly believes that OPM will have no leverage to secure group discounts on minimal benefits without the

authority to negotiate with long-term care insurance carriers.

Most, if not all firms that sponsor long-term care insurance appreciate their role as plan purchaser and administrator. If benefits

specialists at IBM have the authority to negotiate group discounts,

benefit design and medical underwriting of long-term care insurance, then there is no reason why the equivalent professional OPM

staff should not be given the same authority.

We are pleased that such negotiation authority has been included in the bills introduced by Mr. Cummings and Mrs. Morella.

There has also been significant discussion on the number of carriers that would be allowed to participate in this program. Representatives from carriers that primarily sell long-term care insurance in the individual market argue that encouraging several carVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00254 Fmt 6601 Sfmt 6602 E:\HEARINGS\57738 pfrm11 PsN: 57738
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riers to participate would ensure a full range of choices for participants and encourage competition just like the Federal Employees

Health Benefits Program.

Although Federal workers and annuitants enjoy the benefits of

competition in the FEHB Program, using several carriers in a longterm care program could fragment the risks of providing this insurance. When long-term care insurance is offered to employees in the

private sector, only about 6 percent of those eligible buy policies.

Alternatively, 82 percent of the Federal employees and annuitants

participate in the Federal Employees Health Benefits Program.

The reason for this difference is simple. Nearly everyone needs

health care, but not everyone is sold on the notion that long-term

care insurance should be part of their financial planning. Given a

smaller community of coverage, splitting the risk of providing longterm care insurance between many carriers could reduce a group’s

plan economy of scale and not produce lower premiums.

NARFE supports the concept of limiting the number of carriers

that would participate in the Federal long-term care insurance program, since fewer insurers would reduce the possibility of adverse

selection or risk fragmentation. We are confident that limiting carriers will not result in a one size fits all or a cookie cutter product.

Instead, a full range of benefit choices would be available to enrollees and active competition between insurance carriers and the program bidding process would be encouraged.

Carriers that participate in this program and OPM should also

negotiate medical underwriting requirements. OPM says that it

will attempt to minimize underwriting requirements for active employees during the initial offering to encourage them to buy longterm care insurance before they retire. Relaxed underwriting requirements would help attract employees into the long-term care

program.

Their participation in sufficient numbers is essential if the group

is to secure discounted rates and better benefits. We realize that

annuitants and family members probably would face medical underwriting standards. However, NARFE’s goal is to ensure that annuitant underwriting standards are less burdensome than those offered to mature and older Americans in the private market.

While program ground rules must make insurance carrier participation in this program feasible, NARFE will insist that the

greatest possible number of employees and annuitants would be

able to buy long-term care insurance at reasonable rates.

Of all of the House proposals, NARFE’s preferred vehicle is H.R.

1111. This legislation builds on other proposals by providing OPM

specific guidance on benefit design without being overly proscriptive.

Beyond the core benefit design, H.R. 1111 permits plan participants to make their own decisions about some of the most important coverage features of a long-term care policy. For example, it

would guarantee participants the option of receiving long-term care

in a variety of settings, including nursing homes, assisted living facilities or home and community-based care.

In addition to benefits, H.R. 1111 requires OPM to create consumer protections for participants. OPM would be required to create an external dispute resolution process to resolve differences beVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00255 Fmt 6601 Sfmt 6602 E:\HEARINGS\57738 pfrm11 PsN: 57738
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tween policyholders and carriers, and the bill prohibits Federal preemption of State consumer protections when State standards are

more stringent.

The Morella bill adds military personnel and retirees to the lists

of persons eligible for the long-term care insurance. Those who

were present for last year’s hearing on this issue may remember

that my predecessor Charles R. Jackson said that he had difficulty

believing that he might need long-term care, and as a result, he

had not bought a long-term care policy. He said, ‘‘I suppose I cannot justify paying the premium costs for something I find hard to

realize I may ever need. Now if I’m a hard sell, just think how difficult it will be to persuade a 30, 40 or even 50-year-old Federal

employee to buy long-term care insurance.’’

Mr. Jackson’s testimony underscored the need and the challenge

of building a sufficiently large risk pool to achieve the group discounts that will make long-term care insurance affordable. Inviting

military personnel and retirees into this program will only help

build this community of coverage. Neither military personnel nor

civilian workers will buy long-term care policies without a major

education effort.

Beyond the insurance policy itself, information and referral service counselors must be capable of telling employees and annuitants

about the full range of long-term care services available to them.

Finally, it is important to recognize that this insurance product

is not a comprehensive solution to present and future challenges of

providing long-term care. Admittedly, this insurance will not be

helpful to individuals who have an immediate need for long-term

care or persons who are already in a long-term care situation. For

that reason, NARFE has endorsed the administration’s plan to

offer a $1,000 per year tax credit to long-term care recipients or

family care givers.

This proposal would provide some relief to individuals and families that provide or pay for long-term care. Likewise, we support

the White House’s $625 million family caregivers plan that would

provide respite home care services, counseling, support, information and referral services to families nationwide. And for all its

shortcomings, Medicaid is the only safety net program that guarantees long-term care benefits for eligible individuals.

NARFE urges Congress to preserve this guarantee for persons

presently eligible for Medicaid. The challenge of creating a better

way to deliver and finance long-term care will not be resolved overnight. NARFE is committed to working with Congress and other

organizations to preserve the quality of life for those who may need

this long-term care, those who already receive it and those who

care for disabled loved ones.

In closing, I want to commend you, Mr. Chairman, and, Mr.

Cummings, and Representatives Mica and Morella and others for

recognizing our critical need for private long-term care insurance.

That concludes my testimony, Mr. Chairman.

[The prepared statement of Mr. Atwater follows:]

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Mr. SCARBOROUGH. Thank you, Mr. Atwater. I certainly appreciate it. And, of course, congratulations on your election. I will say

this, there’s one area I’m a little concerned about right now and

that’s your diplomacy of the bills, the few bills introduced, Mr.

Cummings and I introduced. He has 110 and I have 602, and you

endorsed the plan by the Member that’s not here. We will work on

that though.

Mr. ATWATER. I’m sorry. I had that going around in my head that

there must be a couple of bills that I’m missing.

Mr. SCARBOROUGH. Yes, yes.

Mr. ATWATER. I couldn’t get them written down. But I did mention your name afterwards.

Mr. SCARBOROUGH. You did, and you pronounced it correctly, too.

So that’s a good start.

Mr. ATWATER. You told me earlier I could call you anything I

wanted to, but I wouldn’t go so far as to calling you Mr. Goldsborough or something like that.

Mr. SCARBOROUGH. You can still call me whatever you want, just

support my bill, and I’m happy, or Mr. Cummings’. Mr. ATWATER. I certainly will. I wouldn’t be here if we’re not supporting your bill.

Mr. SCARBOROUGH. We will all work together.

I want to first of all ask you, Mr. Yocum, to expand a little bit

on your testimony, because I think it’s very compelling. I, myself,

practiced law before getting into Congress, and the one thing I

knew about patent law was that I didn’t know anything about patent law because it was so extraordinarily complex. You engage in

a field of practice that is about as complex as any field and yet you

had to hire your own attorney to wade through the complex issues

involved in taking care of your parents.

Now, I will say, by the way, you are very good with diplomacy,

because you identified your age as 55, but you just made a general

reference to your wife’s age. That was very good. You picked that

up, didn’t you?

Mr. YOCUM. Thank you, Mr. Congressman.

