PLANNING FOR LONG-TERM CARE 

HEARING 

BEFORE THE 

SUBCOMMITTEE ON HEALTH 

OF THE 

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

SECOND SESSION 

MAY 17, 2006 

Serial No. 109-100 

Printed for the use of the Committee on Energy and Commerce 

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

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COMMITTEE ON ENERGY AND COMMERCE 

JOE BARTON, Texas, Chairman 

RALPH M. HALL, Texas 

MICHAEL BILIRAKIS, Florida 

 Vice Chairman 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

PAUL E. GILLMOR, Ohio 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

CHARLIE NORWOOD, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. “CHIP” PICKERING, Mississippi 

 Vice Chairman

VITO FOSSELLA, New York 

ROY BLUNT, Missouri

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

C.L. “BUTCH” OTTER, Idaho 

SUE MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOHN D. DINGELL, Michigan 

 Ranking Member 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

SHERROD BROWN, Ohio 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

ALBERT R. WYNN, Maryland 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

BUD ALBRIGHT, Staff Director 

DAVID CAVICKE, General Counsel

REID P. F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON HEALTH 

NATHAN DEAL, Georgia, Chairman 

RALPH M. HALL, Texas 

MICHAEL BILIRAKIS, Florida 

FRED UPTON, Michigan 

PAUL E. GILLMOR, Ohio 

CHARLIE NORWOOD, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

JOHN B. SHADEGG, Arizona 

CHARLES W. “CHIP” PICKERING, Mississippi 

STEVE BUYER, Indiana 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE MYRICK, North Carolina 

MICHAEL C. BURGESS, Texas 

JOE BARTON, Texas 

 (EX OFFICIO)

SHERROD BROWN, Ohio 

 Ranking Member 

HENRY A. WAXMAN, California 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

TAMMY BALDWIN, Wisconsin 

JOHN D. DINGELL, Michigan 

 (EX OFFICIO)

(II)
CONTENTS 

Page 

Testimony of: 

Stucki, Dr. Barbara R., Project Manager, National Council on the Aging ....................... 14 

Wiener, Dr. Joshua M., Senior Fellow and Program Director, Aging, Disability and 

Long-Term Care, RTI International............................................................................... 25 

Ignagni, Karen, President and CEO, American Health Insurance Plans............................ 33 

Jenner, Greg, Executive Vice President, American Council of Life Insurers.................... 46 

Thames, Dr. Byron, Board Member, AARP....................................................................... 53 

Conner, Scott, Vice President, Products and Health and Safety Services, American 

Red Cross ....................................................................................................................... 97 

Wright, Dr. Larry, Director, Schmieding Center for Senior Health and Education........... 103 

Inagi, Candace, Assistant to the President for Government and Community Relations, 

Service Employees International Union Local 775....................................................... 110 

Additional material submitted for the record: 

Older Women’s League, submission for the record ........................................................... 120 

(III) 

(1) 

PLANNING FOR LONG-TERM CARE 

WEDNESDAY, MAY 17, 2006 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON ENERGY AND COMMERCE, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 2:05 p.m., in Room 

2123 of the Rayburn House Office Building, Hon. Nathan Deal 

(chairman) presiding. 

 Members present: Representatives Deal, Ferguson, Burgess, Brown, 

Pallone, Eshoo, Capps, and Allen. 

 Staff Present: David Rosenfeld, Chief Health Counsel; Ryan Long, 

Counsel; Brandon Clark, Policy Coordinator; Chad Grant, Legislative 

Clerk; John Ford, Minority Counsel; Jessica McNiece, Minority 

Research Assistant; and Jonathan Brater, Minority Staff Assistant. 

MR. DEAL. The committee will come to order. The Chair 

recognizes himself for an opening statement. 

 We are here to address aspects of long-term care planning which, if 

we addressed it in totality, we would take a very long time to do so. 

There are certainly dozens, if not more, issues surrounding the provision 

of and the payment for long-term care, which certainly deserve our 

attention. I believe we can all agree, however, that the magnitude of the 

task must not dissuade us from taking on this important and timely 

subject in manageable increments. 

 Last year, this subcommittee’s hearing on long-term care financing 

set in motion a process which resulted in significant reforms, the 

implementation of which we are monitoring closely to ensure adherence 

to Congressional intent. I hope this hearing today will set the stage for 

additional progress through a bipartisan effort this time around. 

 Long-term care is one of the most significant demographic and fiscal 

challenges of this century, and of particular importance because of 

rapidly aging populations. In 2000, there were an estimated 9.5 million 

people with long-term care needs in the United States, including 6 

million elderly, and 3.5 million non-elderly. These numbers are 

projected to grow dramatically in the coming years, especially after 

2030, when the Baby Boom generation begins to reach 85. The senior 

population, 12.4 percent in 2000, is predicted to rise to 20.6 percent by 

2050, the fastest growing share being in the 80 plus. It is projected to 

rise from 3.3 percent in 2000 to 8 percent in 2050. This population, 
2

which is most likely to need long-term care services, is projected to more 

than triple, from about 9.3 million to 33.7 million people nationally. 

 Today, we will examine how the private marketplace is addressing 

long-term care planning, often in partnership with the Government. One 

recent example is the Deficit Reduction Act’s expansion of long-term 

care insurance partnerships, which states are eager to establish with 

Federal guidelines on implementation. I support even greater 

collaboration to promote long-term care insurance, as well as to explore 

new ways of bringing home equity into the financing equation on the 

front end, in order to expand care options, and to forestall, or at least 

minimize reliance on scarce public resources. To this end, I plan to 

introduce soon a bill to create demonstration projects for States to 

develop innovative programs for individuals who will utilize home 

equity on qualified long-term care services to retain a greater amount of 

the assets than otherwise permitted should they subsequently apply for 

Medicaid. 

 Today, we are also examining the critical role of caregiving and its 

challenges for both caregivers, as well as those who train caregivers. 

Most impaired persons who reside in the community rely largely on 

donated care from friends and family. In 2004, the Congressional 

Budget Office estimated that replacing donated long-term care services 

for seniors with professional care would cost $76.5 billion, and this 

number does not even account for the cost of replacing donated care 

provided to persons with long-term care needs under age 65. Another 

analysis in 1997 estimated that the value of donated care for people of all 

ages who had impairments, measuring it as the foregone wages of 

caregivers, to be at $218 billion. 

 We need to better address caregiving and caregiver challenges to 

ensure public dollars are used efficiently and effectively, and to support 

American families struggling to do right by their loved ones. To this 

end, I support the concepts behind the Lifespan Respite Care Act of 

2005, sponsored by Mr. Ferguson of this subcommittee and several other 

members of the Energy and Commerce Committee. The bill seeks to 

address the physical, emotional, and financial problems that impede 

caregivers’ ability to deliver care now, and to support their own care 

needs in the future, and to delay and possibly even obviate the need for 

costly institutionalization in both instances. Although easily and often 

mischaracterized, targeted and accountable respite care programs makes 

sense. 

 I am now pleased to recognize my friend, Mr. Brown, for his 

opening statement. 

 [The prepared statement of Hon. Nathan Deal follows:] 
3

PREPARED STATEMENT OF THE HON. NATHAN DEAL, CHAIRMAN, SUBCOMMITTEE ON 

HEALTH

The Committee will come to order, and the Chair recognizes himself for an opening 

statement. 

Addressing all aspects of long-term care planning could keep us here almost 

indefinitely. There are dozens if not more issues surrounding the provision of and 

payment for long-term care which deserve our attention. I believe we can all agree, 

however, the magnitude of the task must not dissuade us from taking on this important 

and timely subject in manageable increments. Last year, this Subcommittee’s hearing on 

long-term care financing set in motion a process which resulted in significant reforms, the 

implementation of which we are monitoring closely to ensure adherence to Congressional 

intent. I hope this hearing today will set the stage for additional progress through a 

bipartisan effort this time around. 

Long-term care is one of the most significant demographic and fiscal challenges of 

this century and of particular importance because of our rapidly aging population. In 

2000, there were an estimated 9.5 million people with long-term care needs in the U.S., 

including six million elderly and 3.5 million non-elderly. These numbers are projected to 

grow dramatically in the coming years, especially after 2030 when the baby boom 

generation begins to reach 85. The senior population—12.4% in 2000—is predicted to 

rise to 20.6% by 2050; the fastest growing share, 80+ (“oldest old”) is projected to rise 

from 3.3% in 2000 to 8% in 2050. This population, which is most likely to need longterm care services, is projected to more than triple from about 9.3 million to 33.7 million 

nationally. 

Often overlooked by policy experts and media, approximately one-third of longterm care expenditures pay for services for non-elderly people. In 1994, about 3.4 

million adults aged 18 to 64 and 400,000 children below the age of 18 used long-term 

care services. The majority of those people lived in community-based settings (homes or 

group residences). In general, people who are younger than 65 are likely to be impaired 

as a result of conditions such as developmental disabilities and mental illness (although 

they may also suffer the kinds of physical problems that older people experience). 

Common causes of impairment among children are respiratory problems and mental or 

neurological conditions such as autism. 

Today, we will examine how the private marketplace is addressing long-term care 

planning often in partnership with government. One recent example is the Deficit 

Reduction Act’s expansion of long-term care insurance partnerships which states are 

eager to establish with federal guidance on implementation. I support even greater 

collaboration to promote long-term care insurance as well as to explore new ways of 

bringing home equity into the financing equation on the front-end in order to expand care 

options and to forestall or at least minimize reliance on scarce public resources. To this 

end, I plan to introduce soon a bill to create demonstration projects for states to develop 

innovative programs for individuals who utilize home equity on qualified long-term care 

services to retain a greater amount of assets than otherwise permitted should they 

subsequently apply for Medicaid. 

Today, we are also examining the critical role of caregiving and its challenges for 

both caregivers as well as those who train caregivers. Most impaired persons who reside 

in the community rely largely on donated care from friends and family. In 2004, the 

Congressional Budget Office estimated that replacing donated long-term care services for 

seniors with professional care would cost $76.5 billion, and this number does not even 

account for the cost of replacing donated care provided to persons with long-term care 

needs under age 65. Another analysis, in 1997, estimated the value of donated care for 

people of all ages who had impairments—measuring it as the forgone wages of 

caregivers—at $218 billion. 
4

We need to better address caregiving and caregiver challenges to ensure public 

dollars are used efficiently and effectively and to support American families struggling to 

do right by their loved ones. To this end, I support the concepts behind the Lifespan 

Respite Care Act of 2005 sponsored by Mr. Ferguson and several Members of the Energy 

and Commerce Committee. The bill seeks to address the physical, emotional, and 

financial problems that impede caregivers’ ability to deliver care now; to support their 

own care needs in the future; and to delay and possibly even obviate the need for costly 

institutionalization in both instances. Although easily and often mischaracterized, 

targeted and accountable respite care programs make sense. 

At this time, I would also like to ask for Unanimous Consent that all Committee 

Members be able to submit statements and questions for the record. 

I now recognize the Ranking Member of the Subcommittee, Mr. Brown from Ohio, 

for five minutes for his opening statement. 

 MR. BROWN. Thank you, Mr. Chairman. 

 I appreciate your having this hearing and your interest in long-term 

care planning, but with all due respect, the Republican leadership in 

Congress, pure and simple, lost their credibility on this issue last year, 

when they tried to cut $43 billion, and succeeded in cutting $26 billion 

from the Medicaid program. In my home State of Ohio, there is a 

waiting list of almost 1,400 people for home and community-based care. 

There are no minimum staffing requirements for nursing homes, because 

the nursing homes say they can’t afford them. Nurses who serve 

disabled Medicaid beneficiaries are facing a cut in pay. There is a 

nursing shortage, and Medicaid is cutting nurses’ pay. That is the fast 

track to a crisis. 

 Ohio is not alone. No State Medicaid program has been spared, yet 

there is no talk among Republican leadership of reinvesting the $43 

billion back into the Medicaid program. There is no sign of remorse 

when the Congressional Budget Office estimated that one-third of the 

Medicaid savings would come from taking coverage and benefits away 

from Medicaid enrollees. There was, however, an inexplicable air of 

righteousness when these Republicans chose to get some savings by 

cracking down on asset transfers, never mind that some of those dollars 

would come by kicking some impoverished seniors out of nursing homes 

and denying others access. Never mind that many seniors knew nothing 

about Medicaid when they contributed to their grandchild’s education, or 

helped a child pay catastrophic medical bills. They transferred assets, so 

tough luck. 

 A Congress who treats the elderly like guinea pigs when it comes to 

Medicare Part D, and treats them like criminals when it comes to 

Medicaid, is not a Congress you can trust when it comes to long-term 

care planning. The Bush Administration revealed its true colors when, 

earlier, it tried to block grant Medicaid. If you can’t trust an 

Administration that tries to starve our Nation’s insurer of last resort, then 

who can you trust? 
5

 More than 4.2 million Americans rely on Medicaid for long-term 

care services. In Ohio, the income cutoff for long-term care is $6,300 

per year. Private long-term care insurance premiums are about $1,000 

for healthy 65 year olds who purchased the coverage when they were 55. 

Premiums are twice that for healthy seniors who wait until they are 65 to 

purchase coverage, and 7 times that for seniors who wait until they are 

75 to purchase coverage. Anyone who believes this country can do 

without a long-term care safety net needs a primer on U.S. poverty rates. 

Long-term care isn’t discretionary. The Federal Government should 

fully fund Medicaid long-term care, which will stabilize our long-term 

care safety net. 

 Until we responsibly address current and near-term needs, planning 

for future long-term care coverage is an exercise void of any legitimacy. 

 Thank you, Mr. Chairman. 

 MR. DEAL. I recognize the Vice Chairman of this subcommittee, 

Mr. Ferguson, for his opening statement. 

 MR. FERGUSON. Thank you, Mr. Chairman, and thank you for 

holding this very important hearing, and thank you for your kind words 

about my bill, the Lifespan Respite Care Act. 

 The words “long-term care” first bring to mind nursing homes or 

chronic care facilities, or costly hospital stays and arduous medical 

treatment, but the conversation about long-term care doesn’t begin until 

we mention the Nation’s family caregivers. They are the first responders 

in taking care of our elderly and disabled of all ages. That is because 

most of our elderly or chronically ill family members are being cared for 

at home. Some estimates say that family caregivers provide 80 percent 

of all long-term care in the United States. If a monetary value were to be 

placed on this care, family caregivers are providing support and direct 

services to their family members a sum valued at $306 billion annually, 

more than twice of what is spent nationwide on nursing home and paid 

home care combined, and an amount comparable to Medicare spending 

in 2004. 

 In my home State of New Jersey alone, there are nearly a million 

caregivers who provide care valued at almost $8 billion annually. If we 

don’t recognize this fact and consider the needs of family caregivers, 

their ability to continue to provide this level of support may well be 

jeopardized if, as a Nation, we don’t rally on their behalf. 

 While most families take great joy in helping their family members 

to live at home, it has been well documented that family caregivers suffer 

from physical and emotional problems directly related to their caregiving 

responsibilities. Three-fifths of family caregivers recently surveyed 

reported fair or poor health themselves, and caregivers are 46 percent 

more likely than non-caregivers to report frequent mental distress. 
6

Among some elderly caregivers, the mortality rate has been even 

reported to be 60 percent higher than non-caregiving populations. The 

simple things we take for granted, like getting enough rest or going 

shopping, become rare and precious events. Family caregivers often 

miss their own doctors’ appointments, or fail to deal with other family 

crises, because of their overriding commitment to caregiving to their 

loved one. 

 Today, as a part of this discussion on long-term care, I want to 

continue our discussion about respite care with our panelists. Respite 

care is a modest, low-cost service that simply provides a temporary break 

for the enormity of constant caregiving, but the benefits reaped are 

enormous. Respite care, the most frequently requested family support 

service, has been shown to provide family caregivers with the relief 

necessary to maintain their own health, and bolster their family stability, 

keep marriages intact, and avoid or delay more costly nursing home or 

foster care placements. 

 The legislation that I have introduced, that Chairman Deal 

referenced, the Lifespan Respite Care Act, would help set up a network 

of respite care services to help caregivers and their families receive the 

help that they need. 

 Mr. Chairman, I want to thank you again for your leadership on this 

issue, and for holding this important hearing today, and I look forward to 

working with you to work on behalf of caregivers and families. 

 I yield back. 

 MR. DEAL. I thank the gentleman. Mr. Pallone is recognized for an 

opening statement. 

 MR. PALLONE. Thank you, Mr. Chairman. 

 I had originally prepared a different statement for today’s hearing, 

but decided to change it, after a visit this morning from a couple of my 

constituents whose parents had suffered from ALS, more commonly 

referred to as Lou Gehrig’s disease. I wasn’t present at the meeting, 

because of a committee markup, but my staff asked me to share their 

concerns. Three young women came to share their stories in my office 

about their parents, who were inflicted with this terrible disease that left 

them completely debilitated. One woman described the effects of the 

disease as being “buried alive slowly over the course of a few years.” 

 And the reason I bring this up is because during this meeting, one 

woman, who couldn’t have been older than 25, sobbed in my office as 

she described how she had to quit her job as a teacher in order to take 

care of her father after he was diagnosed with ALS. She described the 

unfairness of the situation and the tremendous pressure placed on her as 

she became her father’s primary caregiver. She also spoke of the 
7

frustration her father experienced as he became helpless and had to rely 

on his daughter to have the most basic needs met. 

 The questions she raised in our meeting are questions this committee 

will need to consider when we talk about long-term caregiving. Who 

will need it, who will do it, and who will pay for it? These questions will 

become incredibly important over the next 30 years, as the number of 

persons aged 65 or older, those most likely to be in need of long-term 

care services, is projected to double, yet these questions are just as 

important, if not more, for those who are disabled as they are for the 

elderly. 

 And Mr. Chairman, the demand for long-term care in the future is 

expected to rise substantially, placing tremendous strains on Federal and 

State budgets that are already strapped for cash. While the budgetary 

impact of long-term care is concerning, I believe it has often been 

misused as a rallying cry to gut Medicaid, which explains some of the 

harmful changes my Republican friends enacted last year. I fear the new 

rules laid out in the Deficit Reduction Act could leave many innocent 

low-income families, who never intended to game the system, with too 

few options to access the long-term care they need, and end up costing 

the program even more. 

 Now, Mr. Chairman, as we discuss planning for our Nation’s future 

long-term care needs, it is simply not enough to worry about how to 

finance such care. There are other serious problems that we face, such as 

the availability of caregivers. Until now, unpaid family caregivers, like 

the women in my office today, have supplied the bulk of long-term care. 

According to the Administration on Aging, an estimated 22 million 

Americans are providing uncompensated care at any one time. It has 

been estimated that replacing such informal long-term care services with 

professional caregivers would cost between $50 billion and $103 billion 

annually. 

 And Mr. Chairman, I think that we have a very serious problem on 

our hands that requires real solutions. That is why I thank you for calling 

today’s hearing, and look forward to hearing the testimony from our 

witnesses. 

 Thank you. 

 MR. DEAL. I thank the gentleman. 

 At this time, I would like to ask unanimous consent that all Members 

be allowed to submit their opening statements for the record. Without 

objection, so ordered. 

 Ms. Eshoo, you are recognized for an opening statement. 

 MS. ESHOO. Thank you, Mr. Chairman, for holding this hearing 

today. 
8

 The issue of long-term care is something that will affect every 

American in some way, shape, or form. I know that there are members 

of this committee that have been involved in the care of family members, 

myself included, and you don’t know what this is until you are faced 

with it yourself. Because at best, there really is a patchwork of things 

that are out there. There really isn’t anything that is comprehensive, and 

very few Americans, perhaps the numbers are rising now, and we will 

get into that in the Q&A, but really very few Americans have long-term 

care insurance policies that can then step up to and meet what the needs 

are. As I became more involved in this, with the care of my father and 

then my mother, I inquired with friends of mine about the policies that 

they had bought for the region that we live in. They really didn’t buy the 

kind of coverage they needed, and of course, it varies across the country 

what the costs are, but certainly in the Bay Area, it is an expensive place 

to do business. 

 And I was reminded by a very dear friend of mine, who is much 

younger than I am, that long-term care is not just about the elderly. She 

was in a river rafting accident, and had to be airlifted from a very remote 

place, because that is where you go river rafting, it is not in the middle of 

the city, and required quite extensive surgery on her leg, her ankle, and 

when she finally came home, she required five weeks of recovery care, 

and it cost her a bundle of money, 24 hours a day, so she went out and 

shopped hard for a long-term care policy, which reminded me of my own 

vulnerabilities at the age that I am at. 

 So, this is an issue that we not only need to explore, but to 

understand very well, not only what is out there, what is affordable, what 

isn’t, are there public policy directions where we can move in order to 

make this more accessible for people, and also, in terms of the system 

that we already have, does it need to be updated? Are there parts of 

Medicare that need to be reshaped, so that in-home services can be 

enjoyed, in terms of reimbursement, where often the only 

reimbursements are now in a hospital setting. 

 I think that we have a lot of work to do on this, and I want to 

commend my colleagues for their opening statement, both Mr. 

Ferguson’s and Mr. Pallone’s, because I think they have touched on a lot 

of things. But this is very large, it is very broad, it is very deep, and for 

those of us that are sitting here talking about it, it is going to affect us, 

too. So, it is in all of our interests to have a system that is going to speak 

both publicly and privately to all Americans. 

 So, I look forward to the testimony that is going to be offered today, 

and thank you, Mr. Chairman, for holding the hearing. 

 MR. DEAL. I thank the gentlelady. Ms. Capps is recognized for an 

opening statement. 
9

 MS. CAPPS. Thank you, Mr. Chairman, and I, too, thank you for 

holding this hearing today, and thank our witnesses for being part of it. 

 And you know, we spend a lot of time in this body, but in our 

country as well, as more and more people are aging, thinking about 

retirements, later years. We have debated Social Security this year. We 

have had the Medicare Modernization Act, and we are trying to enroll 

people and so forth, but very seldom do we really sit down and talk about 

long-term healthcare, and I am glad for this hearing for that reason. I 

think it is the choir in here that we are all kind of speaking to. Whether 

we have individual differences, we are here because we agree that this is 

a topic that needs to be addressed, and that is the most significant part of 

today’s hearing, in my opinion. 

 We should be really intensifying our efforts in this direction, but 

there is so much else on our plate. Yet that has been the problem. I 

think it was about a year ago, we had one other hearing on this. We have 

pieces of legislation here and there, but what we do need to acknowledge 

is what we all spend time thinking about as we grow older, as we live 

with loved ones and family members who are facing really tough 

decisions, because of certain lacks in our communities, in our society, 

both in programs and opportunities, resources, and the rest. But these 

have to do with the kind of life we envision having in our older age, 

having security for independent living, whatever that setting might be, 

having adequate housing and assistance. As a nurse, I have often worked 

with my colleagues in discussing a continuity of care as people become 

less able to care for their own needs in whatever that setting would be. 

 So I am looking forward to a serious discussion of ways in which we 

can empower people to plan for the long-term care that they and their 

loved ones know they are going to be needing, if not needing 

immediately. It is on everybody’s mind. We should be encouraging 

young people to prepare for this, and there is long-term healthcare 

insurance, so that people can have greater freedom to choose, but 

unfortunately, so few people can take advantage of this, the only 

opportunity that I know of to really kind of look ahead, and do the kind 

of specific planning for long-term care needs. 

 That means that we have an obligation here in this body, and this 

subcommittee has an obligation, I believe, to work together to develop a 

greater safety net, call it whatever we want to call it, for seniors and 

others who really look to us to provide some of their needs for long-term 

healthcare. 

 We are way behind in this country, from countries in Europe and 

other places, in our care for elderly, and I think it is time we catch up, 

and as Frank Pallone and Anna Eshoo, my colleagues, have illustrated, it 

is not just about turning 65 and older. Those with severe impairments, 
10

developmental disabilities from a very young age, will not have had time 

to sign up for long-term healthcare, or any kind of insurance. They 

probably do not have the assets for this. Who is looking out for their 

needs? They deserve to be cared for, too, and we can’t simply turn this 

burden over to family members, who aren’t really equipped always to 

provide for the best quality of care. 

 So we have a burden, we have a responsibility, we also have an 

opportunity. We have an opportunity to provide the right kind of 

leadership in this place, that calls upon the private sector, that calls forth 

the programs and agencies that do exist in our communities, that want to 

be partnering with us. None of us can do this alone, but the leadership 

really has to come from this place, and I call it a moral responsibility of 

society to care for those who are in situations where they cannot care for 

themselves. 

 Thank you. I went past my time. I am sorry. 

