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27–433 PDF 2006

S. HRG. 109–429

LONG–TERM CARE FINANCING: ARE AMERICANS

PREPARED?

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

WASHINGTON, DC

MARCH 9, 2006

Serial No. 109–18

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING 

GORDON SMITH, Oregon, Chairman 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

JAMES M. TALENT, Missouri 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

LARRY E. CRAIG, Idaho 

RICK SANTORUM, Pennsylvania 

CONRAD BURNS, Montana 

LAMAR ALEXANDER, Tennessee 

JIM DEMINT, South Carolina 

HERB KOHL, Wisconsin 

JAMES M. JEFFORDS, Vermont 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

BILL NELSON, Florida 

HILLARY RODHAM CLINTON, New York 

KEN SALAZAR, Colorado 

CATHERINE FINLEY, Staff Director 

JULIE COHEN, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Gordon Smith ....................................................... 1

Opening Statement of Senator Mel Martinez ....................................................... 3

PANEL I 

Robert F. Danbeck, associate director and chief human capital officer, Office 

of Personnel Management (OPM), Washington, D.C. ....................................... 4

PANEL II 

Eileen Tell, senior vice president, Long Term Care Group, Inc., Natick, MA .... 17

Malcolm Cheung, vice president, Long Term Care Prudential Financial, Livingston, NJ ........................................................................................................... 38

Joanne Vidinsky, insurance purchaser, San Francisco, CA ................................. 53

Robert B. Friedland, Ph.D., founding director, Center on an Aging Society, 

Washington, DC ................................................................................................... 60

APPENDIX 

Prepared Statement of Senator Herb Kohl ........................................................... 89

Questions from Senator Lincoln for Robert Danbeck ........................................... 89

Questions from Senator Lincoln for Joanne Vidinsky .......................................... 90

Questions from Senator Lincoln for Malcolm Cheung .......................................... 92

(III) 

(1)

LONG–TERM CARE FINANCING: ARE 

AMERICANS PREPARED? 

THURSDAY, MARCH 9, 2006 

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

The Committee met, pursuant to notice, at 10:13 a.m., in room 

SD–138, Dirksen Senate Office Building, the Hon. Gordon H. 

Smith (chairman of the committee) presiding. 

Present: Senators Smith and Martinez. 

OPENING STATEMENT OF SENATOR GORDON SMITH, 

CHAIRMAN 

The CHAIRMAN. Good morning, ladies and gentlemen. We thank 

you for your patience. It has been a hectic morning and we thank 

you all for coming. 

Today’s hearing topic, long-term care, is a subject Congress must 

begin to address if we are to ensure that future generations of retiring Americans are able to meet their health care needs while not 

crippling entitlement programs like Medicare and Medicaid. 

I am very glad we have the opportunity to discuss long-term care 

financing and take the first steps to answering the question, ‘‘Are 

Americans prepared?’’ The biggest concern regarding long-term 

care is that it is very expensive. The Centers for Medicare and 

Medicaid Services estimate that national spending for long-term 

care was approximately $160 billion in 2002, representing about 12 

percent of all personal health care expenditures. 

To make matters even more difficult, demand for long-term care 

is expected to increase significantly in the coming decades. Today, 

almost two thirds of people receiving long-term care are over the 

age 65, with the number of people receiving care expected to double 

by 2030. 

To put a human face on this growing problem, we hear stories 

every day of disabled Americans who cannot afford care, turning 

then to self-impoverishment as a last resort of beginning to receive 

Medicaid benefits. For these reasons, urgent action is needed on 

two fronts. 

First, we must strengthen Medicaid to ensure that it remains a 

viable safety net for millions of needy Americans well into the future. Second, we need to encourage savings and the purchase of 

long-term care insurance for those who are in a position to prepare 

for long-term care expenses. 

Why is this such a great concern? As the baby boomers begin retiring in increasing numbers over the coming years, our ability to 

2

pay for entitlement programs will simply be stretched to the breaking point. In addition, the Deficit Reduction Act that was enacted 

earlier this year included several provisions that dramatically 

changed eligibility standards for Medicaid, such as lengthening the 

look-back period for asset transfers and disqualifying individuals 

with substantial home equity. 

On a positive note, the bill created the National Clearinghouse 

for Long-Term Care Information and expanded the Long-Term 

Care Partnership Program. For that, I must commend the work of 

Senator Craig, who is the former Chairman of this Committee and 

who still serves with distinction. We commend him for all his hard 

work to expand the Long-Term Care Partnership Program. His 

leadership as Chairman of this Committee was one of the primary 

reasons Congress expanded the Long-Term Care Partnership Program. 

With these greater restrictions on Medicaid eligibility, we must 

begin to offer positive estate planning solutions to give Americans 

better opportunities to prepare for their long-term care needs. As 

with health care, the best way to be prepared for long-term care 

expenses is to be insured. However, insurance can be expensive, especially when weighing the pros and cons of purchasing long-term 

care insurance versus remaining uninsured. 

Currently, about 55 percent of the people over 85 years old need 

some form of long-term care. When deciding to purchase insurance, 

the gamble that a person could be one of the 45 percent that will 

not need long-term care can be perceived as a better option than 

paying for insurance. 

We must tear down the notion that the purchase of this type of 

insurance is a gamble. Long-term care insurance protects assets 

and income from the devastating financial consequences of these 

costs. 

Today’s comprehensive long-term care insurance policies allow 

consumers to choose from a variety of benefits and offer a wide 

range of coverage choices. They allow individuals to receive care in 

a variety of settings, including nursing homes, home care, assisted 

living facilities, and adult day care. Last, long-term care insurance 

allows individuals to take personal responsibility for their longterm health care needs and reduces the strain on the Medicaid 

budget. 

While planning for long-term care costs by buying insurance is 

a step in the right direction, this may not be the ideal solution for 

everyone. For younger individuals, saving for long-term care needs, 

whether for the later purchase of that care or paying outright for 

it, is sometimes more beneficial than buying insurance. We should 

support early savings efforts for insurance and care, as many people don’t think about this need until it is just simply too late. 

Putting away money over time, as we will hear from Joanne 

Vidinsky, can be a very powerful means of affording insurance or 

care. However, with our national savings rate in steady decline, I 

fear the American middle class is woefully unprepared to meet this 

coming challenge. 

Today, I will introduce the Long-Term Care Trust Account Act of 

2006 with Senator Lincoln of Arkansas, who serves with me on this 

Committee and the Finance Committee as well. This bill will 

3

incentivize savings and the purchase of insurance by creating a 

savings vehicle for the purpose of preparing for costs associated 

with long-term care services and purchasing long-term care insurance. 

Individuals who contribute to this account will receive a refundable tax credit on their contributions. This will help individuals 

save for insurance and the many people in our country that want 

to help their parents or a loved one prepare for their health care 

needs as well. 

The issue of long-term care expenditures and costs need not be 

an insurmountable task. However, it will require action and cooperation by public officials and private providers as we work to 

find ways to help Americans prepare. As with any major issue facing this Nation, Republicans and Democrats must come together to 

bring new and innovative solutions to the table. It is a time for 

ideas, not ideals, and I look forward to working with my colleagues 

as we strive to meet this growing challenge. 

Last, I would like to thank all of our witnesses who join us here 

this morning. We have assembled two excellent and diverse panels. 

I am eager to hear your thoughts as we engage in this meaningful 

and productive dialog. 

With that, I am very pleased to be joined by a distinguished 

member of our Committee, Senator Martinez of Florida, for your 

opening statement. 

OPENING STATEMENT OF THE SENATOR MEL MARTINEZ 

Senator MARTINEZ. Mr. Chairman, thank you very much. I again 

congratulate you and welcome your holding of this hearing and appreciate the opportunity to make an opening statement and welcome our speakers as well. 

I know that the issue of long-term care is an extremely important topic in the area of health care, and we in Congress really cannot afford to wait any longer to devise a plan to help educate individuals on the importance of having a policy and helping citizens 

to purchase this type of insurance. 

Mr. Chairman, our country is heading toward a demographic 

meltdown on long-term care. It is simply unsustainable for individuals in the Government to maintain the current rate of spending 

without further endangering the state of health care in the United 

States. 

Preparing for future health care cost is something that every 

American should be doing. Long-term care insurance is one of the 

ways in which Americans plan for periods of extended disability 

without burdening their families, going bankrupt, or relying on 

Government assistance. 

It is important that incentives are put in place today that will 

deal with the impending influx of elderly Americans who will rely 

on the long-term health care system in the future. That is why I 

am pleased the Congress recently acted, through the deficit reduction act, to expand the Partnership for Long-Term Care Program, 

the public-private long-term care insurance program that formerly 

was only available in a handful of States. 

The benefits of the partnership program are two-fold. The program provides incentives for individuals to purchase long-term care 

4

insurance and relieves pressure on State Medicaid programs, 

where long-term care expenses are growing exponentially. The 

State of Florida is certainly no exception to that problem. 