Mr. SCARBOROUGH. I noticed that. But let me ask you, first of all,

how much have you had to spend on legal representation just to

figure out the basics of how to best protect your parents?

Mr. YOCUM. I was very fortunate, Congressman Scarborough, I

paid zero.

Mr. SCARBOROUGH. Because you have friends who are attorneys?

Mr. YOCUM. It was professional courtesy on this gentleman’s

part.

Mr. SCARBOROUGH. Let me ask you this question then for the

members out there that aren’t as fortunate as us to have attorneys

who are friends that will occasionally do that, how much can you

estimate would it cost somebody that didn’t have the same professional courtesy extended to them, a rough estimate?

Mr. YOCUM. If we assume a billing rate of around $150 to $200

an hour, something like that—— Mr. SCARBOROUGH. That’s a good assumption.

Mr. YOCUM [continuing]. I would say easily anywhere from a $1,000 to $2,000 depending upon how long you’re on the phone.

Whenever I encounter someone who says, Chuck, can you do this

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or that for my father-in-law, we’re looking at preserving assets or

things like that, this is an area of the law that I feel the same way

as you feel about intellectual property.

I’m completely lost, but I will refer every single person to legal

counsel before entering this particular adventure. That would be

my recommendation. I think even if I had to pay the fee, and I was

quite prepared to do so, I wouldn’t take step one without having

consulted counsel.

Mr. SCARBOROUGH. You know, it’s a real shame that we’ve gotten

to that point regarding this issue because it adds insult to injury,

financial insult to injury for so many people that have to go

through this very, very expensive process. I would guess this would

actually help accelerate the spend-down process, which in itself can

be very distressing not only for the parents, but the children of the

parents that are taking care of them.

Let me ask you about your experience in this area, because we’ve

had some testimony in past hearings about just how difficult it was

for parents and children to go through their spend-down process

where basically they had to spend everything that they had made

over 40 years just to qualify for Medicaid and be able to get longterm care.

Could you tell me for you and your wife, what was the most difficult part of this spending down process?

Mr. YOCUM. There were a couple of difficult parts, and the part

that I absolutely missed, notwithstanding the hours of advice that

I received, was having to make sure that the timing was right

when certain account balances show a certain figure in the relative’s bank accounts. It took a long time to draw down the cash

value of my father-in-law’s insurance policies. That took a long

time dealing back and forth with the insurance companies and

what not, but you deposit the asset proceeds into the bank account,

and if it shows up in the wrong time of the month, then it’s well

above the figure, even though the very next month you turn it

around, and you either pay the health care provider or apply it to

the family member’s other needs.

And so I made several mistakes along the line, because I have

a feeling that my father-in-law Otts would have qualified for medical assistance sooner had I handled things differently so that on

the right time of the month the balances would show the right

amount of money.

Mr. SCARBOROUGH. Right. Do you have any children?

Mr. YOCUM. Yes, sir, I do. I have two sons, one who is 23, just

graduated from the University of Maryland last year. Incidentally

he’s working for a contractor for the State Department, which was

his first really good job. And a son in his third year, majoring in

art, also at University of Maryland College Park.

Mr. SCARBOROUGH. Well, I ask that question, because this really

feeds into the one before. You know, I’ve got two boys, one is aged

8 and one is 11, and you know the second you have children, you

realize that is your commitment and you start working to build for

their future, to set aside money to get them get through college and

hopefully to take care of them, and maybe even leave them with

something.

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I want to ask you on the emotional side of things, what do you

think it would be like for your father-in-law, who worked his entire

life, or like you, you’re going to be working your entire life obviously very hard to see everything that you have earned over 30, 40,

50 years evaporate in a matter of a year or a year and a half just

so you can qualify to be treated decently?

A followup to that is, what advice are you going to give your two

boys to make sure that this sort of thing doesn’t happen to them

or happen to you, drawing upon all of your experiences?

Mr. YOCUM. Well, it was pretty wrenching. I have this gentleman

who I look upon as my surrogate father, who has been dead for a

good while now. He was a very proud man, very proud. And he was

also proud of his having amassed, having put together a family,

and their life savings when my mother-in-law died was around

$7,000. That’s worth about a month and a half in terms of private

pay nursing home care.

And I think if I were to try to step in his shoes and look at that,

I would be heart broken. We, the family, had made a decision that

we were going to apply the proceeds of the house to get him the

best care we could, even though there was an opportunity based on

advice of counsel of somehow possibly sheltering part of the assets

for our use after he were to die, but that’s not how we wanted to

do it. So it all goes into the black hole.

As far as advice for my two sons, they and I and my wife have

seen the elder care side of the coin big time. We have worked with

three or four of my wife’s elderly relatives and my own mother, and

we all see that in our future. And so my advice to both of my boys

would be that when and if you can afford it, try to get long-term

care insurance, and the big word there is affordable.

Mr. SCARBOROUGH. Mr. Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman. I wanted

to just recognize our Department of Aging secretary, Secretary Sue

Ward for the State of Maryland. Would you stand up, Ms. Ward?

Thank you very much for being with us today.

Dr. Benjamin, I just want to talk about a few things that you

mentioned. You were saying that Maryland is aiming more at community-based care because it’s cheaper I take it than the nursing

homes; is that right?

Mr. BENJAMIN. That’s correct.

Mr. CUMMINGS. OK. So what’s the difference? Would you give us

an idea of what you project the difference is? I know it varies. But

between say nursing care, nursing home care, and a year of athome care, just the range?

Mr. BENJAMIN. Well, it depends. Let me walk you through some

examples if that might be helpful. You have an individual who is

at home and you have—let’s say you still have a couple there, and

you’re now able to—the wife is not able to handle this person, unable to give them a bath, unable to keep them clean, and unable

to change them and, in essence, she may just initially need someone to help her do those kinds of things in a much more intensive

way than some of our personal care services would offer.

It seems to be that that’s a much cheaper way than to take that

individual and put them in a nursing home to give them more care

than they probably need. Here’s a person who is comfortable,

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they’re at home, they’ve got their bed, they’ve got their slippers,

they’ve got their television set. What they really need is some assistance part of a day or for portions of the day, with parts of their

daily living.

Let’s go to a much more complex case, where you have someone

who needs fairly intensive nursing care, but, again, not 24 hours

a day, 7 days a week, you can do that same scenario by providing

that person in-home care for the component of time that they need,

again, versus putting that individual in a nursing home.

We’re beginning to see probably as the side effect of managed

care that our hospitals are becoming intensive care units, that our

nursing homes are becoming medical surgical wards, and that our

communities are now becoming what we used to take care of in

nursing homes.

I believe we need to buildup that capacity in the community to

provide for that care, particularly as we see those of us who are

going to become seniors, become seniors because, as you pointed

out in your so eloquent testimony, the numbers are going to be extraordinary. And so I believe that we need to have the full spectrum of care.

I strongly support our long-term care facilities. I don’t want to

leave you with that message. I strongly, strongly support that. But

also what I support is the flexibility to give people what they need

when they need it, instead of having these very rigid systems that

say we’re not going to pay for that until you spend every dime that

you have. We’re not going to offer you the care you need, the right

kind of care you need when you need it. To me that’s not cost efficient, nor good government. So I would like to see some flexibility

in that, and I believe insurance can cover that, if we craft it, if

we’re smart about the way we craft that.

Mr. CUMMINGS. On that note you said a little bit earlier that the

State of Maryland is currently soliciting bids, is that right?