 [Additional statements submitted for the record follows:] 

PREPARED STATEMENT OF THE HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF WYOMING

Thank you Mr. Chairman. 

Today we have an opportunity to take a closer look at long-term care for individuals 

unable to manage for themselves even the most common daily activities many of us take 

for granted. 

As Medicaid is the largest source of government payment for long-term care, the 

issue presents a tremendous fiscal challenge as our population ages. Often overshadowed 

by problems facing Social Security and Medicare, long-term care expenditures are 

projected to go up from $195 billion in 2004 to $540 billion by 2040. These numbers 

could be even larger if impairment prevalence increases. 

This is disturbing considering that no more than 10 percent of seniors in our nation 

currently have long-term care insurance. The number of individuals annually enrolling in 

these plans tripled to 900,000 from 1988 to 2002, but more can be done. I hope our 

panelists today will help shed light on options at our disposal to encourage planning 

among our middle-income earners, helping them avoid Medicaid dependency. 

From using reverse mortgages and home equity loans to help today’s seniors deal 

with the cost of long-term care, or using targeted tax incentives to encourage enrollment 

among our future seniors, there are potential market-based solutions that may ultimately 

prove to be more efficient and cost-effective than relying solely on public funding. 

Today we’ll also have the opportunity to discuss issues relating to caregivers and 

caregiver training. As our population ages, the demand for these workers, and the hands 

on support they provide, will go up. 

We have over 70,000 Medicare beneficiaries in Wyoming out of our population of 

half a million. Our total number of seniors is even higher. Wyoming is truly a frontier 

state when it comes to access to healthcare, and we are home to plenty of seniors who 

currently face challenges in receiving reliable care. 

The last thing a Wyoming senior should have to worry about is whether there will be 

someone to take care of them when the time comes. I will look to our panelists today for 

guidance on what we can do on the federal level to foster a favorable climate for this 

profession, and the seniors it serves. 
11

Thank you Mr. Chairman. 

PREPARED STATEMENT OF THE HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF MICHIGAN

Currently, more than ten million Americans need long-term care services, and this 

number will only grow larger as our population ages. Planning for long-term care is an 

important and complex issue that should be carefully examined by the Committee. I 

thank the Chairman for calling this hearing, and thank all of the witnesses who are here to 

today to share their knowledge. 

Much of today’s hearing will focus on long-term care planning for the elderly, and 

several questions need to be addressed. First, where do the disabled fit in? Private 

market solutions advanced by some of the witnesses will offer little aid for those living 

with disabilities. These individuals are unlikely to even qualify for a long term care 

insurance policy. And few of those living with disabilities have home equity that would 

enable them to tap reverse mortgages as an option. I hope that as we move forward on 

this matter we do not forget the millions of younger Americans with disabilities who have 

long-term care needs. 

Second, what about those with limited financial means? While private market 

solutions have a role to play in helping meet the growing need for long term care, those 

solutions are most accessible to those with higher incomes. I believe we should also look 

at building a strong public foundation for long-term care for those who cannot afford 

private options. 

Third, how accountable will private market solutions be? Health and welfare 

security is too important to be left solely to private industry with a profit motive. As we 

examine private options, it is critical that we have standards in place to ensure that 

consumers can obtain quality products, at affordable prices, that they can depend upon 

when needed. There will need to be a strong public role in overseeing the operations of 

the private market. 

Fourth, what is the real cost of the private market solutions? Today we will hear 

about how barriers can be eliminated so that more people will be encouraged to purchase 

long term care insurance and reverse mortgage products through changes in the tax code. 

Unfortunately the tax code is often an inefficient way to encourage these kinds of actions. 

It accrues benefits to primarily wealthier individuals, and inefficiently targets those 

resources with benefits often going to those who have already purchased such coverage. 

Public programs can be more efficient at targeting our scarce resources where they are 

needed. 

Fifth, does planning for long term care at a national level include ensuring there are 

enough care-givers to meet the growing demand? As we will hear in today’s testimony, 

there is already a shortage today, and it will only grow worse as the baby boomers age. A 

majority of long-term care is provided informally, which means care is provided for free 

through family or friends. It is important that we take time to understand what options 

might be used to expand the use of trained and interested informal caregivers. But 

informal care is not the answer to a workforce shortage that is already reported by a 

majority of States. A paid care-giver workforce is important to supplement informal care 

or provide respite for informal caregivers. We need to ensure that these caregivers 

receive adequate wages and benefits if we hope to fill this shortage. 

Finally, how can we as a Nation plan for long-term care without having a strong 

safety net in place? Medicaid is an essential component to any realistic discussion of 

long-term care, and we should be talking about strengthening it. The Deficit Reduction 

Act took us in the wrong direction. 
12

This country needs to have a coherent long term care policy. I thank the Chairman 

again for holding this hearing and thank the witnesses for being here to educate us about 

this important issue. 

 MR. DEAL. It is all right. 

 I am pleased to introduce our first panel today, on the topic that is the 

issue of discussion, that is, planning for long-term care: Dr. Barbara 

Stucki, who is Project Manager of the National Council on Aging; Dr. 

Joshua M. Wiener, Senior Fellow and Program Director, Aging, 

Disability, and Long-Term Care, RTI International; Ms. Karen Ignagni, 

who is the President and CEO of American Health Insurance Plans; Mr. 

Greg Jenner, Executive Vice President, American Council of Life 

Insurers; and Dr. Byron Thames, Board Member, AARP. 

 Ladies and gentlemen, we are pleased to have you here. We have 

your statements that are made a part of the record, and I would ask you in 

the 5 minutes that we allot to each of you to try to summarize those 

issues, and hit the high points for us, and with that, Dr. Stucki, we will 

recognize you first. Pull that a little closer, and probably press the button 

to make it work. 

 DR. STUCKI. There. Is that working? Yes. 

 MR. DEAL. Pull it a little closer. 

STATEMENTS OF DR. BARBARA R. STUCKI, PROJECT 

MANAGER, NATIONAL COUNCIL ON AGING; DR. 

JOSHUA M. WIENER, SENIOR FELLOW AND PROGRAM 

DIRECTOR, AGING, DISABILITY AND LONG-TERM 

CARE, RTI INTERNATIONAL; KAREN IGNAGNI, 

PRESIDENT AND CEO, AMERICAN HEALTH INSURANCE 

PLANS; GREG JENNER, EXECUTIVE VICE PRESIDENT, 

AMERICAN COUNCIL OF LIFE INSURERS; AND DR. 

BYRON THAMES, BOARD MEMBER, AARP 

 DR. STUCKI. Okay. Here we go. Good afternoon, Mr. Chairman 

and members of the subcommittee. My name is Barbara Stucki. 

 Over the past 13 years, I have been conducting research on privatesector financing for long-term care. I currently manage the Use Your 

Home to Stay at Home Initiative for the National Council on Aging. I 

would like to thank you for providing the NCOA the opportunity to 

testify about the need to include home equity as an essential element of 

long-term care planning. 

 The recent passage of the Deficit Reduction Act, which includes 

limits on home equity for Medicaid eligibility, sends a strong message to 

Americans that housing wealth will now be part of the long-term care 

financing mix. Americans want to continue to live at home as they grow 
13

older, even if they need help with everyday activities, but many 

impaired, older homeowners are unprepared for the financial challenges 

that can come with a chronic health condition. 

 This is true not only for cash-poor seniors, but also for middle 

income families who often struggle to pay for the extra cost of help at 

home. Today, there are two main planning tools to deal with these 

challenges. One option is to buy long-term care insurance, which often 

occurs before retirement. The more common approach is to rely on 

income and savings, and hope for the best. When seniors rely on this 

pay-as-you-go strategy, they often need to turn to Medicaid. Tapping 

home equity offers a third alternative that fills an important gap. 

 By taking out a reverse mortgage, impaired older homeowners can 

convert a portion of their home equity into cash, while they continue to 

live at home for as long as they want. Reverse mortgages have many 

unique features and strong consumer protections that make these loans an 

important option for impaired elders. In addition, reverse mortgages do 

not require the borrower to make monthly payments, so borrowers are 

not at risk for losing the house, as they could be with a conventional 

mortgage loan. 

 What is the potential of reverses mortgages for long-term care as a 

planning tool? In 2003, the median home value among seniors was over 

$122,000. Over 80 percent of people aged 65 and older are homeowners. 

We estimate that over 13 million older homeowners are candidates for 

using a reverse mortgage to pay for long-term care. Of these, about 5 

million either receive Medicaid benefits, or face the financial risk for 

needing government to help with long-term care. 

 Encouraging the use of home equity can help to rapidly reduce the 

need for government assistance by strengthening an elder’s ability to age 

in place. The proceeds of a reverse mortgage are tax free, and can be 

used to pay for a wide array of unmet needs, including help with daily 

activities, home repairs and modifications, and transportation. This 

flexibility offers an important new way to supplement and strengthen 

Medicaid and private insurance, by first providing resources sooner to 

keep small problems from becoming a major catastrophe. Second, by 

increasing flexibility in the household budget, to help seniors cope with 

the financial ups and downs that often come with declining health and 

ability, and third, by strengthening the ties of reciprocity that underlie the 

networks of informal support for elders. 

 Despite the potential of reverse mortgages, older Americans have not 

been using their substantial housing assets to pay for aging in place. 

Instead, home equity is usually liquidated by selling the house, often in a 

crisis situation, to pay for nursing home care. We believe that there can 

be a better way. 
14

 To encourage more effective use of home equity, it would help to 

create a new public/private partnership demonstration program for 

reverse mortgages. Under this partnership, homeowners with moderate 

incomes who use a certain portion of their home equity to pay for home 

and community services could be allowed to protect some or all of their 

assets from Medicaid spend-down requirements. There are similar 

initiatives already underway to create such incentives for aging in place, 

such as the Reverse Mortgage Incentive Program that is being considered 

in Minnesota. Efforts such as these indicate State interest in this type of 

approach, and can provide guidance for the development of a partnership 

program. 

 Another important resource is the new National Clearinghouse for 

Long-Term Care Information. NCOA would like to thank the committee 

for creating the Clearinghouse to educate Americans about long-term 

care. It will be important that the Clearinghouse include information and 

decision support tools to help elders and their families make wise 

decisions on the use of home equity and reverse mortgages. 

 In conclusion, NCOA believes that reverse mortgages have the 

potential to be a powerful force for systems change. With over $2 

trillion tied up in the homes of older Americans, home equity can help to 

rebalance our Nation’s long-term care delivery system, integrate 

financing for housing and supportive services for seniors, and create new 

opportunities for public/private partnerships. 

 With supportive public policies, appropriate incentives, and careful 

protections, the voluntary use of reverse mortgages offers an additional 

option for impaired older Americans to take action today, and to use their 

existing resources more effectively. 

 Thank you. 

 [The prepared statement of Dr. Barbara R. Stucki follows:] 

PREPARED STATEMENT OF DR. BARBARA R. STUCKI, PROJECT MANAGER, NATIONAL 

COUNCIL ON AGING

Good afternoon, Mr. Chairman and Members of the Subcommittee. My name is 

Barbara Stucki. Over the past 13 years, I have been conducting research on private sector 

financing for long-term care. I currently manage the Use Your Home to Stay at Home 

Initiative for the National Council on Aging (NCOA). I would like to thank you for 

providing the NCOA the opportunity to testify about the need to include home equity as 

an essential element of long-term care planning. 

Americans want to continue to live at home as they grow older, even if they need 

help with everyday tasks (termed “age in place”). Many impaired older homeowners, 

however, are unprepared for the financial challenges that can come with a chronic health 

condition. This is true not only for cash-poor seniors, but also for middle-income families 

who often struggle to pay the extra cost of help at home. When family budgets become 

strained due to unexpected long-term care expenses, impaired elders often turn to 
15

Medicaid for support. Due to the high cost of nursing homes, elders who get help in 

institutional settings are especially vulnerable to spending-down to Medicaid. 

We believe that reverse mortgages offer important opportunities to rapidly reduce 

the need for government assistance by strengthening an elder’s ability to age in place. 

Over 80 percent of people age 65 and older are homeowners.1

 For many older Americans, 

home equity is the most important financial resource to increase their resilience to the 

financial shocks that can come with declining health and ability. These added resources 

can help impaired elders to both avoid a costly crisis, and to plan ahead for these needs. 

Greater use of home equity among older homeowners has the potential to reduce their 

risk of needing Medicaid by: 

 Providing resources sooner to keep small problems from becoming major 

catastrophes. 

 Increasing flexibility in the household budget to help seniors to pay a wide 

array of expenses associated with aging in place, and to reduce the financial 

shocks that often come with declining health and ability. 

 Strengthening ties of reciprocity that underlie the networks of informal support 

for elders. 

Encouraging older Americans to use reverse mortgages to “age in place” also can 

offer a more effective and equitable approach to reducing taxpayer burdens for long-term 

care than limiting Medicaid eligibility or benefits. With over $2 trillion tied up in their 

homes, home equity has the potential to help to rebalance our nation’s long-term care 

delivery system, integrate financing for housing and supportive services for seniors, and 

create new opportunities for public-private partnerships. 

Home Equity – A New Resource for Long-Term Care Planning 

Americans of all ages value their ability to live independently. But without careful 

planning, living at home with an impairment may be difficult. A serious fall or chronic 

illness can quickly drain hard-earned retirement dollars. Maintaining adequate cash flow 

can also become problematic when the need for supportive services fluctuates from 

month to month. Families who are assisting elders with a progressive chronic condition, 

such as Alzheimer’s disease, face considerable uncertainty in trying to budget funds to 

provide help for many years. 

Currently, there are two main financial strategies to deal with these challenges. One 

option is to purchase long-term care insurance before retirement, when a person is 

healthy and premiums are affordable. The more common approach is to rely on income 

and savings, and hope for the best. Most seniors today rely on this “pay as you go” 

approach, and often to turn to Medicaid and other public programs for assistance when 

they come up short. 

Tapping home equity offers a third alternative for homeowners who could not 

prepare for this need with private long-term care insurance or savings (Figure 1). By 

taking out a reverse mortgage, older homeowners can convert a portion of their home 

equity into cash while they continue to live at home for as long as they want. To qualify, 

all owners of the property must age 62 or older. Borrowers do not need to make any loan 

payments for as long as they (or in the case of spouses, the last remaining borrower) 

continue to live in the home as their main residence. When the last borrower moves out 

of the home or dies, the loan becomes due. 

 

1

 Callis, Robert R. and Cavanaugh, Linda B. (2004). Census Bureau Reports on Residential 

Vacancies and Homeownership. Washington, DC: United States Department of Commerce News, 

CB04-179. 
16

Figure 1. Reverse Mortgages – A New Planning 

Tool for Aging in Place

50 60 70 80 90

Age

LTC Insurance

Medicaid 

planning

Plan Ahead Crisis

Reverse 

mortgage

Aging in 

Place

If used wisely, reverse mortgages can pay for preventive measures and day-to-day 

support so that impaired elders can continue to live at home safely and comfortably for 

many years. As an immediate long-term care financing tool, these loans also have the 

potential to reduce the risk that impaired elders and their families will to turn to Medicaid 

in times of crisis. The following example highlights the potential benefits if a homeowner 

with $150,000 in home equity took out this loan: 

Scenario #1: Janet Zibley (age 85) has arthritis, which makes it difficult for her to 

manage on her own. She pays a neighbor $1,000 per month to help around the 

house. But when she needs more assistance from a home health aide, her monthly 

bill for services can be over $3,000. At her age, Janet could receive $102,378 from 

a reverse mortgage. Her line of credit could cover monthly expenses of $1,000 for 

over 13 years, or $3,000 each month for over 3 years, at the current interest rate. 

When an unstable health condition disrupts the family budget, it can be easy to come 

up short when it is time to pay the bills. A reverse mortgage credit line can help manage 

cash flow since the money is available when needed. Borrowers only pay interest on the 

amount that they use. 

Strengthening the Safety Net 

Shifting the focus of long-term care from the facility to the home has profound 

implications for the amount, timing, and sources of funding that will be needed. When a 

person develops a chronic health condition such as diabetes, arthritis, or Alzheimer’s 

disease, aging in place means more that just staying put. They will need a place to live 

that is safe and fits with their abilities. As driving becomes difficult, it is important to 

have reliable and affordable transportation. Extra funds for family caregivers or for home 

modifications (such as a ramp or lift) can extend the time that an impaired elder can live 

at home. 
17

One of the challenges of our current long-term care financing system is that it is 

based primarily on insurance approaches. Insurance works best to protect against 

catastrophic costs, such as nursing home care. However, this financing mechanism is not 

appropriate to deal with everyday expenses, such as weekly transportation to the doctor 

or help with household chores. These expenses can still be a big burden on the family 

budget, and can increase the risk for spend-down among impaired elders on a fixed 

income. 

Reverse mortgages can supplement and strengthen insurance-based long-term care 

financing strategies by offering older homeowners more flexibility to fill unmet needs 

and critical gaps in services. Proceeds from a reverse mortgage are tax-free, and 

borrowers can use these funds for any purpose. Borrowers can select to receive payments 

as a lump sum, line of credit, fixed monthly payments (for up to life in the home) or in a 

combination of payment options. 

Home equity can be the “glue” that holds an elder’s financial plans together when 

they have a chronic health condition. Consider the potential value of a reverse mortgage 

if a family that lives in a house that is in good repair and worth $150,000 took out this 

loan. They own their home free and clear of any debt: 

Scenario #2: Tom and Jill Smith (ages 69 and 65) bought long-term care insurance 

that will pay for services when they need help with personal care (such as bathing, 

dressing, or eating) or supervision due to Alzheimer’s disease. For now they can 

still manage on their own, but want to add a bathroom downstairs to reduce the 

strain of climbing the stairs. Based on Jill’s age, the Andersons would receive 

$66,104 from their reverse mortgage. They could take $20,000 of the loan to install 

a new bathroom. They could keep the rest ($46,104) in a line of credit. These funds 

could be used to meet any additional expenses before they become eligible for 

services under their long-term care insurance policies. 

This story highlights how people with a chronic condition can have a variety of 

unmet needs, even with good financial planning. 

Another limitation of Medicaid and private long-term care insurance is that they are 

designed to help seniors cope with a severe mental or physical impairment after it has 

occurred. In contrast, reverse mortgages can reduce long-term care risks by paying for a 

wide array of early interventions that help impaired elders avoid a crisis. A high 

proportion (46 percent) of older homeowners have a functional limitation, such as 

difficulty with climbing stairs or carrying groceries, that may make it hard for them to 

continue to live at home safely.2

 While these impairments are modest, they can have 

serious consequences if they lead to bigger problems such as malnutrition or debilitating 

injuries. 

Potential of Reverse Mortgages 

In the past few years, there has been a dramatic increase in the volume of reverse 

mortgages made nationwide, reaching over 195,000 loans originated in total.3

 Low 

mortgage rates, combined with growing awareness of this loan, have significantly 

increased the popularity of reverse mortgages. 

Older homeowners can select from several different types of reverse mortgages. These 

include: 

 Home Equity Conversion Mortgage (HECM) – This program is offered by the 

Department of Housing and Urban Development (HUD) and is insured by the 

FHA. HECMs are the most popular reverse mortgages, representing about 90% 

of the market. 

 

2

 Stucki, B. (2005). Use Your Home to Stay at Home. Washington, DC: National Council on Aging. 3

 National Reverse Mortgage Lenders Association Year-By-Year HECM Production (1990-Present). 

From www.nrmalonline.org, retrieved 5/15/06. 
18

 Fannie Mae Home Keeper loan - Borrowers can receive more cash from these 

loans than with a HECM since the loan limit for this product is higher. 

 Financial Freedom Cash Account loans – This product is beneficial for seniors 

who own homes that are worth more than $400,000 since there is almost no 

maximum loan limit. 

As private residences continue to appreciate in value, their equity grows as a 

financial resource. The median home value among people age 65 and older in 2003 was 

$122,789. The amount that reverse mortgage borrowers can receive is based primarily on 

the value of the home, the type of loan, and the current interest rate. A HECM loan at 

today’s interest rate for a house worth $122,789 could range from $52,950 for a borrower 

age 65, to $67,261 for a borrower age 75, to $82,884 for a borrower age 85. 

When the last borrower dies or moves out of the home, the reverse mortgage 

becomes due and needs to be paid. How much equity will be left at this point depends on 

the amount of money used from the loan, how long the loan was kept, interest rates, and 

any home appreciation. If, at the end of the loan, the loan balance is less than the value 

of the home, then the borrower or heirs get to keep the difference. An important 

protection offered by reverse mortgages is that the borrower (or heirs) will never owe 

more than value of the home at the time they sell the home or repay the loan. This is true 

even if the value of the home declines. 

Figure 2. Candidate households to use a 

reverse mortgage for aging in place

27.5 million households age 62+ in 2000

21.5 million own a home

15 million would likely qualify for a reverse mortgage

13.2 million could receive at least $20,000 from a 

reverse mortgage (48%)

Source: NCOA (2005). Use Your Home to Stay at Home. Analysis based on data from the 2000 Health and Retirement 

Study.

Based on our analysis of data from the 2000 Health and Retirement Study, we 

estimate that a total of 13.2 million (48 percent of the 27.5 million elder households) are 

candidates for using a reverse mortgage to pay for long-term care (Figure 2). These 

households would likely meet the requirements to qualify for this type of loan. In 

addition, they would likely receive a loan worth at least $20,000 based on their age and 

the value of their home. 
19

Medicaid and Reverse Mortgages 

Until recently, policymakers have largely favored preserving the home of impaired 

elders. The passage of the Deficit Reduction Act of 2006, which includes limits on home 

equity for Medicaid eligibility ($500,000 or less, up to $750,000 at state discretion), now 

sends a strong message to Americans that housing wealth will be part of the long-term 

care financing mix. As a result, impaired elders who have a large amount of equity in 

their home will be more likely to consider using a reverse mortgage. The law explicitly 

allows elders to use this financing tool to reduce home equity to meet Medicaid eligibility 

levels. 

We believe that Medicaid could also benefit from voluntary initiatives to encourage 

impaired elders with modest housing assets to tap their home equity. An important target 

for these efforts are older homeowners who are most likely to turn to public programs for 

assistance. We estimate that among the 13.2 million households that are likely candidates 

for a reverse mortgage, about 5.2 million (39 percent) either receive Medicaid benefits or 

are at financial risk for needing government assistance (Figure 3). This vulnerable 

population includes distinct subgroups, each of which will likely respond differently to 

incentives for reverse mortgages. 

Pre-Medicaid population – These elder households are important from a policy 

standpoint because their limited financial resources place them at greatest risk for turning 

to public programs should they need long-term care. The group that may benefit most 

from incentives for reverse mortgages may be spend-down risk households. These 

households are primarily composed of “tweeners,” elders whose financial resources are 

sufficient to pay for everyday expenses but not to handle substantial out-of-pocket 

payments for services and supports at home. These elders may be able to qualify for 

Medicaid by depleting their income and assets to pay for long-term care (termed “spenddown”) in the community. 

For many tweeners, home equity is their main financial buffer against substantial 

medical and long-term care expenses. For these elders, uncertainty about future health 

expenses can make getting a reverse mortgage seem like a risky proposition. Borrowers 

who spend their equity at an earlier stage will have fewer financial resources when they 

become more severely impaired. Tweeners might be encouraged to tap home equity by a 

public-private partnership program that would provide additional protections and help 

them to leverage their limited assets so they can stay home longer. 
20

Figure 3. Candidate households are on or 

at financial risk for Medicaid

Medicaid 

beneficiary (3%)

0.44 million

Low financial 

risk for 

Medicaid (61%)

8.03 million

High financial risk for 

Medicaid (11%) 

1.40 million

Spenddown risk (25%) 

3.32 million

N=13.2 million older households who are candidates for a reverse mortgage for aging in place

Source: NCOA (2005). Use Your Home to Stay at Home. Analysis based on data from the 2000 Health and 

Retirement Study.

Medicaid long-term care beneficiaries – Though Medicaid beneficiaries may be 

receiving home and community services, additional cash from reverse mortgages can 

help cover unmet needs while providing greater choice and control over services. A 

significant challenge for these elders who live at home is the strict financial eligibility 

requirements for Medicaid Home and Community Based Services (HCBS). States that 

restrict the income available to HCBS beneficiaries, and limit spousal protections, often 

place these older homeowners at risk for moving to the nursing home since they are left 

with few resources to pay everyday expenses or to deal with financial emergencies such 

as a leaky roof. 

