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75–277 PDF 2012

S. HRG. 112–520 

THE FUTURE OF LONG-TERM CARE: SAVING 

MONEY BY SERVING SENIORS 

HEARING 

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

WASHINGTON, DC 

APRIL 18, 2012 

Serial No. 112–15 

Printed for the use of the Special Committee on Aging 

( 

Available via the World Wide Web: http://www.fdsys.gov 
(II) 

SPECIAL COMMITTEE ON AGING 

HERB KOHL, Wisconsin, Chairman 

RON WYDEN, Oregon 

BILL NELSON, Florida 

BOB CASEY, Pennsylvania 

CLAIRE MCCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

MARK UDALL, Colorado 

MICHAEL BENNET, Colorado 

KRISTEN GILLIBRAND, New York 

JOE MANCHIN III, West Virginia 

RICHARD BLUMENTHAL, Connecticut 

BOB CORKER, Tennessee 

SUSAN COLLINS, Maine 

ORRIN HATCH, Utah 

MARK KIRK III, Illnois 

DEAN HELLER, Nevada 

JERRY MORAN, Kansas 

RONALD H. JOHNSON, Wisconsin 

RICHARD SHELBY, Alabama 

LINDSEY GRAHAM, South Carolina 

SAXBY CHAMBLISS, Georgia 

CHAD METZLER, Majority Staff Director 

MICHAEL BASSETT, Ranking Member Staff Director 
(III) 

CONTENTS 

Page 

Opening Statement of Senator Herb Kohl ............................................................. 1 

Statement of Senator Bob Corker .......................................................................... 2 

PANEL OF WITNESSES 

John O’Brien, Director of Healthcare and Insurance, Office of Personnel Management, Washington, DC ................................................................................... 2 

Loren Colman, Assistant Commissioner, Minnesota Department of Human 

Services, St. Paul, MN ......................................................................................... 5 

Judy Feder, Professor of Public Policy and Former Dean, Georgetown Public 

Policy Institute, Georgetown University, Washington, DC .............................. 7 

Bruce Chernof, President and CEO, SCAN Foundation, Long Beach, CA ......... 9 

Douglas Holtz-Eakin, President, American Action Forum, Washington DC ...... 11 

APPENDIX 

WITNESS STATEMENTS FOR THE RECORD

John O’Brien, Director of Healthcare and Insurance, Office of Personnel Management, Washington, DC ................................................................................... 28 

Loren Colman, Assistant Commissioner, Minnesota Department of Human 

Service, St. Paul, MN ........................................................................................... 35 

Judy Feder, Professor of Public Policy and Former Dean, Georgetown Public 

Policy Institute, Georgetown University, Washington, DC .............................. 40 

Bruce Chernof, President and CEO, The SCAN Foundation, Long Beach, 

CA .......................................................................................................................... 51

Douglas Holtz-Eakin, President, American Action Forum, Washington, DC ..... 70 

RELEVANT WITNESS REPORTS

The Importance of Federal Financing to the Nation’s Long-Term Care Safety 

Net, Georgetown University ................................................................................ 79 

Raising Expectations: A State Scorecard on Long-Term Services and Supports 

for Older Adults, People with Physical Disabilities and Family Caregivers, 

the SCAN Foundation .......................................................................................... 97 

ADDITIONAL STATEMENTS SUBMITTED FOR THE RECORD

CARF International, Washington, DC ................................................................... 133 

Center for Medicare Advocacy, Washington, DC .................................................. 137 

National Center for Assisted Living, Washington, DC ......................................... 142 

(1) 

THE FUTURE OF LONG-TERM CARE: SAVING 

MONEY BY SERVING SENIORS 

WEDNESDAY, APRIL 18, 2012 

U.S. SENATE, SPECIAL COMMITTEE ON AGING, Washington, DC. 

The Committee met, pursuant to notice, at 2:03 p.m. in Room 

216, Hart Senate Office Building, Hon. Herb Kohl, chairman of the 

committee, presiding. 

Present: Senators Kohl [presiding], Whitehouse, Udall, Manchin, 

and Corker. 

OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN 

The CHAIRMAN. Good afternoon to everyone, and thank you so 

much for being here. Today we’re looking at the question of how 

best to provide and finance long-term care services for the millions 

of Americans who need them, while also balancing our debt, our 

deficits, and our overall financial picture. 

As we look ahead, we’re going to have to do more with less. We 

all know that. In fact, we must find better and more efficient ways 

to provide care because the money simply will not be there. 

We’re here today to talk about some of the ways to save money 

without doing material damage to long-term care. The costs of longterm care services, more than $300 billion a year, are already massive for both taxpayers and families, and left unchecked, this burden will continue to grow as our rapidly aging population requires 

more long-term care. Medicaid alone projects $1.9 trillion in long-term care costs over 

the next 10 years, with an annual average cost increase of 6.6 percent, and we are seeing similar increasing cost trends for Medicare 

and in some sectors of the long-term care insurance industry. 

Unfortunately, there is no easy answer. While our two largest 

publicly-financed health care programs, Medicaid and Medicare, 

currently pay for the bulk of long-term care, they are limited in 

scope, and private long-term care insurance has the potential to 

play a larger role, but the market is facing challenges, and some 

consumers have been skeptical about purchasing a policy that is 

both worth the cost and represents a secure and sound investment. 

To help us meet this challenge, our witnesses will discuss some 

promising strategies for improving services while at the same time 

restraining costs. Particularly, I look forward to hearing about the 

savings we would achieve by reducing unnecessary hospitalizations, by delaying or avoiding institutionalization, and by increasing the use of home and community-based services. As we will hear 
2 

today, these solutions have already achieved some success and 

could be expanded across the country. 

As we work to develop policies that enable seniors of all incomes 

to plan for and access long-term care, we will need the best ideas, 

and we will need to work together in a bipartisan manner. So we 

look forward to today’s hearing, to the testimony and the ideas that 

we will hear from our witnesses. 

And now the witnesses. Mr. John O’Brien is Director of 

Healthcare and Insurance for the U.S. Office of Personnel Management, where he oversees the Federal Employees Health Benefit 

Program; and more importantly for this hearing, the Federal Long 

Term Care Insurance Program. This program is the largest private 

long-term care insurance program in the country. 

Mr. Loren Colman is Assistant Commissioner of the Minnesota 

Department of Human Services. With more than 25 years of experience with long-term care facilities, Mr. Colman oversees a host of 

programs for older adults and is a leading force behind Minnesota’s 

Transform 2010 program, which is designed to help the state prepare for retirement of the Baby Boomer generation. 

Dr. Holtz-Eakin is President of the American Action Forum. He 

was Chief Economist with the Council of Economic Advisors from 

2001 to 2002, and he served as a Director of the Congressional 

Budget Office from 2003 to 2005. 

Professor Judy Fader has had a long and distinguished academic 

career, serving as Dean of the Georgetown Public Policy Institute 

in Washington, D.C. from 1999 to 2008. Today, she is a professor 

at Georgetown University, a Fellow at the Urban Institute, and an 

elected member of the Institute of Medicine. 

We also have Dr. Bruce Chernof with us today. He is the President and CEO of the SCAN Foundation, based in Long Beach, California, an organization that is dedicated both to research and to 

dissemination of knowledge that improves the health of older 

adults. Dr. Chernof also served as Director and Chief Medical Officer for the Los Angeles County Department of Health Services. 

We thank you all for being here. And before we go to your testimony, we will hear from the distinguished Ranking Member of this 

committee, Senator Corker. 

STATEMENT OF SENATOR BOB CORKER 

Senator CORKER. Mr. Chairman, thank you. I know you had a 

conflict until 10:00. I came at the perfect time. I don’t give opening 

comments much. I thank you for calling the hearing, and I look forward to listening to our witnesses. So thank you so much, I appreciate it. 

The CHAIRMAN. Thank you. 

All right. 

Mr. O’Brien. 

STATEMENT OF JOHN O’BRIEN, DIRECTOR OF HEALTHCARE 

AND INSURANCE, OFFICE OF PERSONNEL MANAGEMENT, 

WASHINGTON, DC 

Mr. O’BRIEN. Chairman Kohl, Ranking Member Corker, members 

of the committee, thank you for the opportunity to testify today on 

long-term care insurance. The Office of Personnel Management 
3 

oversees numerous benefit programs, including long-term care insurance for Federal employees, annuitants, and family members. 