Mr. BENJAMIN. That’s right.

Mr. CUMMINGS. Tell us what the criteria is, what kind of criteria

you are using to choose.

Mr. BENJAMIN. I don’t know. I will be happy to provide that to

the committee.

Mr. CUMMINGS. Will more than one carrier be allowed to participate?

Mr. BENJAMIN. My understanding is that is true. It is basically

to do a group process similar to what you are proposing, but I can

tell you those details.

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Mr. CUMMINGS. Mr. Atwater, your organization provides longterm care insurance?

Mr. ATWATER. Yes, through Maginnis & Associates.

Mr. CUMMINGS. How long have you been doing that?

Mr. ATWATER. Certainly before my watch. I was national treasurer for 4 years. I have been president for 7 months. Several years

before I came on board we had the Maginnis Co. as an insurance

carrier.

Mr. CUMMINGS. Is there more than one carrier?

Mr. ATWATER. Actually under contract to NARFE, Maginnis is

our broker. Within Maginnis, there are several insurance companies that offer different types of insurance, long-term care, dental

plans and things like that.

Mr. CUMMINGS. You know, David Carver of AT&T, who will be

testifying in a moment, very interestingly one of the things that

AT&T did, and maybe I have read so much testimony that some

may be coming together, but offered the long-term care insurance

with life insurance and another thing that they did that was interesting, when they decided to offer the long-term care insurance

they wanted to ensure that they would get maximum participation

so they offered it at the time of the open enrollment so that more

people’s attention would be drawn to it, to the opportunity.

One of the things that Mr. Scarborough and all of us have been

concerned about is that once we figure out exactly how we are

going to do this and create the mechanism to do it, making sure

that Federal employees take advantage of it. How do you make

sure that you maximize the opportunity?

We know that cost is something that is very important. We understand that. But even when you get the cost down to a reasonable amount and you have a decent package, do you have any recommendations as to how you get the word out and sell it?

And I also ask the same question of you, Mr. Yocum.

Mr. ATWATER. I don’t think much about offering the long-term

care insurance and life insurance together, and I would like to

know more about it. However, on selling long-term care insurance,

and I have said this to Ms. Janice Lachance, the Director of OPM,

we need to sell long-term care insurance to our younger Federal

employees at the very beginning of their employment similar to the

way we sold the Federal Employees Health Benefits Program and

the insurance program. If we could get a long-term care program

and offer it in a package with FEHBP and sell it to them early on,

I would have had no problem when I first came in civil service

many years ago if I had to contribute 1 percent or 2 percent of my

pay, like I did for my retirement, as long as it was sold to me and

offered as a package.

I have a daughter who is 34 years old and she is with the National Park Service headquarters here in Washington, DC. She has

worked for the Air Force and the Coast Guard, she understands

the need for long-term care and she and her husband are looking

for it right now. As I said, they are both in their 30’s. But I think

whatever program we have has got to have that selling part of it

right from the beginning.

I have just come back from about 11 or 12 State conventions

where I talked about long-term care to our Federal retirees and I

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told them maybe if you need long-term care you should look for it

now.

The bill that will be passed in the future may not be exactly

what they need at the time, so I think we need to start a program

that would sell, encourage new employees to buy long-term care

from the beginning.

Mr. CUMMINGS. Mr. Yocum.

Mr. YOCUM. Thank you, Congressman Cummings.

Before I and my wife went through these last few years, our eyes

just weren’t opened. I think maybe there is some reluctance on the

part of anyone to purchase long-term care insurance because they

don’t want to see themselves in this position. They just positively

don’t want to.

So I think one thing that would help sell it would be to, if possible, make it almost like a quasi-health insurance, you are going

to need it sometime. Somebody in the family is going to need it and

I think Dr. Benjamin’s testimony has been very revealing because

and my wife and I have seen this, the need is to provide some additional help at the home level and not necessarily in an institution.

If we can point the prospective enrollee to all the different ways

that long-term care can help them in the future, that it is not limited just to long-term care at a nursing facility, I think that would

go a long way. And for me personally if we were to lose, get rid

of the cap, I think I would be a lot more willing to spend the money

on a monthly basis to keep a policy in effect.

Mr. CUMMINGS. I just wanted to again thank all of you for being

with us today, and I also want to thank Delegate Shirley Pullian

for being here, too. Thank you for being with us.

Mr. SCARBOROUGH. I want to thank you, Mr. Cummings. I wanted to do a very brief followup, a couple of quick questions. Dr. Benjamin, I wanted to ask you, first of all hearing Mr. Yocum’s testimony brought to mind the question of how much would it cost for

an average stay in a Maryland nursing home for a year. Do you

have a rough estimate that you can give the subcommittee?

Mr. BENJAMIN. I can give that for you in writing. There is a fairly wide variation. I can get that for you in writing.

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Mr. SCARBOROUGH. Let me ask you this. Obviously it is going to

be fairly expensive. In your capacity, have you found traveling

across this State that most residents of your State believe that they

are covered for long-term care in some way, either through their

job or through Medicare?

Mr. BENJAMIN. Yes. That is a misperception that a lot of people

have that they are covered and they are not. Or that Medicaid does

cover it or Medicare covers it. A lot of people think that Medicare

will cover it and they do not know that they have to spend down

to do that, that is correct.

Mr. SCARBOROUGH. Mr. Atwater, I wanted to ask you, just clarifying a point or two, we had gotten the information that your organization’s long-term care plan was temporarily closed or closed

down for now. Are you still offering new policies?

Mr. ATWATER. Yes, sir. We are offering it under the broker that

I mentioned earlier, Maginnis & Associates. We have not stopped

it. It is still being offered unless it happened in the last few weeks

or so. I need a new legislative department if they have.

Mr. SCARBOROUGH. We had called Florida and identified ourselves as being from Florida, and we will get the information to

you, and we were told that they were not offering it currently. I

was going to expand upon that just to ask if that was the case,

then what worked for you all and what didn’t? In your capacity as

president right now, what are you finding to be the successful

points of the program that you are offering? What is working and

what is not working?

Mr. ATWATER. Well, it is an individual choice whether you buy

long-term care insurance or not. I may have some statistics here,

how many we do have on long-term care insurance, if I can just

look through this. Through our program we have some 3,100 of our

members who do have long-term care through our Maginnis & Associates broker. I have not heard what is working and what isn’t.

It is an individual choice whether people want it or not.

When I have been traveling around to the different States recently this spring, many of our members are truly interested in

long-term care. Some have gone out and gotten their own at a private insurance company, American Express or something like that,

and others have gotten it through Maginnis & Associates. I haven’t

heard any complaints.

Mr. SCARBOROUGH. You know, there are two areas where we are

separated, and I touched on them and I think they are the two

areas that we are going to need to move together and find common

ground and make sure that this bill does pass in some form, I suspect in the end in a form that takes a little bit from everybody;

that is, a compromise form, but let me ask you, the first point you

talked about was sort of the field of insurers that were eligible. My

personal belief is that the more qualified insurance companies you

have, the more choices that the insureds have and the more competition you have in the market. Obviously you agree with OPM’s

position that the field should be limited, very limited and restricted. Let me ask you, you just talked about choice, individual

choice and flexibility. Don’t you think in some way having more insurers out there, in the free market, would drive down the prices?

And offer more flexibility in plans for your membership?

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Mr. ATWATER. Sure, I agree that more choices would be better.