Additionally, if the purchasers of these policies spend down their 

policy and need to rely on Medicaid, they will be able to protect assets on a dollar-for-dollar basis. This arrangement helps protect 

beneficiaries, important assets, and relieves pressure on publicly financed long-term care. 

While this is a positive step forward, more will be needed as the 

baby boomer generation begins to retire. Mr. Chairman, I am in a 

long list of notable Americans like our President, our immediate 

past President, who will be turning 60 this year, and it is upon us 

that the baby boomers are coming of age. 

All options should be considered, and I am a co-sponsor of a bill 

that will allow individuals to use their 401(k) and 403(b) plans to 

purchase long-term care insurance with pre-tax dollars at any age 

and without early withdrawal penalties. Under this legislation, the 

consumer has the option to purchase long-term care insurance at 

the most appropriate amounts for their own needs and their 

spouses. 

I also, Mr. Chairman, welcome the bill that you have filed today, 

including a tax credit to individuals who purchase long-term care 

insurance. I look forward to reviewing that bill and perhaps joining 

as an early co-sponsor with you on that measure. 

I hope that both of those proposals will soon get consideration in 

the Finance Committee, and I look forward to hearing the panelists 

today. I appreciate the indulgence of the Chair to have my remarks. 

The CHAIRMAN. Thank you very much, Senator Martinez. We 

would welcome you on the bill. 

Senator MARTINEZ. Thank you. 

The CHAIRMAN. If you find it meritorious, we would certainly love 

your support. 

Testifying today on our first panel will be Robert Danbeck. Mr. 

Danbeck is associate director and chief human capital officer at the 

Office of Personnel Management. Mr. Danbeck will be discussing 

the Federal Long-Term Care Insurance Program, which Congress 

started in 2000. 

Mr. Danbeck, thanks for coming. The mike is yours. 

STATEMENT OF ROBERT F. DANBECK, ASSOCIATE DIRECTOR 

AND CHIEF HUMAN CAPITAL OFFICER, OFFICE OF PERSONNEL MANAGEMENT (OPM), WASHINGTON, DC 

Mr. DANBECK. Mr. Chairman, it is a pleasure to be here. I have 

a longer statement that I request be made part of the record. 

The CHAIRMAN. Without objection. 

Mr. DANBECK. Mr. Chairman and members of the Committee, I 

appreciate the opportunity to appear before you today to discuss 

the Federal Long Term Care Insurance Program. 

The Office of Personnel Management (OPM) views this program 

as a critical component of the Federal Government’s effort to attract and retain a high-caliber workforce. It is the largest group 

long-term care insurance program, with over 211,000 participants. 

5

It is a true success story, thanks to the strong congressional leadership, which made the Federal program possible. 

OPM staff worked extensively with congressional staff and industry representatives to ensure the authorizing legislation for the 

program would be viable from both an administrative and an industry perspective. Shortly after enactment of the Long-Term Care 

Security Act of September 19, 2000, OPM staff began meeting with 

national experts in the fields of long-term care and long-term care 

insurance to help us design a program that would be at the forefront of the marketplace. 

On June 20, 2001, OPM issued a request for proposal from qualified carriers to insure and to administer the program. After a competitive bidding process and an extensive evaluation of competing 

proposals by both technical and financial panels, OPM awarded a 

contract to Long Term Care Partners, the joint venture formed by 

John Hancock and MetLife, on December 18, 2001. 

John Hancock and MetLife are the Nation’s two largest carriers 

of group long-term care insurance and consistently earn top ratings 

for financial strength from the major rating organizations. Both 

have been in the long-term care insurance business for well over 

15 years and have a history of rate stability. 

Federal and Postal employees and annuitants, active and retired 

members of the uniformed service, and certain District of Columbia 

employees and their qualified relatives are eligible to apply for 

long-term care insurance under this program. The Federal program 

is underwritten and thus certain medical conditions or combinations of conditions prevent some people from being approved for 

coverage. 

We held an early enrollment period for the program from March 

25 to May 15, 2002, for those who were familiar with the product 

and desired coverage as soon as possible. We followed that with our 

first open season from July 1 to December 31, 2002. The open season was accompanied by an extensive educational initiative to acquaint the eligible population with the product and the need for the 

product. 

During the early enrollment period and the open season, employees and their spouses could apply for coverage using the abbreviated underwriting application, containing only a handful of 

health-related questions. The remaining eligible population utilized 

the full underwriting application, which contains many health-related questions. 

Open season ended in 2002, and abbreviated underwriting is still 

available for a 60-day period to new or and newly eligible employees and their spouses and newly married spouses of employees. Everyone else must use the full underwriting application, but the program remains open to the entire eligible population. 

As you can imagine, one of the greatest challenges we faced early 

in the program’s history and continue to face is how best to educate 

and communicate with the eligible population about what longterm care is and about the need for long-term care insurance. This 

is not unique to our program. 

Long-term care insurance is typically a difficult sell, whether in 

the Government or the private sector. Some people are hesitant to 

purchase long-term care insurance because of its expense, as well 

6

as the possibility that they will never need to use the insurance 

coverage—the gamble that you referred to before. 

I personally would rather pay for long-term care insurance and 

never need it than need it and not have it. I feel the same way 

about collision insurance on my automobile or fire insurance on my 

house. Peace of mind is worth a lot. 

Over the last 5 years, we have learned a lot about how to encourage people to apply for long-term care insurance. One of the most 

important aspects of the purchase decision is multiple exposure to 

the message. 

It is very hard for people to project themselves into the future, 

perhaps 20, 30, or 40 years, and imagine that they may need help 

with activities that today they take for granted—just caring for 

themselves, feeding themselves, clothing themselves. So, it is important that they hear the message over and over and over again. 

We have continuing educational opportunities at benefits fairs. 

We distribute materials. We run seminars. We have positive press. 

We provide education on State tax incentives for purchasing insurance. We have discussions at retirement planning seminars. We 

have discussions with colleagues. Sessions such as these go a long 

way to get that message out to the eligible population. 

Another important lesson that we learned is nothing can match 

personal experience. Someone who has seen a loved one spend a 

lifetime of savings on long-term care services, someone who has 

nursed a loved one through chronic illness and experienced the 

emotional and physical stress that caregiving entails will be much 

more receptive to thinking about long-term care insurance than 

someone who has not had this type of experience. 

Endorsement by the Federal Government also is key. Through 

focus group surveys, we know that OPM sponsorship and oversight 

of the Federal program, being established by an Act of Congress 

and ratified by the President, instantly lend credibility to the program. 

The Federal program competes with many other long-term care 

insurance policies in the marketplace, and sometimes it is hard to 

compare benefits or to know that you are comparing them accurately. The Federal endorsement itself is sometimes enough to give 

applicants the peace of mind to believe that they have made the 

right choice. 

Payroll deduction also lends credibility to the purchase decision. 

Almost 70 percent of the Federal and Postal employees choose payroll deduction at time of application. About 65 percent of enrolled 

annuitants have annuity deductions for their premiums. It is a distinct competitive advantage. 

We know we need to do a better job educating people and reaching out to people about the need for this insurance, especially in 

venues where we have difficulty getting to the eligible population. 

This would currently include military bases with limited access to 

active members of the uniformed services and the Postal Service, 

where employees are very dispersed and have to attend educational 

opportunities on their own time. 

Some agencies are better than others at distributing information 

about the program and making educational opportunities available, 

such as pre-retirement seminars. Contact at the home can be an 

7

effective way of getting to people because they are inundated in the 

workplace with many messages. 

Yet we cannot take advantage of home settings, as private insurance agents can, because we do not have access to non-OPM employee addresses, and we do not have a network of paid agents. We 

cannot easily reach qualified relatives since we really don’t have a 

way to contact them either. 

Given all of these challenges, we firmly believe the Federal program has done a commendable job reaching the eligible population, 

as evidenced by the 211,000 current enrollees. 

In closing, we want to assure you that this program will continue 

to be a success and a leader in the long-term care insurance marketplace. We are deeply grateful for the support of Congress and 

believe your active advocacy can be very, very helpful. 

Thank you for your time today and for your continued interest 

in the Federal Long Term Care Insurance Program and in longterm care insurance in general. I would be pleased to answer any 

questions. 

The CHAIRMAN. Thank you, Robert. Your testimony is very helpful and enlightening. 

I suppose there is in all of us a sense that we will never die and 

why bother with an extra insurance policy because of that? Your 

point that, well, if I do die, I won’t get to use it. So, it is a hard 

sell. 

For my own education and perhaps for anyone watching on C–

SPAN, what are the relative costs between long-term insurance 

versus a health care policy for every day care or your care for 

today? Is it expensive? 

Mr. DANBECK. It is expensive. 

The CHAIRMAN. OK. 

Mr. DANBECK. The exact figures I don’t have with me at the 

time. However, I can get those for you. It is more expensive than 

normal insurance, if you will, normal health insurance. There are 

a number of different plans that you can choose. Of course, it also 

is dependent on your age. So it is, from a comparative point of 

view, an expensive product. 

I do have the figures now, but I can share them with you later. 