Long-term care is divided into people who need help with activities of daily living or who need supervision due to severe cognitive 

impairment. It can be provided at home, in an adult daycare center, assisted living facility, or nursing home. Most health insurance 

plans, including the Federal Health Benefits Program, do not provide coverage for long-term care services. This unmet need led to 

the creation of the Federal Long-Term Care Insurance Program. 

Long-term care insurance is an important benefit because people 

are living longer, and the likelihood of needing long-term care services increases with age. After age 65, Americans have a 70 percent 

chance of needing some form of long-term care during their lives. 

Long-term care is also provided to people under age 65 who need 

help taking care of themselves due to diseases, chronic conditions, 

injury, developmental disabilities, or severe mental illness. 

Long-term care insurance is also important because services can 

be very expensive for the average American family. In 2011, the average cost of a semi-private room in a nursing home was over 

$75,000, and the average cost of home care was roughly $31,000. 

In 2000, Congress passed the Long-Term Care Security Act, 

which authorized OPM to contract with qualified carriers to provide long-term care coverage for Federal employees, U.S. Postal 

employees, members of the uniformed services, annuitants and 

their qualified family members. In March 2002, OPM introduced 

the long-term care program to the Federal workforce. 

This is the 10th year for the program, and it is the largest employer-sponsored long-term care program in the country. The longterm care program is a 100 percent employee-paid benefit. Through 

the long-term care program, the Federal Government uses its leverage in the marketplace to offer private, long-term care insurance 

to Federal employees and their qualified family members. 

The initial contract to provide long-term care insurance for Federal employees was with Long Term Care Partners, a joint venture 

of John Hancock and Metropolitan Life. The benefit became available to Federal employees in 2002, and by February 2003, 187,000 

individuals were enrolled. By the end of the initial 7-year contract 

term, enrollment had increased to approximately 224,000 enrollees. 

At the end of the initial contract term in 2009, OPM awarded a 

second contract to John Hancock. As part of the new contract, John 

Hancock added a new benefit option with increased home health 

care reimbursement, new benefit periods, higher daily benefit 

amounts, and increased payment limits for informal care provided 

by family members. 

The long-term care program provides coverage for nursing home 

stays, assisted living facilities, hospice stays, home care, and other 

services. In addition to Federal civilian and uniformed service employees, other qualified family members who are eligible to apply 

for the coverage include spouses, same-sex domestic partners, surviving spouses, members of the uniformed services, parents, and 

adult children. 

Although enrollees can customize the benefit, the vast majority, 

over 99 percent, opt for one of four pre-packaged options. The prepackaged plans offer variations in the daily benefit amount, the 
4 

benefit period, the maximum lifetime benefit amount, waiting periods, and inflation protection options. The package includes comprehensive care coordination, portability of coverage, international 

benefits with no war exclusions, and guaranteed renewability. Enrollees can change their coverage options as their needs change and 

have a variety of premium payment options. 

Since the new contract offered new covered options that were not 

previously available, in 2011 OPM held an open season for the 

long-term care program. I should note that an individual can enroll 

in the long-term care program at any time. But outside of an open 

enrollment period or within 60 days of their hiring as an employee, 

they are subject to full medical underwriting. 

What we have referred to as ‘‘open season’’ allows employees and 

their spouses to apply with abbreviated underwriting, which means 

applicants answer fewer questions about their medical history. I 

should also note that during the 2011 open season, same-sex domestic partners of Federal employees had the option to apply with 

abbreviated underwriting. This inclusion of same-sex domestic 

partners followed President Obama’s June 2010 memorandum directing agencies to extend benefits to same-sex domestic partners 

of Federal employees, consistent with existing law. 

Educational efforts for the 2011 open season began in fall of 

2010. OPM, along with Long Term Care Partners, worked to increase awareness about the benefits of long-term care insurance for 

the Federal workforce. Direct mail, email campaigns, workshops, 

webinars, advertisements, payroll notices, and other tools educated 

the Federal workforce about long-term care insurance. Additional 

information was available on the Federal long-term care website, 

including the ability to apply for coverage online. Clarity and transparency were top priorities of the educational campaign, and care 

was taken to assure that benefits and features of the long-term 

care product were clearly understood. 

The educational efforts were very successful at increasing awareness among the eligible population that the program is a valuable 

and cost-effective way to protect against the high costs of long-term 

care. The success of the effort was borne out by the numbers. We 

received over 45,000 applications during the 2011 open season, and 

total program enrollment increased 20 percent, from 224,000 to approximately 270,000 members. 

As the long-term care insurance market continues to evolve, we 

believe the Federal long-term care program is well positioned to 

offer a variety of benefit choices with relatively low cost to enrollees. OPM is working to maintain the long-term viability of the program by pursuing policies that will protect current and future enrollees. For example, we are interested in pursuing participation in 

state/Federal long-term care partnerships which provide asset protection as an incentive for enrollment. We are also continuing to 

assess plan benefit options to ensure that they are attractive to enrollees. 

Long-term care insurance provides a cost-effective way for individuals making average incomes, like most Federal employees, to 

protect themselves against the financial catastrophe that a longterm illness or injury can cause. The long-term care insurance market is still relatively young and uncertain, and OPM will need to 
5 

closely monitor the market to make certain the program meets the 

current and future needs of the Federal family. Our goal is to provide enrollees with insurance protection, mitigate their potential 

costs for long-term care services. 

Thank you for the opportunity to testify today and I am happy 

to address any questions you may have. 

The CHAIRMAN. Thank you, Mr. O’Brien. 

Mr. Colman. 

STATEMENT OF LOREN COLMAN, ASSISTANT COMMISSIONER, 

MINNESOTA DEPARTMENT OF HUMAN SERVICES, ST. PAUL, 

MN 

Mr. COLMAN. Thank you, Mr. Chair, and members of the committee. On behalf of Commissioner Jesson, I thank you for this opportunity to share with the committee the efforts that Minnesota 

is making to provide the best possible long-term care system for 

older adults and persons with disabilities. 

Minnesota has a strong infrastructure, built over many years, of 

long-term care services and supports for older adults and people 

with disabilities. Last fall we were very proud and gratified to see 

the quality of Minnesota’s long-term care system recognized by the 

AARP and the SCAN Foundation. 

Minnesota ranked number one among all states in the first-ever 

AARP Scoreboard on Long-Term Care Services and Supports for 

Older Adults, People with Disabilities and Family Caregivers. The 

report validates the direction that Minnesota has been moving for 

the past 25 years, to reduce reliance on institutional care and encourage access to services in home and community-based settings. 

It acknowledges Minnesota’s efforts in providing comprehensive 

phone and web-based information and referral resources for seniors 

and their families and people with disabilities, as well as providing 

evidence-based support for family caregivers. 

Not that long ago, most people that were served by Medicaid in 

Minnesota received long-term care services in an institution. Over 

time, we’ve developed the supports needed to serve people in their 

own homes and communities. Today, 63 percent of the older adults 

receiving Medicaid long-term care services get that care in their 

home or in community settings, and 95 percent of persons with disabilities receiving medical assistance long-term care services are in 

community settings. 

We are also proud of Minnesota’s system of nursing facilities as 

the state and facilities have worked in partnership toward improved quality and care. Several years ago we launched a Nursing 

Facility Report Card to give consumers and family members access 

to comparative information on quality and consumer satisfaction. 

We have promoted innovation in care through performance incentive payments. The median length of stay in Minnesota nursing facilities is now less than 30 days as services become rehabilitative 

in nature. Successful collaborations with the industry have contributed to right-sizing the number and distribution of nursing facilities in the state. 

In Minnesota, a healthy synergy results from having the policy 

areas for aging and adult services, disability services, nursing facility rates and policy, and the Minnesota Board on Aging consoli-
6 

dated into the part of the Department of Human Services that I 

oversee. 

We have worked very hard over the years to ensure a solid alignment of services delivered under Medicaid and the Older Americans Act. These services, on a continuum, become the critical safety 

net that seniors use as they become more frail. By aligning them 

much more closely in how seniors transition among each service, 

we ensure that the system works in a more cost-conscious manner 

and delivers care better to seniors and their caregivers. 