Mr. SCARBOROUGH. Right.

Mr. ATWATER. That is something that we are going to have to

talk about and work together in reaching an agreement on this.

Right now of course we are in agreement with OPM on the plans.

As far as offering choices, I would like to see it opened up as a

personal statement. On the other hand, I kind of have to agree

with the folks that are the experts in this area, which I am not,

that maybe a limitation like our Federal employee insurance program would be a better way to go. I have to do more studying on

that. But we are willing to open it up and talk to you and certainly

work with you on it.

Mr. SCARBOROUGH. That is something obviously that we do need

to talk about because obviously the life insurance program is about

as restrictive as possible where you only have one carrier. That is

a pretty good market for one carrier to have. Obviously the FEHBP

plan is expansive and I just tend to think the more qualified carriers we have participating the better, but again that is something

that we need to come together on.

Also, you talked about relaxed underwriting, something else that

I think we need to balance out. Usually I think just about every

insurance person you bring in will tell you when you have relaxed

underwriting that actually causes the cost to go up, which is the

case 99 percent of the time. I do certainly understand your point,

though, that relaxed underwriting also allows the field of participants to expand, so that is something that we are going to have

to balance also, because if we relax the underwriting so much that

absolutely everybody is qualified, that means that this program is

going to cost those that you represent. Do you think that is a fair

assumption to make?

Mr. ATWATER. It is a fair assumption and we need to work with

you folks on that.

[The information referred to follows:]

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Mr. SCARBOROUGH. Mr. Cummings.

Mr. CUMMINGS. Just a followup on that——

Mr. ATWATER. I knew I should have mentioned your bill, sir.

Mr. SCARBOROUGH. You really should have.

Mr. CUMMINGS. Just following up on Mr. Scarborough’s question,

we have to maintain that balance. There has to be that balance between how much latitude we allow as to who comes into the program and that has a direct effect of course on the cost. That is one

of the problems that we are running into, trying to figure out how

to keep that balance, and have reasonable restrictions as to who is

covered so that the premiums are at a decent rate because if we

are not careful, we will create a Cadillac package and nobody will

want it and we will have defeated our purpose.

I am just wondering, do you have certain things that you look

to for trying to maintain that balance. I am sure that you have an

appreciation based upon your answer to Mr. Scarborough’s question, do you have an appreciation for that balance that we are trying to come up with?

Mr. ATWATER. I guess I would have to research the whole thing

more, sir. I am not ready to make a comment regarding that.

Mr. CUMMINGS. I understand. I think in our next panel they will

probably be able to talk about some of their experiences which

might be helpful to us.

Mr. SCARBOROUGH. I want to thank all of you for coming and testifying today. It certainly has been very helpful. We certainly hope

that we can continue to work together because this is obviously

something that is critical for the people of Maryland and for the

country. So thanks a lot. We appreciate it.

Mr. SCARBOROUGH. We are now going to call our next panel up.

On our next panel we have Dave Carver, Ken Grubb and Dave

Cavanaugh. David Carver is currently the district manager for

Benefits Planning and Analysis for AT&T. In this position he led

AT&T’s efforts to obtain long-term care insurance for their employees. Ken Grubb, president, New York Life Insurance Co., is testifying today on behalf of the Health Insurance Association of America as a member of its long-term care committee. He has been with

us before. We have David Cavanaugh, Manager of Business Development and Special Projects for Wright & Co. Wright & Co. is a

national firm providing administration, consultation and insurance

benefits to the Federal and private sector. Wright & Co. currently

offers policies which link life insurance and long-term care insurance in a single policy.

And the panel are obviously experts at testifying because they

are already standing and ready to take the oath.

[Witnesses sworn.]

Mr. SCARBOROUGH. We ask that you stay to the 5-minute limitation, and any additional comments that you have that you would

like in the record that you can’t get in during the 5 minutes, we

will gladly submit to the record.

Mr. Carver, if you can begin.

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STATEMENTS OF DAVID M. CARVER, DISTRICT MANAGER FOR

BENEFITS PLANNING AND ANALYSIS, AT&T; KENNETH A.

GRUBB, PRESIDENT, NYLIFE ADMINISTRATION GROUP/NEW

YORK LIFE INSURANCE CO., HEALTH INSURANCE ASSOCIATION OF AMERICA; AND DAVID E. CAVANAUGH, MANAGER

OF BUSINESS DEVELOPMENT AND SPECIAL PROJECTS,

WRIGHT & CO.

Mr. CARVER. Mr. Chairman, Congressman Cummings, I appreciate this opportunity to appear before your committee today to discuss AT&T’s experience as an employer that offers long-term care

insurance to our employees. I am the district manager for Benefits

Planning and Analysis at AT&T. In this position, I led AT&T’s effort to obtain long-term care insurance for our employees.

In 1990, AT&T began work on the planning phase of their longterm care program. The market at that time was considerably less

developed than it is today. Our initial research began with the development of basic principles to guide AT&T in its decisionmaking

process.

Items that needed to be reviewed included tax status of the product, review of employee need, product integrity and the general

communications approach that the company would follow in order

to maximize the benefits of this product for our employee population.

In 1990–1991, there was considerable discussion of whether an

employer could offer long-term care as an employer paid coverage

and the potential tax consequences of the benefits that the employee might receive from such a plan. At that time there was no

specific part of the IRS code that completely covered this type of

benefit.

Early on AT&T focused on employee need in two areas. First, financial protection and second, determination by the employee of

their own personal evaluation of need. We were comfortable that

a carefully designed plan could accomplish both goals. Financial

protection could be assured by making the breadth of benefits extensive enough and that determination by the employee of their

own needs could be accomplished by offering significant choice of

plan designs. It was determined that AT&T long-term care would

be a voluntary employee pay all plan. It would be incumbent upon

AT&T to ensure that the program was designed such that it was

fair and equitable for all plan participants. While AT&T wanted to

insure the largest group of participants, we also needed to ensure

that the product itself was not compromised by allowing unreasonable advantages to different population groupings.

AT&T was particularly concerned about anti-selection. We struck

a balance that would encourage employees to join when first eligible, and minimize the likelihood that one individual would have an

advantage over another. Active employees that were actively at

work would be accepted without underwriting during the initial

open enrollment eligibility period. Spouses and employees who enrolled later would be allowed to complete the underwriting short

form, all other potential participants would have to go through the

standard underwriting form.

AT&T would prefer not to exclude participants from its plans.

However, AT&T does not believe that a person with a known preVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00327 Fmt 6601 Sfmt 6602 E:\HEARINGS\57738 pfrm11 PsN: 57738
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existing condition should be able to apply for insurance, pay the

same rates as everyone else and know that they will receive benefits or have a far higher likelihood of receiving benefits than the

general insured population. It was felt that getting a long-term

care insurance product in front of employees at that time when employees needed to make benefit decisions would be critical to the

success of the initial enrollment.

Our company research had shown that our employee population

had a tendency to do nothing when given the opportunity, especially if doing nothing allowed them to maintain the status quo.

The long-term care insurance program was launched when AT&T

introduced its new cafeteria plan, which was one of the largest

communication efforts that AT&T would undertake to its management population in the 1990’s. Once the general program outline

was completed, specific plan design features needed to be developed. AT&T wanted employees to have as much flexibility as possible while insuring that adequate coverage would exist. The market in 1990 offered two major plan design features: nursing home

coverage and home health care coverage. Most products available

in the marketplace would be nursing home only or nursing home

and home health combined, which we would know as comprehensive care. AT&T decided to offer both. A survey of nursing home

costs revealed that annual nursing home expenses varied from

$20,000 to over $50,000 per year. That was 1990. This translated

into a benefit range of $60 to $140 per day. Our initial design,

therefore, was to create six plan choices by offering $60, $100 and

$140 per day benefit levels in both of those coverage categories of

nursing home only and comprehensive care.