The CHAIRMAN. If you can share them, that would be fine. 

You know, we talk about Federal tax incentives, and obviously, 

the bill Senator Lincoln and I have is providing yet another tax incentive to get people to make this choice. But frankly, at the current point, Federal tax incentives are fairly minimal to get people 

to make this choice. 

You reference in your testimony that you educate Federal workers about State tax incentives for long-term care insurance. In your 

position, how often do you feel these State tax incentives move 

someone to purchase that insurance? 

Mr. DANBECK. Well, I don’t think that they are the impetus for 

someone to make that decision based only on that fact. I do think, 

though, that once the individual has done their homework and assessed the various plans that are available, that they really do 

have a tremendous impact on the individual. They add to that decision. 

8

They are probably, the crowning point, if you will, for the person’s decision making process. So, I think they are very valuable. 

Again, this is a unique program, as you mentioned. So people go 

through quite a bit of thought process before they make a decision. 

But once they are there, and then you couple that with the tax incentives, that is the thing that closes the deal. 

The CHAIRMAN. Should the Federal Government do more in 

terms of tax incentives, in your view? Would that be the tipping 

point to get more and more American seniors——

Mr. DANBECK. I certainly think it would help. 

The CHAIRMAN. OK. Senator Martinez. 

Senator MARTINEZ. I am impressed by the very large enrollment 

number among your folks. Tell me how that has been accomplished. Understanding what you also have said, which is it is not 

a cheap product, how have you accomplished that? 

Mr. DANBECK. Well, the first thing we have is a very active Web 

site. I mean, OPM has an active Web site, as well as the Long 

Term Care Partners. 

We do an extensive education program. Every opportunity we get 

to speak at pre-retirement seminars, we take that opportunity. 

Every opportunity we have to be at conferences, we will see a booth 

there from the Long Term Care Partners presenting the product. 

We have a call center. We are always reaching out. I mean, we 

have even gone so far as to send birthday cards to annuitants who 

might not be covered by the product to just say, ‘‘Hey, your birthday is coming up. This is something you might want to think 

about.’’ So we have an extensive outreach program, and we have 

completely revamped the way we did it. We have made it much 

more user-friendly. 

As I mentioned earlier, people receive a lot of mail. So what we 

have done is we have branded, if you will, all of our correspondence 

so that when they receive that at home, they do know that it is 

something related to their insurance and something personal to 

them. 

We have done a lot in that area. But I have to tell you, the 

website, the website gets over 184 million hits a year. 

Senator MARTINEZ. Do you have the address for it? It might be 

good to let folks know what that is and they could address it. 

Mr. DANBECK. www.ltcfeds.com. 

Senator MARTINEZ. Say it again. I am sorry. 

Mr. DANBECK. LTC—long-term care—feds—F–E–D–S—dot-com. 

Senator MARTINEZ. In the State of Florida, we have a large population of military retirees with a very integrated community network, and I was wondering if there have been any outreach efforts 

on behalf of military retiree organizations to try to expand the Federal enrollment program? 

Mr. DANBECK. We will submit the answer for the record. 

Senator MARTINEZ. OK. Very good. Thank you. 

Mr. DANBECK. I am just not personally aware of them at the 

present time. 

Senator MARTINEZ. Right, right. OK. That will be good. Thank 

you. 

That is all I have, sir. 

9

The CHAIRMAN. Mr. Danbeck, thank you very much. We appreciate your role in this important Federal program and encourage 

you to keep all of those good efforts going and get the numbers up, 

and we thank you for that and your public service. 

Mr. DANBECK. Thank you, Mr. Chairman. 

[The prepared statement of Mr. Danbeck follows:]

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The CHAIRMAN. With that, we will call up our next panel. 

Our first witness on this panel will be Ms. Eileen Tell. She is the 

senior vice president for product development with Long Term Care 

Group, Inc. Ms. Tell is an expert on the long-term care insurance 

market. In her current position, she has been involved in research, 

education, and product development strategies for insurers and 

Government agencies. 

She will be followed by Mr. Malcolm Cheung, who works in 

Prudential’s Long-Term Care Division as an expert in pricing, 

product development, contracts, compliance, financial reporting, 

and risk management. Today, Mr. Cheung is here to discuss current trends in the long-term care insurance market and how, as 

Government, we could help these markets become more robust. 

He will be followed by Ms. Joanne Vidinsky. She is here to share 

her personal experience with long-term care. She has a mother-inlaw with Alzheimer’s disease, and she learned firsthand of the 

challenges of financing long-term care. 

Finally, Robert Friedland is the founding director at the Center 

on an Aging Society. Mr. Friedland has written on issues pertaining to the financing and delivery of health care, long-term care, 

and retirement income security. He is the author of ‘‘Facing The 

Costs of Long-Term Care.’’ So, we welcome each of you here. Eileen, why don’t we start with you? 

STATEMENT OF EILEEN TELL, SENIOR VICE PRESIDENT, 

LONG TERM CARE GROUP, INC., NATICK, MA 

Ms. TELL. Thank you. 

Good morning, Mr. Chairman, members of the Committee. I am 

very pleased to be here. Thank you for the opportunity. 

Really important to talk about the greater consumer awareness 

and incentives to encourage people to take personal responsibility 

to planning ahead for their long-term care needs. Over the last 21 

years, I have worked in various capacities to educate consumers 

about the risks and costs of long-term care and to help them understand the advantages of planning ahead. 

My work has also focused on creating and enhancing a variety 

of private finance options and products to meet those needs. 

Through this work, we talk every day with people who planned 

ahead for long-term care for themselves and for their loved ones, 

and we hear what motivated them to obtain insurance, to plan 

ahead, and, more importantly, how having that insurance has impacted their lives. 

Specifically, planning ahead and having insurance can make a 

significance difference to the financial well-being, quality of care, 

control over care choices, and peace of mind. I have included in my 

written testimony some personal statements from individuals who 

have gone through the long-term care need and made some planning choices. 

Despite these compelling advantages, however, the number of 

people with private insurance is still small. The magnitude of this 

problem is captured in a tool developed in 2003 called the Index 

of the Long-Term Care Uninsured. Specifically, we see that 87 percent of the eligible population age 45 and older are currently uninsured for long-term care. 

18

Last year, for the first time, this index was also used to take a 

look at some State-specific trends to identify State-level activities 

that can possibly encourage private responsibility for long-term 

care. These include State tax incentives, a public-private partnership initiative, public education, a long-term care insurance program for public employees and retirees such as the Federal plan, 

speed to market, and others. 

We do see that these State activities appear to be making a difference. You asked about State tax incentives, and one thing we 

looked at is for those States that have adopted State tax incentives, 

they do have a higher market penetration for long-term care insurance than those that don’t. Specifically, a tax credit seems to have 

a stronger impact than a tax deduction. 

Specifically, market penetration among those States with a longterm care tax credit or a deduction is 8.1 percent, compared with 

6.7 percent in States without such tax treatment. Similarly, in 

States with a State-sponsored long-term care insurance program 

like the Federal program for public employees, retirees, and their 

families, we see market penetration as 8.1 percent, compared with 

4.6 percent in States without such a program. 

So that general education that happens in an area really rises 

and spreads across to populations beyond those just eligible for 

that program and makes a difference. 

With respect to the partnership program, we see among the 18 

States that have above average market penetration for long-term 

care insurance, 3 of the 4 partnership programs are among those. 

So it does look like national expansion of a partnership kind of concept, which is a key component of the deficit reduction act, is an 

important element that is going to help the marketplace. 

Finally, we know that raising consumer awareness and education 

is critical. If individuals are more aware of their potential need for 

long-term care and the options for addressing it, they are much 

more likely to take steps to prepare for the future. This, in fact, 

is the key premise behind the Department of Health and Human 

Services long-term care consumer awareness initiative. 

Called ‘‘Own Your Future,’’ the campaign represents a unique 

partnership between the Federal Government and States to offer a 

consistent message about personal responsibility and planning 

ahead for long-term care needs. 

Another element of the campaign, which we feel has been vital 

to consumer acceptance of this message, is the objective sponsorship, providing information and education product-neutral, but 

from an independent Government source. It is really the concept of 

planning and knowledge about how to plan for long-term care 

needs that is being sold through this education. 

Phase 1 of the demonstration launched in January 2005 in five 

States—Arkansas, Idaho, Nevada, New Jersey, and Virginia. In 

each State, the Governor sent a letter to every household with an 

individual age 50 to 70, offering them a long-term care planning 

kit. The response rate to the campaign was an impressive 8 percent. For a direct mail campaign, when we hear about all the mail 

clutter and information that people get, we were very pleased with 

that result. 

The CHAIRMAN. With 8 percent? 

19

Ms. TELL. Eight percent was the response rate. Eight percent of 

the people that got that letter asked for the planning kit. 

The CHAIRMAN. That is a good rate? 

Ms. TELL. That is an excellent rate for direct response mail, even 

for a social awareness kind of program. 