The Older Americans Act is a critical resource in our long-term 

care system and supports. The Senior LinkAge phone line, which 

annually serves 89,000 older Minnesotans and their families, and 

the complementary Disability Linkage Line and Minnesotahelp.info 

website, are valuable foundations to our services. 

These services comprise a statewide virtual call center that allows for a single toll-free access with routing to local communities. 

Trained professionals answer questions about all types of insurance 

and Medicare products, including our state’s long-term care partnership policies and other long-term care options. They are well positioned to answer inquiries from people seeking to understand the 

basics and options about housing and other long-term care services 

as they age. 

Under new legislation, these counselors also are involved in expanding long-term care consultation that helps individuals considering assisted living to become fully informed consumers. We have 

found that good information as early as possible can also delay the 

need for more expensive services or the need to access Medicaid. 

Linkage Line Services have expanded under Lt. Governor 

Yvonne Prettner Solon to be a ‘‘one stop shop’’ for seniors and their 

families for direct contact with all state agencies on issues that 

they may have with any area of our state government. 

Similar to many states, Minnesota is significantly challenged in 

meeting the anticipated demand for long-term care services and 

supports, especially as Boomers age. We are currently working on 

a request for a Medicaid waiver that would redesign the program 

to offer benefits based on the need of the individual, so that they 

get the right levels of services based on their needs, from lower 

needs to higher needs. 

We know that the preference of most older Minnesotans is to remain in their home. We want to further empower older Minnesotans to make those choices by making home and community-based 

services the norm in Minnesota and institutional care the exception. 

As Minnesota has worked successfully to rebalance our long-term 

care system, we also have had our eye on the coming age wave. 

And now, we are on the verge of launching the ‘‘Own Your Future’’ 

campaign in Minnesota to encourage people to plan, especially 

those in the 40 to 65-year-old range. We’re building on what other 

states have done in partnership with the federal government, and 

we’re adding some new elements: 

A public awareness campaign that includes marketing via the 

Web using contemporary messaging such as Internet ads; 

Development of more affordable products for middle-income people; 
7 

Better alignment of the incentives within Medicaid to support 

private financing of long-term care. The Long Term Care Partnership is a start, but it’s not the end; 

Targeted outreach to employers as a credible source of information about long-term care and financing options. Employers benefit 

from offering workers a sense of control and peace of mind that a 

long-term care plan can provide. 

The Minnesota business community has expressed a strong interest in working with us. 

Our goal for ‘‘Own Your Future’’ is not only to raise awareness 

of the financial risk of not preparing for long-term care needs. We 

want to improve the quality of life for Minnesotans in their later 

years by increasing the number of those who have taken action to 

own their future and maintain choices. I can provide more details 

on the campaign if time allows today. 

Thank you for the opportunity to testify. 

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

Professor Feder. 

STATEMENT OF JUDY FEDER, PROFESSOR OF PUBLIC POLICY 

AND FORMER DEAN, GEORGETOWN PUBLIC POLICY INSTITUTE, GEORGETOWN UNIVERSITY, WASHINGTON, DC 

Dr. FEDER. Chairman Kohl, Ranking Member Corker, I am delighted to be with you today to discuss the—thank you. 

I still am delighted to be with you today to discuss ways to improve the quality and efficiency of services for people who need 

long-term care. 

Chairman Kohl, you started by asking about ways we can reduce 

unnecessary hospitalizations for this population, and that is the 

focus of my testimony. I specifically want to explain why it is so 

important that the Medicare program give top priority in delivery 

reform initiatives to people, beneficiaries, who need long-term care, 

and that those initiatives extend care coordination beyond medical 

care to include the coordination of long-term care services. 

The data that I present in my testimony, developed with the support from the SCAN Foundation, will tell you why this is so important, and I’m hoping that you have my testimony in front of you. 

But if you don’t, I’m going to tell you what to look for in the data, 

when you have that, when you look at the pictures. 

The first slide that we show you, Figure 1, shows that despite 

the fact that we are focusing so much on people with chronic conditions as a source of high Medicare spending, when we look at the 

data, it is not the people with chronic conditions alone who are 

driving high Medicare spending. It is people whose chronic conditions create the need for long-term services and supports. In fact, 

what we show you in the first figure is that it is the 15 percent 

of Medicare beneficiaries with chronic conditions and long-term 

care needs who account for close to a third of all Medicare spending. 

The second figure brings this down to per-capita spending, perbeneficiary spending, and it shows us how disproportionate that 

spending is. Average per-person spending for enrollees with chronic 

conditions and functional limitations, average spending is at least 

double the average for enrollees with chronic conditions only. Medi-
8 

care spends almost $16,000 per beneficiary for functionally impaired beneficiaries and much less for everybody else. 

The third figure in my testimony shows us that this pattern— 

higher spending for chronically ill people who have functional limitations relative to chronically ill people who don’t—holds true no 

matter how many chronic conditions people have. So even the percapita spending for people who have as many as five chronic conditions is lower than for a beneficiary with only one chronic condition 

but also long-term care needs. So again, it’s long-term care that’s 

driving high spending. 

The result is that it is beneficiaries with long-term care needs 

who rank among the highest Medicare spenders, and you can see 

that in Figure 4. Nearly half the beneficiaries in the top 20 percent 

of Medicare spenders, and 61 percent of the top 5 percent of spenders need long-term care along with having chronic conditions. 

Now, where is the extra spending going? That takes us to the 

hospitalizations. The data show us that enrollees who need longterm care are much more likely than other beneficiaries to be using 

hospitals, to have hospital stays, and to use hospital emergency departments. 

We also find that it is higher hospital and post-hospital spending 

in skilled nursing facilities, short-term spending in skilled nursing 

facilities and by home health agencies, that is the largest source of 

the extra spending that I’ve described to you for people with longterm care needs. 

The good news is that using new authorities in the Affordable 

Care Act, the Center for Medicare and Medicaid Services is promoting delivery innovations that, through care coordination, aim to 

reduce precisely this kind of excessive hospital, and with it posthospital, service use. But past experience tells us that without effective targeting to beneficiaries most at risk of inappropriate and 

high-cost hospital use, such as the long-term care users I’ve been 

describing, the coordination is not likely to produce significant savings. That’s why it’s so important that Medicare target its innovations to people with chronic conditions and functional limitations 

and coordinate the full range of their service needs. 

Although limited in number, programs that do this exist all 

around the country, but are small in number, and they have shown 

promise in reducing hospital use, nursing home admissions, and 

cost for selected patient groups, while improving the quality of 

care. CMS can build on these organizations’ experiences by encouraging interventions that accommodate the various sizes and capacity of primary care physician practices, and by improving upon, but 

not replacing, the fee-for-service payment system, by paying 

monthly amounts per enrolled patient sufficient to support care coordination and other currently uncovered care management services, and by holding participating providers accountable for savings 

that offset the costs of coordination. 

Dual eligibles, beneficiaries served by both Medicare and Medicaid, represent about half of the beneficiaries that I’ve been talking about. But despite the potential I’ve shown you for Medicare 

savings from coordinating Medicare-financed care, to date policymakers have focused overwhelmingly on states and Medicaid rather than Medicare as primarily responsible for improving care to 
9 

dual eligibles. The absence of Medicare leadership is particularly 

odd given that 80 percent of the dollars that are spent on dual eligibles—and you can see this in Figure 7—80 percent of the dollars 

spent on dual eligibles are Federal dollars, more than two-thirds of 

which flow through the Medicare program. 

To improve care and reduce costs for Medicare-Medicaid beneficiaries, dual eligibles, along with the roughly equal number of 

Medicare-only beneficiaries who need long-term care, it is essential 

that Medicare exert its leadership rather than simply shift responsibility to the states. And a major way they can do that is, as I’ve 

described, is to give priority in delivery reform to people who need 

long-term care and to coordinating their long-term care, as well as 

their medical services. 

Thank you. 

The CHAIRMAN. Thank you very much. 

Dr. Chernof. 

STATEMENT OF BRUCE CHERNOF, PRESIDENT AND CEO, SCAN 

FOUNDATION, LONG BEACH, CA 

Dr. CHERNOF. Thank you, Chairman Kohl, Ranking Member 

Corker, for the opportunity to testify at this critical hearing today. 

My name is Dr. Bruce Chernof, and I serve as the President and 

CEO of the SCAN Foundation, an independent, non-profit foundation devoted to creating a sustainable continuum of quality care for 

all seniors. 