Our next decision was how long should coverage be given. When

we first looked at this feature, AT&T wanted unlimited duration.

However, in order to incorporate a sense of cost control into the

plan, we decided upon limits that were multiples of the daily dollar

amounts. The nursing home only coverage was given 5 years duration, and the comprehensive coverage was given 7 years. Under

this design, if the participant were to use the benefit less frequently than daily and or obtain a daily benefit cost below the

daily benefit purchased, then the duration of benefits could be extended well beyond the 5 or 7 years.

Determination of eligibility for benefit payment came next. The

long-term care market had developed a methodology to determine

eligibility for benefit payment based upon a person’s functional

ability in several categories called activities of daily living, or

ADLs. AT&T would need to specify which ADLs would be evaluated, and how many ADLs a plan participant would need to have

lost function in before the participant would be eligible for benefit

reimbursement.

Next was the waiting period once you are eligible for benefits.

This is the period of time that the individual would be expected to

spend in benefits status before the plan would begin paying benefits. This period needs to be carefully evaluated for its impact upon

the premium costs of the plan, meaning that you don’t want it too

short, and the individual cost to the plan participant who must

incur those costs until benefit payments are made.

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There are many more features that are necessary to ensure the

delivery of high quality long-term care product. The ones that I

have discussed just now are the major features AT&T looked at in

its initial plan design development. The next step AT&T employed

was to determine the principles that we would follow in evaluating

the potential vendors for our product. AT&T looked at the following: A single carrier rather than multiple carriers; financial

strength and market commitment of the carrier; and the carrier notability.

Our original bid went to 9 potential vendors. Four were selected

as finalists that received site visits. AT&T incorporated principles

into the bid specification. These were to allow carriers to differentiate themselves. The bid specification was written in such a way

as to encourage creativity.

We wanted to ensure and enhance program integrity. The balance in this type of insurance program can be sifted down to two

elements, premiums and the incurred claims. The potential vendors

were encouraged to present ways to maximize coverage and to minimize premiums. We needed to meet the diverse employee retiree

needs of the company. The population of AT&T was a diverse group

of employees, retirees and their eligible family members, all with

varying needs. AT&T wanted to present a long-term care product

that would be flexible enough to meet this diverse set of individuals

and their needs.

We also needed to balance affordability versus availability. Affordability was measured by the percentage of the population that

could reasonably be expected to afford the product. In this comparison, availability refers to the number of potential plan participants

that would be accepted into the plan based upon the underwriting

restrictions. With a selection of our vendor, the next step was to

develop enrollment expectations. Based upon the six levels of benefits that AT&T decided to offer, it was estimated that a 5 to 7 percent overall enrollment rate should be expected for management

employees. Enrollment rates of 2 to 3 percent were expected for retired employees and occupational employees. AT&T has exceeded

these targets with management enrollment currently at 14 percent,

retired employees at 3 percent and our occupational employees at

4 percent. These percentages strictly are employee population and

not their family percentages. We are very pleased with the initial

enrollment figures, and the continued participation that the program has experienced.

The AT&T plan has been enhanced on two separate occasions,

once in 1996 and again in 1999. In 1996, AT&T changed the daily

benefit amounts from the $60, $100, $140 to higher amounts to

$80, $120, $160 and $200 per day. We also added the assisted living facilities as a covered service under the comprehensive plan.

In 1999, after Congress enacted the tax qualifications under

HIPAA, we amended the plan to comply. Working with our longterm care carrier, we were also able to make additional plan enhancements in comprehensive and nursing home only coverage. In

addition, we felt necessary to add a third plan option.

Determination provisions to the contract were one of the key elements of the entire bid process. No matter how well intentioned the

vendor may be or how diligent AT&T was in the selection process,

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the ability to change carriers and do it without harm to the plan

or to the participating employees is critical. Long-term care insurance is an asset intensive product with a long potential investment

horizon. The insurance company established active life reserves to

account for their assumption of liability. However, the interest or

investment gains from these active life reserves would be critical

to the financial health of the program. There are a few items that

we were unsuccessful in implementing into our long-term care plan

or continue to be frustrated by, and that is the mandating of certain provisions in certain States, difficulty in protecting the integrity of the plan and exclusion from section 125 of the Internal Revenue Code.

We have many general positives we feel, and that is in general

the development and availability of long-term care product in the

insurance marketplace, the increased awareness across the country

of the need for this type of coverage, our enrollment experience and

our continued good experience with lower than expected lapse

rates.

Clearly AT&T has a wealth of experience in putting together a

program for our employees. I am pleased to have the opportunity

to share this experience with you, and we look forward to being

available for your questions as you move ahead in putting together

the legislation that will enable Federal employees to obtain longterm care insurance at the workplace.

[The prepared statement of Mr. Carver follows:]

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Mr. SCARBOROUGH. And because of AT&T’s experience in this

field, I think your insights have been very helpful. I want to say

to all of you gentlemen, because we are pushed for time, any additional comments you want to put into the record, we will gladly do

that. I have a lot of questions, so if you don’t have any objections,

I am going to be submitting some questions, and I am sure that

Congressman Cummings will be doing the same.

If you have the responses back to us within 30 days, that would

be helpful, and we can put them into the record.

Mr. Grubb, welcome back.

Mr. GRUBB. Good afternoon, Mr. Chairman and Mr. Cummings.

I am Ken Grubb, president of New York Life Insurance Co.’s longterm care subsidiary, and I am pleased to speak to you again on

behalf of the Health Insurance Association of America [HIAA], the

Nation’s leading trade association of health insurance providers.

HIAA provides coverage to 115 million Americans. My comments

are intended to give you our association’s thoughts on the legislation under consideration that would offer long-term care insurance

to Federal employees and their families.

I purchased long-term care insurance for myself, my wife and our

three children through my company-sponsored plan. If our children

are only in their 20’s, why do we insure them? We should help Federal employees and their dependents understand that long-term

care insurance is not just for the elderly. Forty percent of people

in nursing homes today are under the age of 65.

There has been a lot of talk in this hearing about affordability.

The cost of my children’s insurance is under $220 per year. And as

Mr. Yocum said, it is unlimited coverage, so it will never end. Like

Mr. Yocum, I am keenly aware of problems families face because

of long-term care needs. My parents both needed care, and they

had no insurance coverage. They had very limited savings. It is almost the same story Mr. Yocum told, with only Social Security as

a source of income. I paid for their care to allow them the dignity

that they deserve and to avoid the painful choices they would have

to make to qualify for Medicaid.

Today employers lose $29 billion a year in lost employee productivity due to long-term care related issues. By offering this benefit

to its employees, the Nation’s largest employer, the Federal Government, would send a strong message to all employers that longterm care insurance should be part of their benefits package, too.

HIAA would like to make the following summary points with respect to proposed bills with details in our written testimony.

No. 1, the key to a successful Federal long-term care insurance

program is an effective education and marketing campaign. The

Federal Government’s endorsement of long-term care insurance

and your playing an active role in educating employees is critical

to the success of this program.