Also individuals from every demographic segment responded. So 

there was something relevant about the planning message, and it 

was designed this way, across the age spectrum from 50 to 70. The 

kind of planning people would do at those different ages is very different. 

We have seen anecdotally a favorable impact on awareness, on 

inquiries to insurance companies, and, in some cases, sales. Our 

own research supports these findings. We have done some survey 

work with the people that have received the planning information 

and those that have not, and we see a significant impact. 

Individuals who received the planning material were more than 

twice as likely to take some kind of planning action as a result. 

That might include talking to an agent or a financial planner about 

long-term care, looking at their existing coverage to see if, indeed, 

they do have a gap that needs to be addressed, or, more specifically, buying long-term care insurance. 

The campaign is an important model and a great start, but 

States and the Federal Government need to expand on these and 

other efforts to make consumers more aware and motivate and enable them to plan ahead. The deficit reduction act includes a very 

important consumer awareness campaign, which you referenced in 

your opening remarks, the National Clearinghouse for Long-Term 

Care. 

We are fortunate to have learned from Phase 1 of the Own Your 

Future campaign that this model is effective in raising consumer 

awareness and also in encouraging planning behavior. This gives 

us a tested and effective infrastructure as we implement the National Clearinghouse for Long-Term Care. 

Thank you for the opportunity to share these remarks, and I will 

be happy to answer any questions. 

[The prepared statement of Ms. Tell follows:]

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The CHAIRMAN. Eileen, how expensive are your products for a 45-

year-old as opposed to a 65-year-old? 

Ms. TELL. Well, my company doesn’t have a single product. We 

represent about 40 different insurers. We are an outsource partner 

for them. I believe in the industry, the average premium across all 

ages, across all types of products is about $1,500, $1,700 a year. 

That is the average annual premium that is being spent. 

People seem to focus on a price point of what they can spend, 

and younger people buy richer coverage, which makes sense for the 

needs they might have. More uncertainty about what they might 

need. Older people have perhaps a finer focus on what their needs 

are going to be and are able to pinpoint their coverage more cost 

effectively. 

The CHAIRMAN. Do you think that most people who have health 

care coverage, they just assume that that includes long-term coverage? 

Ms. TELL. To a great extent, that is true. That is why we found 

if people said to us, ‘‘I am looking at my health plan to see if it 

covers long-term care,’’ we thought that was a great planning action. Trying to get the message to people that small steps make a 

big difference. 

Talk to your family about what your preferences are. There is a 

real disconnect between adult children feel like they are abandoning their parents if they talk about insurance products or other 

options for planning ahead. The parents want a lot of financial and 

emotional independence from their children. They want loving relationships, not hands-on caregiving and financial support. 

The CHAIRMAN. I believe you referenced that tax credits are better than tax deductions. Is that because it is found money and it 

is now as opposed to later? 

Ms. TELL. I think that is a part of it. There may be other factors 

at work that we have not yet analyzed. For example, how well it 

is communicated. 

The State of Minnesota did an enrollment, and the first sentence 

of the letter told people there is a $500 tax credit in your State. 

That makes this insurance program an even better deal for you. 

Look at it carefully. 

So the more strongly it is presented is also going to make a difference. Not all States have done the work around communicating 

that feature that perhaps they can. 

The CHAIRMAN. You note in your testimony that 87 percent of 

people age 45 years and older are uninsured for long-term care. 

That 80 percent, only a 7 percent difference, are insured for longterm after they are 65. Those aren’t very impressive figures, are 

they? 

Ms. TELL. They are not. In fact, comparing this year’s index to 

the previous one, we have lost a little ground. Now, to be frank, 

we have lost some ground because population growth is outstripping purchase and policies, and there is a switch in the dynamics 

of who is buying. 

The over 65 population has about I think it is 80 percent uninsured, compared to 90 percent for the baby boomer population. So, 

we have done a better job reaching the older population. That is 

where the focus of attention was in the early years. But now, as 

38

work site products have grown and programs like the Federal program and State employees programs, we are more effectively reaching the baby boomer population. 

So the average age at which people buy is coming down, which 

is also a really good thing for affordability. So, those dynamics have 

changed the comparison in numbers over time as well. 

The CHAIRMAN. You also reference, I think, in your statement 

that the Deficit Reduction Act does do more to incentivize through 

education and also making it more affordable, long-term care. Are 

you optimistic that we are going to see some improvement? 

Ms. TELL. I am. I am also optimistic from the indirect education 

that will come as another element of the deficit reduction act are 

the Medicaid changes. 

I think you already see the media sending a message about the 

importance of planning for long-term care and taking a different 

focus on this issue than perhaps they have before. I think they are 

a really important intermediary to reach consumers as well. 

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

Mr. Cheung. 

STATEMENT OF MALCOLM CHEUNG, VICE PRESIDENT, LONGTERM CARE PRUDENTIAL FINANCIAL, LIVINGSTON, NJ 

Mr. CHEUNG. Good morning, Mr. Chairman. 

My name is Malcolm Cheung, and I am vice president and actuary for long-term care at Prudential. 

Today, I am representing the American Council of Life Insurers, 

a Washington, DC-based national trade association representing 

more than 350 member companies that offer life insurance, annuities, pensions, long-term care insurance, disability income insurance, and other retirement and financial protection products. 

We are delighted that this Committee is addressing an important 

issue facing this Nation—long-term care insurance—through the 

hearing process. We applaud Chairman Smith and Ranking Member Kohl for drawing attention to this matter, and we are pleased 

to discuss with the Committee the role that private long-term care 

insurance plays in helping to provide the retirement security of 

millions of middle-income families. 

Currently, about 55 percent of those aged 85 and older require 

some form of long-term care, and about 19 percent of all seniors—

these are individuals over the age of 65—suffer some degree of 

chronic impairment. By the year 2050, it is estimated that up to 

5.4 million seniors will need the services of a nursing home, the 

most costly form of long-term care, and another 2.4 million will require home health care. 

The cost of long-term care is high and increasing, averaging more 

than $60,000 annually for a semi-private room in a nursing home, 

$18.50 per hour for a visit by a home health aide, and an annual 

base rate of more than $30,000 for the services of an assisted living 

facility. 

Since 1990, the price of nursing home care has increased at an 

average annual rate of 5.8 percent, which is almost double the 

overall inflation rate. Private long-term care insurance currently 

pays for only 8 percent of total nursing home expenditures, but 36 

percent of overall health expenditures. There is clearly a large gap 

39

in the financing of long-term care services that long-term care insurance can help fill. 

Currently, almost 75 percent of all nursing home expenditures 

are paid by Medicaid or out of pocket by those needing the care. 

If three quarters of individuals between the ages of 40 and 65 who 

can afford long-term care insurance—we define affordability as 2 

percent of your income at age 40 grading up to 5 percent of your 

income starting at age 60—were to purchase and maintain a policy 

throughout their senior years, then by the year 2030, annual savings in Medicaid nursing home expenditures would total about $19 

billion a year, and annual savings in out-of-pocket expenses would 

total $41 billion per year. 

Both the individual and the group, or the employer-sponsored, 

segments of the long-term care insurance market are evolving and 

growing. The American Council of Life Insurers, with the assistance of America’s Health Insurance Plans, recently surveyed longterm care insurance providers and found that the market has 

grown to nearly $7 billion in annual premiums and now covers over 

5 million Americans. 

Between 2003 and 2004, the individual long-term care insurance 

market grew 7.5 percent, and the group market grew 25 percent, 

in large part due to the enrollment at the Federal long-term care 

plan. The amount paid out in claims has also increased, with carriers paying a little over $2 billion in benefits in 2004, which was 

about 20 percent more than what they had paid in the previous 

year. 

Because private long-term care insurance is priced on the assumption that an individual will hold the same policy and pay the 

same premium until they need long-term care, premiums vary significantly depending on the age of the policyholder at policy issue 

and the specific benefits and coverage chosen. 

Additionally, younger candidates for policies are much more likely to pass underwriting screens than are older candidates. For 

these reasons, consumers are encouraged to purchase insurance 

while they are in their 40’s and 50’s, when premiums are lower and 

more affordable. 

The CHAIRMAN. How much lower, and how much more affordable? 

Mr. CHEUNG. Depending on what plan design you buy, you can pay as low as $500 per year for a fairly comprehensive plan at age 

40, but you would need to pay about $1,500 per year at age 60 or 

65. 

The CHAIRMAN. If you buy it at 40, does that rate stay relatively 

static or——

Mr. CHEUNG. The premiums are intended to be level. So that is 

why they are so much lower. You are paying for your coverage over 

a longer period of time. 

The CHAIRMAN. I think that would be a real selling point. 

Mr. CHEUNG. Yes, it is. 

Long-term care insurance products continue to evolve to give policyholders more choices and flexibility at the time of claim. When 

long-term care insurance was first offered, most plans were nursing 

home only. Recently, more flexible care options and consumer protections have become available. Today, most policies provide covVerDate 0ct 09 2002 10:55 Jun 20, 2006 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 H:\DOCS\27433.TXT SAGING1 PsN: JOYCE
40

erage for care received at home, in an adult day care facility, in an 

assisted living facility, or in a nursing home. 