To increase the financial resilience of these elders, Medicaid could allow HCBS 

beneficiaries to supplement their benefits with the proceeds of a reverse mortgage. These 

additional funds could make a critical difference in their ability to pay for the expenses 

associated with living in the community. This approach could also provide additional 

support to family caregivers. 

Implementing this strategy will require changes to limitations on supplementation 

under Medicaid. Currently, beneficiaries are not allowed to receive additional financial 

assistance from other sources, since Medicaid is seen as a payer of last resort. One option 

would be to develop a plan of care for beneficiaries that would include everyday 

expenses that could be covered by the loan. This approach to using home equity would 

need to be evaluated carefully, to take into consideration such factors as the presence of a 

spouse. 

Our research indicates that only about 3 percent of older homeowners are Medicaid 

beneficiaries. This may reflect the fact that these elders have few financial resources, 

including housing wealth. However, recent research suggests that other factors may also 

be at work. In particular, older homeowners who face nursing home stays of 100 days or 

longer are more likely to sell the home than those who do not need such lengthy care in a 

facility. 
21

Reverse mortgages could make it easier for Medicaid nursing home beneficiaries 

who still own a home to transition from the facility to the community, if this is their 

wish. Loan funds could pay transition expenses and cover care management costs that 

facilitate a move from the institution to community living. These funds could also help 

impaired elders to pay for substantial home modifications and other assistance not 

covered by Medicaid, that can help them to stay at home. 

Expanding the Use of Home Equity Through Public-Private Partnerships 

Despite the potential of reverse mortgages, older Americans have not been 

encouraged to tap into their substantial housing assets to pay for home and community 

long-term care services. Instead, home equity is usually liquidated by selling the house, 

often in emergency situations, to pay for nursing home expenses. 

Getting people to adopt new behaviors is never easy. This is especially true for 

reverse mortgages, since the idea of tapping home equity for aging in place is a relatively 

new concept. A new public-private partnership demonstration program for reverse 

mortgages would play an important role to identify the right kind of incentives and 

messages that will get older homeowners to take action. Such a program could expand 

the options for impaired older homeowners, and encourage them to tap the equity in their 

homes sooner to avoid a crisis. 

Elements of a partnership program for reverse mortgages. The model for this 

new public-private partnership program for reverse mortgages could be the existing 

Long-Term Care Partnership Program (LTC Partnership). The goal of the LTC 

Partnership is reduce Medicaid expenditures by encouraging the purchase of private longterm care insurance as a way to delay or eliminate the need for policyholders to rely on 

Medicaid. Individuals who buy designated partnership policies are allowed to protect 

some or all of their assets from Medicaid spend-down requirements, should they exhaust 

their insurance benefits and need public assistance for long-term care. Under this 

program, policyholders must still meet Medicaid income requirements. 

A similar approach could be used to encourage older homeowners with moderate 

incomes to take out a reverse mortgage to fund their long-term care needs rather than 

relying on Medicaid. Under this type of partnership, borrowers who use a certain portion 

of the equity in their homes to pay for home and community services could receive more 

favorable treatment under Medicaid’s asset rules. One issue would be whether borrowers 

would still need to meet Medicaid income requirement. Impaired older homeowners who 

participate in a reverse mortgage partnership program would likely need these funds to 

help them to continue to live at home once they qualified for Medicaid. 

In developing this type of public-private initiative for reverse mortgages, there will be 

many issues that go beyond the framework of the LTC Partnership. These include: 

 Determining which types of expenditures, including paying for such items as a 

new furnace or support for family caregivers, qualify as “long-term care 

services” to meet Medicaid requirements under the partnership program. 

 Monitoring the use of reverse mortgage funds, to ensure that they are being 

used appropriately. 

 Determining the amount of home equity that would meet the program criteria to 

receive more favorable treatment of assets under Medicaid. 

 Identifying the loan payment options (lump sum, line of credit, monthly 

payment) that will be allowed under the reverse mortgage partnership program. 

 Prioritizing access to services and supports under a state HCBS program for 

participants in the reverse mortgage partnership program who want to continue 

to live at home. 

One of the benefits of a reverse mortgage is that they can currently be used for any 

purpose, including to pay for a wide array of services and supports, as needed. This 
22

flexibility will also create additional challenges to ensure that the loan funds are being 

used as intended under the partnership program. 

Example from Minnesota. Many of these issues were recently tackled by 

policymakers, along with aging and housing experts, in the State of Minnesota, who 

developed a model reverse mortgage incentive program targeting older homeowners at 

risk of needing nursing home care. This effort was conducted as part of an ongoing study 

that is being funded by the Assistant Secretary for Planning and Evaluation (ASPE) and 

the Administration on Aging (AoA), and directed by NCOA and the Lewin Group. 

The proposed program, which is being considered by the Minnesota Legislature, 

would combine education and counseling, with reduced reverse mortgage closing costs 

and assistance in the home through the state’s Alternate Care program. Older people with 

modest value homes (worth up to $150,000) who need supportive services that are not 

paid by government programs would qualify for reverse mortgage incentives. These 

would include up to $1,500 to pay the upfront mortgage insurance premium for a HECM 

loan, and reduced servicing fees. To qualify for help at home under the Alternate Care 

program, program participants would need to use up the proceeds of their reverse 

mortgage loan, or spend substantially all of the payments from a reverse mortgage to pay 

for services for a period of at least 24 months or in an amount of at least $15,000. Besides 

help at home, these services and supports could include basic shelter needs, home 

maintenance, and modifications or adaptations, necessary to allow the person to remain in 

the home as an alternative to a nursing facility placement. Participants would be required 

to spend the proceeds of their loan according to their individual spending plan. Those 

who used home equity to qualify for Alternate Care program would not be required to 

pay a monthly participation fee for the program, nor would they be subject to an estate 

claim by the state for the services they received. 

Minnesota believes that the program would add another layer of access to services 

and supports for this vulnerable population. In addition, the program could free up some 

public resources and may influence when and where these elders access public assistance 

in the future. 

Reducing Loan Costs 

Many seniors are deterred by the substantial upfront costs of reverse mortgages. 

Today, a 75-year-old HECM borrower with a home valued at $150,000 would have to 

pay $6,000 in closing costs on a loan worth $83,490. These closing costs (the origination 

fee paid to the lender and the upfront mortgage insurance premium required by HUD) 

represent a significant amount of the money that could be available to pay for long-term 

care. Additional costs include other loan-related fees (such as title search and inspections) 

and any repairs that the house may need to meet minimum HUD requirements. 

To help reduce their long-term care expenditures, state Medicaid programs could be 

allowed to subsidize mortgage insurance, origination fees, and other closing costs for 

long-term care beneficiaries. Such incentives could make this financing option more 

attractive to elders with limited liquid resources, including Medicaid beneficiaries who 

live in the community, and increase the amount of funds available to them. 

The costs associated with taking out a reverse mortgage become even more critical 

for impaired elders. These seniors are likely to be older and poorer than typical reverse 

mortgage borrowers. It will be important for the Department of Health and Human 

Services to work with HUD and the mortgage industry to identify ways to reduce the cost 

of HECM loans for this vulnerable population. 

Strengthening Consumer Protections 

The market for reverse mortgages will continue evolve rapidly over the next few 

years in response to growing consumer interest in these loans. How these changes unfold 

will hold significant policy implications for our aging society. With so much wealth tied 
23

up in the home, the decisions that older homeowners make about this financial asset can 

significantly impact our nation’s ability to balance public and private funding for longterm care and to respond to consumer preferences for aging in place. The public sector 

will need to play an active role to ensure that these developments include strong 

consumer protections and appropriately serve the needs of older Americans. 

Despite the promise of reverse mortgages, few older homeowners are interested in 

tapping home equity for long-term care, often due to a lack of understanding about how 

these loans work. An important new resource to help address this barrier is the 

establishment of the National Clearinghouse for Long-Term Care Information, as part of 

the Deficit Reduction Act of 2006. NCOA would like to thank the Committee for 

creating this resource to educate Americans about long-term care. It will be important 

that the Clearinghouse include information and decision-support tools to help elders and 

their families make wise decisions on the use of home equity and reverse mortgages as a 

planning tool for aging in place. 

A unique feature of reverse mortgages is that all borrowers must first meet with a 

HUD-approved reverse mortgage counselor before their loan application can be 

processed or they incur any costs. The main objective of this counseling is to educate 

potential borrowers about the appropriateness of these loans to address their financial 

needs and situation. We commend HUD for its recent efforts to expand counseling to 

address the unique needs of older homeowners who are considering a reverse mortgage 

so they can continue to live at home. The AoA is also playing a key role in providing the 

infrastructure for more in-depth counseling on reverse mortgages for aging in place 

through its Aging and Disability Resource Centers. 

Ongoing discussions and joint actions by government, industry, and the private 

nonprofit sectors will be critical to overcome a wide array of barriers to the use of reverse 

mortgages, and to create a substantial “win-win” for government and consumers in the 

near future. Close collaboration between CMS, AoA and HUD should be encouraged as 

part of Federal policy, to achieve this goal. 

Conclusions 

As the population ages and the pressure on state Medicaid budgets rises, it becomes 

increasingly important to find effective ways to improve our long-term care financing 

system. Funding the growing demand for long-term care is a major national challenge 

that will require increased spending by both the public and private sectors. 

Reverse mortgages have the potential to be a powerful force for system change, and 

to expand the boundaries of what is possible in using private funds to finance home and 

community services. Using this asset as a planning tool for aging in place could 

significantly enhance the resilience of older Americans to the financial risks of long-term 

care. If used wisely, a reverse mortgage can help borrowers to live with independence 

and dignity for many years. With supportive public policies, appropriate incentives, 

careful protections, and innovative products, the voluntary use of reverse mortgages may 

offer additional options for impaired older Americans to take action today, and use their 

existing resources more effectively. 

 MR. DEAL. Thank you. I mispronounced it. It is Stucki. 

 DR. STUCKI. Stucki. 

 MR. DEAL. I am accustomed to the Stuckeys from Georgia. You 

will have to excuse my pronunciation. 

 Dr. Wiener. 
24

DR. WIENER. Mr. Chairman and members of the committee, thank 

you for this opportunity to discuss one of America’s greatest challenges, 

the financing and organization of long-term care. 

 My name is Joshua M. Wiener. I am a Senior Fellow and Program 

Director for Aging, Disability, and Long-Term Care at RTI International, 

a nonprofit, nonpartisan research organization. I have conducted 

research and policy analysis on long-term care since 1975. In my 

testimony today, I would like to make six points. 

 First, the aging of the Baby Boom generation will dramatically 

increase demand for long-term care, but it will not be unaffordable. The 

likely increase in demand for long-term care has led some observers to 

forecast an apocalyptic situation, where the financial burdens become so 

great that they will be unbearable for our society. But, though nobody 

knows the future for sure, this doomsday scenario seems unlikely. 

According to the Congressional Budget Office, total long-term care 

expenditures for older people are projected to increase from 1.3 percent 

of the gross domestic product in 2000 to 1.5 to 2 percent of the GDP in 

2040. My own, earlier projections are in this range, although I would put 

them slightly higher today. Within a healthcare system that is already 18 

percent of GDP, these changes are relatively modest. 

 Second, the United States faces a serious problem recruiting and 

retaining high quality long-term care caregivers. This will be discussed 

in detail by the second panel, but the key point is that, although there is 

some possibility for technological fixes, long-term care is fundamentally 

a hands-on service provided by people, not machines. Over the long run, 

there is a major demographic imbalance between the number of people 

likely to need long-term care services and the number of people available 

to provide those services. The ratio of people aged 20 to 64, the working 

age population, to the number of people aged 85 and older, the 

population most likely to need long-term care services, is projected to 

decline from 37.8 in 2000 to 11.4 in 2050. 

 Third, private long-term care insurance can play more of a role than 

it does today, but most older people cannot afford the policies. Over the 

last 20 years, a small but growing market for private long-term care 

insurance has developed. At the same time, a substantial body of 

research suggests that the affordability of private long-term care 

insurance is a major barrier to its growth. That affordability is a problem 

should not be a surprise. According to a study by America’s Health 

Insurance Plans, the average premium for a good quality policy with 

inflation protection and non-forfeiture benefits, for persons who purchase 

at age 65, was $2,862 in 2002. The premiums for a married couple are 

well over $5,000 per year for a good policy. At the same time, the 

median income for households headed by persons aged 65 to 74 was only 
25

$34,243 in 2004, and declined sharply with increasing age. Thus, even 

with generous assumptions about the willingness of people to pay, 

private long-term care insurance is very expensive for most older people. 

 One possible strategy to make long-term care insurance more 

affordable is to make it a tax deductible expense, a strategy which 

President Bush and the insurance industry has endorsed. The problem, at 

least for the elderly population, is that the effective Federal tax rate is so 

low that for that $2,862 premium, for the median person in the elderly 

population, that would decrease the premium by $43, not enough to 

make a difference. 

 Fourth, private long-term care insurance requires tougher regulation, 

especially related to inflation protection. A major gap in existing 

regulation of private long-term care insurance concerns how inflation is 

addressed. Most policies in force today do not automatically adjust for 

inflation over time. Instead, they provide a fixed dollar maximum 

benefit per day in a nursing home, or a visit by a home care provider. 

Inflation can have a devastating impact on the purchasing power of the 

policies. For example, at 5 percent annual inflation, a $100 per day 

benefit in a nursing home at age 65 would need to pay $265 per day at 

age 85 to maintain the same purchasing power. 

 Fifth, tapping into home equity can help, but most people with 

disabilities do not have much home equity. In 2002, median home equity 

among older persons with any disability was $56,956, and only $35,640 

for persons with severe disabilities. 

 Sixth, and finally, while the private sector can play a larger role, 

long-term care is predominantly a public responsibility in the developed 

world, and unless we consider proposals that are far more radical than 

what has been put on the table so far, the public sector is likely to 

continue to pay for the large majority of costs for people who need longterm care services. 

 Thank you. 

 [The prepared statement of Dr. Joshua M. Wiener follows:] 

PREPARED STATEMENT OF DR. JOSHUA M. WIENER, SENIOR FELLOW AND PROGRAM 

DIRECTOR, AGING, DISABILITY AND LONG-TERM CARE, RTI INTERNATIONAL

The financing and organization of long-term care for older people and younger 

persons with disabilities needs reform. Although long-term disability is a normal life risk 

and nearly half of all older persons will spend some time in a nursing home, the need for 

long-term care comes as a surprise to most Americans and their families who have to 

cope with it (Spillman and Lubitz, 2002). With very little public or private insurance 

against the high costs of nursing home and home care available, users of long-term care 

incur very high out-of-pocket costs. As a result, Medicaid is the principal source of 

financing for long-term care, even though many of the users were not initially poor. 

Although most persons prefer home and community-based services, the vast bulk of 

long-term care expenditures are for institutional care. Finally, with the aging of the 
26

population, demand for long-term care will increase in the future, placing financial 

pressure on public programs and private resources. 

 Despite these problems and the fact that long-term care is the third leg of retirement 

security, public policymakers have not given it the attention it deserves. We have had 

substantial debates about how to assure income security (Social Security) and health care 

(Medicare), but not how to make sure that people receive high quality long-term care in a 

way that is affordable to them and to society. 

 In my testimony today, I would like to make six points: 

 The financial burden of long-term care will increase as the population ages, but, 

by itself, it will be manageable. 

 The U.S. faces serious labor force problems regarding how to recruit and retain 

high quality workers to provide this care. 

 Private long-term care insurance can play more of a role, but older people 

cannot afford it. 

 Long-term care insurance needs stronger regulation, particularly related to 

inflation protection. 

 Home equity conversions can help, but most people with significant disabilities 

do not have much home equity. 

 Long-term care is predominantly a public responsibility throughout the 

developed world and is likely to remain so. 

The aging of the baby boom generation will increase demand for long-term care, but 

it will not be unaffordable by itself. 

 The need for long-term care services affects persons of all ages, but the prevalence 

of disability increases sharply with age. The Census Bureau projects that the population 

age 85 and older, the population most likely to need long-term care services, will increase 

from 4.3 million in 2000 to 20.9 million in 2050. About half of all persons age 85 and 

older had a disability in the community or are in a nursing home (Johnson and Wiener, 

2006). Although there appears to have been a decline in disability rates among the older 

population over the last 20 years (Freedman, Martin and Schoeni, 2002), the large 

increase in the number of older people due to the aging of the baby boom generation 

ensures that the demand for long-term care services will rise. Some analysts estimate that 

the obesity epidemic and the resulting diabetes will offset past declines in disability rates 

and that disability rates will increase again in the future (Lakdawalla, Battacharya and 

Goldman, 2004). 

 The likely increase in demand for long-term care has led some observers to forecast 

an apocalyptic situation where the financial burdens become so great that they are 

unbearable for our society. Although nobody knows the future, this doomsday scenario 

is unlikely. According to the Congressional Budget Office (2004), total (public and 

private) long-term care expenditures are older people are projected to increase from 1.3 

percent of the Gross Domestic Product (GDP) in 2000 to 1.5 to 2.0 percent of GDP in 

2040. These projections are in line with my own earlier projections (Wiener, Illston and 

Hanley, 1994), although they probably should be somewhat higher because of the 

workforce issues discussed below. Ultimately, we will have to pay long-term care 

workers more to induce them to provide services. Within a health care system that is 

already 18 percent of GDP, these changes are relatively modest. Moreover, many other 

countries, such as Sweden, Japan, Germany, and England, already have populations that 

are much older than ours without unduly dire results (Organization for Economic Cooperation and Development, 2005). 

 In sum, long-term care is sure to be a larger financial burden on public and private 

burden in the future. However, the increase, by itself, should not be so large as to 

immobilize public initiatives to make the system better. The question is more one of 

political will than economics. The issue is complicated, however, by the fact that long-
27

term care mostly affects the same populations that uses Medicare and Social Security, 

both of which have substantial long-run financial problems. 

The United States faces a serious problem recruiting and retaining high quality 

long-term care caregivers. 

 Although some technological improvements are possible, long-term care is 

fundamentally a hands-on service provided by people, not machines. The United States 

faces serious problems in recruiting and retaining long-term care workers, a situation that 

will only grow worse over time. Nationally, turnover rates for certified nurse assistants 

in nursing homes were estimated to be approximately 78 percent per year in 2001, which 

is likely to adversely affect quality of care (American Health Care Association, 2002). 

As a result of high turnover and vacancy rates, providers incur substantial recruitment 

and training costs (Leon, Marainen and Marcott, 2001; Pillemer, 1996). Major reasons 

for the shortages include low wages and benefits, a lack of career ladder, inadequate 

training and poor work culture. 

 Over the long run, there is a major demographic imbalance between the number of 

people likely to need long-term care services and the number of people likely to be 

available to provide it. The ratio of persons ages 20-64 (the working age population) to 

the number of persons age 85 and older (the population most likely to need long-term 

care services) is projected to decline from 37.8 in 2000 to 11.4 in 2050 (Lewin Group, 

2002). While this data are often used to illustrate the potential economic burden of 

Medicare, Medicaid and Social Security, they also have profound implications for the 

availability of personnel to provide long-term care services. It will be far more difficult 

to recruit and retain workers in the future, and they probably will be more costly. 

Private long-term care insurance can play more of a role, but most older people 

cannot afford it. 

Over the last 20 years, a small but growing market for private long-term care 

insurance has developed. As of 2001, approximately 8 percent of older people and far 

less than one percent of the nonelderly population had some form of private long-term 

care insurance (Johnson and Uccello, 2005). Public policymakers have been interested in 

promoting private long-term care insurance as a way of increasing choices available to 

individuals and reducing Medicaid expenditures by middle-class beneficiaries. 

 A substantial body of research suggests that the affordability of private long-term 

care insurance is a major barrier to its purchase. Most studies found that only a relatively 

small minority of the elderly population (generally 10 to 20 percent) can afford good 

quality private long-term care insurance (see, for example, Wiener, Illston and Hanley, 

1994; Rivlin and Wiener, 1988; Rubin, Wiener and Meiners, 1989; and Wiener and 

Rubin, 1989). Projections suggest that these percentages will increase, but that the bulk of 

older people will still not be able to afford policies in the future. Other research has 

found higher percentages of older people to be able to afford private long-term care 

insurance by assuming purchase of policies with more limited coverage, by assuming that 

older people would use assets as well as income to pay premiums, or by excluding a large 

proportion of older people from the pool of people considered interested in purchasing 

insurance. 

 That affordability is a problem should not be a surprise. According to a study by 

America’s Health Insurance Plans, the average premium for a good quality policy with 

inflation protection purchased at age 65 was $2,346 in 2002; the average premium for a 

good quality policy with inflation protection and nonforfeiture benefits was $2,862 in 

2002 (America’s Health Insurance Plans, 2004). Thus, premiums for a married couple 

approximate $5,000 per year for a good policy. Premiums at age 79 are approximately 

three times as much. However, the median income for households headed by persons 

aged 65-74 was only $34,243 in 2004, and declines sharply with increasing age (U.S. 
28

Census Bureau, 2006). Thus, even with generous assumptions about the willingness of 

people to pay, private long-term care insurance is very expensive for most older people. 

 A number of policy strategies have been proposed to make long-term care insurance 

more affordable. One possible strategy is to encourage purchase at younger ages, when 

premiums are lower. Premiums for a good quality policy with inflation protection and 

nonforfeiture benefits purchased at age 50 are half what they are at age 65. While some 

employers do offer these policies, they rarely contribute towards the cost of the 

premiums. In addition, people in their 40s and 50s are concerned about their mortgage 

payments, child care costs, college education expenses for their children, and general 

retirement; they are rarely interested in long-term care. The marketing dilemma is that 

people are interested in long-term care when they are older and cannot afford the policies; 

at the age when they could afford the policies, they are not very interested. 

 Another possible strategy is to make long-term care insurance a tax deductible 

expense, a strategy which President Bush and the insurance industry have endorsed. This 

approach, especially for the elderly population, is likely to be ineffective because it 

would not substantially reduce the price of the insurance. According to the Urban 

Institute-Brookings Institute Tax Policy Center, the median effective federal individual 

income tax rate for elderly childless households was 1.5 percent in 2003; for the older 

population as a whole, it was only 7.3 percent. Thus, for the median elderly household, it 

would reduce the $2,862 premium cited above by $43. Since tax deductions benefit 

upper-income households more than lower- and moderate-income households, this 

strategy would also be regressive in terms of tax policy. An earlier analysis of proposed 

tax incentives (Wiener, Illston and Hanley, 1994) found that these policies were 

expensive in terms of lost revenue, but mostly benefited persons who would have 

purchased policies without the increased tax benefits. 

Long-term care insurance requires tougher regulation, especially regarding 

inflation protection. 

 The quality of long-term care insurance policies has improved dramatically over the 

last 20 years and there are many good products currently available. Regulation by the 

states, encouraged by the tax provisions in the Health Insurance Portability and 

Accountability Act (HIPAA), deserves some of the credit for pushing policies to 

improve. 

 A major gap in existing regulation of private long-term care insurance concerns how 

inflation is addressed. It is critical to solve this issue because health care inflation, 

including long-term care, is substantial and policies are typically sold years in advance of 

when benefits are used. Most states only require that insurers offer a product where the 

indemnity value increases by 5 percent per year. Most policies in force today do not 

automatically adjust for inflation over time; instead they provide fixed dollar maximum 

benefits per day in a nursing home or visit by a home care provider. 

 Failure to have automatic inflation adjustments can have a devastating impact on the 

purchasing power of the policies. For example, at 5 percent annual inflation, a $100 per 

day benefit in a nursing home at age 65 would need to pay $265 per day at age 85 to 

maintain the same purchasing power. The longer the period of time between the initial 

purchase of the power and its use, the more important it is to have compound inflation 

protection. For example, a $100 per day indemnity benefit purchased at age 50 would 

need to pay $551 at age 85 to maintain the same purchasing power. 

 Insurance companies often offer the insured the option of purchasing additional 

coverage over time at the new attained age instead of automatic inflation adjustments. 

Since disability rates are exponential by age, premiums quickly become unaffordable. To 

retain purchasing power, the premiums at age 82 would be approximately ten times, in 

nominal dollars, what they were at age 62. The premiums will skyrocket over time, but 

the incomes of the elderly will not. 
29

 It is not hard to understand why insurers resist regulations requiring inflation 

adjusted policies—policies with inflation protection cost are roughly twice the price of 

policies without inflation adjustments. Higher premiums mean lower sales. Nonetheless, 

policies without inflation protection may not provide substantial protection against the 

costs of long-term care. 

Tapping into home equity can help, but most people with disabilities do not have a 

lot of home equity. 