Two, using artificially low premiums as a major determinant for

good long-term care insurance is a dangerous route to take. A policy with rich benefits, offered at low premiums and minimal underwriting is a sure sign of disaster. Implementing such a program

would result in an unsustainable plan with unstable premiums.

Three, OPM should not be responsible for adjudicating claims.

HIAA opposes any type of third party adjudication.

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And finally, No. 4, it is essential that market competition determine which carriers offer the plans under the Federal program. All

interested companies should be allowed to freely compete in a fair

selection process. Some contend that too many choices under a free

competition model would confuse consumers, discourage product

purchases, drive up marketing costs and increase prices. HIAA disagrees with these contentions. The industry believes, and the current long-term care insurance marketplace has proven, that free

competition works.

We have many reputable and financially sound companies offering a wide array of benefits at stable premiums because of open

competition. Some new generation products have actually been introduced with lower premiums than their predecessors. I know ours

was, and we have never raised our rates. The risks of consumer

confusion, high marketing costs and uncertain penetration rates

are part of what carriers deal with today. The industry has successfully overcome these challenges and is thriving because of free

competition.

We suggest care be taken to avoid fostering the growth of only

one company or a small consortium of companies. This could actually hinder product development and stifle competition. Limited

consumer choice could cause Federal employees to look outside the

program for more affordable or better quality coverage. HIAA is

aware of a proposal to select a single consortium of companies to

offer the Federal program. We are currently evaluating that proposal. Details of how such a concept would work are unclear, and

critical issues such as the mechanics of how this proposal would

work are unresolved. Until they are clarified, HIAA is reserving

comment.

Long-term care is the largest unfunded liability facing Americans

today. HIAA applauds tax incentives suggested for those paying

long-term care insurance premiums. These incentives recognize the

vital role that insurance plays in helping individuals, rather than

the government, pay for long-term care costs. Long-term care insurance can give millions of people the opportunity to remain financially independent.

Thank you, Mr. Chairman and Mr. Cummings, for considering

ways to give this sense of security to your fellow Federal employees

and to their families. We look forward to working with you to, as

Mr. Cummings said so eloquently, do it right.

[The prepared statement of Mr. Grubb follows:]

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Mr. SCARBOROUGH. Thank you, Mr. Grubb. We appreciate your

testimony.

Mr. Cavanaugh.

Mr. CAVANAUGH. Thank you, Representative Cummings and

Chairman Scarborough, for asking us to be here. I am Dave

Cavanaugh and I am representing Wright & Co. in Washington,

DC. We are a national firm. We have been providing administration, consultation and insurance benefits to the Federal and private

sector over the last 35 years. And because of time, I will make my

comments brief, but you did ask us to come and see if we couldn’t

provide you with some information as far as the linked benefits

concept, that being where we take a universal life insurance policy

and put long-term care riders on there and see if we cannot come

up with some benefits. That is what we have done.

The need for the linked benefits approach teaming the universal

life and long-term care is becoming more evident every day. From

your Civil Service Employee Benefit Association members to our

various Federal association members, such as SEA—the Senior Executive Association—the message is clear. Long-term care is an integral need for all Americans. Besides relieving the U.S. Government of an increasing burden, the linked benefits concept will serve

numerous purposes to the individual and family members. Purposes that include awareness, flexibility, cost savings, asset protection, and even one area which has been addressed today, and that

is, an appeal to younger people. We feel that is an imperative.

Because of the advancements in medical science, they are creating a longer living American population. This ever increasing and

aging population needs to protect themselves and their families

from the financial burdens imposed by nursing home or at home

confinements. Not only is there the consideration of money factors,

but also the dignity and integrity during the aging process of the

individual and the family members. Clearly this is a financial and

peace of mind issue.

With the creation of linked benefits, the pairing of universal life

insurance and long-term care addresses the aforementioned problems in a very efficient manner. Not only is long-term care and life

insurance provided, but they are provided on a sound economic

basis while giving various options during the completion of the

aging process. These options include the long-term care coverage,

a cash accumulation fund, death benefits and, if necessary, a recapture of dollars laid out.

In further clarification of these points, we have put attachment

A into our testimony for the linked benefits, and you can refer to

it as necessary.

You also asked for assistance in areas of how the product is typically sold, what the options are that are available, and what classes and categories the Federal employees might find for the product

to be attractive, and so we will do that. In an attempt to save time,

again we have listed all of those items for you and they are in our

written testimony.

Finally, what we would like to say to you is that you’ve requested

modifications on the bills, and we believe that attachment B will

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provide you with the necessary wording for each of the bills that

have been recommended, and we would like to make ourselves

available for any further information and help that we can provide

you. In light of the time factor, I hope that I have done a good job

and haven’t made this the old FedEx commercial.

[The prepared statement of Mr. Cavanaugh follows:]

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Mr. SCARBOROUGH. Mr. Cavanaugh, you are ruthlessly efficient.

Mr. CAVANAUGH. I take that as a compliment.

Mr. SCARBOROUGH. That is meant to be a compliment. You represent your company well. I want to ask all three of you to answer

a couple of questions that I have. Obviously you all are experts in

this field. You have studied it extensively, and know it better than

99 percent of people not only across America, but especially in Congress.

The first question has to do with something that Mr. Grubb actually touched on, but it was a question that I asked our last panel,

and it had to do with relaxed underwriting. The argument has

been made by some, and I suspect as this debate gets more political, it will be made by many others on the House floor that we

must relax underwriting so much that just about everybody can get

into the plan.

While I have no objections to being extraordinarily inclusive, I do

think that we need to have experts testify as to what the

downsides of basically letting everybody in with no underwriting

requirements, especially for a plan that seeks to do two things: one,

to keep costs low for Federal employees and, two, get as many people into the plan as possible, and doing that through lower costs.

Let me ask you all to testify as to what impact that would have,

a very lax underwriting standard on long-term care. Mr. Grubb,

you have already testified to it, and if you would like to restate

your position.

Mr. GRUBB. As we have described it in the past, guaranteed issue

works if you have the entire population as part of your risk pool.

Given that this plan is voluntary, you would have a high risk of

anti-selection if you just said we will take anybody.

So the downside is that guaranteed issue would certainly increase the cost of the program. We do have some guaranteed issue

programs in our portfolio, but all employees are part of it, so you

can spread the risk. Everything I have heard about the Federal

program is that it is going to be voluntary. So the downside would

be increased cost.

Mr. SCARBOROUGH. So there would be marginally or substantially

increased costs?

Mr. GRUBB. Substantially increased costs. There is a way to mitigate the risk a great deal. We have programs which we call simplified underwriting. They allow us to ask several simple questions

which basically determine that the person applying is not already

eligible to go on benefit. You spoke to that yourself a moment ago.

If you do that, the risk goes down dramatically, as would the potential impact on cost.

So my recommendation in a voluntary program would be to go

with simplified issue as opposed to guaranteed issue. That way you

keep the people out of the program who would drive the costs up

initially.

Mr. SCARBOROUGH. Mr. Carver.

Mr. CARVER. The anti-selection, and if I may, I am going to relate it to what we currently experience on our life insurance program. We have a voluntary life insurance program also, and basically what happens is when you allow everyone in, employees will

look at both the program that you are sponsoring and the program

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that may be available individually or somewhere else. So what happens is your good risks that can pass underwriting will go somewhere else, and you will end up with the bad risks because you are

accepting all comers. That is why the rates will go up. We wanted

to accept as many as we possibly could. We felt it was reasonable

that we were trying to provide an employee pay all plan for our

employees. So we tried to minimize the amount of activity that

needed to take place in the underwriting, and I do agree with Mr.