Additionally, plans are now guaranteed renewable. They have a 

30-day ‘‘free look’’ period. They offer inflation protection. They 

cover Alzheimer’s disease. They have a waiver of premium provision, and some plans actually offer unlimited lifetime benefit periods. Benefits are paid when a person needs help with two or more 

activities of daily living or is cognitively impaired. 

There are many ways that public policy can better encourage individuals to prepare for their future needs by purchasing long-term 

care insurance. The recent passage of provisions in the Deficit Reduction Act to allow for the expansion of the Long-Term Care Partnership is a great example. 

Consumers that purchase long-term care insurance policies in 

the Partnership program would fully utilize their benefits prior to 

qualifying for Medicaid. They will be allowed to protect personal 

assets on a dollar-for-dollar basis as defined in their policy. 

The momentum continues with other important proposals to encourage more Americans to prepare for their future long-term care 

needs. Another way to encourage the purchase of long-term care insurance is by passing H.R. 3912. This bill would make product 

combinations possible, satisfying the evolving needs of some individuals by facilitating the addition of a long-term care rider to either a life insurance or an annuity contract. 

It would also update the tax code to include long-term care insurance contracts and riders among the insurance products that can 

be exchanged on a tax-deferred basis. Such provisions are also 

found in Senator Santorum’s Aging With Respect and Dignity Act, 

and we commend him for that. 

Although product combinations may prove to be an effective and 

attractive alternative to stand alone long-term care insurance for 

many individuals, even more broadly appealing solutions to the financing of long-term care would be the passage of an above-theline deduction for long-term care insurance premiums and measures to permit long-term care insurance policies to be offered under 

employer-sponsored cafeteria plans and flexible spending accounts. 

Long-term care insurers are also closely evaluating other recent 

legislation that recognizes the importance of the tax incentive component to encourage the purchase of long-term care insurance, such 

as Chairman Smith’s long-term care trust accounts proposal. We 

applaud Chairman Smith and his staff for their leadership on longterm care insurance issues and look forward to a continued strong 

working relationship. 

Congress should not pass on this opportunity to definitively help 

Americans plan for their long-term care costs by allowing individuals to pay for long-term care insurance through cafeteria plans 

and flexible spending accounts, as well as through combination 

products for those paying for long-term care insurance outside of 

employer-sponsored plans. 

These would enable more Americans to pay privately and to have 

the choice of a variety of services and care settings and would have 

a significant impact on the public policy challenges related to the 

combination of rising long-term care costs, rising long-term care 

needs, and rising strains on the Medicaid budgets. 

41

In conclusion, ACLI looks forward to working with this Committee to help Americans protect themselves against the risks and 

high cost of long-term care. 

Thank you. 

[The prepared statement of Mr. Cheung follows:]

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The CHAIRMAN. Malcolm, I want to highlight something from 

your testimony that you indicated that the annual savings in Medicaid nursing home expenses would total $19 billion. That is assuming all seniors got into this, right? 

Mr. CHEUNG. That is based on the assumption that 75 percent 

of people between the ages of 40 and 65 who could afford it had 

long-term care insurance. Roughly half of Americans would be able 

to afford it, based on the definition that I mentioned previously. 

The CHAIRMAN. So if 70 percent of those between 40 and 65——

Mr. CHEUNG. Who could afford it. 

The CHAIRMAN. Who could afford it, got, bought long-term care, 

Medicaid would save $19 billion. But a lot more importantly to 

those individuals, they would save $41 billion? 

Mr. CHEUNG. Over 40 billion, right. Yes. 

The CHAIRMAN. That is a staggering amount of savings that 

would flow from obviously doing everything we can to get that 70 

percent to participate. 

Mr. CHEUNG. Yes, it is. 

The CHAIRMAN. Now you also mentioned that you are no longer 

in your policies requiring seniors just to go into a nursing home? 

Mr. CHEUNG. Correct. 

The CHAIRMAN. You are giving them choices of other, you know, 

home care and——

Mr. CHEUNG. Yes. Most people want to receive their care for as 

long as possible in a home-like setting. So home health care is very 

important. 

The CHAIRMAN. Assisted living? 

Mr. CHEUNG. Those are becoming much more popular. They are 

expanding very significantly, and most policies, especially the 

newer policies that are being sold today, would provide coverage in 

an assisted living facility as well. 

The CHAIRMAN. What does that mean in terms of expense to your 

company? Giving those seniors the choice, don’t those choices result 

in lower cost to you? 

Mr. CHEUNG. Depending on what choice they make, they could 

result in either lower or higher costs. I mean, if somebody went 

into an assisted living facility as an alternative to a nursing home, 

that would be lower in cost. If someone went into an assisted living 

facility as an alternative to home care, that might actually increase 

costs. 

So when insurance companies design their products and price 

their products, they have to take into account where they think 

people who are buying these policies will be getting their care, in 

which site, and for how long in each site. 

The CHAIRMAN. Would it be correct to assume that home care is 

less expensive than assisted living? 

Mr. CHEUNG. Home care is usually less expensive than assisted 

living unless you get home care for 12 to 24 hours a day, in which 

case it tends to be more expensive. 

The CHAIRMAN. Assisted living is less expensive than nursing 

home? 

Mr. CHEUNG. Generally, yes. It is about roughly half the cost of 

a nursing home, yes. 

53

The CHAIRMAN. Well, that is what I have been trying to preach 

around here is at least to eliminate the Federal bias. I have nothing against nursing homes, but we have a bias toward driving 

Medicare and Medicaid folks into nursing homes. Whereas giving 

them the choice, they may choose to be at home, and the savings 

are there for the Government. 

Mr. CHEUNG. Yes, I think there are some States that are experimenting and reimbursing or paying for care in sites other than a 

nursing home. But there is still a strong institutional bias in the 

Medicaid program. 

The CHAIRMAN. Thank you very much, Malcolm. 

Mr. CHEUNG. You are welcome. 

The CHAIRMAN. Joanne Vidinsky, thank you very much for being 

here, and we are anxious to hear your testimony. 

STATEMENT OF JOANNE VIDINSKY, INSURANCE PURCHASER, 

SAN FRANCISCO, CA 

Ms. VIDINSKY. Thank you. 

Good morning, and it is an honor be here representing the Alzheimer’s Association and to discuss my in-laws’ heroic efforts to 

cope with the ravages of Alzheimer’s disease and the effect of their 

experience on my mother. 

In 1993, my mother-in-law, Velma, then age 78, showed the initial signs of confusion and memory loss that began her battle with 

Alzheimer’s disease. Over the next 6 years, my father-in-law, Joe, 

cared for her at home in Ohio. It was hard——

The CHAIRMAN. How many years? 

Ms. VIDINSKY. Pardon? 

The CHAIRMAN. How many years did he care for her? 

Ms. VIDINSKY. Oh, at home? 

The CHAIRMAN. Yes. 

Ms. VIDINSKY. He cared for her at home for 6 years. 

The CHAIRMAN. Wow. OK. 

Ms. VIDINSKY. Yes. It was hard for me and my husband to help 

Joe because we live in California, and he also disguised the difficulty of the situation to spare us the pain. 

At 83, Velma began behaving irrationally and could not take care 

of her most basic daily needs. It was a matter of honor for Joe to 

care for Velma himself. 

However, like many Alzheimer’s families, after years of caring for 

her, he could no longer do it alone, and he had to place Velma in 

the best nursing home he could find. He paid for it at a cost of approximately $60,000 a year. Velma died after two years in the facility. She was 86 years old. 

Joe had been a coal miner and a chemical plant supervisor. He 

was not wealthy. But he was able to pay for all of Velma’s care, 

and he started working in the mines when he was in eighth grade. 

He left school. He and Velma lived simply and saved money from 

every paycheck throughout their marriage of 63 years. 

In addition to their savings, Joe had excellent pension and retiree benefits from the United Mine Workers Union. Joe, at age 91, 

now lives with Alzheimer’s disease, and he pays for his care himself in an assisted living facility. 

54

My in-laws’ story has had a profound effect on my mother. Although she and my father worked hard in sales positions all their 

lives, their incomes were never high enough for them to save much 

for their retirement. As is common in the service industry, my parents did not retire with pensions or health benefits. 

My mother lives modestly on Social Security and a small amount 

of savings from a life insurance policy that my father had. My 

mother does not have a spouse to help her remain at home, and 

her financial resources would be drained paying for care. She 

would face impoverishment if it were not for the help she receives 

from my brother and me. 

At age 78, my mother heard about long-term care insurance from 

friends. We respected my mother’s desire to avoid becoming a burden and remain at home as long as possible and helped her buy 

a long-term care insurance policy. We knew that she could not afford the annual premiums herself, nor could she have waded 

through the complicated information available about long-term care 

insurance. 