 Inspired in part by the recent increase in home prices, policymakers are increasingly 

interested in finding ways to use home equity conversions to finance long-term care. 

Typically, these mechanisms are home equity loans that do not have to be paid off until 

the borrower dies or moves from the house. While there is little doubt that home equity 

accounts for the vast majority of the wealth of the older population, policymakers need to 

be cautious in how much home equity can be used to pay for long-term care (Merlis, 

2005). In 2002, median home equity among older persons with disabilities was $56,956 

and $35,640 for persons with severe disabilities (Johnson and Wiener, 2006). 

Restrictions on the amount of home equity that can be used, closing costs for home equity 

conversions, including mortgage insurance, and interest costs substantially erode the 

amount of money available to pay for long-term care directly. Merlis (2005) estimated 

that for a 70-year old borrower, these costs could account for about a third of the cost of 

the loan over 15 years. 

 Some analysts have suggested using home equity conversions to purchase private 

long-term care insurance, which provides more coverage than may be available though 

direct use of home equity to purchase long-term care services. While the use of home 

equity would marginally increase the proportion of older people who can afford private 

long-term care insurance, it seems unreasonable to expect that people will partly deplete 

their major asset to purchase a product, one of whose major purposes is to protect their 

major asset. Moreover, individually sold private long-term care insurance has very high 

overhead, due to substantial marketing, commission, and profit costs. Most private longterm care insurance policies have long-term loss ratios of 60 percent, which roughly 

means that 60 percent of the premiums are used for benefits. Thus, the use of home 

equity (with a “loss ratio” of 66 percent) to purchase a private long-term care insurance 

policy (with a loss ratio of 60 percent) would result in only about one in three home 

equity dollars providing benefits, which is an inefficient use of funds. 

Conclusion: While the private sector plays a role, long-term care is predominantly 

a public responsibility in the developed world. 

 The major focus of federal policymakers in long-term care financing over the last 

decade has been to find ways to increase the role of the private sector and to decrease the 

role of the public sector. Public sector financing currently dominates long-term care, 

accounting for about two thirds of long-term care expenditures for older people (U.S. 

Congressional Budget Office, 2004).1

 Moreover, approximately 78 percent of nursing 

home residents have their care financed by either Medicare or Medicaid (American 

Health Care Association, 2006). The United States is not alone in this large role played 

by the public sector. In Ireland, New Zealand, Japan, Australia, Canada, Germany, the 

United Kingdom, the Netherlands, Norway and Sweden, long-term care is financed 

primarily through public programs. Only in Germany does private long-term care 

insurance play a significant role, and that is as an alternative for upper-income 

individuals to the social insurance provided by the quasi-public “sickness funds.” 

 

1

 If mandatory out-of-pocket contributions towards the cost of care by Medicaid beneficiaries in 

nursing homes were counted, the public role would be substantially higher. 
30

While there is little doubt that private sector financing can play a bigger role than it 

plays now, it seems unlikely that private financing can become the dominant source of 

funding for long-term care without more radical and costly initiatives than are currently 

contemplated. Research suggests, for example, that the people who can afford private 

long-term care insurance are not the people who spend down to Medicaid (Rivlin and 

Wiener, 1988; Wiener, Illston and Hanley, 1994; and Rubin and Wiener, 1989). As a 

result, expansion of private long-term care insurance is unlikely to affect Medicaid costs 

more than marginally. Thus, federal policymakers bear a special responsibility to 

improve Medicare and Medicaid for the majority of the people who need and use longterm care services. 

 MR. DEAL. Thank you. Ms. Ignagni. 

MS. IGNAGNI. Thank you, Mr. Chairman, and members of the 

committee. It is a pleasure to be here. 

 We took your challenge seriously to approach this issue in a rather 

broad way, and with that in mind, we have tried to cover four topics in 

our testimony. 

 First, we provided data about the problem. I think my colleagues 

have done a very good job of highlighting that. I am only going to touch 

on a couple of things that haven’t already been said. 

 Second, we discussed what our health plans have brought to the 

Medicaid program, and the accomplishments there. Third, we have 

given you comprehensive information about the private market. I am 

delighted to talk about that, and I would like to point out a couple of 

things. And finally, we have ended with making seven 

recommendations, which I will highlight. 

 First, in terms of data, I think what puts the problem in perspective, 

and the challenge, probably more properly stated, is that over the next 25 

years, the population over 65 will double. That is not the end of the 

story, however, because also in the same period, the population over 85, 

most likely to need long-term care will also double. These individuals 

will have multiple chronic conditions. We already know that currently 

20 percent of Medicare beneficiaries have at least five medical 

conditions, accounting for approximately two-thirds of Medicare 

expenditures. So the challenge of dealing with co-morbidities and 

various kinds of healthcare problems occurring together in people who 

are aging will be even more significant over time. This is clearly going 

to, as Mr. Chairman, you observed, and your colleagues have observed, 

the members of the subcommittee, put a strain on public programs, 

individual families, and the healthcare system. 

 Now, the policy question that you have articulated is how do we find 

the balance between what the public sector role is, and what is the private 

sector sole. First, I think is a window into uncovering the answer to that 

question. We have taken a look, and provided details now, in terms of 

the distribution of expenditures for long-term care. 
31

 Medicaid is covering 45 percent. Out-of-pocket costs amount to 23 

percent. Medicare is covering 14 percent. Private insurance is covering 

11 percent, but we have seen gains in that area. I will highlight them in a 

moment. The balance is from other resources, individuals, et cetera. 

 How much does it cost? This is a very important part of the 

conversation. It hasn’t yet been highlighted, but it is roughly $71,000, on 

average, for a one year stay in a nursing home. That would be a private 

room, a little less for a semi-private room. That is an average, higher or 

lower, depending upon the area of the country that you are from. It is 

$32,000 for a private room in an alternative living facility, and that gives 

you a sense of the relative distribution of the dollars. It is $25 per hour, 

roughly, for home healthcare services. For aides, it is roughly half of 

that, but that gives you a sense of the burden, potentially, on families. 

 We noted in the Kaiser Family Foundation research, there are two 

widely held misconceptions. One is that a third of the population think 

nursing home care is approximately $40,000 per year, so there is a major 

gap there, and also, most of the population think that there is a public 

safety net that will take care of them when they need care, 

notwithstanding their income, and that is clearly not the case. 

 So, as you think about policy approaches, we first wanted to 

congratulate you, Mr. Chairman, and the members of this subcommittee 

in moving forward on the first step, which is to pass a partnership 

program. We now know that 25 states are in the process of developing 

partnership programs, and that is very good progress since the enactment 

of the Deficit Reduction Act, in a very short period of time. The next 

step is for HHS to develop regulations, a template, basically, to guide the 

States in how they might submit planned amendments, so that they can 

move very quickly. 

 Before I turn to the private sector, I would like to just highlight a 

couple of lessons that we have learned in the Medicaid arena. Our health 

plans are working very well for the dual eligibles, who qualify for SSI, 

and others who need long-term care needs. We have described in our 

testimony innovative programs that offer continuity of care, care 

coordination, individually targeted, and customized care. We have 

described programs addressing fragmentation in various programs, and 

how we put them together, in bringing services to the public programs. 

We have talked about the importance of the special needs program, and 

we have made a specific policy proposal about a potential adjustment 

under Medicaid, which I will highlight as we wrap up our 

recommendations. 

 In terms of the long-term care market, consumers with long-term 

care now are seeing a very broad protection offered in the market. It 

used to be primarily focused on nursing home care. It is much broader 
32

today, in terms of home care, assisted living facilities, et cetera. They 

are receiving more personal care support, which is important for families. 

Particularly, Mr. Ferguson observed the issue of respite care. It is 

enabling individuals to remain at home, which we know is so important, 

and it is generating savings for Medicare and Medicaid. 

 Also encouraging, Mr. Chairman, is that there is a growth in the 

employer market. I will highlight a specific recommendation there. We 

have discussed in our testimony affirmative support for the NAIC 

guidelines with respect to long-term care. I want to highlight one. We 

are often asked the question about post-claims underwriting. The 

guidelines developed by the NAIC, which 30 States have adopted now, 

prohibits post-claims underwriting. We support that, and believe it is not 

justifiable. We are required under these regulations to disclose any prior 

rate increases. I might note that 80 percent of the insurers that are 

operating in the long-term care market have never had a premium 

increase. 

 Lastly, there are very specific regulatory requirements with respect 

to guidelines for suitability, to whom you might sell long-term care 

insurance, who should not be offered long-term care insurance. I wanted 

to assure the subcommittee that we are very comfortable with that, and 

very much supportive of that. We have provided a great deal of 

additional information, Mr. Chairman, about how private healthcare, 

long-term care insurance works, what we can bring to the healthcare 

system. 

 I would like to summarize by making seven recommendations. First, 

we have had comments already about the above-the-line deduction. This 

is important, because it would put long-term care on an equal playing 

field with acute care, and level the playing field there, and not penalize 

individuals who purchase long-term care. 

 Second, I would highlight that three quarters of individuals now who 

are purchasing long-term care in 2005 are purchasing inflation 

protection, versus only 40 percent back in 2000. We have talked about 

flexible benefits programs, Mr. Chairman, and the opportunity that 

should be accorded to individuals who want to purchase long-term care 

insurance with flexible benefit dollars. If they do not use those resources 

in the FSAs, they lose them now. That is a very important place. It can 

expand the employer offerings, and that could be a very fruitful way to 

expand long-term care. 

 We have talked about removing barriers to Medicaid managed care. 

We have talked about potential demonstrations. We have advocated for 

a Commission on Long-Term Care, to focus very specifically on the 

issues that all of you have raised today. 
33

 Finally, we have talked about a specific office to address the unique 

resource issues with respect to workforce training. Those are major 

issues that we need to get our hands around, and finally, in long-term 

care, we need to talk about quality performance measurement. We have 

offered some observations there, and we would be delighted, Mr. 

Chairman, to talk about them in the Q&A session. 

 Thank you. 

 [The prepared statement of Karen Ignagni follows:] 

PREPARED STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CEO, AMERICAN HEALTH 

INSURANCE PLANS

I. INTRODUCTION 

Good afternoon, Mr. Chairman and members of the subcommittee. I am Karen 

Ignagni, President and CEO of America’s Health Insurance Plans (AHIP), which is the 

national association representing nearly 1,300 private sector companies providing health 

insurance coverage to more than 200 million Americans. Our members offer a broad 

range of health insurance products in the commercial marketplace and also have a strong 

track record of participation in public programs. 

AHIP’s members, who represent about 90 percent of the current long-term care 

insurance marketplace, share your commitment to meeting the long-term care needs of 

our nation’s aging population and we appreciate the opportunity to testify on this 

important issue. We applaud Congress for enacting legislation earlier this year to 

expand long-term care partnerships. We particularly want to thank members of this 

committee for your leadership on this critically important legislation. 

My testimony today will focus on five areas: 

(1) Broadening the conversation on long-term care to recognize the continuum of 

health care services Americans will need throughout their lives; 

(2) The importance of moving forward to implement the newly expanded long-term 

care partnerships in a timely manner; 

(3) The innovative strategies AHIP members are using to contain costs and 

improve quality in Medicaid; 

(4) An overview of private long-term care insurance, including the financial 

protection it offers consumers and the cost savings it provides to Medicaid 

and Medicare; and 

(5) Recommendations for additional policy changes that should be pursued to help 

more Americans secure protection against long-term care costs. 

II. BROADENING THE CONVERSATION 

Our members urge the subcommittee to take an approach to long-term care that 

broadens the health care discussion to focus on the continuum of health care services that 

people need throughout their lives. Our current health care system focuses primarily on 

treating episodes of acute illness, rather than managing chronic conditions. This is true 

despite the fact that 20 percent of all Medicare beneficiaries – chronically ill patients with 

five or more medical conditions – accounted for more than two-thirds of the Medicare 

program’s costs in 2004. Likewise, long-term chronic care management is a key cost and 

quality issue for Medicaid. Our tax system also takes a narrow view of our nation’s 

health care needs by orienting incentives toward the coverage of acute care benefits. 

The aging of the baby-boom generation – the 77 million Americans born between 

1946 and 1964 – poses multiple challenges for policymakers. More men and women are 

approaching retirement than ever before and they will live longer into old age than any 
34

previous generation. The U.S. Census Bureau estimates that between 2003 and 2030, the 

population age 65 and older will increase from 36 million to 72 million, reaching twenty 

percent of the total population. Meanwhile, the population of those aged 85 or older – the 

population most likely to need long-term care – is projected to increase from 4.7 million 

in 2003 to 9.6 million in 2030, and then double again to 20.9 million by 2050.

In the next 30 years, more than half the U.S. population will be living with at least 

one chronic condition. When narrowing this profile to seniors, Census Bureau data 

suggest that approximately 80 percent of seniors have at least one chronic condition, and 

50 percent of those have two or more chronic conditions. Chronic illnesses such as 

cancer, diabetes, Alzheimer’s disease and hypertension exacerbate age-related health 

problems and increase the likelihood of needing long-term care. Currently, nearly half of 

all nursing home residents have Alzheimer’s disease. By 2050, the Alzheimer’s 

Association estimates that 14 million baby boomers, nearly one in five, will find 

themselves living with the disease. We need to make major adjustments to address 21stcentury realities and our aging population. At the same time, we need to explore a range 

of public-private partnerships that could make long-term care costs more predictable and 

expand service options for consumers. 

 While Medicare and Medicaid already are burdened by high costs, public programs 

designed to meet the needs of the elderly will become increasingly strained in the years 

ahead. One of the crucial questions facing policymakers, therefore, is how to create an 

appropriate balance between public and private responsibilities – between the obligation 

of government to provide a safety net for those who need it and the obligation of citizens 

to provide for themselves to the extent they are able to do so. 

The Costs of Long-Term Care 

According to the Government Accountability Office (GAO), Medicaid currently 

pays for about 45 percent of all long-term care expenditures, followed by out-of-pocket 

payments (23 percent), Medicare (14 percent), and private insurance (11 percent). Other 

public and private sources account for the remaining 7 percent.1

 The Congressional 

Budget Office (CBO) has projected that the cost of providing long-term care services 

nationwide to the growing elderly population will nearly triple in real terms over the next 

40 years.2

 

The scope of the long-term care funding problem is particularly clear when costs are 

examined on an individual level. Genworth Financial, an AHIP member, has been 

commissioning annual cost of care studies since 2001. The most recent study3

, based on 

information gathered in January and February 2006, includes the following findings: 

 Nationally, the average annual cost for a private nursing home room (single 

occupant) is $70,912 ($194.28/day), reflecting a 2.2 percent increase over 2005 rates 

($190.20/day). The average cost of care for a private room in urban areas is 17 

percent greater than in non-urban areas. Louisiana has the lowest average annual 

cost for a private room ($42,304), while Alaska has the highest average annual cost 

($191,140). 

 Nationally, the average annual cost for a semi-private room (double occupancy) is 

$62,532 ($171.32/day), a 2.3 percent increase over 2005 rates ($167.44/day). 

 Nationally, the average monthly cost for a private one-bedroom unit in an assisted 

living facility (ALF) is $2,691.20 (a daily rate of $88.48), reflecting a 6.7 percent 

increase over 2005 survey rates ($2,522/month). These rates do not include any 

 

1

 David Walker, Comptroller General, Government Accountability Office (GAO), Testimony, March 

21, 2002 

2

 Congressional Budget Office, The Cost and Financing of Long-Term Care Services, Testimony, 

April 27, 2005 

3

 Genworth Financial, 2006 Cost of Care Survey, March 2006 
35

one-time community or entrance fees. Approximately 33 percent of the ALFs 

surveyed charge a one-time fee, commonly referred to as a community or entrance 

fee, ranging from $50 to $8,490, with a national average one-time fee of $1,369.68. 

 Across all home health care provider types, the average hourly rate for home health 

aides is $25.32, a 13 percent increase over 2005 survey results. The average hourly 

rate for homemaker services is $17.09, a 3 percent increase over 2005 survey results. 

These figures translate into financial obligations that few families have the resources 

to meet. 

Common Misconceptions 

At the same time, public attitudes about long-term care are skewed by three 

widespread misconceptions: (1) that the risk of needing long-term care is relatively 

remote; (2) that the costs of such care are considerably lower than is actually the case; 

and (3) that Medicare and Medicaid can fully provide care should the need arise. 

On each of these three points, the realities are dramatically different than the 

perception: 

• The risk of eventually needing long-term care, far from being remote, is quite high. 

Today, 44 percent of people reaching age 65 eventually will spend some part of their 

lives in a nursing home.4

 It will take time and public education to make Americans 

more aware of the risks associated with needing long-term care in old age. 

• A recent public opinion poll found that one-third of those surveyed believe nursing 

home care currently costs less than $40,000 a year – less than 60 percent of actual 

costs.5

 

• Perhaps the most serious misconception, however, is that there is an adequate public 

safety net in place to protect those who need long-term care. The belief appears to 

be widespread that Medicare and Medicaid will somehow meet these needs. The 

reality is that neither program offers adequate protection. 

The Role of Medicare and Medicaid 

Medicare, the federal health insurance program for the elderly and disabled, is 

designed primarily to pay for acute care services provided by hospitals and physicians. 

While Medicare does cover some nursing home care for patients following a hospital 

stay, its coverage is limited to 100 days, which by definition, excludes those who need 

ongoing assistance. 

Medicaid, the joint federal-state program for low-income individuals, does pay for 

long-term care – but only for those who have exhausted nearly all of their own resources. 

Because Medicaid is a means-tested program, qualifying for assistance requires proving 

that one is impoverished, or nearly so. 

Another harsh reality is that becoming eligible for Medicaid can mean losing control 

over how and in what setting long-term care will be delivered. Covered services vary 

substantially from state to state, as does the quality of care. Some states that have been 

relatively generous about authorizing long-term care services at home have experienced 

runaway costs and have been forced to scale back such arrangements. For many who rely 

on Medicaid, their only option is to enter a nursing home, even if they would prefer home 

care. 

The recent expansion of long-term care partnerships, discussed in the following 

section, was an important step toward creating opportunities for individuals to purchase 

long-term care coverage and reduce the burden on public programs. 

 

4

 Congressional Budget Office, Financing Long-Term Care for the Elderly, April 2004 5

 Kaiser Family Foundation Public Opinion Spotlight, http://www.kff.org/spotlight/longterm/10.cfm 
36

III. IMPLEMENTATION OF EXPANDED LONG-TERM CARE 

PARTNERSHIPS 

AHIP applauds Congress for expanding public-private long-term care “partnerships” 

under the Deficit Reduction Act of 2005 (DRA). The Energy and Commerce Committee 

deserves special recognition for its work on this legislation. The partnerships authorized 

by the DRA will allow many Americans to receive the financial protection provided by 

long-term care insurance while also ensuring that Medicaid will play a role in meeting the 

needs of those who require extended long-term care stays. 

Building upon the innovative partnerships that already have been implemented in 

New York, California, Connecticut, and Indiana, this legislation creates powerful new 

incentives for more Americans living in all states to prepare for the future by purchasing 

long-term care insurance. Individuals who purchase partnership policies will have the 

added peace of mind of knowing that if their policy benefits are exhausted, the 

government will cover the costs of their continuing care through Medicaid without first 

requiring them to “spend down” their life savings and become impoverished. 

In recent years, sales of partnership plans in the four states that have operated them 

have steadily increased. Between 1996 and 2004, partnership enrollment increased from 

28,000 to 172,000.6

 Independent research indicates that partnership plans are attracting 

enrollees who generally would not buy non-partnership long-term care insurance. 

Further, research indicates that the partnership enrollees have lower incomes and fewer 

assets than other long-term care insurance purchasers.7

 

Next Steps 

While the passage of this legislation is a major accomplishment, the next step is for 

the Department of Health and Human Services (HHS) to move forward to develop the 

regulatory structures that will facilitate the implementation of partnerships in the states. 

The expansion of the partnership program has the full support of the states and they are 

ready to launch once the regulatory requirements are established for approval of their 

plans. To date, more than 20 states have enacted or introduced legislation that would 

enable their state to establish a partnership program. We are working with our members, 

state officials, and others to develop a template for a fast-track process and streamlined 

application that states can use to amend their Medicaid plans to include partnership 

programs. 

IV. THE SUCCESS OF PRIVATE SECTOR STRATEGIES IN MEDICAID 

While examining the private sector’s role in meeting long-term care needs, it is 

important to recognize that health insurance plans have made an important contribution 

toward helping Medicaid programs use their limited resources to expand access, improve 

quality, provide transportation services, and take other steps to better serve beneficiaries. 

More than 20 years of experience demonstrates that Medicaid health plans increase 

beneficiary access to care and improve outcomes, while ensuring that the federal 

government and state Medicaid programs receive the highest possible value for the 

dollars they spend on health care. 

Increasingly, health plans are proving that integrated systems of care work well for 

beneficiaries who are dually eligible for Medicaid and Medicare, who qualify for 

Medicaid through eligibility in the federal Supplemental Security Income (SSI) program, 

 

6

 Letter to the Honorable Charles E. Grassley re: Overview of the Long-Term Care Partnership 

Program, Government Accountability Office (GAO), September 9, 2005, p. 4 of the enclosure and 

“Partnership Insurance: An Innovation to Meet Long-Term Care Financing Needs in an Era of 

Federal Minimalism,” Mark R. Meiners, Hunter L. McKay, and Kevin J. Mahoney, Journal of Aging 

and Social Policy, Vol. 14, No. 3/4, 2002, p. 87 7

 Meiners, McKay, and Mahoney, 2002, p. 87 
37

and other beneficiaries with long-term health care needs. Innovative programs in 

Minnesota and Texas demonstrate that Medicaid health plans effectively coordinate care 

for beneficiaries with long-term care needs. Health plans operating in these states have 

shown that private plan techniques including care coordination, the design of 

individualized treatment regimens, and encouraging more community-based care 

improve health outcomes, reduce costs, and deliver high levels of patient satisfaction 

while maintaining high quality of care. For example: 

• Health plans participating in the Texas STAR+PLUS program (includes dual 

eligibles and beneficiaries eligible for the federal SSI program) reduced emergency 

room visits by 40 percent and reduced inpatient admissions by 28 percent while 

promoting quality care. The STAR+PLUS program saved the state $17 million 

dollars – in just one county – in the first two years. 

• A CMS evaluation of the Minnesota Senior Health Options (MSHO) program found 

dually eligible beneficiaries had fewer preventable emergency room visits and were 

more likely to receive preventive services after enrolling in a Medicaid health plan. 

MSHO enrollees report a 94 percent satisfaction rate with their care coordinators. 

UnitedHealth Group, through its affiliate, Evercare, has worked with six states, 

including early efforts in Florida, Arizona and Minnesota, to develop a model that 

addresses the problems of fragmentation in our health and long-term care systems for 

people with chronic illness and disabilities. These programs pair a personal care manager 

with comprehensive services, including acute, nursing home, home- and communitybased, behavioral health, and pharmacy care. These programs have had documented 

success in reducing acute events, such as emergency room visits and hospitalizations, and 

allowing individuals to remain in their communities and avoid costly nursing home 

placement. 

Another AHIP member, UCare Minnesota, is improving the health and well-being 

of beneficiaries through its participation in the MSHO program mentioned earlier. To 

understand the value of this program, consider the circumstances of a 75-year-old 

resident of Ramsey County – “Mr. O” – who had diabetes and heart disease when he 

joined MSHO. Before joining UCare, Mr. O’s health began declining further because he 

wasn’t able to manage his own care and the basic activities of daily living. He was 

hospitalized four times in the year before he joined UCare. 

Once Mr. O joined UCare, his health and life began to improve. His care 

coordinator made sure that Mr. O had regular appointments with his primary care clinic. 

She arranged for Meals on Wheels to bring healthy meals each day. She also arranged 

for a skilled nurse to visit every other week. The coordinator also had a home health aid 

come in three times a week to help him with personal care, such as bathing, grooming, 

and dressing. In addition, the coordinator arranged for a service to help with 

homemaking and weekly chores. Once Mr. O’s health and home life improved, so did 

his outlook on life. He told the care coordinator that she is his “ray of sunshine” because 

of the help she has given him. 

As we see the benefits of this coordination, AHIP members are playing leading roles 

in many states in the effort to coordinate the Medicare and Medicaid programs for dually 

eligible beneficiaries. This type of integration has been discussed for many years and 

practiced successfully in a few areas. Now, through the Medicare Special Needs Plans 

that were authorized by the Medicare Modernization Act of 2003 (MMA), a growing 

number of plans are coordinating both acute care and long-term care services for dual 

eligible beneficiaries. The addition of a prescription drug benefit to Medicare and the 

growth of Medicare Advantage availability across the nation have created new incentives 

for states to align care for dually eligible beneficiaries. 