We envision a society where seniors receive integrated medical 

care and supportive services in a setting most appropriate to their 

needs and with the greatest likelihood of contributing to a healthy 

and independent life. 

Americans today are living longer than in previous generations, 

often with chronic conditions and functional impairment at older 

ages, which increases the number of people who will need longterm services and supports. Most Americans are not aware of the 

high likelihood of needing long-term services and supports at some 

point in their lives, and have few tools to plan for this reality. The 

cost of this care is substantial, impacting both family financial resources and the ability for family caregivers to engage in the labor 

market. When individuals and families have exhausted their personal resources and can no longer shoulder these costs on their 

own, they have to depend on Medicaid for help. Those who qualify 

for Medicaid long-term services and supports generally need this 

assistance for the rest of their lives. 

Medicaid is fundamental to the current financing and delivery of 

long-term services and supports for low-income Americans. It’s the 

largest purchaser of long-term services and supports, and it is the 

backdrop for all vulnerable older Americans who need this level of 

care after spending their resources. 

Medicaid has evolved over the years from paying exclusively for 

nursing home care to funding critical services in the community 

that allow for low-income individuals with substantial daily needs 

to live in the place that they call home. Several states have taken 

or are currently taking strides to bolster their Medicaid long-term 

services and support systems, with the goal of providing high-qual-
10 

ity, person-focused, and cost-effective care to their residents, including states represented by members of this committee. 

So, for example, in our recent Scorecard that we put together 

with the support of the Commonwealth Fund and completed by 

AARP comparing all states on having a high-performing long-term 

services and support system, Wisconsin ranked fifth in the nation. 

Additionally, we funded technical assistance to 21 states that seek 

to evolve their Medicaid long-term services and support systems. 

Tennessee is a frontrunner in this group given their experiences 

with the Choices program. 

Current laws and regulations, including many positive provisions 

in the ACA, already exist, giving states the flexibility to upgrade 

their operations, create more integrated, person-centered care, with 

strong beneficiary protections. 

Under these arrangements, states must increase the quality 

monitoring and oversight rules to ensure that individuals have appropriate access and that quality protections are incorporated into 

purchasing contracts and are strictly upheld in practice. 

States seeking only to solve what they perceive as a cost problem 

in Medicaid, without giving sufficient attention to improving person-centered access and care delivery, have a great potential to create undue harm to some of the country’s most vulnerable residents. 

We believe that more person-centered care delivered in organized 

systems will generate savings in Medicaid. These savings, however, 

are necessary but not sufficient given that there will be a net increase in need. Medicaid is poised to take on more long-term services and support costs due to the trifecta of increasing life expectancy, increasing prevalence of chronic conditions and functional 

limitations at older ages, and finally low savings rates among Baby 

Boomers. Some states will experience the impacts of these factors 

on their Medicaid programs faster than others. Policy options are 

needed to minimize the disparity among states to absorb these 

costs through already-constrained resources, those same resources 

that face potential cuts as part of entitlement reform discussions. 

One possibility is to provide enhanced Federal support to states 

that are experiencing the most rapid patient aging. 

We also think that there is a lot of almost mythology about what 

is or isn’t happening in the Medicaid program, and Medicaid crowdout is, frankly, one of those areas that is more theory supported 

with scant evidence than proven fact. Many other organizations 

have done polling work, and we’ve done polling work ourselves that 

documents that the vast majority of Americans have no idea who 

pays for long-term care, long-term services and supports, or they 

believe that Medicare will cover them when the time comes. 

Furthermore, no one looks forward to being on Medicaid because 

it carries a public perception as being a welfare program. 

So American families deserve affordable, accessible, comprehensive solutions in order to plan for their future long-term services 

and supports needs without having to spend down to Medicaid, if 

possible. Policy options in the public sector, but also in the private 

realm, should be thoroughly explored to meet these aims so that 

Americans can receive high-quality services provided with dignity, 

respect, and transparency. 

Thank you so much. 
11 

The CHAIRMAN. Thank you very much, Dr. Chernof. 

Dr. Holtz-Eakin. 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, 

AMERICAN ACTION FORUM, WASHINGTON, DC 

Dr. HOLTZ-EAKIN. Chairman Kohl and Ranking Member Corker, 

thank you for the privilege of being here today. Let me just pick 

up on some points that have been made by the panelists before me, 

and then I’ll be happy to answer your questions. 

The first is, obviously, this is a very difficult problem whose scale 

will grow rapidly in the years and decades to come, and there are 

really two separate aspects to it. The first is going to be the nuts 

and bolts costs of long-term care services driven by a greater number of individuals who will require those services and an increasing 

cost per person, and there are really two things that the committee 

can think about on dealing with that fundamental problem, which 

is the cost. 

One is those kinds of preventive actions that could be taken to 

either defer or eliminate the need for long-term care services, and 

there, the things that stand out are the increasing prevalence of 

Alzheimer’s and dementia, which lead to extremely costly cases, 

and to the extent that research and other efforts can make 

progress on that, I think that’s something that should be within 

the scope of the discussion. 

And the second is the models of delivery which actually are more 

efficient, and thus given the state of the condition of any beneficiary, would lower the cost on actually delivering those services, 

and there I think the real moral is going to be picking very flexible 

strategies because we know that the current models, largely informal care provided by family members, can’t survive the need to 

work and the increasing number of people needing the services, 

and we’re going to have to have a lot of flexibility in the delivery 

of these services as we try to learn about what works. 

So avoiding building into some sort of program a rigid structure 

I think is the first order of business, given the cost problems that 

are going to face us. 

Then the second aspect is the financing of the cost of those services. Again, I think we’re going to have to do things very differently. I at least believe that an enormous effort should be placed 

on enhancing the private-sector financing of these services as the 

top priority, and doing everything possible—and I understand this 

is not easy—to have private long-term care insurance take a greater role in the financing of this. 

I say that for two major reasons. I mean, the first is we know 

the current and projected strains on the Federal budget. They are, 

quite frankly, daunting, and in my years at the CBO and my career 

spent studying congressional budget problems, I’ve never seen anything like the position we find ourselves in. It is simply not a time 

at which we can commit the taxpayer to additional mandatory 

spending commitments without thinking very hard about it. I 

mean, right now the cash flow gap between premiums and payroll 

taxes coming into Medicare and the spending going out is approaching $300 billion a year. It is an unsustainable trajectory. So 

if we can enhance the private sector pick-up of these costs before 
12 

we put them on the Federal budget, everyone comes out ahead, I 

think. 

The second reason is we’ve never pre-funded the costs of these 

services. If we had private insurance reserving premiums and prefunding the payment for the cost of that care, we would, in fact, 

address some of our national saving issues and have a benefit there 

of delivering better overall growth and economic performance at a 

time when we’re going to need every national dollar to meet the variety of demands on both the public and the private sector for the 

resources to meet the standards of living for both the elderly and 

the working population. 

So I think the strategies have to be flexibility and prevention on 

the costs, and private sector first on the financing, and I’d be happy 

to continue the discussion. Thank you. 

The CHAIRMAN. Thank you very much. 

So we’ll go to questions and comments at the moment. There appear to be three areas where there is strong evidence that we can 

indeed save money while at the same time not damage the effectiveness of long-term care, and you have all referred to these three: 

number one, by keeping people out of the hospital in the first place; 

number two, by not sending people to a nursing home until they 

absolutely need to be there; and number three, by rebalancing or 

shifting nursing home residents who don’t really need to be there 

to a home or a community setting where their costs are lower. 

So moving from here on forward, addressing these three things, 

how can we do better? Do you have some particular thoughts and 

ideas on how we can improve on our cost of long-term care while 

not damaging the product? 

Mr. O’Brien. 

Mr. O’BRIEN. I think OPM is incredibly interested in sort of continuing to improve the products that we’re offering. Just to clarify 

where we are, it is still a relatively young product for us. The experience of folks who are actually getting the services is relatively 

small relative to the total population that is in. 

One of the things we are monitoring very closely with our contractor as we go forward is as advantages are made in the delivery 

of the service, we will work with our contractor to make sure that 

those are applied to our program, and we are very interested in 

hearing what those on the cutting edge of these programs are as 

what the best way forward is. 

The CHAIRMAN. Mr. Colman. 