Luckily, my mother was in good health at age 79. If she were experiencing symptoms of Alzheimer’s disease or another chronic illness, we would not have been able to purchase a policy for her. The 

policy we purchased costs $10,000 a year and covers the care at 

home that my mother wants. We also made sure that the policy 

would pay benefits if my mother had cognitive impairment. For us, placing $10,000 a year in other investments might have 

been more financially sound. But the tradeoff is that our mother 

will not view herself as a burden to us with the long-term care insurance policy that she has. 

My in-laws represent the end of the long-term care financing 

spectrum that can self-insure for long-term care. My mother represents the other end of the spectrum. If she did not have children 

with the financial resources to care for her, she would have to rely 

on Medicaid if she acquired a disability. 

Unfortunately, most older people in this country cannot afford 

the average annual cost of $76,000 for nursing home care out of 

their own savings. Nor do they have children who can afford to buy 

long-term care insurance for them. The majority of older people 

must rely on Medicaid to help with long-term care when informal 

caregiving is no longer enough. 

As a nation, we are only beginning to wake up to the long-term 

care crisis that is brewing. The Alzheimer’s Association is pleased 

that the Government is addressing the issue through public education and expansion of the Long-Term Care Partnership Programs. 

While education and incentives to purchase insurance are important steps, the current long-term care system does not work for 

millions of people who cannot access or afford insurance or are 

forced into poverty in order to get help. We should initiate a national dialog immediately to reach consensus on a viable solution 

to the long-term care financing problem. 

In the meantime, Congress could take some incremental steps toward meeting families’ long-term care needs. Simple caregiver 

interventions, such as respite and counseling, can have a major impact on health care costs by delaying nursing home placement. 

55

Providing care management for Medicare beneficiaries with multiple chronic conditions would save health care costs and delay the 

need for institutionalization. In addition, requiring health and 

long-term care plans and providers to identify people with dementia would improve care and treatment for this population. 

Chairman Smith, thank you for holding this hearing on private 

long-term care insurance. While it may seem slightly off point, I 

am compelled to plead with you to support funding for Alzheimer’s 

research through the National Institutes of Health. 

I am a grandmother of an adorable toddler, David. He is cute. 

The CHAIRMAN. Yes, he is adorable. 

Ms. VIDINSKY. Thank you. 

The CHAIRMAN. For the record, he is adorable. [Laughter.] 

Ms. VIDINSKY. Thank you so much. I am not proud, right? 

But shown here on the cover of the Alzheimer’s Association annual report. To think that this beautiful child may become a victim 

of Alzheimer’s disease and travel the same journey that his greatgrandmother Velma did overwhelms me with sadness. 

If we could prevent Alzheimer’s disease or even just slow its progression and delay its onset for a few years, we could take a huge 

step toward relieving a staggering burden on our families and our 

long-term care system. That, perhaps more than anything else, 

could help us address the looming long-term care crisis. 

On behalf of the Alzheimer’s Association, all of the individuals 

and families we represent, I thank you again for your commitment 

to these issues and for giving me the opportunity to be here today. 

Thank you. 

[The prepared statement of Ms. Vidinsky follows:]

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The CHAIRMAN. Thank you very much, Joanne. That was a very 

heart-warming story of your family. 

As you relate the experience of your mother-in-law and fatherin-law, that is a very noble story. We salute your father-in-law for 

caring for his wife in those circumstances of many years, and then 

you and your brother for making the provident choice of providing 

a policy for your mother. 

No doubt, she is relieved of a lot of anxiety that comes because, 

obviously, the cost to her would have been prohibitive if she had 

not that care or going into Medicaid, and that may not have been 

as good care as she deserves. 

Yours is a good story, and I think your admonition about Alzheimer’s research is one that we need to heed. So thank you very 

much. 

Robert Friedland. 

STATEMENT OF ROBERT B. FRIEDLAND, Ph.D., FOUNDING 

DIRECTOR, CENTER ON AN AGING SOCIETY, WASHINGTON, DC 

Mr. FRIEDLAND. Good morning, Senator, Chairman Smith. Thank 

you for the opportunity to appear here and submit testimony for 

the record. 

I am Robert Friedland, a researcher and a professor at Georgetown University. 

Most people are not prepared for long-term care, but it seems 

that perhaps not enough people know it or are doing something 

about it. In one survey, 63 percent identified either with the statement, ‘‘I really haven’t given any thought to how I would pay for 

long-term care,’’ or ‘‘I don’t have a plan to pay for long-term care 

because I don’t expect I will need it.’’ 

It is worth noting the similarity with retirement planning. For 

example, in a different survey, 58 percent of workers age 45 or 

older said that they had not tried to calculate how much money 

they would need to have saved by the time they retired. Yet 67 percent of workers expressed confidence that they would have enough 

to live comfortably in retirement. 

Everyone knows they should eat right, exercise regularly, and 

save for retirement. Yet nearly half the population is overweight, 

does not exercise regularly, and does not regularly save for retirement. Only 65 percent of workers with an employer-sponsored plan 

participate. Virtually all workers can contribute to an individual 

retirement account, and yet less than 10 percent do. 

While, fortunately, participation rates increase with age and income, far too many workers withdraw funds when they change 

jobs, and most IRA participants were already saving, simply transferring their taxable savings to tax advantaged accounts. 

So despite the encouragement and the incentives, much stands 

in our way, even for goals to which we aspire. Nobody aspires to 

physical dependency. Nobody is looking forward to needing longterm care. So why should we expect people to be better prepared 

for the things in life that we seek to avoid than for the things to 

which we aspire? Thank goodness for Social Security. 

It troubles me deeply that far too many people end up with so 

little in savings. Social Security ensures that they will not be poor, 

61

but their inability to effectively build on this base has kept them 

from living well. 

It is a mixture of private insurance, employer efforts, the discipline to save, and social insurance that helps pool the financial 

risks of many of life’s contingencies, that is, contingencies other 

than long-term care. For these contingencies, it is the social insurance that sets the terms for the private market. 

Since most long-term care is provided by family, financed out of 

pocket, or supplemented by Medicaid, the payer of last resort, the 

long-term care system is fragmented, inefficient, inequitable, and, 

in most places, inadequate. 

In 15 years, there could be dramatic increases in the size of the 

long-term care population. There will be dramatic declines in family size and in the rate of growth in the labor force. Whether you 

are rich or poor, have private insurance or Medicaid, access to 

needed long-term care will be dearer than it is today. 

This is likely to be true even if everyone has purchased long-term 

care insurance. In fact, as the proportion of the population with insurance increases, the price of care is likely to increase faster than 

the supply of services, resulting in the possibility of making access 

worse for everyone. 

We witness this market force in health care, but long-term care 

insurance has a fundamentally different role in the market than 

does health insurance. Health insurance covers medically necessary 

care. Long-term care insurance is merely a fixed-dollar benefit, chosen by the consumer decades earlier. 

Health insurers have financial incentives to work toward a more 

effective and efficient health care system. No such similar market 

forces are at work with long-term care insurance. There is nobody 

in charge within the system the way physicians are in our health 

care system. 

Because we use public resources to encourage long-term care insurance, it is incumbent on us to work toward developing a more 

effective delivery system and a more effective structure in which 

long-term care insurance can insure the risks we face. 

While I wish we could encourage people to save more for retirement—and I commend you for putting your efforts in that direction—and I wish more people would insure more of the insurable 

risks, simply encouraging more people to purchase long-term care 

insurance is not sufficient to improve the delivery of long-term 

care. 

Premiums paid today will do nothing for the system. We need to 

address the organization, delivery, and financing of care now if we 

are to ensure that insurance will be even more effective in the future when insurance claims are paid. 

Thank you for holding this hearing, and thank you for allowing 

me to comment. 

[The prepared statement of Mr. Friedland follows:]

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The CHAIRMAN. Thank you, Robert. You have some wonderful insights. 

I agree with your testimony that saving for long-term care is not 

efficient and may not be sufficient. But I guess I am wondering 

how can we incentivize young people to get into programs or policies that are inexpensive to them now? 

Mr. FRIEDLAND. Let me speak to the savings part. I think we 

have realized or I should say there is a collective opinion in public 

policy efforts moving forward to automatically enroll people in 

401(k) plans. So, I am hopeful that those kinds of legislation will 

pass, and that will make a huge difference. 

This is, as OPM spoke, this is a hard sell. OPM does all the right 

things, and of course, the numbers are quite impressive. But it is 

such a small percentage of that population, the 20 million that are 

eligible. 

I think the Government has a role in education, in making that 

point. I think when you use tax incentives, you do send a very clear 

signal that it is important. 

The CHAIRMAN. Well, I share your comments about Social Security, too, as being sort of the bedrock of people in retirement and 

eliminating elder poverty, frankly, in our country. 

But I think it is important for us as part of the education in Government to note the very real arithmetic that awaits us because of 

the demographics of our country. These great social safety net programs of Medicare, Social Security, Medicaid, in a quarter century, 

they are going to be the only programs left in the Federal Government on the current course. 

Now lest anyone be alarmed, I don’t think we will get to that 

point when we destroy the rest of the Federal Government over 

these three programs. I only say this that I have that confidence 

because I think, ultimately, Republicans and Democrats, when they 

are forced by the budgetary demands that are simply inescapable, 

that we will come together as Americans and figure this out. 