States now have an opportunity to facilitate coordination and higher quality care for 

these beneficiaries, and AHIP members are uniquely positioned to bring their health care 
38

delivery competencies to this partnership. By tailoring benefits, delivery systems, and 

provider networks to meet the specific needs of these vulnerable beneficiaries, Special 

Needs Plans can provide access to high quality care without the disruptions that these 

seniors would otherwise encounter in accessing benefits from two separate programs. 

The early experience with Special Needs Plans indicates that this integration of benefits 

can succeed in providing beneficiaries with better health care across the entire continuum 

of services they need. 

While this success is encouraging, we see certain challenges – for beneficiaries, 

states, and the Medicare program – arising from the differences in the benefits covered 

and the providers participating in the Medicare and Medicaid programs. To ensure that 

Medicare and Medicaid integration continues to grow, it will be important to align 

incentives. Later in this testimony, we discuss steps that can be taken to remove barriers 

and improve our nation’s long-term care policy. One critical step for further integration 

of care for dually eligible long-term care beneficiaries will be to readjust the calculation 

of the federal upper payment limit (UPL) for supplemental payments made by states to 

publicly owned hospitals and facilities. 

V. THE ROLE OF PRIVATE LONG-TERM CARE INSURANCE 

Approximately 10 million Americans have purchased long-term care insurance. 

According to an AHIP study, consumers with long-term care insurance are 66 

percent less likely to become impoverished to pay the costs of long-term care, and longterm care insurance reduces the out-of-pocket expenses of disabled elders. Those with 

private long-term care insurance receive an average of 14 more hours of personal care per 

week than similarly disabled non-privately insured elders. Another benefit of long-term 

care insurance is that it allows those with chronic illnesses and the disabled to remain in 

their homes. Approximately half of patients and family caregivers interviewed by trained 

nurses and social workers said that in the absence of their long-term care insurance 

benefits, the patients would not be able to remain in their homes and would have to seek 

institutional alternatives.8 

 Long-term care insurance also can reduce state and federal Medicaid expenditures 

and federal Medicare home health expenditures. According to the AHIP study mentioned 

above, Medicaid savings are projected to total about $5,000 for each policyholder with 

long-term care insurance and Medicare savings are estimated to exceed $1,600 per 

policyholder. Aggregate savings to Medicare and Medicaid for the current number of 

policyholders are estimated at about $30 billion. These savings will grow as more people 

acquire policies and the average age of purchasers continues to decline. 

Types of Long-Term Care Insurance and Benefits 

Several types of long-term care insurance policies are available to consumers. Most 

are known as either “indemnity” or “expense incurred” policies. An indemnity or “per 

diem” policy pays up to a fixed benefit amount. With an expense-incurred policy, 

consumers choose the benefit amount when they buy the policy and they are reimbursed 

for actual expenses for services received up to a fixed dollar amount per day, week, or 

month. 

Many companies also offer “integrated policies” or policies with “pooled benefits.” 

This type of policy provides a total dollar amount that may be used for different types of 

long-term care services. There is usually a daily, weekly, or monthly dollar limit for 

covered long-term care expenses. For example, under a policy with a maximum benefit 

amount of $150,000 of pooled benefits, the consumer would receive a daily benefit of 

 

8

 AHIP, Benefits of Long-Term Care Insurance: Enhanced Care for Disabled Elders, Improved 

Quality of Life for Caregivers and Savings to Medicare & Medicaid, September 2002 
39

$150 that would last for 1,000 days if he or she spent the maximum daily amount on care. 

However, if their care costs less, they would receive benefits for more than 1,000 days. 

A number of companies offer “hybrid” products that combine long-term care 

benefits with another insurance product. For example, one type of hybrid that links longterm care insurance to life insurance provides protection against long-term care expenses 

while at the same time paying a death benefit if the policyholder dies without ever 

requiring long-term care services. 

Consumers generally have a choice of daily benefit amounts ranging from $50 to 

more than $300 per day for nursing home coverage. Because the per-day benefit 

purchased today may not be sufficient to cover higher costs years from now, most 

policies offer inflation adjustments. In many policies, for example, the initial benefit 

amount will increase automatically each year at a specified rate (such as 5 percent) 

compounded over the life of the policy. 

Long-term care insurance policies contain a wide range of benefit options at 

moderately priced premiums. For example: 

• Long-term care insurance plans offer coverage of nursing home, assisted living 

facility, home health care, and hospice care. On a case-by-case basis, plans 

also provide certain alternate care services not listed in the policy (e.g., 

covering a stay in a special Alzheimer's facility or building a wheelchair ramp 

to allow the individual to remain in his or her home), subject to the policy’s 

benefit limits. 

• Other common benefits include care coordination or case management services, 

support with activities of daily living, medical equipment coverage, homedelivered meals, spousal discounts, and survivorship benefits. Plans also 

commonly cover caregiver training to ensure that caregivers learn basic 

techniques for safely caring for patients in their homes (e.g., transferring 

patients from their bed to a chair). In addition, virtually all plans cover respite 

care, designed to pay for brief periods of formal care to provide relief to 

caregivers. 

• Plans contain provisions that guarantee their renewability, have a 30-day “free 

look” period, cover Alzheimer’s disease, provide for a waiver of premiums 

once a claim is processed, and give policyholders the option of covering 

nursing home stays without limits or caps. 

• Age limits for purchasing coverage also are expanding. Our members now 

offer individual policies to people as young as 18 and as old as 99. In addition, 

recognizing that consumers want to plan ahead for their long-term care needs, 

plans offer inflation protection for the dollar value of a purchased benefit at an 

annual 5 percent compounded rate, funded with a level premium that stays the 

same from one year to the next. Companies also offer plans that have a nonforfeiture benefit that allows beneficiaries to retain some benefits if they lapse 

their policy. 

The growth in employer-sponsored plans is especially encouraging. The average 

age of the employee electing this coverage is 45 – compared to an average age of 60 for 

persons who buy long-term care insurance outside of the employer-sponsored market. To 

date, over 2 million policies have been sold through more than 6,000 employers, and 

accounts for about one-fourth of the long-term care insurance marketplace. 

Premiums for long-term care insurance policies depend on multiple factors, 

including the entry-age of the policyholder and comprehensiveness of the benefit package 

selected. At the same time, the subcommittee should be aware that average premiums 

have remained stable over time. AHIP estimates that a vast majority of long-term care 

policies currently in effect today have never experienced a rate increase. In addition, 

within the past few years there have been significant enhancements to long-term care 
40

insurance. For example, prior hospitalization requirements have been eliminated and 

benefits have been expanded to include coverage in assisted living facilities, adult day 

care and home health care, in addition to nursing home care, thus giving buyers more 

benefits for their premium dollars. 

Examining Who Buys Long-Term Care Insurance 

AHIP recently commissioned a study9, conducted by LifePlans, Inc., to identify who 

buys long-term care insurance in the individual market and understand what motivates 

them to do so. Ten insurance companies participated in this study, representing more 

than 80 percent of total sales of long-term care insurance policies in 2005. These 

companies contributed a sample of 1,274 buyers, 214 nonbuyers, and design information 

on 8,208 policies. In addition, 500 individuals age 50 and over were surveyed from the 

general population. This study builds upon similar work completed in 1990, 1995, and 

2000. 

The study’s key findings include the following: 

• The average age of individual purchasers of long-term care insurance declined 

from 67 years to 61 years between 2000 and 2005. Two-thirds of all individual 

long-term care policies sold are now purchased by people younger than 65. 

The major demographic differences between buyers and nonbuyers are that the 

latter tend to be somewhat older, less likely to be employed, and have lower 

incomes than buyers of long-term care insurance. In 2005, 71 percent of 

buyers had incomes exceeding $50,000, 13 percent had incomes between 

$35,000 and $50,000, and another 13 percent had incomes between $20,000 

and $35,000. 

• Buyers are almost twice as likely as nonbuyers to strongly agree that “it is 

important to plan now for the possibility of needing long-term care services.” 

On another key statement, nonbuyers are more than twice as likely as buyers to 

agree that “the government will pay for most of the costs of long-term care if 

services are ever needed.” Nonbuyers also were much more likely than buyers 

– 70 percent versus 14 percent – to underestimate the cost of a nursing home in 

their area. 

• In examining the coverage offered by long-term care insurance policies, the 

study found a trend toward the purchase of comprehensive coverage. In 2005, 

90 percent of policies sold were comprehensive (i.e., covering both institutional 

care and home care) – compared to 77 percent in 2000 and 37 percent in 1990. 

Over the past five years, the average daily nursing home benefit has increased 

by 30 percent. In addition, more than three-quarters of buyers chose some form 

of inflation protection in 2005, up from 41 percent in 2000. 

• A highly significant finding from the 2005 study is that more than 80 percent of 

current nonbuyers would be more interested in buying a policy if they could 

deduct premiums from their taxes. Approximately three-fourths of nonbuyers 

said they would be more interested in buying long-term care insurance if they 

thought the government would provide stop-loss coverage once their private 

insurance benefits ran out or if they felt premiums would remain stable over 

time. 

Consumer Protections – Strengthening the Market 

The adoption of robust standards for consumer protection has been vital in 

strengthening the market for long-term care insurance, and our members are committed 

to providing quality products, transparency in their products, and consumer choice. We 

 

9

 LifePlans, Inc., Who Buys Long-Term Care Insurance in 2005? A Fifteen Year Study of Buyers 

and Nonbuyers, April 2006 
41

view these protections as key to giving consumers confidence, expanding the market, and 

providing viable solutions to work hand-in-hand with Medicaid coverage for the poor. 

In the past, there have been questions about post-claims underwriting. Our position 

is that this is never justifiable. On the other hand, efforts to detect and prevent fraud 

should not be viewed as post-claims underwriting. AHIP supports the strong stand taken 

on this issue by the National Association of Insurance Commissioners (NAIC). We also 

support the NAIC’s most recent Long-Term Care Insurance Model Act and Regulations. 

To give the committee a broad picture of the value of the NAIC provisions, below 

are some of the key requirements: 

• policies must be guaranteed renewable or noncancellable; 

• limitations apply to the use of pre-existing conditions and prior hospitalization 

requirements; 

• policies cannot limit or exclude coverage by type of illness, treatment, medical 

condition or accident; 

• policies must contain continuation or conversion of coverage provisions; 

• policies must provide numerous disclosures, including an outline of coverage 

and safeguards to prevent unintended lapses of policies; 

• post-claims underwriting is prohibited; 

• minimum standards are established for home health benefits; 

• policies must contain suitability provisions that provide standards for 

appropriate long-term care insurance purchases; 

• policies must offer inflation protection; 

• policies must offer non-forfeiture of benefits and, if declined, the provision of 

contingent benefits upon lapse; and 

• requirements address premium rate stability, including disclosure to consumers 

relating to rate stability. 

VI. RECOMMENDATIONS FOR NEXT STEPS 

Above-the-Line Federal Income Tax Deduction for LTC Insurance Premiums 

AHIP supports federal legislation to enact an above-the-line tax deduction for longterm care insurance premiums. This legislation has been introduced in every legislative 

cycle since 1999-2000 and the current level of support reflects growing congressional 

interest in this issue. 

The proposal for an above-the-line tax deduction would allow taxpayers to claim a 

tax deduction regardless of whether they itemize their deductions and regardless of 

whether they have other medical expenses. For example, a person who pays $1,500 in 

premiums for long-term care insurance could reduce his or her taxable income by the full 

$1,500 under this proposal. 

By contrast, current law allows taxpayers to deduct premiums for long-care term 

insurance only if they itemize deductions and only to the extent that their medical 

expenses exceed 7.5 percent of their adjusted gross income. In other words, a person 

with an adjusted gross income of $40,000 must have $3,000 in medical expenses before 

he or she can claim any tax deduction for long-term care insurance premiums or any 

other medical expenses. Because this threshold is so high under current law, fewer than 

five percent of all tax returns report medical expenses as itemized deductions. An abovethe-line tax deduction would eliminate this 7.5 percent threshold and allow all long-term 

care insurance policyholders to claim a tax deduction. 

AHIP estimates that an above-the-line tax deduction for long-term care insurance 

premiums would reduce premiums by about 19 percent and, additionally, increase the 
42

number of individuals purchasing long-term care insurance by 14 percent to 24 percent.10 

A strong educational campaign would further increase these projected growth rates. 

As Congress considers federal tax incentives, we urge lawmakers to recognize that 

more than 20 states have enacted enhanced tax incentives for the purchase of long-term 

care insurance. These states are: Alabama, California, Colorado, Hawaii, Idaho, Indiana, 

Iowa, Kansas, Kentucky, Maine, Maryland, Minnesota, Missouri, Montana, New York, 

North Carolina, North Dakota, Ohio, Oregon, Utah, Virginia, West Virginia, and 

Wisconsin. These state laws have taken an important first step to enhance the 

affordability of long-term care insurance. By enacting an above-the-line tax deduction at 

the federal level, Congress can create a more powerful incentive – with the states 

working in partnership – for all Americans to protect themselves against the financial risk 

of long-term care needs. 

Offering LTC Insurance Under Cafeteria/FSA Options 

AHIP also strongly supports legislative provisions that would enable employers to 

offer long-term care insurance as an option under cafeteria plans and flexible spending 

arrangements (FSAs). We urge subcommittee members to support inclusion of these 

provisions in the conference report for H.R. 2830, the “Pension Protection Act.” While 

we recognize that budgetary constraints may prevent Congress from taking action this 

year on other more ambitious proposals, we are confident that enactment of this 

legislation – despite its relatively modest price tag – would yield significant progress in 

increasing the number of Americans who protect themselves against the high cost of 

long-term care. 

Enactment of the cafeteria/FSA proposal goes hand-in-hand with the expansion of 

long-term care partnerships. This legislation would make long-term care insurance more 

affordable to more Americans and, in doing so, help to ease some of the financial 

pressure that long-term care costs are imposing on Medicaid and Medicare. At a time 

when state and federal budgets are severely strained by health-related costs, this 

provision offers a common sense solution for reducing this burden on taxpayers and 

helping more Americans prepare for their future long-term care needs. 

It is also important to recognize that employers are uniquely positioned to increase 

awareness about the value of long-term care insurance. This provision would allow 

employers to include information about long-term care options in their employee benefit 

packages and help employees make sound decisions. 

Cafeteria plans, which allow employees to customize their benefits packages, and 

flexible spending arrangements, which allow employees to use pre-tax dollars to pay for 

medical expenses not covered by health insurance, are valuable employee benefit tools 

that can be made even more effective for American workers with enactment of this 

legislation. Allowing employees to purchase long-term care insurance on a pre-tax basis 

through these popular employee benefit arrangements would allow more families to 

purchase coverage. Moreover, this would put long-term care insurance on a level playing 

field with other employer-sponsored benefits – such as 401(k) contributions – that are not 

taxed. 

To date, more than 50 House members – 29 Republicans and 25 Democrats – have 

cosponsored bills that would allow long-term care insurance to be offered under cafeteria 

plans and FSAs. We thank members of the subcommittee who support these bills. We 

stand ready to assist you in promoting final passage of this new option for expanding 

access to long-term care insurance. 

 

10 AHIP, Tax Deductibility of Long-Term Care Insurance Premiums, March 2000
43

Removing Barriers to Medicaid Managed Care 

The federal upper payment limit (UPL) program has proven to be a barrier to 

expanding Medicaid managed care to beneficiaries. UPL programs provide federal 

matching funds for supplemental payments made by states to publicly owned hospitals 

and facilities. UPL payments are based on the amount of inpatient services the public 

facility provides to Medicaid beneficiaries who are covered under the Medicaid fee-forservice program. Health plan payments to these facilities are not counted in determining 

the UPL payment, which creates a financial disincentive for states to meet beneficiary 

needs through Medicaid health plan programs – despite their proven ability to improve 

health care for the most vulnerable members of the Medicaid population. 

AHIP supports a solution that would allow states to continue to expand beneficiary 

access to effective managed care programs while continuing to support safety net 

providers and maintain funding levels for their Medicaid programs. Medicaid health plan 

payments to public facilities should be included for purposes of determining the UPL 

payment. This proposal is consistent with the manner other supplemental payments – for 

example, disproportionate share hospital payments and payments for graduate medical 

education – are currently made. This proposal would remove the barrier that currently 

exists to expanding beneficiary access to systems of care that improve their well-being in 

a cost-effective manner. 

Exploring Best Practices and Demonstrations 

To better meet the needs of the long-term care population, policymakers should 

explore opportunities to address the following priorities through Medicaid: 

• maximizing consumer self-direction, independence and health in homes and 

communities; 

• promoting models of coordinated, multi-disciplinary, continuous care and support 

across all settings and throughout the life spans (in contrast to a model of 

intermittent, episodic care); and 

• emphasizing prevention for patients (risk assessment, early identification and 

intervention). 

Creating a Presidential Commission to Address the Nation’s Long-Term Care 

Needs 

This commission would make recommendations to Congress and the Administration 

for accomplishing a wide range of goals including: 

• exploring how to create a seamless long-term care continuum from acute to chronic 

care; 

• exploring tax incentives to encourage individuals to take planning responsibility for 

their own long-term care needs; 

• exploring how to redesign Medicaid to allow dollars to follow the person across all 

settings, ensuring that access to quality long-term care and services can be received 

in the settings of choice; and 

• exploring the potential to increase utilization of technology (telehealth, monitoring 

devices, electronic medical records, etc.) in all care settings – particularly in rural 

settings. 
44

Establishing a Federal Office to Address Long-Term Care Workforce Issues 

A federal office should be established to address professional and paraprofessional 

long-term care workforce issues and provide recommendations to improve the 

recruitment, training, retention and practice of a strong long-term care workforce. 

Establishing a Quality Agenda for Long-Term Care 

Congress and the Administration, in collaboration with consumers, providers and 

other stakeholders, should establish a uniform quality agenda for long-term care and 

supportive services, including measurement and reporting across the continuum of 

services and settings, and performance-based payment, taking into account consumer 

satisfaction, health literacy, and progress in addressing disparities. Recognizing the 

efforts underway by the Ambulatory Care Quality Alliance (AQA), the Hospital Quality 

Alliance (HQA), and the Pharmacy Quality Alliance (PQA), a similar public-private 

collaboration is needed to address quality challenges in long-term care settings. 

VII. CONCLUSION 

We appreciate this opportunity to testify about these important issues and look 

forward to continuing to work with the subcommittee to advance policy solutions to help 

all Americans prepare for their future long-term care needs. 

 MR. DEAL. Thank you. We are about to have a vote. If we are 

really lucky, we might get through with this panel’s presentations before 

we have to go vote. 

 Mr. Jenner, you are next. 

MR. JENNER. Thank you very much, Mr. Chairman. I will do my 

best. My name is Greg Jenner, and I am the Executive Vice President for 

Taxes and Retirement Security for the ACLI, American Council of Life 

Insurers. On behalf to the organization and its 350 members, I would 

like to express my appreciation for the invitation to appear before you 

today, and to applaud you for drawing attention to this very, very 

important issue. 

 Much of what I am going to discuss today will relate to tax issues. I 

hope you will forgive me for that. Tax is the world that I functioned in 

most often. Before joining ACLI, I was Acting Assistant Secretary of 

the Treasury for Tax Policy. I also realize that taxes aren’t within this 

committee’s jurisdiction, but most concerns about long-term care 

insurance relate to cost and accessibility, and as you have heard earlier--

darn it--those issues are, to a great extent, determined by the tax laws, 

particularly at the Federal level. Okay. 

 The need and cost of long-term care is ever increasing, and the 

burden will become unsustainable over time. Life expectancy continues 

to increase. It is compounded markedly by the graying of the Baby 

Boom generation, of which I am a proud member. Combine this with the 

rapidly increasing cost of health and long-term care, and you have a 

fairly toxic mixture. Recent surveys show that about 65 percent of 

Americans have made no plans whatsoever for their long-term care 

needs, even though we know that a majority of the care is provided by 
45

family members in the home. One of the important features of long-term 

care insurance is to pay for training of those family caregivers. 

 Although the market is evolving for long-term care, most Americans 

don’t own such insurance. There are impediments. Those impediments 

include greater demands for competing discretionary income, 

impediments to streamlined products that lower costs, and lack of 

awareness of the need for long-term care expenses. 

 You in Congress will continue to play an important role. Earlier this 

year, for example, you passed the Deficit Reduction Act of 2005, that 

enabled all the states to enter into long-term care partnerships. That will 

ultimately ease the burden on their Medicaid budgets, and on individual 

consumers, who must now spend down their assets. We thank you very 

much for your help and support on this issue. 

 Equally important is a provision that I would like to point to today. 

It is contained in the House version of the pension bill now in 

conference. It would eliminate an impediment in the tax code that 

prevents companies from offering policies that combine features of an 

annuity with long-term care insurance. Now, you may wonder why that 

is important. The reason has to do with consumer attitudes towards 

insurance. Most Americans recognize the need to insure against risk--

health insurance, fire insurance, traffic accidents--but most people have 

limited resources, and many aren’t willing to purchase insurance where 

the policy offers no accumulation feature, where they can’t save within 

the policy. There is no good reason that they can’t, but the tax law right 

now prohibits it, so we worked closely on this issue with the members 

and staff of the Ways and Means Committee, and thanks to Chairman 

Thomas and others, it is now included in the pension bill, at least the 

House version of the pension bill. We would urge you to assist 

Chairman Thomas in getting that included in the final conference report. 

 The change would allow people to accumulate assets during their 

working years. When they retired, they would have an annuity. They 

could use the annuity to pay lifetime income, or if they needed it, longterm care services. They would have flexibility. It is an example of a 

win/win situation for consumers, and an excellent example of how 

Congress and the private sector can work together to facilitate 

innovation. 

 As has been noted earlier, cost is a major reason people don’t buy 

long-term care insurance. It has been called to your attention about the 

proposal for the above, the line tax deduction for long-term care 

premiums, and the proposal to permit the use of employer-sponsored 

cafeteria plans, and flexible spending accounts for that purpose. These 

changes would go far to help control rising costs and strains on the 

Medicaid budget. Individuals would have the ability to pay privately, 
46

and have the ability to choose among various features and care settings 

best suited to their needs. 

 In conclusion, we believe that protection and coverage for long-term 

care is critical to the economic security and peace of mind of all 

American families, and that private long-term care insurance is an 

important part of that solution. ACLI looks forward to working with this 

subcommittee to help all Americans protect themselves against the high 

cost of long-term care. 

 Thank you very much, Mr. Chairman. 

 [The prepared statement of Greg Jenner follows:] 

PREPARED STATEMENT OF GREG JENNER, EXECUTIVE VICE PRESIDENT, AMERICAN 

COUNCIL OF LIFE INSURERS

My name is Gregory F. Jenner, and I am Executive Vice President, Taxes and 

Retirement Security, for the American Council of Life Insurers (ACLI). The ACLI is a 

Washington D.C.-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. I am 

responsible for policy development, formulation and implementation with respect to all 

tax, pension and retirement security issues, and serve as the senior tax expert for and 

principal liaison on those issues between member companies and Congress, the IRS, and 

the Treasury Department. Prior to joining ACLI, I served as Acting Assistant Secretary 

of the Treasury for Tax Policy. 

We are delighted that this Subcommittee is addressing an important issue facing this 

nation – long-term care. We applaud Chairman Nathan Deal (R-Georgia) and Ranking 

Member Sherrod Brown (D-Ohio) for drawing attention to this matter, and we are 

pleased to discuss with the Subcommittee the important role that private long-term care 

insurance plays in helping to provide the retirement security of millions of middleincome families, and what Congress can do to help those families prepare for their 

retirement. 

The Need for Long-Term Care and the Role of Long-Term Care Insurance 

 ACLI’s recently-updated study on long-term care in the “Baby Boom” generation 

notes that about 55 percent of those 85 and older require some form of long-term care, 

and about 19 percent of all seniors suffer from some degree of chronic impairment. By 

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 care1

. 

 The cost of long-term care is high and increasing, averaging $70,912 annually for a 

private room or $62,532 annually for a semi-private room in a nursing home; $25.32 per 

hour for a visit by a home health aide; and an average annual base rate of $32,294 for the 

services of an assisted living facility.2

 Since 1990, the price of nursing home care has 

increased at an average annual rate of 5.8 percent – almost double the overall inflation 

rate. 