Mr. COLMAN. I think initially we have to look at what does the 

consumer want and what does the consumer have the ability to 

have as choice, and the number-one thing we hear from older people in Minnesota is they want to remain in their homes. And if we 

can provide low-cost interventions, we can delay the need for more 

expensive services for some period of time, and that’s what we’re 

really focusing on, is delaying the need for more expensive services. 

We have a tracking in Minnesota. Ninety-two percent of longterm care in Minnesota is provided by families right now, and they 

want to continue to do so, and the more we can support families 

to continue to help their older family member, again it will conserve dollars for those that truly have higher needs. 
13 

The CHAIRMAN. Does that 92 percent lead the nation? Do you 

know, or do you—— 

Mr. COLMAN. Mr. Chairman, I don’t know. I don’t know what 

other states are tracking. We—— 

The CHAIRMAN. Are you imagining—because you’ve been in this 

field a long time—that that’s among the very highest in terms of 

percentage? 

Mr. COLMAN. I think it is probably, Mr. Chair, on the higher end 

of the spectrum. But I think family members throughout the country want to support their family members. They need the tools, 

they need the information, they need some additional support in 

order to do so, but I believe there are people across the country 

who are committed to helping their family members. 

The CHAIRMAN. I think you and the others on our panel have 

said that a key is keeping people with long-term care needs in their 

homes as long as possible, keeping them out of hospitals, out of 

nursing homes, and in their homes. Is that right? 

Mr. COLMAN. Mr. Chair, that’s correct. 

The CHAIRMAN. What about you, Professor Feder? 

Dr. FEDER. Chairman Kohl, you asked about reducing hospital 

use as one of your goals. My testimony was directed at that 

through improved coordination of care, enhanced primary care targeted to this population, and coordinating their long-term care 

needs, as well as their basic medical needs. 

But I would add to that in preventing unnecessary hospitalization. We have tremendous evidence of inappropriate, unnecessary, 

and potentially preventable hospital use by long-term nursing 

home residents who are not getting enough nursing care in the 

nursing home. And I would urge attention to holding nursing facilities, skilled nursing facilities—again, you can do this through 

Medicare—holding them accountable for providing that good care 

and thereby preventing unnecessary hospital admissions, whether 

for bedsores or dehydration, things that we know can be handled 

in the nursing home. 

And a third area for Medicare initiatives would be greater accountability for good-quality care, including preventing unnecessary hospitalizations, in the SNPs, the special needs plans, the 

Medicare Advantage plans that are directed at dual eligibles. 

MedPac tells us that we don’t know very much about what goes on 

in those plans, and we could do a far better job of holding them 

accountable for delivering appropriate care. 

Now, when you ask about promoting more home and communitybased care, I would answer with what not to do. Making major cuts 

in Medicaid financing and Federal financing for Medicaid, or turning over more responsibility to the states I believe would put home 

and community-based care in particular in danger, and nursing facilities have a great deal of political power in the states, and I 

think that if resources are constrained, particularly as needs are 

rising, to cut what’s coming in from the Federal Government would 

particularly put home and community-based services at risk. 

I would similarly pick up on a caution that I heard in Dr. 

Chernof’s testimony about any initiatives that are moving to managed care for dual eligibles or managed long-term care that are primarily budget, not quality driven. There, too, I think we have to 
14 

be very mindful of whether we will be getting appropriate home 

and community-based along with other services for those beneficiaries. 

And then finally, I would endorse another comment or suggestion 

of Dr. Chernof’s, regarding the future as the population ages. I’m 

rooting for those improvements in preventing Alzheimer’s. It’s not 

only in my personal interest it is clearly in the nation’s interest. 

But we are likely to see an increased demand or need for finance 

for formal long-term care services, and unlike Dr. Holtz-Eakin, I’m 

not a believer that we will make great progress through private 

long-term care insurance. We can do better with private long-term 

care insurance, especially on its quality, but I do not see that as 

the financing solution for the problem, whether we have it now or 

we have it in the future. 

In that area, enhanced Federal support, as Dr. Chernof said, 

with an enhanced match, or with the federalization of the program, 

I think, is going to be critical to getting appropriate access to care 

at home and in the community, as well as in nursing homes as the 

population ages. 

The CHAIRMAN. All right. 

Dr. Chernof, how can we do better without spending more? 

Dr. CHERNOF. Chairman, a couple of observations. First, I’d suggest that you’re asking a specific question about what can we do 

better now, and I would observe that there is also this other question, which is how do we plan better for the long term. And so I 

want to address my comments specifically to your question, which 

is what is it that we can do with current systems to really improve 

them given what we know. 

I would observe, if you were to look at our long-term services and 

supports scorecard, looking all across the country, and then the 

roadmap work that we completed with the Center for Health Care 

Strategies looking at the steps to improving systems, whether it begins with rebalancing, moving to managed long-term services and 

supports, or creative models around duals, we should be heartened 

by the fact that there are really good models out there, some of 

them represented by folks on this committee, and that we should 

be building on what we know. 

So the notion that we’re starting from scratch is certainly not accurate. There are really good models, and we should build on those 

experiences. 

To Dr. Holtz-Eakin’s point, which I strongly agree with, flexibility is really important, because how we’re going to meet the 

needs of families and delivery systems is very locally based. It’s 

based on the assets on the ground, on family structures and other 

kinds of resources. 

So the solution I think to your three points resides in organized, 

accountable systems of care that have the flexibility to meet the 

needs of families and are responsive to the assets that are available. I would offer that those flexible, accountable systems have 

four key characteristics. 

The first is that they begin by focusing on the quality and coordination of care. The notion of targeting the right services to the 

right folks is incredibly important in how you get the efficiencies 

you’re looking for. 
15 

The second point would be that they have rebalancing at their 

core, which means we are going to focus on helping folks stay in 

the communities of their choice, that we’re going to work against 

the tyranny of the bricks and mortar. I’m a physician. I grew up 

in hospitals. I’ve cared for people in nursing homes. Bricks and 

mortar drives so much of the financing of health care, but what 

we’re really talking about is a system that begins and resides with 

the focus being in the community. 

The third key point would be this notion of self-direction and 

choice. It’s hard for clinical providers to do that. I hold myself 

amongst them. We really start by talking with patients and families about what they want and then try to achieve that, because 

that will often be the most cost-effective choice, and it will often be 

one that keeps the family, the individual, even when they are a patient, in the driver’s seat. 

And the fourth characteristic is that any of these changes really 

do need to be efficient systems. They need to generate cost savings 

that can be used to support the system, that they generate outcomes that improve quality. So that notion that you measure what 

you’re doing, that we’re not just building systems that are more expensive because they’re better, but we’re building better systems 

that are actually more efficient and are much better stewards of 

the public resources that we use in these programs. 

The CHAIRMAN. Thank you. 

Dr. Holtz-Eakin. 

Dr. HOLTZ-EAKIN. Yes. So I think the important things to echo 

are that there are models and examples that appear promising at 

the moment for, in particular, doing the coordination in many cases 

across what are traditionally separated long-term care and health 

services. 

Our experience when I was at CBO was that successful smallscale models don’t often scale successfully. So what I would urge 

you to do is think hard about scaling things up, in particular if 

you’re going to go past something that looks like a demo, pilot, example, and focusing on the states as the vehicle for scaling makes 

a lot of sense because they have the capability of running largescale programs like Medicaid, they have flexibility in how they implement things, and you can learn from the different state experiences. So I think a focus on the state level actually makes a lot of 

sense from that point of view. 

We also know that many states have been very successful in the 

health area using managed Medicaid approaches with adequate 

quality controls for outcomes. To the extent that we wanted to try 

some more coordination through that vehicle, I think that would be 

a sensible first step in this area and see what kind of results we 

actually get on larger populations. 

The CHAIRMAN. Thank you. 

Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman, and thank all of you 

for your testimony. 

As you look at the issue and just look at overall financing for 

health care in general, it’s obviously a major train wreck that’s out 

on the horizon. I was this weekend visiting a couple of neighbors 

in a long-term care facility, and it’s just incredibly expensive. All 
16 

of us either have loved ones or friends or neighbors that have had 

Alzheimer’s. We see more and more of that coming. So the financing component of it is just incredibly difficult and a national issue, 

and moving to a national crisis. 