Grubb you are going to experience a program that is considerably

higher in costs to those employees that are going to pay for it.

Mr. CAVANAUGH. I am probably going to echo the words already

said, but when you have a simplified issue program where you can

get a little bit of a peek under the tent of the group of people that

you are looking at, you are going to get better results.

I know politically it would be a wonderful situation where you

would be able to say everybody is in the pool, but the problem with

that is at some point in time you are going to create a bigger political problem, and that is are the insurance companies going to be

able to be financially solvent and meet all of the risks that they

have.

So there are ways that you can negotiate with the underwriting

departments and fool around with the design of the policies as well

as the individual being able to meet some type of an underwriting

process. But I definitely commend you for addressing this problem

so that it doesn’t become a political football or a bigger problem

than you already have.

Mr. SCARBOROUGH. The second question that I have, and it will

be my last question for all of you to answer before I turn the mic

over to Mr. Cummings, is a question that to me seems very obvious, but maybe I am missing something.

OPM has suggested that the best and perhaps the only way to

ensure the lowest premiums for employees is to basically have a

monopoly, have one carrier. I personally believe that the more

qualified carriers we can have in there, the more competition we

can have, the more choice we will have, and the more the prices

will go down, especially as more and more Americans learn about

long-term care and the universe of those that are insured expands.

I don’t want to ask too much of a leading question, but I am

going to anyway.

Does anybody on the panel believe that a monopoly will provide

lower prices for long-term care participants or having more insurance companies in there for more competition? And I am sure you

will say a monopoly if it is your company.

Mr. GRUBB. No, I wouldn’t. And I think there is another risk

here, and that is whether a single company can really handle this.

A single company in an employer group can do it because of the

economies of scale and the critical mass, but one company covering

the entire Federal population, potentially 10 million people, becomes unwieldy from an administrative perspective.

So I am not advocating a single carrier. My answer to your monopoly, I think, would be 10–10–326, or whatever it is.

My wife has just placed on every telephone in our house a 10– 10–326 sticker, which we use, and I don’t think that we would be

getting 5-cents a minute telephone rates if we had monopolies on

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the telephone. I don’t believe that a monopoly would result in lower

prices. I think free competition clearly drives down prices, as the

new generation of lower price products demonstrates.

Mr. SCARBOROUGH. Mr. Carver, you don’t have to respond to that

AT&T part of his answer. He is saying monopolies and phone companies are pretty good things.

Mr. CARVER. No, we believe in competition. The way that I look

at it from an employer’s perspective, you have to break it down into

competition for the selection process. We had nine carriers. We

broke it down to four carriers. When you get down to a model

where you are looking at four carriers, there is an easy way of

adopting a solution, and that is to say tell me what your prices will

be if you are the only one selected, and tell me what your prices

would be if there are going to be three carriers selected.

You will see that their prices will be considerably different given

those two models, and they will be lower in the single carrier situation. A carefully constructed one will allow flexibility where you

may have a limited number of carriers given the size of what you

are talking about.

But I think the point is to say the single carrier model would be

the least expensive model as far as what the carriers will offer during the bid process. That doesn’t necessarily mean that it would be

a model that you would be satisfied with as only taking the lowest

cost because once it is in place, the cost to remove that model also

must be considered, and you may say two would be appropriate,

but you can actually incorporate that into the process and that way

you can determine with the facts of what the carriers are going to

offer in product as to what the differentiation is in cost.

Mr. SCARBOROUGH. Thank you.

Mr. Cavanaugh.

Mr. CAVANAUGH. I want to take a little bit of testimony from

today and throw it right back. Mr. Carver himself said we need to

eliminate the do-nothing aspect of employees, whether Federal or

private sector. Mr. Atwater said we need to sell, which means that

we need to educate people on what the problem is and how to solve

it and we need to do that on an affordable basis.

There is no way in the world one insurance company is going to

be able to go through all of the capital expenditures that are needed to be able to do that and still wind up with an affordable product for the individual. That is a strong consideration that needs to

be taken into consideration.

The other aspect is along the lines of what Ken said, a 10–10,

whatever that number is, that kind of assistance from the Federal

Government in educating or letting the Federal employee know

that it is available and out there in conjunction with whatever companies provide the coverages is going to be an important factor. I

say that from an insurance broker aspect dealing with a number

of companies, not just with one particular company in my particular sights. So affordability is going to be an important factor

from both sides of the spectrum.

Thank you.

Mr. SCARBOROUGH. Mr. Cummings.

Mr. CUMMINGS. I just want to get this concept, just following up

on Mr. Scarborough’s questions. If you have a consortium and if

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you have a group of insurance companies working together but basically one policy, is that what you are talking about or are you

talking about something else?

Mr. GRUBB. It certainly could be that. As we have discussed how

this might take shape, one of the things we have talked about is

having a core group of benefits. AT&T does that. We do that in our

group offerings, where the suggested plans are 3-year, 5-year, and

unlimited with amounts up to $300 a day.

However you go through that appropriate selection process, the

consortium could offer that core set of benefits maybe even at a

standard rate. Employees whose needs are different could select

from a wide variety of offerings that the companies in the consortium could offer. So you would have a standard group of benefits

at potentially standard rates as well as a wider variety if the

standard benefits don’t meet the needs of that particular individual.

Mr. SCARBOROUGH. Mr. Carver, why did you offer long-term care

insurance? Why did your company offer it?

Mr. CARVER. Essentially it was circumstances that the company

had identified areas where employees felt there was gaps in our

coverages with regard to our medical, really. We had circumstances

within the company where we had a number of employees, I think

that had basically written into benefits administration and had

said that here was the problem.

They were an AT&T employee, yet they had a spouse or they

were a retiree that had a spouse and the medical coverage that was

provided by AT&T was not covering the circumstances in which the

employee’s spouse was experiencing their medical difficulty, which

ended up being the custodial care, a specific exclusion under our

medical plan, and that is what the long-term care was being classified as. And so we saw it as a gap in our coverage.

Mr. CUMMINGS. In your written testimony you talked about when

you all initially offered the insurance, you had projected a certain

percentage of employees would take advantage of it and, overall, a

higher percentage than what you projected took advantage of it.

And I take it that you all were surprised by that?

Mr. CARVER. Actually I was very surprised by that. I felt very

comfortable with our projections going out, and I really do believe

the way that we presented it in our communications where the employees were in a situation that our company had created with the

introduction of other programs where they had to look at their

package of benefits and they had to investigate certain options, put

them at a much more higher level to investigate things like long

term care and to take the time and effort to understand it.

I hadn’t really related that when I was putting the package together, and I really felt that was what really drove the increased

participation.

Mr. CUMMINGS. I know you had an open enrollment period, but

did you do a lot of pushing on the long-term care piece or was it

just part of the package?

Mr. CARVER. It really was just part of the package. We did have

specifically the ability for our employees to call a separate 800 line.

They could get other information for the long-term care product

through that 800 line, and it was a separate brochure that deVerDate 11-MAY-2000 10:59 Mar 15, 2001 Jkt 010199 PO 00000 Frm 00379 Fmt 6601 Sfmt 6602 E:\HEARINGS\57738 pfrm11 PsN: 57738
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scribed long-term care because it was a totally new product that

was included in the open enrollment package. We didn’t send out

great notices of this impending new product coming down the line.