Total annual expenditure on long-term care for the elderly is estimated to be $135 

billion, which accounts for over 9.7 percent of total spending on health care for persons 

 

1

 ACLI 2005 Study: “Long-Term Care Insurance or Medicaid: Who Will Pay for Baby Boomers’ 

Long-Term Care?” 

2

 Genworth Financial 2006 Cost of Care Study 
47

of all ages. This is roughly 1.2 percent of the U.S. GDP. Of greater significance is that 

the elderly account for a disproportionately large percentage of total health care 

expenditures -- 36.3 percent of expenditures -- while accounting for only 12.4 percent of 

the population.3

 Because baby boomers are aging and the cost of care is increasing, total 

spending on nursing home care is expected to more than triple over the next 25 years and 

to increase more than five-fold in the next 45 years. These increases will place a 

crushing burden on Medicaid and ultimately on taxpayers, most of whom are workingage adults. Currently, there are about five working-age adults per senior, but by 2030, 

there will only be 2.9 – a 40 percent decline. This decline will occur while both the need 

for and cost of long-term care increase. 

 At the same time, life expectancy has increased dramatically. Unfortunately, 

increased longevity comes at a price: the likelihood that more seniors will require longterm care. Given this increasing possibility that the typical senior will require long-term 

care, and given the escalating costs of that care, whether elderly boomers enjoy a 

comfortable retirement or suffer economic hardship may depend largely on their ability to 

afford such long-term care. Most boomers have not planned for this reality and face the 

prospect of paying large sums out-of-pocket or relying on Medicaid. A February 2006 

survey conducted by Public Opinion Strategies found that 65% of Americans have made 

no plans for their own or for family members’ long-term care needs.4

 Moreover, 

Medicaid currently only covers the cost of long-term care after a senior has spent down 

virtually all assets and retirement income. Neither option is very appealing and may 

leave seniors and their spouses impoverished, with few long-term care choices. 

 Private insurance currently pays for 8 percent of total nursing home expenditures but 

36 percent of overall health expenditures. There is clearly a large gap in the financing of 

long-term care services that private insurance can fill. Our goal, as well as the goal of 

Congress, should be to find ways for the average consumer to plan for the ever-increasing 

need for long-term care through the private sector instead of through government 

programs. 

 If three-quarters of individuals between the ages of 40 and 65 who can afford longterm care insurance were to purchase and maintain a policy throughout their senior years, 

then by 2030, annual savings in Medicaid nursing home expenses would total $19 billion, 

and annual savings in out-of-pocket expenses would total $41 billion. Given this, it is 

clear more needs to be done to convince the Baby Boom generation of the need for this 

type of investment NOW. 

The Evolving Long-Term Care Insurance Market 

 Both the individual and group (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 long-term 

care insurance providers and found that: 

• The market has grown to nearly $7 billion in premiums, and now covers over 5 

million people. 

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

7.5 percent and the group market grew 25 percent. 

• The amount paid out in claims has also increased, with carriers paying $2.1 

billion in benefits in 2004, about 20 percent more than in the previous year.5

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 he or she needs 

 

3

 U.S. Department of Health and Human Services; U.S. Census Bureau. 4

 Public Opinion Strategies 2006 Survey 

5

 ACLI (2005) 
48

long-term care, premium rates vary 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 40s 

and 50s, when premiums are lower and more affordable. The typical buyer of long-term 

care insurance is aged 55-60 (although the average age of those who enroll in group plans 

is in the forties), married, college educated, with an annual income in excess of $50,000. 

Women are more likely to buy coverage than men. 

Although the market for long-term care insurance is growing, most Americans have 

not yet purchased this insurance protection. Impediments to even greater market growth 

include competing demands for discretionary income, limited incentives to purchase 

long-term care insurance, impediments to streamlined products that will lower costs to 

consumers, and the lack of awareness of the need to plan for potential long-term care 

expenses. 

Long-term care insurance products continue to evolve to give policyholders more 

choices and flexibility at the time they need care. When long-term care insurance was 

first offered, over 30 years ago, most plans only covered stays in skilled nursing facilities. 

Since the mid 1990s, more flexible care options and consumer protections have become 

available. Today, most policies provide coverage 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 to be renewable, have a 30- day “free look” period, offer inflation 

protection, cover Alzheimer’s disease, have a waiver of premium provision, and offer 

unlimited benefit periods. Benefits are paid when a person needs help with two or more 

activities of daily living (such as eating, dressing, or bathing) or is cognitively impaired. 

Some of the innovative benefits and financing arrangements that companies now 

provide include: 

• Caregiver training benefits that cover the cost of training a person (friend or 

family member) who will then care for the insured in the insured's home on an 

unpaid basis. The benefit is usually equivalent to five times the daily benefit 

and not subject to an elimination period. 

• “Per diem” or cash benefits that pay without regard to cost of services or pay 

benefits in cash. These benefits make it easier to understand and file claims and 

allow the claimant greater flexibility to utilize informal caregivers. 

• Shared lifetime maximum benefit pools that allow a policyholder who uses up 

all of his or her benefits to tap into a spouse’s lifetime maximum, or to leave 

any unutilized benefits at death to a surviving spouse. 

• Independence support benefits that pay for home modifications and personal 

emergency alert systems that would enable a policyholder to remain in the 

home for a longer period of time. 

• Death benefits that will return all or a portion of past premium payments in the 

event the policyholder dies before utilizing long-term care insurance benefits. 

• International benefits that pay for services received in a foreign country. 

Congressional Involvement in Long-Term Care Insurance Product Innovation 

The United States Congress will continue to play an important role encouraging the 

evolution of the long-term care insurance marketplace. Significant changes were 

enacted earlier this year and others are pending as we speak. We look forward to 

continuing our excellent relationship with the House Energy and Commerce Committee 

and other committees of the House to encourage greater flexibility and innovation in the 

long-term care marketplace. 
49

• Long-Term Care Partnerships 

 Earlier this year, Congress passed and the President signed into law the Deficit 

Reduction Act of 2006. That bill expanded the ability of the states to enter into the LongTerm Care Partnership program, which will ultimately ease the burden on state Medicaid 

budgets and on individual consumers. We thank and congratulate the members of this 

Committee for their help and support. 

These public-private Partnerships, currently operational in four states, allow 

consumers to purchase long-term care policies whose benefits must be fully utilized prior 

to qualifying for Medicaid. Many states are now looking to utilize this new public policy 

opportunity by seeking approval from the Department of Health and Human Services for 

an amendment to their State Medicaid plan in order to implement a Partnership program. 

Insurers anticipate that Partnership programs will provide a greater incentive to purchase 

long-term care insurance in those states that choose to participate. 

ACLI is currently working to implement these partnerships in all 50 states and the 

District of Columbia. This is an excellent example of an innovative program that offers a 

“win-win” opportunity for the states and consumers. 

• Flexible Retirement Security Proposal 

 I have been asked to focus primarily on innovations in long-term care insurance 

products. It is my pleasure to call to the Committee’s attention a proposal pending before 

the Congress that we believe would have significant beneficial effects on the 

marketplace. That provision is contained in the House version of the pension bill now in 

conference. 

It comes as a surprise to no one that the tax code has considerable effect on the 

pricing of insurance products and the ability of companies to create innovative solutions 

that address the needs of consumers. Provisions of the tax code prevent companies from 

offering policies that combined the features of an annuity with the benefits of long-term 

care insurance. 

Removing this impediment would likely result in increased utilization of long-term 

care insurance. The reason had to do with consumer attitudes toward insurance. Most 

Americans recognize the need to insure against risk, whether it is the risk of an early 

demise, a traffic accident, or the risk that a person will need long-term care. But most 

people have only limited resources, and many are unwilling to purchase insurance where 

the policy offers no accumulation feature; i.e., where the premiums paid are lost to the 

policyholder if the insurance is not used. Without some sort of “savings” feature, 

consumers with limited resources often were not willing to purchase insurance, including 

long-term care insurance, even though they recognize its importance. 

So why did the tax law prohibit long-term care insurance from offering an 

accumulation feature, such as an annuity? Quite frankly, there was no good reason. 

Therefore, we worked with members and staff of the Committee on Ways and Means to 

develop a provision that would permit the combination of an annuity and long-term care 

insurance in one policy (and clarify that life insurance and long-term care could also be 

combined). That provision is in the House version of the pension bill now pending in 

conference. We would like to thank Chairman Thomas for including it in the bill, and 

also thank Mrs. Johnson of Connecticut, Mr. English of Pennsylvania, and Mrs. Tubbs 

Jones of Ohio for their hard work and support. We would also encourage the members of 

this Committee to actively support inclusion of this provision in the final pension 

conference report. 

 This proposal would create more flexibility and choice for American consumers. 

During working years, individuals could accumulate assets in an annuity; at retirement, 

depending on the needs of the individual, that annuity could be used to provide lifetime 

income. A long-term care insurance benefit within the annuity would pay for long-term 

care services. For the long-term care/life insurance combination, the life insurance would 
50

serve its critical function of death protection, while also being available to provide funds 

for payment of long-term care costs. 

 Although life insurance, endowment and annuity contracts can be exchanged 

without tax if certain conditions are met, currently, long-term care contracts and riders 

are not included in the tax-deferred exchange provisions. The law should be updated to 

include long-term care contracts and riders among the permitted tax-deferred 

exchangeable insurance products. 

 This is an excellent example of the law unintentionally standing in the way of 

innovation in the marketplace. We will continue to work with you in the Congress to 

remove such unnecessary barriers to innovation. We believe that, with your help, our 

industry can adapt and accommodate the changing needs of the American consumer. 

• Tax Incentives 

 Cost is a major reason why more Americans have not yet purchased long-term care 

insurance. Although product combinations may prove to be an attractive alternative to 

stand alone long-term care insurance for some individuals, an even more broadly 

appealing and effective solution to the financing of long-term care would be the passage 

of measures that reduce the cost of long-term care insurance, particularly for moderateincome individuals, the persons who need the protection of long-term care insurance the 

most. Partnerships and combination products can only go so far to accomplish this. If 

Congress determines it is important that individuals of moderate means are protected in 

this fashion, there are steps that can be taken. 

 Although not strictly a product innovation, we would encourage Congress to provide 

individuals with a phased-in above-the-line federal income tax deduction for the eligible 

portion of the premiums they pay to purchase long-term care insurance. This would 

create a more even playing field between long-term care insurance and health insurance 

(which we all agree is crucial). In addition, Congress should permit long-term care 

insurance policies to be offered under employer-sponsored cafeteria plans and flexible 

spending accounts. This benefit is allowable for similar accident and health coverage and 

there is no strong policy consideration to justify the exclusion of long-term care 

insurance. Finally, we would urge that individuals be permitted to exchange tax free one 

qualified long-term care policy for another long-term care policy better suited to the 

insured’s needs. 

 Allowing individuals to pay for their long-term care insurance premiums through 

cafeteria plans and flexible spending accounts, as well as through flexible retirement 

security combination products, will provide a range of options both inside and outside the 

employment context. Such measures could go far to help control rising long-term care 

costs, rising long-term care needs, and rising strains on the Medicaid budget. Individuals 

will have the ability to pay privately and have the ability to choose a variety of services 

and care settings best suited to their needs. 

• Other Related Legislation

In this spirit, other members of Congress have been likewise engaged in the 

discussion of how to encourage individuals to plan for their long-term care costs. For 

example, Rep. Terry (R-NE), who serves on this Committee, has introduced a bill that 

would allow individuals to exclude from gross income distributions made from their 

individual retirement accounts, 401(k), or 403(b) plans that are used to pay for long-term 

care insurance premiums for themselves or their spouses. 

An optional federal charter for life insurers, including long-term care insurers, 

would also help long-term care insurance innovations reach consumers in a more timely 

and cost-effective manner. Senators Sununu and Johnson recently introduced S. 2509, 

which would create an optional federal charter. Today, it can take up to two years for an 

innovative long-term care insurance product to be approved in all 50 states and the 
51

District of Columbia and be sold nationally. Consumers should have the benefit of a 

timely array of long-term care product choices that best meet their needs. 

• Federal Government Long-Term Care Insurance Program 

 The federal government and the states have also recognized the need to educate 

individuals in the workplace about planning for their future long-term care needs. The 

federal government, by Act of Congress, has taken the lead and set the example for other 

employers by offering federal employees and their families the protection of long-term 

care insurance. Through this program, federal employees are able to help protect their 

retirement savings from a long-term care event and will have the choice of providing care 

for themselves or a family member in the home, through assisted living or in a nursing 

home. 

• Other Innovative Solutions 

Although we are focused today on innovations in long-term care insurance, the 

nature of governance is that you (and we) will likely be focused elsewhere tomorrow. 

But solutions to the pressing problems of financing retirement and longevity should not 

be viewed as a snapshot. Our industry is committed to examining these issues on an 

ongoing basis. As important, we need to know that, if we develop an innovative idea, we 

can come back to this Committee and win your support. We, as an industry, look 

forward to a constructive partnership with the Congress in developing and implementing 

creative solutions to this country’s retirement needs. 

Private Long-Term Care Insurance: An Important Part of the Answer 

In conclusion, we believe that protection and coverage for long-term care is critical 

to the economic security and peace of mind of all American families. Private long-term 

care insurance is an important part of the solution for tomorrow’s uncertain future. As 

Americans enter the 21st century, living longer than ever before, their lives can be made 

more secure knowing that long-term care insurance can provide choices, help assure 

quality care, and protect their hard-earned savings when they need assistance in the 

future. We also believe that the costs to Medicaid – and therefore to tomorrow’s 

taxpayers – will be extraordinary as the baby boom generation moves into retirement, 

unless middle-income workers are encouraged to purchase private insurance now to 

provide for their own eventual long-term care needs. 

Congress has encouraged the American public to insure themselves against the need 

to pay for long-term care by adopting the Deficit Reduction Act of 2006 and allowing for 

the expansion of LTC Partnerships. Congress should build on that momentum by 

encouraging the development of innovative products such as combination annuity/longterm care insurance products and life/long-term care insurance products. Further, 

Congress should include long-term care insurance products in cafeteria plans and flexible 

spending accounts, and consider other tax incentives to encourage the sale of these 

products. 

Again, ACLI looks forward to working with this Subcommittee to help Americans 

protect themselves against the risk and high cost of long-term care. 

MR. DEAL. Thank you. We have six votes coming up, and it will 

take at least an hour to do that. Dr. Thames, I am going to go ahead and 

recognize you, and I think if we run from here to the floor, we will 

probably all make it. 

 So, I recognize you, Dr. Thames, at this time. 
52

MR. THAMES. Thank you very much, Mr. Chairman. I will stay well 

within the limits. 

 It is important, our members feel, to remain independent in later 

years. It is an often overlooked component of retirement planning, is 

financing those future long-term needs. As our population continues to 

age, we will increasingly rely on long-term care services to remain 

independent. Therefore, we need to do a better job of one, educating 

consumers about the importance of planning for long-term care needs, 

two, ensuring there is a range of long-term care options to choose from, 

and three, providing better means of financing long-term services and 

supports. 

 Long-term care should be a critical part of retirement planning. 

AARP educates our members through publications and other tools, but 

the challenge is great. Denial of costs, immediate financial needs, and 

other factors keep many Americans from focusing on long-term care 

planning. We have to do better in the future to help Americans focus on 

this. 

 Once individuals begin to plan, they discover their options for paying 

for long-term care are limited. There is no comprehensive public system 

of long-term care, and very few private options. Insurance is costly, and 

not always accessible. Public programs are limited. Caregivers are 

strained, and costs of care can quickly outstrip personal savings. We 

need better options. 

 Long-term care insurance has a limited role in financing long-term 

care, but it needs to be more affordable and accessible. The Long-Term 

Care Partnership Program may offer a new financing option to some, but 

strong consumer education and other improvements to this program are 

important. Increased attention is being paid to the role that home equity 

could play in financing long-term care. Reverse mortgages could be an 

option for some individuals, but the costs are still very high. 

 I will skip some of the examples we gave of up to $25,000. We need 

to remove the high cost barrier to the use of reverse mortgages for longterm care, and given the limited experiences most consumers have with 

reverse mortgages, a logical way to test them is through a limited 

demonstration program. Demos could be designed to reduce borrower 

costs, a key reason that people do not take out reverse mortgages. 

Congress must begin to look for options that allow Americans to pay for 

the care they need in the setting of their choice. 

 AARP is ready, willing, and able to work with members on both 

sides of the aisle, the Administration, and all stakeholders, to address the 

long-term care our country is facing. Thank you. 

 [The prepared statement of Dr. Byron Thames follows:] 
53

PREPARED STATEMENT OF DR. BYRON THAMES, BOARD MEMBER, AARP 

Mr. Chairman and members of the Subcommittee, I am Dr. Byron Thames, a 

physician and a member of AARP’s Board of Directors. Thank you for the opportunity 

to testify today. Remaining independent in later years is a priority for AARP members. 

Yet, if you ask the average person about retirement planning, one of the most critical 

components is often overlooked – how to finance future long-term care needs. 

Most of us don’t want to think that we will ever need long-term care, but the reality 

is that as our population continues to age we will increasingly rely on long-term care 

services to remain independent. Therefore, we need to do a better job of educating 

consumers about the likelihood for needing long-term care, the cost, options, and the 

importance of planning prior to a crisis. 

We must also ensure that there are a range of long-term care options from which to 

choose. Based on recent reports, sales of private long-term care insurance policies have 

slowed and Long-Term Care Partnership programs in the original four states have sold 

relatively few policies. Reverse mortgages have high costs and are more expensive than 

home equity loans. 

 Americans also need a better means of financing long-term services and supports. 

Current financing options are often too expensive and too complex. In some cases, they 

are also tied to institutional care rather than a system that gives consumers what they 

want, such as self-directed care with cash payments to purchase services. 

We commend the Subcommittee for taking the first step by holding this hearing. 

We urge members to look for positive ways to encourage and enable more persons to 

plan for long-term care. 

Our testimony today will focus on the need for broader education efforts and three 

financing options -- long-term care insurance, the Long-Term Care Partnership Program, 

and reverse mortgages -- and improvements that should be made to each to enhance their 

ability to be viable financing options for Americans. 

Consumer Education: A Critical and Ongoing Step

The first big challenge to planning for long-term care is public education. It is 

difficult to get many people to prepare for something so far in the future. Yet the goal 

should be that we think of long-term care as a critical part of retirement planning. We all 

should understand the likelihood of needing long-term services and supports at some time 

in the future; the types, costs, and availability of such services and supports; the options 

available to help plan and pay for such services; why it is in our interest to plan; and 

where we can go for further information and assistance about how to plan. The recently 

enacted Long-Term Care Information Clearinghouse will be a new resource to help 

Americans plan for long-term care. 

AARP is working to educate our members about long-term care. For example, our 

publications include articles on topics such as long-term care insurance, reverse 

mortgages, long-term care costs, assisted living, nursing homes, and innovative ways to 

receive services at home. We also use other tools to educate our members such as 

AARP’s consumer guide to reverse mortgages, Home Made Money, and tip sheets on 

topics ranging from hiring a home care worker to purchasing long-term care insurance to 

choosing an assisted living facility. 

There are several obstacles that must be overcome in order for significant numbers 

of Americans to plan for long-term care. First, from what we’ve heard from our 

members, there is a great deal of resistance to thinking about long-term care. For 

example, persons associate long-term care with nursing homes and/or insurance, and they 

believe that talking about the issue signifies sickness and/or a loss of personal control or 

independence. Our members do not want to become a burden to their families. They 
54

also want to have choice, and for the vast majority of individuals, this choice is staying in 

their homes. 

It is also not unusual to find individuals under the mistaken impression that 

Medicare covers long-term care, so they believe that further long-term care planning is 

unnecessary. Since individuals frequently have negative perceptions or misimpressions 

about long-term care, they are often discouraged from seeking out information, and in 

denial about their likely need for future services. As a result, they will often wait until a 

crisis to act. 

On top of this, there are day-to-day realities that families across this country face. 

Most families are focused on immediate needs -- making mortgage payments, saving for 

their children’s college education, and paying for rapidly increasing health care costs. 

Many in the sandwich generation are saving for their children’s college education while 

also helping to pay for their parents’ long-term care needs. That’s all before individuals 

save for their own retirement. Under these circumstances, planning and saving for longterm care often falls to the bottom of the priority list. 

When the day-to-day financial demands on many Americans are coupled with the 

negative perceptions about long-term care, there are significant challenges to engaging 

individuals in planning for their futures. That is why it is important that long-term care 

be considered as a part of overall retirement planning. 

Current Options are Limited: Americans Need More Financing Options

Even once individuals get past their day-to-day demands and begin to look into 

planning for long-term care, they discover that their options to pay for long-term care are 

quite limited. There is no comprehensive public system of long-term care available to 

most Americans and very few other long-term care financing options exist. Long-term 

care insurance is limited and generally expensive. According to America’s Health 

Insurance Plans, in 2002, the average cost of a long-term care insurance policy with 

automatic inflation protection was $1,134 per year when purchased at age 50 and $2,346 

per year if purchased at age 65. 

The Long-Term Care Partnership Program allows individuals who buy long-term 

care insurance policies under the program to protect a certain amount of their assets and 

become eligible for Medicaid if they meet all of Medicaid’s other eligibility criteria. The 

expansion of this program may provide a new option for some Americans to finance their 

long-term care, but public education is critical around this option and additional 

improvements should be made to the program. 

Public programs are also limited. Medicare covers some home health and skilled 

care, but does not cover nursing home stays. Medicaid – while a critical safety net for 

those with no other options – has income and asset limits that require impoverishment. 

For individuals who pay out-of-pocket for care, they often find that costs associated 

with years of care outstrip personal savings. The average annual nursing home costs 

were over $64,000 for a semi-private room and over $74,000 for a private room in 2005. 

The average hourly rate for a home health aide in 2005 was $19, so as little as 10 hours a 

week of home health care would average close to $10,000 a year. 

Many Americans rely on informal caregivers, such as family and friends, for the 

bulk of long-term care services. According to an analysis of data from the National 

Long-Term Care Survey for AARP, over 90 percent of persons age 65 and older with 

disabilities who receive help with daily activities are helped by unpaid informal 

caregivers. Two-thirds of those 65 years of age and older with disabilities who receive 

help with daily activities only receive informal unpaid help, up from 57 percent in 1994. 

But caregivers face many physical, emotional, and financial demands that often take a 

serious toll. If caregivers do not take care of themselves or get the support that they need, 

they may no longer be able to care for their loved ones and may need someone to care for 

them. 
55

AARP believes that Americans need more options to plan and pay for their care. 

Due to the limited options available today, Medicaid has become the default payer of 

long-term care. One of the reasons that we strongly opposed the Medicaid changes in the 

Deficit Reduction Act was that the legislation took a punitive approach without providing 

alternative long-term care financing options for individuals. We hope this hearing will be 

part of ongoing work in Congress to give Americans incentives and positive options to 

plan and pay for future long term services and supports that they may need. 

Long-Term Care Insurance

Relatively few older persons have private insurance that covers the significant cost 

of long-term care. Many common long-term care needs (e.g. bathing, dressing, and 

household chores) are not medical in nature, do not require highly skilled help and 

therefore, are not generally covered by private health insurance policies or Medicare. 

The market for private long-term care insurance has grown in recent years, but its 

overall role is still limited. Long-term care insurance pays for only about 9 percent of all 

long-term care costs. By the end of 2002, over 9.1 million long-term care insurance 

policies had been sold in the United States, with about 6.4 million of these policies still 

remaining in force. Most policies sold today cover services in nursing homes, assisted 

living facilities, and in the home. Typically, policies reimburse the insured for long-term 

care expenses up to a fixed amount, such as $100 or $150 per day. To receive benefits, 

the insured must meet the policy’s disability criteria. Nearly all policies define disability 

as either severe cognitive impairment or the need for help in performing at least two 

activities of daily living (such as bathing and dressing). Most policies sold are in the 

individual market. 

The cost of long-term care policies varies dramatically depending on a number of 

factors: the consumer’s age at the time of purchase, the amount of coverage, and other 

policy features. Insurance companies can increase premiums for entire classes of 

individuals, such as all policyholders age 75 and older, based on their claims experience 

in paying benefits. Older adults are more likely to have more long-term care needs and 

higher costs, thus higher premiums. Other factors that affect the policy’s premium 

include the duration of benefits, the length of any waiting period before benefits are paid, 

the stringency of benefit triggers, whether policyholders can retain a partial benefit if they 

let their policy lapse for any reason, (including inability to pay -- nonforfeiture benefit), 

and whether the policy’s benefits are adjusted for inflation. Individuals with federally 

qualified long-term care insurance policies can deduct their premiums from their taxes, 

up to a maximum limit, provided that the taxpayer itemizes deductions and has medical 

costs in excess of 7.5 percent of adjusted gross income. 