How are the private institutions that you’ve dealt with that are 

actually insuring long-term care on the private side, how are they 

actuarially doing? I mean, it seems to me it would be very difficult 

at this juncture, knowing so many changes demographically but 

also larger occurrences of Alzheimer’s, obviously much larger costs, 

how in the world, how are the private institutions faring that are 

actually in the long-term care business, and are there concerns 

about their solvency down the road? 

Do any of you want to—I know some of you don’t really like private, so I’ll ask you some public. Go ahead. 

Dr. HOLTZ-EAKIN. I think we’ve seen both some private failures 

where they have not adequately managed those risks, and we’ve 

seen some people leave the long-term care insurance market as a 

result, but we’ve also seen some of the institutions both understand 

the interactions with Medicaid better, have taken advantage of the 

partnership opportunities, offer policies that protect against up to 

5 percent inflation risk to the beneficiary and still manage their finances well enough to stay in business. 

So there are still people in the business and being successful. If 

we get more examples like OPM, where there are more employers 

providing the gateway to large pools of individuals buying this insurance, I actually think they would have a much brighter future. 

When you look at the kinds of things that matter for making private insurance more successful and a bigger part of this—and I 

want to emphasize for Professor Feder’s sake, I don’t think private 

insurance is going to pay every dollar going forward. Most is in 

families. That’s the bulk of it. We ought to get every dollar we can 

in private insurance because the demands on the public sector are 

going to be enormous, and we just ought to do these things. 

So I think awareness, start with awareness campaigns. I think 

there is a lot of ignorance about the need for this care late in life 

and who is going to pick up the tab. Get wherever you can employer offer as part of the package so that people can see it there, 

and enroll—— 

Senator CORKER. You mean in a cafeteria? 

Dr. HOLTZ-EAKIN. If at all possible, yes. I mean, it’s not perfect 

for everything. Deal with the Medicaid coordination issue. I mean, 

there is a research literature suggesting that Medicaid crowds out 

private long-term care insurance. I think it deserves serious consideration. It’s not the only reason that there’s trouble. You could consider some things for the tax code. None are magic bullets. 

But again, since we have a saving need, and we have a long-term 

care financing need, products that come with annuities for longterm care insurance, innovative financial products that are favored 

by the tax code might be part of the solution. And if you go back 

to the literature on how do you get people to save and buy health 

insurance, you could have opt out. Start with private long-term 

care insurance as part of a package and then opt out of it if you 

don’t want it. 
17 

So, none of those are, in and of themselves, fabulous. None of 

them are, in and of themselves, going to solve it. But I think all 

of them merit some consideration. 

Dr. FEDER. Senator Corker, it’s not that I don’t like private longterm care insurance. 

Senator CORKER. I was going to ask you about public. 

Dr. FEDER. I’d be happy to talk about that as well, but it’s not 

that I don’t like it. It’s that it is—and Doug has couched his suggestions, suggestions—it’s a neutral term, ‘‘advocacy’’—in terms of 

recognizing that it’s part of the solution. It’s not the solution. 

And my concern is that as long as I’ve been working on this 

issue, and it’s getting close to long enough to need long-term care, 

long-term care insurance has been called a fledgling industry. It is 

very challenging for this industry to grow. It’s serving about the 

same number of beneficiaries today as it was 10, 20 years ago. It’s 

just not growing. And several of the companies, or certainly some 

prominent ones, have stopped offering the product. 

I don’t know that it’s because they’re going out of business, but 

they’re having difficulty making money on it and making it grow. 

The way they keep from going out of business is that they set limits on the lifetime benefits and are careful in selecting their beneficiaries and, when necessary, they increase the premiums even 

after people have been paying for many years. 

So it is a product that is particularly limited—and I know that 

Senator Kohl has been quite interested in promoting strong quality 

standards for insurance. If it’s a good product, it’s good that people 

with means can afford it. But the number who can is modest, and 

the industry itself recognizes that. 

So my concern with a strategy to make it better, I think making 

it better is great. My concern with any strategy that would, say, 

put tax incentives into it to support it, that’s actually spending 

public dollars or foregoing revenues, as Doug well knows, and if I’m 

choosing, I would rather see those dollars strengthen support for 

those least able to afford care, not for those who are most able to 

afford care, because we know historically that those subsidies do, 

in fact, go to people who probably would have bought it anyway. 

Senator CORKER. That’s interesting. I do think the environment 

here is moving more towards tax reform that doesn’t incent, that 

actually does away with many of the $1.2 trillion in tax breaks that 

we give each year. So I understand that’s a suggestion that maybe 

calls for there to be greater uptake. At the same time, I think the 

momentum right now is in a very different direction, and I think 

everybody acknowledges that. 

Doctor. 

Dr. CHERNOF. Just to add one observation, more from a clinical 

place than the folks on each side of me, I guess the challenge that 

I see in front of us is that we’ve failed as a country to achieve a 

social policy goal of getting people to plan effectively for their longterm service and support needs as they age, given that 70 percent 

of folks are going to need them. 

So even when you look at things like the Partnership Program, 

which is a nice incremental step, the reality is that it’s an open 

question whether the Partnership Program actually covers new 

people or whether it covers people who were predisposed to buy 
18 

long-term care coverage, which is still a good thing. I mean, every 

person covered is a good thing. 

So those sorts of challenges suggest that what we have is kind 

of a boutique or a niche product and that many of the solutions 

we’ve looked at sort of build in a very incremental way, and I think 

the challenge or opportunity in front of us may be to look at largerscale solutions that get us to broader forms of coverage, whether 

they’re in the public or the private space. But we need to get to 

a place that has people more engaged and that there are cost-effective choices in front of them. 

Senator CORKER. Professor Feder, I know that you were, I think, 

a pretty major champion of not necessarily the Class Act but something like that, where there was public financing in place. If you 

look at where we are today, where in today’s dollars the average 

American family making average wages puts about $119,000 into 

the Medicare program over their lifetime in today’s dollars, and 

that same family takes out of Medicare over their lifetime in today’s dollars $357,000, as we all know, you cannot make that up 

with volume, and yet a lot of volume is on its way, over this next 

10 years in particular. 

I mean, knowing that we’re not particularly good at making 

those things work in the public sector, we always want to give people what they wish without asking them to pay for it. I mean, 

that’s kind of the way politics has been in Western democracies. 

Is there a way for us to effectively design, in your opinion, a public plan that addresses the concern you’re talking about, that we’re 

all talking about? 

Dr. FEDER. Well, I think there is. I think that, unfortunately, 

there’s a lot of resistance to that at the current time. But let me 

just—— 

Senator CORKER. And I think a lot of it is because of the way 

we’ve handled some of these other programs. 

Dr. FEDER. Well, let me address that. First, I think it’s useful to 

consider and we’ve heard a couple of times, accurately, that 70 percent of people who are turning age 65 are likely to need long-term 

care. The reason that we’re talking about insurance, whether public or private, is because there’s a lot of unpredictability for individuals about where they’re going to fall. 

So on the 70 percent, that means 30 percent aren’t going to need 

it at all, and I think we all root for that, live to a ripe old age and 

then say goodbye, healthy. That would be the best. But there are 

also, even within the 70 percent, about 17 percent use less than a 

year of intensive long-term care services. At the other end of the 

spectrum—excuse me, 20 percent use more than 5 years. So there’s 

variation, and that’s why we talk about insurance, because savings 

alone, you can’t do it. 

Senator CORKER. That’s right. 

Dr. FEDER. It’s just not doable. So that’s the first thing. 

On your Medicare point, the problem there is rising health care 

costs. Can we contribute during our working years at the rate of 

growth we’ve seen on health care costs? First of all, we only contribute during our working years to cover Part A, mostly hospital 

costs, which is only about half of costs. The rest we pay through 

premiums and general revenue. So in that pre-funding, there’s such 
19 

an imbalance because we aren’t controlling health care costs, and 

it’s not that Medicare is doing worse than the private sector. The 

whole system is not controlling health care costs. If anything, 

Medicare is doing slightly better, has done historically over most 

of history slightly better in controlling costs. 

Now, going forward, because we are moving toward more integrated care, we’re looking to have Medicare lead the whole system 

in making that more efficient. So I wouldn’t share a negative view 

toward Medicare. I think we need to do better in all of our health 

care spending. 

And then what you’re raising really is whether we—— 

Senator CORKER. I wasn’t giving a negative view. I was just stating the facts. We’re spending three times as much as we’re taking 

in, and I’m just saying that as politicians, we have difficulty aligning those things. I agree with you that both on the public and private side, health care costs have not been controlled. I agree with 

that. I’m not making a differentiation between public and private. 