But that is going to entail some very, very hard and painful 

choices, which makes all the more important why we need to do 

what we can to help people to plan outside of Government for their 

futures. I doubt you would disagree with that. 

Mr. FRIEDLAND. I don’t disagree. 

The CHAIRMAN. Any comment, any suggestions how we solve all 

of these issues? 

Mr. FRIEDLAND. Well, unfortunately, it will take some investment, I think, and I know how hard that is to do. It would be, in 

my mind, if we could begin to reorganize where the risks are in 

much the same way we have done in other sectors, where the public sector takes on a different part of the risk, making it easier for 

the private sector to insure that risk. 

I would love to see a day in which private insurance covers the 

care that we need when we need long-term care, instead of having 

to choose a $200 a day benefit and hoping that the inflation will 

be right so that when we get to making a claim, the $200 a day 

benefit is now worth $400 and that the cost is only $400. 

What happens when the cost is $600 or $800, and we haven’t put 

it in our plan, there is not enough in our savings to cover that gap? 

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We have got a policy that doesn’t cover what we need, and we are 

not rich enough to cover the gap. 

So, to do that, we need to circumvent the risk in a way so that 

the insurers could actually insure the risk and not just the dollar 

amount. 

The CHAIRMAN. Well, you know what I have said and what I 

think you are agreeing with, Robert, is while the demographic tsunami is approaching, we don’t want to alarm people. This doesn’t 

affect people on Social Security now, on Medicare now, on Medicaid 

now. 

What this affects is people of my age and my children and grandchildren. Your grandchild, Joanne, who faces just a crushing kind 

of burden in the cost of Government because of the size of our generation and the relative smallness in size of their generation. 

So we have got big issues, but I have always taken pride in the 

fact that America has risen to its challenges, and I think we will 

again when the economics require us in Congress to deal with it. 

But the point of this hearing is to deal with it and to use the megaphone of this Committee to call out to Americans to plan, to be prepared on their own, in addition to the programs that the Government provides. 

Let me just, in conclusion, thank each of you for taking your time 

and sharing your stories and your insights and your programs. We 

commend them all, and we thank you for adding measurably to the 

public record. 

With that, we are adjourned. 

[Whereupon, at 11:20 a.m., the Committee was adjourned.] 

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A P P E N D I X 

PREPARED STATEMENT OF SENATOR HERB KOHL

Thank you, Mr. Chairman. Americans are living longer than ever thanks to tremendous advances in medicine. But this longevity also means that as people age, 

many will need long-term care in the future, whether it’s provided at home, in an 

assisted living facility, or in a nursing home. 

As a nation, we need to develop a comprehensive long-term care policy to care for 

the 10 million people who need long-term care today and the millions more who will 

need care in the coming years. It is an important but complicated issue that the 

Committee should explore, so I thank the Chairman for holding this hearing, as well 

as the witnesses who are here today to educate us. 

It’s worth noting that today, the majority of long-term care is actually provided 

free through family or friends. Caregiving can take a tremendous financial and emotional toll on families. Many older family members who care for a loved one often 

are forced to miss work or find they simply cannot continue working at all—placing 

their own economic well-being in jeopardy. They deserve some help, and that is why 

I have proposed legislation to provide a tax credit for older workers to help cover 

the costs of caring for chronically ill seniors. 

Of course, we know that aside from family caregiving, Medicaid is the largest 

payor and greatest safety net for long-term care services. Medicaid provides care for 

millions of elderly and individuals with disabilities that need assistance with basic 

activities of daily living. It is critical that we preserve and strengthen this important program. 

However, we know that public financing is not the only answer to the long term 

care dilemma. We will also need to find new ways to encourage Americans to anticipate and plan for their future long-term care needs. As we will hear today, some 

families are turning to long term insurance, which I support as an option that can 

be helpful under the right circumstances. Unfortunately, for the millions of low and 

modest income families that are already finding it difficult to secure food, housing, 

transportation, and health care, along with saving for their retirement, long-term 

care insurance is unaffordable today. But it’s clear that with standardized policies 

and consumer protections, long-term care insurance can be a good and clear option 

for some families, and we should work to make it available and affordable. 

To help alleviate some of the costs of long-term care and long-term care insurance, 

I am a cosponsor of S. 602, the Ronald Reagan Alzheimer’s Breakthrough Act. The 

bill would provide a tax credit for individuals certified as having long-term care 

needs and for whom the taxpayer is acting as a caregiver, as well as a tax deduction 

for long-term care insurance. I hope the Congress will make this a priority and pass 

this legislation soon. 

I strongly believe we need to develop a coherent long-term care policy that will 

enable seniors of all incomes to plan for and access long-term care, if and when they 

need it. I applaud Chairman Smith for having this hearing and look forward to 

hearing from our witnesses on how we can develop a better plan for the future. 

QUESTIONS FROM SENATOR LINCOLN FOR ROBERT DANBECK

Question. What additional tools are available to individuals for whom long term 

care insurance is not an option? What additional tools should be available to them? 

Answer. We cannot comment on additional tools available outside of the programs 

we manage. The Federal Long Term Care Insurance Program gives applicants who 

are not approved for long term care insurance an opportunity to purchase a service 

package. This non-insurance package provides access to care coordination to help 

the individual plan for addressing his/her long term care needs. It also provides access to a discounted network of long term care providers and services. The Program’s care coordinators are registered nurses experienced in long term care situaVerDate 0ct 09 2002 10:55 Jun 20, 2006 Jkt 000000 PO 00000 Frm 00093 Fmt 6601 Sfmt 6601 H:\DOCS\27433.TXT SAGING1 PsN: JOYCE
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tions who can help determine the appropriate long term care setting and provide 

information on additional resources that may be available in the community. 

Question. How can we better support and assist our nation’s caregivers who provide such critical long-term services and supports to millions of Americans? What 

is the government’s role? 

Answer. We cannot comment on sources of support for caregivers outside of the 

programs we manage. 

Upon request, the Federal Long Term Care Insurance Program provides care coordination services for non-enrolled qualified relatives of enrollees, which assists our 

enrollees when they are also caregivers. 

The Federal Employees Health Benefits Program also provides caregiver support 

to enrollees. FEHB plans often include benefits for visiting home health providers 

who can serve as a respite for the caregiver. FEHB enrollees have access to mental 

health care for anxiety, stress reduction and depression that can accompany an enrollee’s role as caregiver. FEHB plans also provide hospice care, including palliative 

and supportive care to terminally ill patients and their caregivers. Hospice programs can provide periodic respite for caregivers and bereavement support to help 

the grieving family and caregiver deal with the loss. 

Enrollees in some FEHB plans can receive support and respite from their 

caregiving duties through plan ‘‘care support programs’’ that include interactions 

with nurses to make sure patients are taking their medications, visiting the physician when appropriate, receiving answers to medical questions, etc. FEHB case 

management services coordinate health care services by facilitating access and utilization of available community based resources and services. FEHB disease management programs provide education, monitoring, intervention, counseling and support 

for enrollees with chronic conditions, working with the enrollee and his/her caregiver directly. 

Under the Family and Medical Leave Act of 1993 (FMLA), most Federal employees are entitled to a total of up to 12 workweeks of unpaid leave during any 12-

month period to take care of their spouse, child or parent who has a serious health 

condition. This can help relieve caregiver stress when that care must be performed 

in addition to job responsibilities. 

QUESTONS FROM SENATOR LINCOLN FOR JOANNE VIDINSKY

Question. Long-Term care insurance is a useful way for some individuals to plan 

and pay for future long-term care needs. However, not everyone can afford longterm care insurance and some people cannot qualify for it due to pre-existing conditions. Individuals need more options to plan and pay for their care. What additional 

tools are available to individuals for whom long-term care is not an option? What 

other additional tools should be available to them. 

Answer. Unfortunately, most older people in this country cannot afford the average annual cost of $76,219 for nursing home care (Genworth Cost of Care Study,

2006) out of their own savings. The majority of older people must rely on the governmental Medicaid benefits to help them meet their long term care needs, when 

informal caregiving is no longer enough. Medicaid requires impoverishment of its 

beneficiaries. There are very few options for those who cannot pay their way, other 

than to rely on Medicaid. 

Creative solutions like the Long Term Care Partnership Program and public education to help people plan for their long term care needs are an essential part of 

any solution to the challenge of long term care financing. It is important that states 

and the federal government move as quickly as possible to implement these programs, recently passed as part of the Deficit Reduction Act, nationwide. 

While education and incentives to purchase insurance are important steps, we 

need to think beyond the current long term care system because it does not work 

for millions of people who cannot access or afford insurance or are forced into poverty in order to get any help from the government. The Alzheimer’s Association believes that the crisis in long term care, fueled by a large and rapidly aging population, requires action now. Congress should initiate a national dialogue immediately to reach consensus on a viable solution to the long term care financing problem. The exact form of the solution is not clear, though it is clear that current budgetary constraints make it difficult to discuss additional governmental expenditures 

at this time. 