Many of the reasons already outlined that cause individuals to not plan for long-term 

care also are reasons that individuals have not bought long-term care insurance policies -- 

denial, believing Medicare pays for long-term care, and cost. Some individuals are wary 

of long-term care insurance due to large premium increases and market instability, for 

example when insurance carriers decide to leave the market. Further, some individuals 

are not able to qualify for long-term care insurance due to underwriting. For them and 

others, long-term care insurance is not a viable option. 

Consumer protections are a critical part of long-term care insurance policies. 

Standards and protections for long-term care insurance policies could make them better 

products that consumers are more likely to buy. For example, an individual who buys a 

policy in his or her 60s may not need long-term care for over 20 years. Without inflation 

protection, the value of the insurance benefits can erode over time. A daily benefit of 

$100 in coverage will not buy as much care in 2025 as it does today. Nonforfeiture 

protection allows a consumer who has paid premiums for a policy, but can no longer 

afford to pay premiums, to still receive some benefits from the policy. Another 

important protection is premium stability to help protect consumers whose premiums 
56

increase above a certain threshold. Long-term premium affordability is an important 

reason why persons may drop long-term care policies or not buy policies in the first 

place. 

The National Association of Insurance Commissioners (NAIC) has developed a 

Long-Term Care Insurance Model Act and Regulations that states can adopt to provide 

standards for long-term care insurance policies sold in a state. NAIC standards include: 

inflation protection, nonforfeiture, required disclosures to consumers, minimum standards 

for home health and community care benefits, premium rate stabilization, and standards 

for what triggers benefits. While all states have adopted some of the NAIC provisions, 

only about 21 states have adopted a critical provision on premium stability that protects 

consumers from unreasonable rate increases that could make their policies unaffordable. 

Legislation (H.R. 2682) introduced by Representatives Nancy Johnson (R-CT) and 

Earl Pomeroy (D-ND) updates consumer protections mandated by the Health Insurance 

Portability and Accountability Act of 1996 and incorporates some of the consumer 

protections in the NAIC Model Act and Regulations. AARP supports the standards for 

long-term care insurance included in this legislation. 

 Education is also critical for individuals to decide whether or not to purchase a longterm care policy, and if so, which policy best suits their needs. To make an informed 

decision, consumers need to understand many things, including: the terms that are used 

in policies, what the benefits are and when they start, what is not covered, what the 

consumer pays, and how they can compare one policy to another. Different policies may 

use different definitions and make it hard for consumers to make an apples-to-apples 

comparison of long-term care policies. Consumers who are considering purchasing longterm care insurance need better tools to help them compare different policies to find 

which one is best for them. 

Finally, there has been some discussion of establishing a mandatory long-term care 

insurance program. AARP urges caution about moving in this direction. As cited above, 

long-term care insurance is not affordable to many Americans without some kind of 

subsidy. Further, long-term care insurance is not available to many individuals with preexisting conditions. Therefore, insurance market reforms would be necessary. 

Long-Term Care Partnerships

Prior to the enactment of the Deficit Reduction Act, the Long-Term Care 

Partnership Program was only operating in California, Connecticut, Indiana, and New 

York. The Deficit Reduction Act (DRA) allows all states the option to enact partnership 

policies. The new partnership programs do include some important consumer 

protections. Long-term care insurance policies in these new programs must meet specific 

criteria including federal tax qualification, specific provisions of the 2000 NAIC Model 

Act and Regulations, and inflation protection provisions. Compound annual inflation 

protections will be required for purchasers below age 61 (states can determine the level of 

protection, such as 3 percent or 5 percent). Some level of inflation protection will be 

required for purchasers between the ages of 61 and 75. The DRA also requires the 

development of a reciprocity agreement by the Department of Health and Human 

Services to enable purchasers to use their benefits in other partnership states; however, 

states may opt out of this reciprocity. 

The expansion of the partnership program could mean that a significant number of 

individuals will have a new financing option available to them. However, consumer 

education is absolutely critical. In order to make an informed decision about whether or 

not to purchase a partnership policy, it is important for individuals to understand that 

Medicaid eligibility is not automatic. Even though a partnership policy allows purchasers 

to protect a certain level of assets if they deplete their insurance benefits, individuals 

must first meet the state’s income and functional eligibility criteria in order to quality for 
57

Medicaid. These criteria may change by the time individuals apply for Medicaid. If 

individuals do not meet these criteria, they will not be eligible for Medicaid. 

If a long-term care policy’s functional eligibility criteria are different than a state 

Medicaid program’s functional eligibility criteria, individuals may have a gap in coverage 

after they use up their long-term care policy and before they qualify for Medicaid. 

In addition, once individuals qualify for Medicaid after depleting their insurance 

benefits, there is no entitlement to home-and community-based services. Thus, 

individuals may not be able to receive the home-and community-based services that they 

were receiving under their policy under Medicaid. 

As the federal government and states implement the partnership program, they 

should include strong consumer education, so that consumers understand what they get 

and what they do not get with a partnership policy. There should be clear disclosure of 

current income requirements for Medicaid benefits and the state’s right to change those 

requirements. Guaranteeing the types of services (particularly home-and communitybased services) that the state would provide to eligible partnership policyholders under 

Medicaid would be a good improvement in the program. States and the federal 

government should consider adding additional consumer protection standards, such as 

premium stability, to partnership policies. Strengthening the reciprocity agreement 

would also benefit consumers and give them peace of mind if they anticipate moving in 

the future to another state that does not participate in the reciprocity agreement. Further, 

states should monitor nursing home admissions to ensure that equal access is available to 

everyone on the waiting list, regardless of source of payments. 

Over time, it will be important to evaluate the results of the partnership program to 

determine its impact on individuals and the Medicaid program. According to a 

Government Accountability Office review of the program, in the four original partnership 

states, about 172,500 policies are in force and about 1,200 individuals are receiving 

partnership benefits. Since the program began, about 250 policyholders in all four states 

have exhausted their long-term care insurance benefits, and of those, about 120 have 

accessed Medicaid. It is unclear whether these persons using Medicaid would have likely 

spent down to Medicaid absent their participation in the program. It is not clear whether 

the policies were purchased by people who otherwise would not have bought insurance, 

whether the partnership policies are a substitute for other long-term care insurance 

policies, and whether participants would have used Medicaid regardless. Because 

partnership policyholders tend to be younger than other long-term care policyholders, it 

may be hard to assess the full impact of the partnership program on Medicaid for now. It 

is possible that not enough time has passed for many partnership policyholders to have 

exhausted their long-term care insurance policies and become eligible for Medicaid. 

Reverse Mortgages

Because of the large and growing amount of home equity held by some older 

Americans, increased attention is being paid to the role that home equity could play in 

financing long term care. Over the past decade, more homeowners have begun using 

their home equity as a means of paying for long-term care services. In some cases, they 

have done so by selling their homes and using the proceeds to pay for services in assisted 

living and continuing care retirement communities (CCRCs). Others have used home 

equity to retrofit their houses or to pay directly for home and community-based services. 

One of the tools increasingly used by people who want to tap into their home equity 

is a reverse mortgage, which is a loan against a home that requires no repayment until the 

borrower dies, sells the home, or permanently moves out of the home. There are two 

basic types of these mortgages: public sector reverse mortgages that must be used for a 

single purpose, and private sector reverse mortgages that can be used for any purpose. 

Public programs are offered by some state and local governments, generally at a low cost, 

and with income requirements. Most of these programs are limited to paying for home 
58

repairs or property taxes, although Connecticut developed a program specifically for 

long-term care financing. 

Private sector reverse mortgages can be used for any purpose and have no income 

requirements. They are offered by private lenders and have high costs. They include the 

Home Equity Conversion Mortgage Program (HECM) that is insured by the Federal 

Housing Administration (FHA) of the Department of Housing and Urban Development 

(HUD), as well as two smaller private programs. Federally insured HECMs make up 

about 90 percent of the private sector reverse mortgage market. 

To qualify for a HECM, an individual must: be age 62 or over; occupy the home as a 

primary residence; have paid off the mortgage or have a mortgage balance that could be 

paid off with proceeds from the reverse mortgage at closing; undergo required 

counseling; and live in a home that meets minimum HUD property standards. According 

to a HUD study, HECM borrowers tend to be older, female, from a variety of racial and 

ethnic groups, live alone, and have lower incomes. 

The amount of money available from a private sector reverse mortgage depends 

upon: the age of the youngest borrower; the value of the home; the median home value 

in the county; current interest rates and other loan costs; and the type of private sector 

loan. Money from the reverse mortgage can be paid to the borrower as a lump sum 

payment at closing, monthly payments, a line of credit, or a combination of these 

methods. Borrowers make no loan payments as long as they live in the house – an 

advantage for an older person who wants to remain at home rather than enter a nursing 

home. The loans are paid back when the last living borrower dies, sells the house, or 

permanently moves away. 

Despite their advantages, reverse mortgages are not suited for everyone. The high 

costs associated with the loans are a real disadvantage – particularly to a lower income 

person with a modest amount of home equity. The private reverse mortgage market is 

relatively new, and although still growing, consumers do not yet have tremendous choice. 

And current private sector reverse mortgages are not available to anyone under the age of 

62, which excludes their use as a source of long-term care financing for younger persons 

with disabilities. 

Using Reverse Mortgages as a Long-Term Care Financing Tool

Reverse mortgages could be an option for some individuals to pay for long-term 

services and supports, such as home health care, chore services, respite care, and home 

modification. Home-and community-based services help enable an individual to live at 

home, where most older adults want to be. As the Subcommittee examines reverse 

mortgages, it is important to note in what ways they would be useful as a long-term care 

financing tool and in what ways they would not be helpful. 

High Costs of Reverse Mortgages are a Barrier to their Use

The high costs of reverse mortgages are a significant barrier to their use, including 

as a long-term care financing option. During the past year, the average value of a home 

in the HECM program was about $255,000. The fees and other non-interest costs of a 

HECM on such a home in many urban areas can be over $25,000 over the life of the loan. 

The upfront costs would include $5,100 for the initial mortgage insurance premium, up to 

another $5,100 for the lender’s origination fee, and about $2,200 in third-party closing 

costs. The average borrower in the program is a 74-year-old single female. If she lives to 

her remaining life expectancy (until age 86) and uses only half of her initial loan amount, 

she could also owe about $5,000 in monthly servicing fees and about $8,000 in periodic 

mortgage insurance premiums. 

So the total cost of the loan -- excluding interest -- could be about $25,400 over the 

life of the loan, which is greater than the average annual income of HECM borrowers. 

Most Americans would be highly reluctant to take out a loan in which the fees alone 
59

exceed their annual incomes. But many older homeowners are faced with exactly this 

dilemma -- an attractive loan that meets their needs and is insured by the federal 

government -- but costs significantly more than they believe is reasonable or are willing 

to pay. 

The substantial costs faced by an individual who chooses to use her home equity for 

long-term care can be illustrated in the following examples. A 75-year-old HECM 

borrower in a $150,000 home who uses her HECM to pay for $3,000 a month in home 

care would pay a 53.2 percent total annual percentage rate if her loan were to end after 

one year. Because of the higher origination fees and mortgage insurance premiums, the 

same borrower in a $250,000 home would accrue costs at an effective rate of 72.3 percent 

at the end of the first year even though she borrowed the same amount of money for 

home care. (See attached appendix for a more detailed analysis of the costs associated 

with reverse mortgages.) 

While the effective rates on HECMs go down over time, homeowners with 

disabilities are more likely to borrow for shorter periods with higher effective costs. 

Moreover, the usage patterns that borrowers are likely to follow if they are using HECMs 

for long-term care are not reflected in current disclosure requirements. As a result, 

required disclosures are likely to significantly understate the effective short-term costs for 

borrowers who need money to pay for monthly service costs. 

Reverse Mortgages and Long-Term Care Insurance – Critique of Existing Provision

In 2000, Congress included a provision in the American Homeownership and 

Economic Opportunity Act that waives the upfront mortgage insurance premium for 

individuals who get a reverse mortgage through HECM if all the available equity is used 

to buy long-term care insurance. Consumer organizations – including AARP – have 

objected to the required tie to an insurance purchase and, to date, HUD has not 

implemented the program. 

Tying the purchase of long-term care insurance to a reverse mortgage is expensive 

for the consumer and not necessarily the best way to finance needed services for a 

number of reasons. The homeowner pays all the costs associated with the reverse 

mortgage plus the premiums and cost-sharing associated with the long-term care 

insurance policy. Current disclosure requirements do not adequately ensure that 

consumers are fully informed of the total, combined cost of the loan and the insurance 

policy. Over time, reverse mortgage costs can double or triple the total cost of 

purchasing long-term care insurance due to high upfront loan costs and the growing 

amount of interest charged on the loan. (See attached appendix for examples of the costs 

associated with purchasing long-term care insurance with a reverse mortgage.) 

Another concern with tying a reverse mortgages to the purchase of long-term care 

insurance is the lack of a requirement to disclose the risks related to long-term care 

insurance policy cancellation or lapses. If an individual exhausts all available reverse 

mortgage funds for the long-term care insurance premiums and is no longer able to pay 

the premiums, the policy could be cancelled or lapse due to nonpayment. The insurance 

coverage would be lost; the borrower would owe substantial and growing debt on the 

home; and would no longer be able to pay for the cost of long-term care. 

Finally, borrowers could only use the loan money to pay for insurance policies and 

not to directly purchase home-and community-based services or for home modifications 

that may better meet their needs. Most older Americans want to remain in their homes 

and receive needed services there rather than be institutionalized. Use of reverse 

mortgages may be one means of financing long-term care, but consumers should not be 

required to use their equity to purchase an insurance policy. Rather, they should have the 

choice to use the equity for the appropriate services in their homes. We are urging 

Congress and the industry to look for ways to reduce the high costs of reverse mortgages 
60

for all homeowners, and especially for older homeowners with disabilities, to enable 

them to remain independent in their homes. 

A More Promising Approach

As the Subcommittee examines reverse mortgages, we believe that several 

principles are important to guide the consideration of reverse mortgages as a long-term 

care financing option: 

• Reverse mortgages should be a voluntary option and not a requirement. 

• The high costs of reverse mortgages should be reduced, especially for those 

with long-term care needs. 

• Reverse mortgages should have strong consumer protections, including 

required counseling and protections against those who might take advantage of 

reverse mortgage borrowers. 

• Consumers should be informed of the range of available long-term care 

financing options and their pros and cons (including costs), as well as the 

potential financial impact on a spouse, so that consumers can make an informed 

decision about the best option for them. 

We encourage the Subcommittee to examine ways to reduce the costs of reverse 

mortgages for individuals with long-term care needs. The high costs of reverse 

mortgages are the greatest barrier to their use for long-term care. Specifically, we 

encourage consideration of a public-private approach to reducing reverse mortgage costs 

for individuals with long-term care needs. Congress could consider pursuing such an 

approach in place of the incentives to use reverse mortgages to purchase long-term care 

insurance that were included in the 2000 housing legislation. 

One approach might be to provide lower cost reverse mortgages to individuals with 

long-term care needs through a competitive demonstration program in selected states. 

Such a demonstration might be done as part of the HECM program, and states would 

compete to participate based on their willingness to take steps to lower the costs to 

consumers. States could choose to originate and service these lower cost HECMs and/or 

provide other subsidies and services to qualified homeowners. HUD could have the 

flexibility to reduce some of the loan costs for eligible borrowers, especially the up front 

mortgage insurance premium. Lenders and services could compete to participate in the 

program based on fees charged to consumers. Such a program could be tried on a smaller 

scale and should include an evaluation of its effectiveness in reducing reverse mortgages 

costs, the use of reverse mortgages as a long-term care financing option, which segments 

of the population might be best served by using reverse mortgages to pay for long-term 

care, how reverse mortgages could help expand access to home-and community-based 

services, and how to give people more choice and control in how they receive long-term 

care services. 

Borrowers would be able to access their own home equity to pay for the lower-cost 

services they want that are tailored to meet their needs instead of waiting for estate 

recovery and liens to reimburse Medicaid for the institutional care they want to avoid. 

Borrowers would also not be as limited in their choice of providers or services as they 

would be under Medicaid. 

The public sector has experimented with reverse mortgages relating to long-term 

care. The HECM program also provides valuable experience that could be drawn on to 

establish such a program to allow older homeowners with long-term care needs to remain 

in their homes longer by using reverse mortgages to pay for services that they need to 

remain independent. Such a program would create opportunities for the federal and state 

governments, the private sector, and consumer groups to work together to explore the 

potential of reverse mortgages to pay for long-term care. 
61

Conclusion

Just as Americans need to plan for long-term care, Congress must look for options 

that would allow Americans to pay for the care they need in the setting of their choice. 

We urge you to move beyond all the long-term care jargon and acronyms to focus on the 

individuals and families, such as the husband and wife who have lived in their home most 

of their lives and want to stay there, but need services and supports to help them remain 

at home or the widow who is suddenly on her own and needs help after caring for her 

husband for years. 

AARP looks forward to working with this Subcommittee, Congress, the 

Administration, and all stakeholders to help Americans plan for their future long-term 

care needs and give them more tools to do so. We stand ready to work with members on 

both sides of the aisle to begin to tackle this important challenge. 

Appendix 

Analyzing the Cost of Home Equity Conversion Mortgages (HECMs) 

The non-interest costs of a HECM loan for a borrower of average age (74) living in 

a home of average value ($255,000) can be about $25,000, assuming the borrower lives 

to the remaining life expectancy (12 years) prescribed by federal Truth-in-Lending 

disclosures for HECM loans. Table 1 itemizes the fees, all of which are charged to the 

loan at closing except for the monthly servicing fee and monthly mortgage insurance 

premium. 

Table 1: Total HECM Fees until Life Expectancy for a 

74-year-old Borrower in a $255,000 Home* 

Loan Fee HUD Limit or Specification Amount 

Origination Fee Limited to 2% of home value or 

HUD’s county equity limit, whichever is 

less 

$5,100 

Upfront Mortgage 

Insurance Premium (MIP) 

Equals 2% of home value or 

HUD’s county equity limit, whichever is 

less 

$5,100 

Third-Party Closing Costs Limited to “customary & reasonable” $2,200** 

Monthly Servicing Fees Limited to $35 per month $5,040*** 

Monthly MIP Equals 0.04167% of loan balance each 

month 

$8,014*** 

 TOTAL 

FEES = 

$25,454 

Source: AARP calculations based on: 

* The average HECM borrower in FY 2005 was 73.8 years old and lived in a home worth 

$254,900. 

** Hypothetical national average; actual figures range from less than $2,000 to more than 

$6,000. 

*** Assuming borrower lives to the remaining median life expectancy (12 years) for a 

74-year-old and withdraws 50% of the available loan amount at closing, which is the 

credit line usage pattern prescribed by Truth-in-Lending law for HECM disclosures. In 

this loan, the amount withdrawn from the HECM credit line at closing is $71,115, which 

is 50% of the available credit line amount. The assumed interest rate is the one that was 

in effect on 5/10/06, which was 6.48%. For additional information see the 

Methodological Note on page 2. 

Table 2 shows all the costs on the HECM loan from Table 1. The “Loan Fees” 

column shows that the fees of $25,454 from Table 1, when added to the loan balance, 
62

generate $20,552 in interest charges over the 12 years of the 74-year-old borrower’s 

remaining life expectancy. The “Loan Advances” column shows that a credit line cash 

advance of $71,115 to the borrower at closing generates another $83,325 in interest 

charges. So at the end of the loan, the homeowner has borrowed $71,115, but now also 

owes $25,454 in loan fees plus $103,877 in total interest charges for a total cost of 

$129,331 – which is 182% of the loan amount ($71,115). The loan balance (amount 

owed) at this time is $200,446. 

Table 2: Total HECM Fees, Interest, and Loan Advances 

until Life Expectancy for a 

74-year-old Borrower in a $255,000 Home*

Loan Fees Loan Advances TOTAL 

Principal $25,454 $71,115 $96,569 

Interest $20,552 $83,325 $103,877 

TOTAL = $46,006 $154,440 $200,446 

* See table 1 for details about this loan. 

Methodological Note: The total of ongoing costs actually paid on the loan presented in 

Tables 1-2 would differ from the amounts estimated for the following reasons: 

• The tables assume that the initial interest rate never changes over the life of the loan. 

But the interest on HECM loans is adjustable. So if the actual rate decreases, then 

ongoing interest and mortgage insurance premium (MIP) costs would be less, and if 

the actual rate increases, then ongoing interest and MIP costs would be more. 

• The tables assume that the loan ends when the borrower reaches her remaining 

median life expectancy. But some borrowers will remain in their homes longer than 

that, and others will leave or die sooner. The total costs for longer-lived borrowers 

would be greater than the estimated amounts, and the total costs for those who leave 

or die sooner would be less. 

• The tables assume that creditline borrowers withdraw 50% of their available loan 

funds at closing and none thereafter, which is the withdrawal pattern prescribed for 

HECM disclosures by federal Truth-in-Lending law (as explained in the footnotes to 

Table 1). In reality, HUD research has found that creditline borrowers have 

withdrawn their available funds at a substantially earlier and greater rate. Since the 

amount of funds remaining available in a HECM creditline grows larger every 

month, this more aggressive actual withdrawal pattern would result in larger loan 

balances and, therefore, greater charges for interest and monthly mortgage insurance 

premiums. 

The Cost of Purchasing Home Care & Long-Term Care Insurance 

Using a Home Equity Conversion Mortgage 

The short-term cost of a federally-insured Home Equity Conversion Mortgage used 

to purchase home care is substantial. The table below shows the total annual average 

percentage rate on a HECM used to purchase home care at $3,000 per month for a 75-

year-old borrower assuming three different initial home values. 
63

Total Annual Percentage Rate of a HECM* 

Used by a 75-Year-Old Borrower to Purchase Home Care 

for $3,000 Per Month at Three Initial Home Values 

Total Annual Percentage Rate when Home Value = 

At End of Year: $150,000 $250,000 $550,000 

1 53.2% 72.3% 91.7% 

2 19.4% 24.7% 30.3% 

3 Funds Exhausted in 

7th Month 

15.4% 18.1% 

4 12.0% 13.6% 

5 Funds Exhausted in 

8th Month 

11.4% 

*Source: AARP calculations based on an origination fee equaling 2% of home value or 

HUD limit ($362,790), whichever is less, monthly servicing fee of $35, interest as of 

5/15/06 (6.48%), and typical third-party closing costs for each home value. 

The cost of long term care insurance (LTCI) purchased with a HECM includes the 

cost of the LTCI policy plus the cost of the HECM, which includes upfront fees plus 

monthly servicing, interest, and mortgage insurance costs. 

The table below assumes that a 62-year-old couple living in a $250,000 home is 

using a HECM to purchase a LTCI policy that costs $508 per month in May of 2006. It 

also assumes an interest rate of 6.48%, a monthly servicing fee of $35, an origination fee 

equaling 2% of the home value ($5,000), $2,201 in 3rd-party closing costs, and -- to 

simulate a provision in current law that forgives the upfront mortgage insurance 

premiums if all of the HECM proceeds are used to buy LTCI -- no upfront mortgage 

insurance premium. 

The table demonstrates how the average total monthly cost of this loan would rise 

over time in 2-year increments. In particular, it shows how much the monthly cost of this 

HECM would add to the cost of the monthly LTCI premium being paid by this couple: 

• Over the first two years, the loan adds 82 percent to the cost of LTCI. 

• By the time the couple reaches age 70, the monthly cost of its 

HECM loan ($518) would exceed the cost of its monthly LTCI 

premium, adding 102 percent to the cost of the LTCI premium. 

• At this couple’s approximate life expectancy (age 82), the monthly 

loan cost ($1,714) would add 337 percent to the cost of the LTCI 

premium, for a total monthly cost of $2,222. 
64

•

Increases in Monthly Costs for Using a HECM to Buy LTCI (as outlined 

above under current law provision) 

In 

Years Monthly 

LTCI Cost* 

+ Monthly 

HECM 

Costs** 

= Combined 

Monthly Cost of 

LTCI and 

HECM 

Monthly Cost 

Increase*** 

1-2 $508 $418 $926 82% 

3-4 $508 $361 $869 71% 

5-6 $508 $419 $927 82% 

7-8 $508 $518 $1,026 102% 

9-10 $508 $645 $1,153 127% 

11-12 $508 $798 $1,306 157% 

13-14 $508 $978 $1,486 193% 

15-16 $508 $1,189 $1,697 234% 

17-18 $508 $1,432 $1,940 282% 

19-20 $508 $1,714 $2,222 337% 

21-22 $508 $2,038 $2,546 401% 

23-24 $508 $2,412 $2,920 475% 

25-26 $508 $2,843 $3,351 560% 

27-28 $508 $3,338 $3,846 657% 

29-30 $508 $3,908 $4,416 769% 

Source: AARP calculation based on the following data: 

* $508 is the monthly premium for the prepackaged “Comprehensive 150+” plan offered 

by the U. S. 