Dr. FEDER. Good. Okay. 

Senator CORKER. We just haven’t handled this program or the 

other entitlement program particularly well. 

Dr. FEDER. Well, I’m not sure we agree on that, but that’s okay. 

We can move on from that. What I would say is that what I 

thought you were talking about is looking for a way to pre-fund. 

Senator CORKER. That’s correct. 

Dr. FEDER. And I actually would be happy to provide for the 

record a proposal that was developed by Len Berman, who used to 

run the Urban Institute Brookings Joint Tax Center, and a colleague of his at the Urban Institute that actually put forward a design for the pre-funding of services for that. I think that can be 

done, challenging, pre-funding it all, which Medicare was never designed to be. That’s what I was really saying earlier. Pre-funding 

it all is challenging because we do, when we take it in as a federal 

government, we tend to lend ourselves that money. 

Senator CORKER. That’s right. 

Dr. FEDER. And if we really want to put it away, that’s a challenge for us. But I’d be happy to share that proposal. 

Senator CORKER. I’d love to see it. Thank you. 

Sorry for taking so long. 

The CHAIRMAN. Thank you so much. 

I know Senator Udall has to leave. Do you want to ask a couple 

of questions, make a comment? Go ahead. 

Senator UDALL. I think Senator Manchin arrived before I did. 

The CHAIRMAN. All right. Go ahead, Senator Manchin. 

Senator MANCHIN. Thank you so much. I appreciate that. Very 

kind of you. 

Mr. Colman, we all know that Medicaid was never intended to 

be the primary provider of long-term care coverage, yet Medicaid 

is the largest payer of long-term care services, with long-term care 

accounting for almost half of national long-term care spending. As 

a former governor, I know that giving our states the flexibility and 

resources they need to innovate is a first and critical step toward 

controlling spending in the Medicaid program and improving longterm care outcomes. 
20 

We will never achieve quality and savings with a one-size-fits-all 

approach that ignores the differences in the Medicaid population 

from state to state. As you noted in your testimony, Minnesota is 

applying waivers under Medicaid to improve the way to deliver and 

pay for services and to make sure that services go to the most in 

need, which I agree with. 

With that being said, sir, what steps could Congress take to improve an increase in flexibility in states like West Virginia and 

Minnesota to help maximize the value of long-term care in their 

Medicaid programs? 

Mr. COLMAN. Thank you for the question. I, too, believe that the 

states can manage the programs effectively, and I think Minnesota 

is an example of if you have a vision, if you have a goal, and if you 

plan appropriately, you can achieve that. But it takes some prerequisites. You can’t have a home and community-based system unless you plan to have a home and community-based system, unless 

you have the infrastructure for communities to retain people of all 

ages in their communities. 

I think we have to not only move away from a one-size-fits-all 

philosophy so that all states will look alike but also that the waivers have to look identical. We’ve had this partnership with the Federal Government that begins with the assumption that the institution, because of the way the programs were initiated, the institution is the entitlement, and then you have to seek permission to 

do things differently, which is always contrary to my thinking, why 

we have to ask permission to do things differently that the consumer wants. 

Again, I’ll repeat. People want to stay in their homes, and that’s 

why we’re redesigning a system whereby the most expensive care, 

the most expensive services, the waiver so to speak, will be available to those with the highest needs where it cannot be provided 

elsewhere. 

But beyond that, we want strategies to maintain independence, 

again low-cost strategies to maintain independence, low-cost strategies to encourage transition back to the community, and we’ve had 

some success with that. Transition to communities of people who 

have been in nursing homes longer than 90 days are proving very 

successful. But it takes a person-by-person strategy to achieve that 

outcome. We can’t just declare that that’s what we’re going to do. 

It takes resources, which is what Minnesota is doing. 

So if we dispense with the waiver, and then everyone has that 

full menu, as opposed to targeting based upon individuals’ needs 

where in the system they best can use their—— 

Senator MANCHIN. You believe in health care waivers, correct? 

Mr. COLMAN. I do, sir, yes. 

Senator MANCHIN. Mr. Chernof, if you would, the same kind of 

comment on the waivers. How do the states have a little bit more 

flexibility, and do you believe that’s important? 

Dr. CHERNOF. Thank you, Senator. Building on what was already 

said, I think that there needs to be a valid, reliable delivery system 

in place. So to get from where you are to where you want to be 

really depends on the resources that are currently available, and 

if you don’t have everything you need, then you need to give the 

time to grow those resources, and that’s why, to my mind, some of 
21 

these flexibilities are really important. If you’re going to encourage 

folks to remain in their home or in their community, there have to 

be valid, reliable, observable, accountable resources that can be 

there to help those families when they need that little bit of help. 

So I think where the flexibilities come in is I do agree that moving away from the only entitlement being the nursing home and actually getting to a place where folks get home and communitybased services as a right, not as a waiting list but as a right. That’s 

a huge step in the right direction, and that’s an important piece of 

flexibility. 

But then what the states need to be able to demonstrate is that 

there’s really a valid system that’s there to meet the needs of folks 

as we make that transition. 

So I think what the states need to be able to demonstrate to ask 

for that flexibility is that there really is a demonstrable system 

where quality is being measured, where there is a way that, if folks 

are having a problem, beneficiary issues, they can be addressed. 

But we need to move away from the tyranny of bricks and mortar. 

Senator MANCHIN. If I can just very quickly ask Mr. Holtz-Eakin, 

in your testimony it’s a common misconception that Medicare covers long-term care, and many more simply never save for it or plan 

for it, for long-term care services and supports. What do you think 

can be done, or what should be done for us to educate the public? 

Because there are so many people falling through. They just have 

nowhere to turn to. 

Dr. HOLTZ-EAKIN. I’ll be honest, I don’t know that there’s a 

magic public education program. We have enormous problems in 

Federal programs and their costs, and it’s difficult to educate the 

American public about the scale of that problem. But there have 

been some Own Your Future initiatives which were mentioned. I 

think those are the kinds of things you ought to look and see what 

kinds of successes we get from them. They are relatively small 

scale. If they turn out to be a good investment, you do a project 

evaluation, they’ve improved awareness and they don’t cost much, 

that would be great. 

I think the more you can do through the employer community, 

who are often very effective at reaching their employees about various financial management issues, I think those are the two things 

to do. 

Senator MANCHIN. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much. 

Senator Udall. 

Senator UDALL. Thank you, Mr. Chairman. Thanks to you and 

the Ranking Member, Senator Corker, for holding this important 

hearing. I think this discussion has been very, very helpful on a 

macrocosmic level. I’ve got a couple of questions that are a little 

more focused. 

But before I turn to those, I wanted to acknowledge that, Dr. 

Chernof, I think you’re sitting between those two advocates—— 

[Laughter.] 

——Intentionally. 

Chairman Kohl and Chairman Corker have very astute staffs. 

But thank you all for your great and spirited conversation. 
22 

Mr. Colman, let me turn to you and follow up a little bit on what 

Senator Manchin pursued, with a particular focus—and I’m going 

to turn to Dr. Feder as well—on rural parts of the country. In Colorado, of course, the eastern reach of our state is very rural. We 

produce a lot of food and fiber and fuel for the country. We also 

have western reaches in Colorado that are very rural. 

What have you found are some of the unique challenges in providing those long-term services into those parts of your state? 

And then, Dr. Feder, I’d like you maybe to follow on with how 

Medicare itself could work with that dynamic. 

Mr. COLMAN. Again, Minnesota has Greater Minnesota also, 

where the population density is certainly a challenge in providing 

services to older adults and people with disabilities. What we’ve 

found, though, is that we need some flexibility, that again, relying 

upon the communities and the community infrastructure with 

which to base long-term care services and supports, we need to acknowledge the drive time, the differences that we need to accommodate in our policies to allow for people to have some choice, but 

they may not have as much choice. 

It’s a challenge to devise policies that accommodate those kind of 

distinctions or differences, but it can be done. 

We’re also learning the value of technology and the fact that 

every day there is more to be learned from how we can support 

people in their own homes with the use of technology via the Internet, via other lifeline-like systems and monitoring systems for people who are some miles away from services. 