Mr. CUMMINGS. You talk about the ADLs. You spent some time

in your written testimony talking about how people would be able

to take advantage of the policy. What is the triggering mechanism

for the policy?

Mr. CARVER. When we designed the plan, one of the things that

I discussed with not only AT&T, the people on my project team, but

also with the carriers, was that when you are looking at the activities of daily living, it is fairly clear that when you are talking about

an elderly population, that it is a matter of degree when you do the

evaluation. And then eventually the deterioration would be expected to continue.

So when we talk about claims and claims denial, it is not really

claims denial, it is claims delay. When a person has started to lose

function in particular activities of daily living, they are not expected to next year all of a sudden have improvement in those activities of daily living. The propensity would be as they grow older,

they are going to continue to deteriorate in the activities of daily

living. So the point is to be able to measure their functionality and

at some point in time trigger the benefits.

So you may have denial at one point, but it is not a denial to

say that we are never going to see this claim again, it is a denial

of delay, and eventually that person is going to achieve benefit status. So when we did the ADLs, that is how we tried to set them

up.

When you first get contact, somebody may not qualify because

they may not understand all of the different things that occur. But

when they get evaluated they should have a file on them because

eventually I should expect that person is going to deteriorate into

claim status.

Mr. CUMMINGS. You said a little earlier that you all upped the

daily benefit level at some point. How did that come about?

Mr. CARVER. Which one?

Mr. CUMMINGS. You said there was a time when it was $60.

Mr. CARVER. $60, $100, $140.

Mr. CUMMINGS. Then you bumped it up.

Mr. CARVER. Absolutely.

Mr. CUMMINGS. I’m asking how did that come about. I assume

you saw a need. I’m just trying to figure out how do you come to

the conclusion. Is there a group of people that say we need to move

this up a little bit; is it your office working with the insurance company? I mean what happened there?

Mr. CARVER. OK. Well, what happened there was that the general survey of nursing home costs across the country, we were

doing that evaluation, because we have an inflation increase that

is more of a flexible inflation increase, not an automatic. So we did

on our evaluation, because we wanted to give an inflation increase

offer to employees, and during that evaluation, it was found that

nursing home costs had increased sufficiently enough that we felt

the $60 one was—would be inadequate, and that there needed to

be higher limits, because the nursing homes costs, in particular

cost areas, had increased rapidly.

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So we wanted to expand our offerings on the top level. And also

during that time, we offered employees that had originally participated the option to increase their coverages under the inflation increase, under the plan provisions. So it was a total evaluation in

the marketplace to reassess where we needed to be as far as the

average daily benefits were concerned.

Mr. CUMMINGS. So I take it that you feel very strongly that this

is something that is needed, say, with regard to what we’re trying

to do with Federal employees then?

Mr. CARVER. Yes, I do.

Mr. CUMMINGS. Mr. Cavanaugh, I just have one question. The

linked benefits, does that—I take it that that is more of—you see

that as something being more attractive than them not being

linked?

Mr. CAVANAUGH. Yes, for two reasons. When you just have the

long-term care benefit, it’s going to meet strictly and solely that

need, and the focus of that particular need is in an older age group,

which is going to limit the number of people that are going to participate, which is going to limit your pool. It’s also going to limit

the number of dollars that the insurance company is going to be

collecting.

When you get a wider span of appeal, then you’re going to get

a wider participation. When you get a wider participation, you get

a bigger spreading of the risk, you get more people in the pool, et

cetera. So it just seems to be more of a logical appeals situation,

and it also solves more needs.

And no matter what, in the linked benefits concept, there is

going to be someone, whether it’s the insured or whether it’s the

members of the family that are going to derive any benefit or some

benefits out of the policy.

Mr. CUMMINGS. You know, as I read the various testimony, I

think a dismal picture is being painted of the future with regard

to—I mean if we don’t do things like this, would you agree?

Mr. GRUBB. Absolutely.

Mr. CAVANAUGH. Absolutely.

Mr. CARVER. Absolutely.

Mr. CUMMINGS. I was wondering what you all see. Someone once

said people act on the basis or motivated on the basis of two things

or a combination of them, one of two things or a combination; either they’re trying to avoid pain or gain pleasure. And I think here

it’s probably a combination, we need to avoid some pain, and we

need to make sure that we gain as much pleasure as we can by

allowing people to live in dignity.

And I’m just wondering, what do you all—my last question is,

what do you see happening if we don’t have these kinds of insurance policies available on a pretty wide basis, ranging basis? I

guess, with your population getting older, and you’re living longer

and the health care costs are going up. I was just wondering what

do you all project? We will start from left to right.

Mr. CARVER. Your left?

Mr. CUMMINGS. My left, I’m sorry.

Mr. CARVER. Without the expansion into the long-term care marketplace, what AT&T sees is that many of our employees and our

retirees who felt that they had saved and had sufficient assets will

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find that those assets may be being utilized for long-term care expenses that aren’t being paid for under any insurance policy, and

that they will have less of an inheritance to pass to their children.

And they will also have a reduced quality of life in the remaining

years unexpectedly.

Mr. GRUBB. I couldn’t agree more. There’s a term I heard recently at a conference about the ‘‘eccho generation.’’ We talk a lot

about the boomers and then you have the decline and now the

‘‘eccho generation’’ is coming behind it. The ‘‘eccho generation’’ is

bigger than the boomers ever thought about it being. If we don’t

take care of this trend now, how many people can afford using the

numbers that were mentioned in testimony today, of $100,000, or

$400,000. It’s amazing numbers for what the costs of long-term

care is going to be.

The government doesn’t want to pay those bills. I go back to my

parents’ situation. The most important thing is what you just said,

Mr. Cummings, and that’s dignity. My parents saved their entire

lives, and it was the dignity that they wanted to retain, the control

over their own destiny. Long-term care insurance allows and provides for that. That’s why we bought long term care insurance for

our kids who were in their 20’s. We did it so they would know that

they will always have that dignity, and we know, as their parents,

that we’ve taken care of it, so they don’t have to face the same situations we did.

Another thing that is critically important and as an H.R. professional I’m sure the gentleman to my right is going to speak to this

too. Adult day care is very quickly going to pass child care as the

No. 1 issue that human resources people have to take care of. That

day is coming very, very quickly. When we’re no longer caring for

our children, we’re caring for our aging parents. That is a very big

issue. So if we don’t take care of this, I think the entire economy

is in big trouble.

Mr. CAVANAUGH. I think you can maybe make one analogy, and

that is we all need to get the stitches now on the wound, or we’re

going to have some major surgery in the future, real major surgery.

We have to address the problem. And we have to do something

about it, because otherwise it’s going to get much bigger than any

of us can ever imagine. And Dr. Kevorkian may become a very,

very popular individual.

Mr. CUMMINGS. I want to just thank all of you for your testimony. I want to thank everybody for being here. And I want to also

thank the people here at the War Memorial facility here for doing

such a good job, we really appreciate it.

And Mr. Chairman, again, thank you and your staff and my staff

for all they’ve done to make this happen.

Mr. SCARBOROUGH. Mr. Cummings, I want to thank you for making this hearing possible, for working so hard to bring us up here

and make it work. I thank you and, gentlemen, thank you for testifying today. I would like to thank everybody in attendance.

We are adjourned.

[Whereupon, at 3:09 p.m., the subcommittee was adjourned.]

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