The Alzheimer’s Association envisions a public/private partnership for long term 

care financing that assists people before they are broken by the costs and consequences of their long term care needs. The partnership should ensure that those 

with few financial resources have access to a means-tested safety net, that people 

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who can plan ahead for their long term care costs are encouraged to do so, and that 

there is a public sector program that provides a stable base of support and wraps 

around private benefits. It is important for private sector and public sector benefits 

to complement one another, with proper incentives and regulations to ensure affordable, meaningful protection. 

Question. One of the largest sources of private long-term care financing in this 

country is the informal, unpaid care provided by family and friends. Family caregivers are the backbone of long-term care in this country, yet they face significant 

physical, emotional, and financial burdens. How can we better support and assist 

our nation’s caregivers who provide such critical long-term services and supports to 

millions of Americans? What is the government’s role? 

Answer. Typically, people with dementia live about 8–10 years from the time of 

diagnosis until death. Caregivers provide most of the support for their loved ones 

and in recent years, caregiver efforts have increased. However, the informal 

caregiving system is fragile and becoming more so because of: 1) the ever increasing 

complexity of the health and long term care system; 2) the fact that people are living longer with chronic conditions, including dementia; and 3) the erosion of Medicaid over time. Congress should strengthen Medicare, Medicaid, and Administration on Aging programs to support family caregivers. 

The Alzheimer’s Association has an extensive caregiver policy agenda. We urge 

Congress to take action on the key elements of this agenda, listed below. 

1. Create a Medicare chronic care management benefit to pay physicians and 

other practitioners to coordinate patients’ care with other practitioners and with 

caregivers. This would help ensure that patients with dementia receive optimal care 

and help caregivers and beneficiaries navigate the complex health and long term 

care systems. The benefit would be particularly useful in helping family caregivers 

manage when their loved ones have multiple chronic conditions, such as heart disease and diabetes, in addition to dementia. In addition, such a benefit could help 

connect beneficiaries to community services, a connection that has been proven to 

help keep beneficiaries with dementia out of emergency rooms and hospitals. 

2. Require Medicare to reimburse physicians who spend time counseling family 

caregivers when the patient is not also present. Currently, Medicare will not do so. 

This situation diminishes the quality of communication between the caregiver and 

physician and can be detrimental to patient safety and care, as well as to caregiver 

confidence and wellbeing. 

3. Expand the Medicaid hardship waiver provisions so that they apply to caregivers and ensure that the criteria for granting waivers address the burden caregivers face if their loved ones cannot get needed institutional care. Currently, hardship waivers of asset penalties are only available if the individual seeking Medicaid 

nursing home coverage would lose access to ‘‘medical care, food clothing, shelter or 

other necessities of life.’’

4. Amend the Medicaid home equity limit to protect caregivers by adopting the 

protections in current law related to liens and estate recovery. These protections enable siblings or adult children to remain in the home if they lived in it and provided 

care that allowed the Medicaid beneficiary to remain at home longer. Currently, the 

new limit on home equity only applies to individuals. But it could deprive a caregiver of a place to live. Take the example of two sisters, one of whom is a home 

owner with dementia and the other who lives with and takes care of her. The home 

equity limit would apply and the sister could become homeless as a result. 

5. Encourage states to provide more support to caregivers by creating an increased federal Medicaid match for states that assess caregiver need and provide 

caregivers with respite services. 

6. Continue to authorize and fund the Alzheimer’s Disease Demonstration Grants 

to States Program. Since 1992, Congress has funded this program to encourage 

states to develop and test innovative ways to support people with Alzheimer’s disease and other dementias and their family caregivers. States have used these funds 

to create adult day services ad respite care programs, provide dementia-specific 

caregiver training, and link families to existing community services that may help 

them. Many states have used funds from this program to find ways to support culturally diverse, and geographically isolated families that are coping with dementia. 

7. Add family caregivers of people under age 60 with Alzheimer’s disease and 

other dementias to the family caregivers who can receive services funded through 

the Administration on Aging’s National Family Caregiver Support Program 

(NFCSP). The NFCSP provides funds to serve family caregivers of people aged 60 

and older and grandparents taking care of grandchildren. Some family caregivers 

are taking care of a person with Alzheimer’s disease or another dementia who is 

under age 60. Results of a national telephone survey conducted by the National Alliance for Caregiving show that 15% of the family caregivers of people with AlzVerDate 0ct 09 2002 10:55 Jun 20, 2006 Jkt 000000 PO 00000 Frm 00095 Fmt 6601 Sfmt 6601 H:\DOCS\27433.TXT SAGING1 PsN: JOYCE
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heimer’s disease and other dementias were taking of a person age 50–65. The precise number of people with Alzheimer’s disease and other dementias that is under 

age 60 is not known, but it is likely that 5%–8% are under age 60, with some as 

young as age 38. 

8. Add family caregiver assessment as a service that states must provide with National Family Caregiver Support Program funds. The NFCSP does not require or encourage family caregiver assessment as part of any of the five services states must 

provide through the program, even though an assessment to determine the characteristics, needs, capability, and preferences of the family caregiver would seem to 

be important for the success of each of the five required services. 

QUESTIONS FROM SENATOR LINCOLN FOR MALCOLM CHEUNG

Question. Long-Term care is a useful way for some individuals to plan and pay 

for future long-term care needs. However, not everyone can afford long-term care 

insurance and some people cannot qualify for it due to pre-existing conditions. Individuals need more options to plan and pay for their care. What additional tools are 

available to individuals for whom long-term care is not an option? What other additional tools should be available to them. 

Answer. One way to reduce the changes of not being able to afford or qualify for 

long-term care insurance is to encourage Americans to consider purchasing this insurance when they are still relatively young (ages 35 to 50). Premiums are significantly lower at the younger issue ages, and the chronic medical conditions that may 

disqualify an individual from private long-term care insurance coverage are much 

less likely to occur when one is relatively young. Additional tax incentives that 

would encourage working age individuals to consider purchasing long-term care insurance would help increase awareness of the need to plan for potential long-term 

care expenses while still young. Such incentives would include allowing employees 

for pay for long-term care insurance on a pre-tax basis through an employer-sponsored cafeteria plan or Flexible Spending Account. 

For those who currently find themselves in the situation of not being able to afford long-term care insurance, consideration should be given to purchasing a policy 

with less rich benefits. Significant premium reductions can be achieved by reducing 

daily or lifetime maximum benefit limits, electing a less rich form of inflation protection, or lengthening the waiting period. When reducing benefits, the consumer 

needs to be aware that the benefits provided by the long-term care insurance policy 

may ultimately not be adequate to fully fund their long-term care expenses, and 

that they may need to supplement insurance payments with other sources of income, their own savings, or assistance from family members. 

For those who cannot qualify for long-term care insurance due to a pre-existing 

health problem, there are several potential options. If the health problem is one 

state still allows the individual to work full time, many employers offer group longterm care insurance coverage to their actively-at-work employees on a guaranteed 

issue basis without requiring any health history, or on a simplified issue basis with 

a very limited number of health questions. There are also some long-term care insurers who specialize in substandard long-term care risks. Substandard policies may 

provide only limited benefits and would cost more than standard coverage, but they 

may be a viable alternative for those who may be impaired health risks, but not 

uninsurable. 

For those who can’t afford or qualify for coverage, one additional option would be 

to take advantage of the geriatric care management and provider information and 

referral services that are available today in the marketplace. Although this option 

would not directly reimburse someone for the costs of long-term care services received, it would provide those needing care with valuable information about, and potential discounts from, local long-term care providers and how best to utilize these 

providers. 

Question. One of the largest sources of private long-term care financing in this 

country is the informal, unpaid care provided by family and friends. Family caregivers are the backbone of long-term care in this country, yet they face significant 

physical, emotional, and financial burdens. How can we better support and assist 

our nation’s caregivers who provide such critical long-term services and supports to 

millions of Americans? What is the government’s role? 

Answer. One way we can better support our nation’s informal caregivers would 

be to provide a tax credit to help them absorb the sometimes substantial costs of 

providing long-term care for a family member. Senator Lincoln should be commended for including such a credit in S. 1244, which she introduced last year with 

Senator Grassley. 

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Increasing public awareness of the need to plan for long-term care expenses and 

the value of long-term care insurance, and providing additional tax incentives for 

the purchase of private insurance will help promote the expansion of the long-term 

care insurance market. Long-term care insurance provides those needing care with 

the financial means to utilize formal caregivers, so that the burden on informal 

caregivers can be moderated. 

In addition to the high cost of formal caregivers, another reason informal 

caregiving is so common is because the supply of formal caregivers, especially home 

health aides, is very limited in some geographics areas, and the quality of the care 

can be inconsistent. Anything government (either Federal or State) can do to promote caregiving as a profession, and to establish and enforce quality and training 

standards for caregivers, would likely encourage greater use of formal caregivers, 

thereby relieving some of the burden borne by informal caregivers.

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