Senator UDALL. Dr. Feder, would you like to—— 

Dr. FEDER. Yes. I would reiterate and I think reinforce the emphasis on technology to connect people who are dispersed to resources that can serve as supports and have people who can check 

in on people who are impaired and be able to—Skype is a wonderful thing. I’m sure we’ve got better than that, but there are I think 

mechanisms that can make people feel connected and supported 

and keep them connected to caregivers, by which I mean medical 

technicians in urban areas. 

But you asked about Medicare. I think that Medicare, in terms 

of developing integrated delivery systems, I think Medicare is in 

the process of doing this. We need not look to states, or we need 

not look only to states. Medicare can do a great deal, and is, in this 

regard. By trying to support physician practices, small physician 

practices in rural areas, and using personnel who can serve several 

practices as care coordinators, who are able to connect—using both 

visits and technology—to people who are in their own homes and 

enable them to connect to resources for supports, I think Medicare 

can do a lot in that regard. 

Senator UDALL. So you perhaps could be making house calls 

using technology without actually being on site. 

Dr. FEDER. I’m confident it’s not exactly the same, but I think 

you could greatly enhance support for people both in terms of monitoring their conditions and in terms of helping them—keeping 

track of people so that you know when a crisis is occurring. That’s 

what coordinators, what we’re looking at with social workers and 

nurses and other professionals, to help identify when people need 

interventions and try to connect them to the resources, the infra-
23 

structure we’re talking about, that Bruce is talking about building, 

so that they can stay at home, so it doesn’t become a crisis and we 

don’t have an unnecessary hospitalization. 

Senator UDALL. Both my parents were very stubborn. I’m sure I 

won’t be stubborn and my children will think I’m very flexible. But 

they both wanted to live in their own homes in their later years. 

Imagine that. And they both took falls. There were not people 

there, and both of them lay in the bathroom and kitchen, respectively, for half a day or longer, and then the result of those falls 

ended up in their deaths ultimately. So I wonder if there couldn’t 

be that sort of monitoring, although you have privacy concerns and 

so on. 

Dr. FEDER. But we can do way better. I don’t think there’s any 

question about that. If you think about things that cause unnecessary hospitalization, like dehydration, having somebody checking in 

on you that you’re eating properly, taking your medications, all 

those things can very much improve quality of life and quality of 

care for people, and prevent the use of expensive services. 

Senator UDALL. Dehydration actually contributed to the conditions that both my parents developed. 

Let me go back to, if I might, long-term care insurance. I know, 

Dr. Holtz-Eakin, you spoke to this. I know I’ve got my little pamphlet that the FHEBP has sent me sitting in my home office, suggesting I ought to buy long-term care insurance. I haven’t responded yet. I keep thinking, well, I’ll find a moment where I want 

to do that. 

Mr. O’Brien, I know that in the Federal program we have one 

long-term care insurer, I think. Is it John Hancock? What are you 

doing to think about attracting more carriers? And then if there’s 

a little bit of time left, I might ask Dr. Holtz-Eakin how we further 

use market forces and market psychology to get us aging Baby 

Boomers to participate. 

Mr. O’BRIEN. I actually think you’ve identified one of the challenges that we see for the Federal long-term care program going 

forward, is that in recent years the number of insurers who are actively participating in this market has gone down. I’m not so concerned that we have one provider of the long-term care program 

right now. I think that for the way we’ve done it, that’s the way 

we do life insurance. It’s not like the health insurance where people 

are changing yearly. 

What I am more concerned about is that when we re-upped our 

contract, we only had one active bidder to provide that service. So 

we are looking very carefully. At the moment we have a provider 

that’s doing a good job, but a concern long term for this program 

is that there are enough active participants, insurers out there trying to actually provide that service. 

I think the point was made earlier today that the market has 

stayed relatively static over a number of years, and it’s not growing 

rapidly. We are very happy in the fact that, when the contract 

opened up again, that we actually increased enrollment by roughly 

20 percent, which we thought was very positive. But it is one of the 

challenges on the horizon for us. 

Senator UDALL. I could help those numbers if I’d sign up. 

Mr. O’BRIEN. You can sign up any time. 
24 

[Laughter.] 

You can do it in the hearing now. 

[Laughter.] 

Senator UDALL. Doctor, would you have any further observations? 

Dr. HOLTZ-EAKIN. I think it’s very important to harness market 

forces literally from the ground up. You’ve heard talk about the 

technologies. You’ve heard talk of the need for flexibility, and markets are very, very good at that. There are roles for government in 

this, and they are on both sides, both good and bad. I mean, you 

care about privacy. You care about having quality personnel going 

into someone’s home and delivering services. But if you regulate 

too tightly what a person can and cannot do, then you’re not going 

to get the benefits of bundling the different kinds of services. 

So a thorough review at the ground level in every state about the 

ability to provide these services more cheaply is going to make the 

care cheaper, and that’s going to help make the insurance cheaper. 

You just can’t get around that. Having very expensive underlying 

care makes insurance a lot harder to sell. 

And then you have to be able to make money or you’re not going 

to stay in the insurance business, and I think we’ve had too little 

awareness and too little education for people to sign up. There’s an 

old saying that says insurance is sold and not bought, and we 

might need to sell more of this. So I think that’s a big part of it. 

And to the extent that the experience of the Boomers in caring for 

their parents drives this, I think that’s one thing we might see be 

very different in the future than in the past. 

Senator UDALL. Thanks again. Thanks to the Chairman. 

I think President Clinton once remarked this is a high-class 

problem we have because of the extension of our lifespans, but 

nonetheless it is a real challenge. Thank you all. 

The CHAIRMAN. Thank you very much, Senator Udall. 

Dr. Holtz-Eakin, you’ve expressed some optimism about the private long-term care insurance market. The individual market has 

not thrived, as you know, in recent years, with premium increases 

sometimes as high as 90 percent. 

On the other hand, a Wisconsin company that I’m very proud of, 

the Northwestern Mutual, has never had a premium increase. 

In your opinion, or in your view, how can we succeed with the 

long-term care insurance market in keeping the premiums reasonable and getting people to participate in long-term care insurance? 

Dr. HOLTZ-EAKIN. Again, as I mentioned to Senator Udall, ultimately the costs are driven by the underlying costs of long-term 

care services. So step number one is work on those to the extent 

possible. And then step number two is pool as effectively as you 

can and make sure that you can get broader pools. That’s always 

been a problem in the individual markets, and this is a very thin 

individual market at the moment. Ways to enhance the pooling, 

particularly by having individuals able to buy through their employer, I think is the key to making that more successful. 

The CHAIRMAN. Senator Corker. 

Senator CORKER. I think I’m good. I look forward to seeing Professor Feder’s document, and I thank all of you for testifying. This 

is a very massive problem. I mean, people are not thinking in ad-
25 

vance of those kind of things down the road. I mean, people, candidly, have difficulty just sort of seeing daily and yearly activities 

through. I think the comment, Doug, that you made about insurance being sold and not bought, the fact is that it’s just not on— 

by the way, I haven’t signed up either, and I may not. 

But it’s a big problem, and the cost associated with this—and 

again, I hate to go back to that. I really do appreciate, Dr. Chernof, 

your comments about customizing and making this very customer 

or patient centered. I agree with that. We were very aggressive, as 

you know, in Tennessee in seeking waivers and really moving to 

community-based solutions. By the way, that was done by people 

on both sides of the aisle through the years, and I think it’s worked 

out very well for us. 

But this is a massive, massive problem, one that the Finance 

Committee and others here all need to be involved in dealing with, 

and no doubt there is a public sector role. And at the same time, 

I have to tell you, on the private side I think that trying to—again, 

this sounds like Northwestern Mutual, who I do have a policy 

with—has done a good job of it. But the actuarial issues of being 

able to take in premiums now and know that that’s going to deal 

with situations down the road is really, really tough. 

Anyway, I thank you all for educating us today and coming here 

from other places, and look forward to seeing you again. 

The CHAIRMAN. Any other comments from members of the panel? 

[No response.] 

We thank you so much for being here. It is clearly complicated, 

vast, and terribly important, and you’ve shed a lot of light, and 

thank you for coming. 

Thank you, Bob. 

Senator CORKER. You too, sir. Appreciate it. Good hearing, very 

good hearing. 

[Whereupon, at 3:24 p.m., the hearing was adjourned.] 

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Æ