Office of Personnel Management through its Federal Long Term Care Insurance Program 

at www.opm.gov. 

**Includes servicing, interest, and periodic mortgage insurance premium plus $7201 in 

upfront costs divided by number of months since closing. 

*** Monthly HECM costs divided by monthly LTCI costs. These percentage increases 

would be less if LTCI premiums rise, but that would increase the total cost to the 

consumer. 

 MR. DEAL. Thank you. Excellent job from everybody. 

 We are going to stand in recess, pending these votes. We will be 

back probably in about an hour. 

 [Recess.] 

 MR. DEAL. First of all, thank you all for your testimony, and those 

bells will go away in a few minutes. We did have a series of six votes, 

and we are, I think, now going into recess, to await further action of the 

Rules Committee. But I will get started. 

 First of all, very interesting points of view have been expressed here. 

Obviously, the overall purpose of this hearing today is to hopefully put 

aside political rhetoric and put aside all the things that sometimes make 

judgments around here difficult, and try to come to some real solutions. 

I truly am of the opinion that one of the solutions has to be a greater 

penetration in the insurance market of long-term care insurance, and I 

certainly agree with the two insurance company type representatives who 
65

are on the panel, that some of the incentives that are one, in the pension 

reform bill, that hopefully the Senate will agree to that language, are 

steps in the right direction. I think the deductibility of premiums would 

be a huge step in the right direction of encouraging people to go ahead 

and make that determination. 

 Some of you heard me say at one time that I think there are phases of 

your life, and in the early stages, we buy life insurance because we are 

afraid we won’t live long enough, and then, once we cross the top of that 

mountain and on the other side, we realize that we really need long-term 

care insurance, in case we live too long. So, I think hopefully, we will 

give some incentives and some legislative encouragement to have a 

blending of those products, whether it be an annuity that Mr. Jenner 

talked about, an annuity that becomes transferable to a long-term care 

situation. Those, I think, are the innovative type answers that we ought 

to be looking for. 

 With that general comment, and I don’t mean to overlook the reverse 

mortgages, because I do think those are appropriate. I think we have a 

long way to go in terms of educating the American public about what 

that product is, and I believe Dr. Thames is the one who mentioned it, we 

have to be concerned about front end costs that might be an impediment 

to that. 

 Are there other things that are available, or should be available, that 

we haven’t touched on, to begin to make people more personally 

responsible, because I quite frankly think we are at a time where we can 

no longer continue to look to the Government to be the only and 

exclusive source. We have taken some steps in the Deficit Reduction 

Act that would encourage more self-sufficiency and private initiative, but 

what are some other things that maybe we haven’t talked about, and 

anybody can jump in. Yes. 

 MS. IGNAGNI. Mr. Chairman, I think that the point that we touched 

briefly, but didn’t spend a great deal of time on, in addition to the 

strategies that you just put on the table, the flexible spending accounts, 

that has a modest cost associated with it, relative to other strategies, and 

it would be the second piece, I think, of a strategy, the first being the 

partnership. We are hoping that HHS now will proceed to develop 

regulations that set the expectations with respect to what the States need 

to do. The states are ready, which is very exciting, but I do think looking 

at strategies that could be affordable, in the context of the current 

budgetary discussion, so we won’t have to wait another year to lay down 

another pylon. 

 So, I think that should be given a great deal of consideration. It is 

also the most affordable opportunity for individuals, because you are 

pooling risk broadly in the employer context, so it is a very good start 
66

from that perspective. The above-the-line deduction levels the playing 

field, as you said, and it provides an opportunity for everyone to 

purchase, in the same way they purchase acute care. So, I think that 

those are three basic pylons that can be looked at very productively. 

 MR. DEAL. Okay. Anyone else? Dr. Wiener, you were a little 

skeptical in your testimony about whether people would actually buy 

long-term care insurance, even if it were a deductible, above-the-line 

deduction. And I heard your oral testimony in the context of senior 

citizens who, because their incomes have come down, and are not really 

paying a lot of taxes, that might not be an incentive for them, but 

wouldn’t it be an incentive on the front end at early ages, where people 

are in their prime years, and their tax rates are going to be higher? 

Wouldn’t it be an incentive? 

 DR. WIENER. It clearly would be more of an incentive at younger 

ages, for exactly the reason that you said, that their tax rates are higher. 

The marketing problem for long-term care insurance at that age group is 

what are 40 year olds and 50 year olds concerned about? Well, their 

mortgage payments, because they haven’t yet paid off their house, child 

care, saving for college education for their children, saving for general 

retirement, and so, in general, when policies have been offered to 

employees, something in the range of 7 to 8 or 9 percent of people have 

picked it up, so it has not been a very high percentage. 

 Clearly, if you made it cheaper, that would increase the affordability, 

but I am not sure, I mean at age 50, for a really good policy, you are still 

talking about $1,500 a year, so even if you were to reduce that by a third, 

you would be talking about $1,000 a person, $2,000 roughly for a 

married couple. That is not an insignificant amount of money. 

 So, the other problem, of course, is that the vast majority of the tax 

laws will go to people who have already purchased policies, rather than 

for people who are buying them new. That is almost always an inherent 

problem with tax incentives. You give money to people who have 

already done, or will already do, what you are trying to induce them to 

do. 

 MR. DEAL. But we shouldn’t penalize them for having made the 

right decisions early on, I wouldn’t think, either. Yes, Mr. Jenner. 

 MR. JENNER. I am sorry, Mr. Deal. Thank you very much. You 

could actually tailor a proposal, if you wanted to, to limit it to newly 

acquired policies. So, I mean, if that were the only thing that were 

holding you back, you could say for new policies only. 

 MR. DEAL. But I think that would penalize folks who made the right 

choice on their own. 

 MR. JENNER. You are absolutely right. So, it is a balance that you 

would have to strike, but-- 
67

 MR. DEAL. I think Dr. Thames is right, though. There has got to be 

a lot of education, even on this issue. Yes, Dr. Thames. 

 MR. THAMES. Well, I think we ought to just take a minute to say 

something about the CLASS Act. You know, where you would take, and 

understand that I am not endorsing it entirely, I am not even completely 

knowledgeable, except to say that anything we do, I am sure the panel is 

aware, that this would have everybody that is 18 years of age and older, 

who is working, pay into a long-term care type product. They could opt 

out, but it would be automatically enrolled unless they did opt out. 

 Now, what we liked about it, from the AARP standpoint, is it creates 

a large pool, and the large pool, of course, allows you to get more stable 

rates and more affordable rates and competition. The problem is, we are 

not sure that enough people would stay into it, to have it be a fund that 

would be stable, and there for enough funds for people to draw from. 

But it is an idea to look at, at least where people are funding it when they 

are younger and in their working years, and get enough insurance on the 

insurance people to have to work on that thing to help us, and to educate 

them to the fact, this is another program like Social Security, where you 

are going to pay money in, but you expect to get a value out of it at the 

end. 

 And of course, we feel, in general, that both public funds and private 

funds ought to be in there together. There will always be people who 

can’t work enough, or who are low enough income, that we are going to 

have some kind of a safety net for them, but there are a lot of other folks 

that if we get them in the program young enough, like at 18, how much 

would they have to put in there, if they are going to work until they are 

62 or 65 or maybe longer, like many of our people do, maybe that kind 

of an idea with insurance people is something that we ought to be 

looking at. 

 MR. DEAL. Well, I know I have talked with some of you privately 

about what I think insurance products of the future might look like, and I 

think we are going to see, hopefully, a hybridization of what insurance 

products look like, too, to deal with that needing a life insurance policy 

the early part of your life, and then moving to a point where you need 

long-term care insurance in the latter part of your life. The problem, of 

course, even with life insurance policies, many people, like myself, buy 

full life policies, whole life policies. I will get the terminology right in a 

minute. And paying those premiums for a life insurance policy past the 

point that you really believe you need that life insurance policy any 

longer, there is a great disincentive to do that. If you could convert that 

premium you are paying for the life insurance policy over to something 

you do need, such as a long-term care policy, and have a blending of that 
68

product, I think those are hopefully the kind of things we might see in the 

future. 

 I know we need to take some legislative steps to make that a little 

more possible. What else do we need to do beyond what is in the 

pension reform bill? 

 MS. IGNAGNI. I think, Mr. Chairman, you said something very 

important. If you build it, they will come. You need not worry about the 

private sector’s interest or ability to respond to the challenge. But there 

is a major barrier there, as you have just stated, with respect to the 

incentives. We favor acute care. We disproportionately penalize people 

who want to invest in long-term care for their future, and we don’t, now, 

if you think about just the flexible benefit side of things, people lose 

money at the end of the year, or they buy four pairs of eyeglasses. We 

should be able to let people make their own decisions. Same with the 

above-the-line deduction. We will have products throughout the market 

that will do a number of things that you have suggested, and some other 

things we haven’t already thought of. The private sector has had a very 

positive track record. 

 The partnership program is an excellent start along those lines. You 

can already see 25 States in five months passing legislation to get ready 

to proceed on partnership, when in fact, once HHS acts, I don’t think you 

even really need legislation. So, they are ready to go, and you are going 

to see a number of very exciting products. So, I don’t think you have to 

worry about that, but I think you have got your finger on exactly what 

the problems are, the lack of clear signals that this is on an equal playing 

field, and as we expand and enlarge this conversation, it is no longer 

about acute care in this silo, it is about breaking down those barriers, and 

I think it is important. 

 MR. DEAL. Dr. Stucki, I think, to get you in on our discussion here, 

our conversation, the steps we took, and we got criticized for it, we were 

criticized in opening statements from this subcommittee earlier today 

about some of the things we did on asset transfers, because it is part of an 

education process, and a reorientation of the role of the Government in 

this whole issue. 

 You know, quite honestly, I suppose if you took a poll of most 

people, they would probably tell you that they think the Government, 

under Medicare, provides long-term care coverage. I think they really 

would. In my constituency, I think that would be very true. We took a 

step, in the Deficit Reduction Act, dealing with asset transfers, to begin 

to draw some clear lines, say, you know, that is not the case, and we are 

going to enforce it to make sure people are not taking advantage of the 

system in that regard. 
69

 And I do think one of the products that will get more attention is the 

reverse mortgage. What do you see the industry doing to address some 

of the stated concerns, such as high front end costs, high expenses 

associated with it? What do you see happening there? 

 DR. STUCKI. Well, I think there is a great deal going on, both at the 

industry level, and with HUD, as well as some of the initiatives that are 

being taken by States to address costs. So, I think it is an across the 

board effort that is just going on right now. One of the major 

developments is that the industry and HUD have developed a Reverse 

Mortgage Working Group, which is really working hard to re-engineer 

the HECM program, the Home Equity Conversion Mortgage, which now 

represents about 90 percent of the reverse mortgage market. I think as 

part of that effort, they are beginning to see ways in which they can 

restructure the room, in order to reduce the mortgage insurance premium, 

and to reduce the servicing fees set aside, so I think that is very much 

under discussion right now. 

 We also have to realize that as more people are getting into 

considering a reverse mortgage and taking it out, that there is a growing 

competition among various lenders, and in many of the hotspots 

throughout the country, we are seeing that the origination fee is dropping 

significantly. So, already consumers are benefiting from lower costs at 

that end. 

 The program that I am working with right now, which is a study that 

is being funded by ASPI and the Administration on Aging, is working 

with selected States and communities to see what they can do. I touched 

on it in my testimony, that Minnesota has actually crafted legislation that 

would create a reverse mortgage incentive program, where the State 

would pay up to $1,500 of the mortgage insurance premium, the up front 

costs. They would help reduce the servicing fee set-aside, and they 

would also provide some lower cost back-end protection for those people 

once they use up their home equity. 

 So, I think there is a great deal going on right now. I think we are 

going to be seeing a lot more lenders in the market, who are coming in, 

who are offering new products. We are going to have more investors in 

the market, and all of that is going to work, I think, within a real short 

time, to help reduce some of those costs. 

 MR. DEAL. Ms. Capps, you are recognized for questions. 

 MS. CAPPS. Thank you. Sorry to come running in after our voting 

session. Dr. Wiener, I was hoping to address this query to you. Today, 

there have been points raised about a number of tax-related provisions to 

enhance purchase of long-term care insurance. Changing the rules about 

the combination of life insurance and long-term care insurance, which is 

a provision in the pension bill, costs $8.6 billion over 10 years, 
70

apparently. The deduction for long-term care insurance, as proposed by 

the Administration in 2004, was estimated to cost $21 billion over 10 

years. Now, I don’t have an estimate on the cost of changing the rules 

for flexible spending accounts, but I would imagine that anything we do 

in the area of this sort of remedy is going to have quite a cost attached to 

it. 

 And my basic question to you, and then maybe some other members 

of the panel would like to chime in, is if we focus on the Tax Code, Dr. 

Wiener, is this really the best way to ensure that we meet our citizens’ 

long-term healthcare needs in the future? We could do that, but are there 

more efficient and more equitable ways, perhaps, that we should be 

addressing today? 

 DR. WIENER. Well, prior to your coming in, we were discussing 

some of the efficiencies of the tax deductions and other things. In my 

view, and based on the research that I have done, tax incentives tend to 

be inefficient ways of trying to motivate people to change behavior. 

They mostly reward people for doing what they would have done 

otherwise, and one can argue that there is a social value in recognizing 

them, but if you are trying to change behavior or meet people’s needs, it 

may not be the best possible way. 

 The clear alternative is to do something of a more direct funding, 

either by increasing funding for something like the Administration on 

Aging, or trying to provide incentives through the Medicaid program, or 

through the Medicare program, to provide more home and communitybased services, or to upgrade services in nursing homes, or provide some 

of the care coordination that is needed. 

 So, I think that is kind of the choice that Congress has before it. 

 MS. CAPPS. I know. We are skirting the edges, if you want, from 

me, and I understand the motivation to encourage individual incentives 

by making tax incentives, then, the individuals can respond, and maybe 

the private sector can respond, as well. 

 I am not opposed to that idea at all. I am wondering if you could 

push this a little further for me, and pardon me if I am going over ground 

that has been covered, but are there ways to use that idea of the reasons 

for people getting into tax incentives, to leverage, to have a more service 

oriented program, really to take on something new. As Medicare was a 

brand new idea when it first came forward, how could we do that without 

making it sound like a real heavy, in terms of expensive, but also, in 

terms of federally involved? Is there a way to do that which also could 

leverage the private sector and individuals to respond in the same way? 

 Let me start, again, with you, Dr. Wiener, because I think you may 

have some ideas in this area. 

 DR. WIENER. Well, actually, I-- 
71

 MS. CAPPS. You probably proposed them. 

 DR. WIENER. Well, actually, I, as I think has sort of become clear, I 

am not a fan of using the Tax Code to-- 

 MS. CAPPS. That is why I am thinking what is an alternative that-- 

 DR. WIENER. Well, I mean-- 

 MS. CAPPS. --would not be too unappealing to a lot of my 

colleagues. 

 DR. WIENER. Well, let me suggest an alternative, that on a grander 

scale, might work quite well, and that is the Administration has 

proposed, as part of the reauthorization for the Older Americans Act, the 

so called, what they are calling the Choice Program, which among its 

other components, would provide for coverage for home and communitybased services for a more moderate income group, that are in need of 

nursing home level care, but have more in the way of income than the 

current Medicaid standards. 

 Karen talked about trying to get a balance between acute care and 

long-term care, but it seems to me that the principal imbalance we have 

is that if you are lucky enough, and I use the word advisedly, if you have 

something like a heart condition, Medicare will sort of pay an unlimited 

amount of money, but if you are unlucky enough to get Alzheimer’s 

disease, then you have to impoverish yourself before the Government 

will come in, and that is, I think, the kind of dilemma that we face. And 

clearly, for me, the question for society as a whole, which the Chairman 

kind of alluded to, is long-term care going to be fundamentally a private 

responsibility, as it is largely here in the United States, with only 

government help available if you are poor, or become poor, or is it going 

to be a kind of broader social responsibility, as it is in Germany and 

Japan, and some of the other European countries. 

 MS. CAPPS. That is a fundamental--I know I am treading on a next 

series of time, but if--since it is just you and me, Chairman, could I push 

this thought-- 

 MR. DEAL. Go right ahead. 

 MS. CAPPS. Thank you. 

 MR. DEAL. I am going to ask-- 

 MS. CAPPS. And I know other hands went up, but could I state a real 

bias of mine, and it comes from being a nurse, but I am just going to use 

my staff person, not the one sitting with me, but in our office, who came 

back from being with her grandmother for a few days, because she 

became ill. She is in her 90s, and the illness was quickly treated in the 

hospital. It was maybe flu, maybe pneumonia, whatever, but then came 

the big challenge to the family of confronting the fact that she couldn’t--

she had been living alone independently. This is so universally 

experienced. Why can’t we do some things together as a society? But 
72

let us not leave ourselves out, in the Federal government, of providing 

the kind of assistance--no one wants to go to a nursing home--why is that 

the only choice, when with some assistance, so much cheaper, so much 

more respectful, for dignity, so much more life enhancing, because I, at 

my age, I want this comfort. I know where everything is in my house--

and it is so disruptive to all of a sudden have to move to a very expensive 

facility, just because one of the Federal programs will--and you have to 

spend down all of your assets to do all the things that we don’t like. 

 When can we come, in this place, Mr. Chairman--because I don’t 

think the panelists are the problem--I think the responsibility is in the 

Congress, to initiate an attempt to bring us all together, we all want the 

best thing for our family members and eventually, for ourselves, we are 

talking about ourselves, to do the right thing in the community? It is so 

clear that we are not--it isn’t there now. And it is so--we are spending so 

much money to do other things that are not in the best interest. Am I 

way off base? 

 MR. DEAL. Would you yield? 

 MS. CAPPS. I will yield back. Well-- 

 MR. DEAL. Will you yield to me, and we will have some more 

discussion here. Well, thank you for yielding. 

 I think we are sort of like that, I think it was the car repair mechanic, 

says pay me now or pay me later, I think the question, though, is who is 

going to do the paying? Now, I like the idea of incentivizing people to 

do it on their own, and the reason being is we have two great examples of 

how we have used the Tax Code to incentivize people’s conduct, and that 

is, we allow them to deduct their mortgage interest as an incentive to 

own their own home. It has been a huge success. We incentivize people 

to be charitable, by allowing them to deduct their charitable 

contributions. Most charitable organizations, churches, and others, 

would say they like that pretty good. 

 Now, I am told, and I was looking at the statistics I have here, that if 

you add all public contributions for the cost of long-term care together, it 

is somewhere in the neighborhood of 71 percent public contribution. 

That is, the taxpayer is paying for about 71 percent of the cost of longterm care, and that other, what, 29 percent is being paid by the 

individuals. Now, I don’t know that we can sustain that over the long 

haul. I think we need to begin to tap into that private resources as early 

as possible. 

 MS. CAPPS. With all due respect, Mr. Chairman, doesn’t that 

indicate we are not doing it the right way, or very well? Because I don’t 

think reverse mortgages is going to be the answer for everybody. 

 MR. DEAL. I don’t either. 
73

 MS. CAPPS. And I support your underlying premise, but I am 

wondering if our panelists could jump in here, maybe--since there are so 

few, you and me here, we can make the rules a little more flexible. 

 MS. IGNAGNI. Sure. I would love to give you a quick response. Oh, 

I am sorry. Ms. Capps, I think you have made an important point, which 

is that it is not a zero-sum game. Let me give you some 

recommendations, some of which we were talking about earlier. 

 One, the partnership program that was passed, what is very, very 

clear, people who are not purchasers of long-term care insurance, who 

have the resources to do so, have indicated loud and clear, we have 

provided some information in our testimony, that were there tax 

preferred incentives, they would do so. So, that is point number one. 

 Point number two is, back on the partnership. That is going to, I 

believe, create a great deal of excitement out in the States, and really 

appeal to folks, because you have that public/private, you have the back 

end Medicaid protection. Consider this. We haven’t talked about this, 

Mr. Chairman, in the discussion so far. A number of our members 

wanted very much to have their existing long-term policies, care policies, 

considered partnership program policies with that back end. That would 

provide more opportunity, more expansion, that is another very realistic 

way to begin to combine the two. The flexible benefits accounts, you 

asked how much it would be, it is 2.5 to 2.6, depending upon whom you 

ask, so that is the score on that particular strategy, letting people 

purchase long-term care insurance through flexible benefit plans. 

 We have made a number of recommendations on the Medicaid side 

that could be drawn out, the special needs population, the upper payment 

limit. This is now a disincentive for health plans to participate on the 

SSI side, because states get penalized if they--because our resources 

don’t count for the upper payment limit. So, you could put together all 

these strategies, get to the above-the-line deduction. That would make a 

big difference. But Mr. Chairman, I think drawing this out, you could 

have a very specific series of public and private strategies that could 

work together. You could dial it back, depending upon how much by 

way of resources. 

 MS. CAPPS. With all respect, could I say from my years of being a 

public health nurse, and I have been a visiting nurse as well, talking 

about reverse mortgages and tax incentives, it is fine for the people it will 

work for. They probably could have managed some other way, even 

without that. But there is a huge number of people, many with 

disabilities. Don’t forget the people who need long-term care for-- 

 MS. IGNAGNI. That is why I made the point about the-- 

 MS. CAPPS. I understand that. 

 MS. IGNAGNI. –public-sector strategies, too. 
74

 MS. CAPPS. But some people never have had a mortgage, could 

never buy any kind of long-term care insurance, and whatever happened 

to the concept of providing, and much of it is not highly skilled care, into 

the home, that for at least part of it, we will have to have some public 

incentive, because the private sector is going to need to make some kind 

of profit on this, and if that even only works for a certain population. I 

think we have to broaden our partnership, if we are going to get past a 

certain set of our community. 

 MS. IGNAGNI. And I think we can do that. 

 MS. CAPPS. I think so, too. 

 MR. DEAL. May I, Mr. Chairman? 

 MS. CAPPS. It is--you are the Chairman. 

 MR. DEAL. Why don’t we-- 

 MS. CAPPS. Now that we have another member here-- 

 MR. DEAL. Why don’t we let the ones that would like to respond to 

your question respond, and then, we will go to Mr. Pallone for his 

questions. 

 MR. JENNER. Ms. Capps, I want to correct a fairly serious 

misconception about the long-term care combination proposal that is in 

the pension bill. It doesn’t create a new tax incentive. It eliminates a tax 

hurdle that prevents this combination, and therefore, all of the revenue 

loss associated with that proposal is new take-up. It is new policies 

being written, people who are not buying long-term care now. So, we 

are not throwing money after people who would otherwise be taking 

these policies up anyway. We are creating the ability for people who 

aren’t buying the policies now to buy them. So, that revenue loss is good 

stuff. 

 MS. CAPPS. Broadening that circle is a great thing. To me, it is here, 

but somehow, we have got to get out here, too. 

 DR. WIENER. Couldn’t agree with you more. 

 MS. CAPPS. So, yeah, sure. Okay. 

 DR. WIENER. I would like to just comment a little bit about the longterm care partnerships. Years ago, I learned a term from Karen’s 

husband, which was “that dog don’t hunt.” And it seems to me-- 

 MR. DEAL. That is a good Georgia expression. 

 MR. JENNER. Yes, I know it is. You know, if you look at the history 

for the last 15 years of the partnerships in the four States that have had 

them, they have been flogging this idea consistently for the last 15 years, 

and have put in a substantial amount of resources from the Robert Wood 

Johnson Foundation and others, much more than is going to be available 

for most of the States that are talking about doing the program, And the 

end result is that in the four States that have a combined elderly 
75

population of 6.1 million, they have sold about 175,000 policies in force. 

So, it is a little less-- 

 MS. CAPPS. Drop in the bucket. But a drop. 

 DR. WIENER. It is a drop in the bucket, and so, I think it has 

basically not succeeded very well in the marketplace, and clearly, if you 

extend it to 46 states plus the District of Columbia, you will get more 

than 175,000, but I guess we will get to see, because legislation has been 

passed, and we will have a good social experiment, but it is hard to see 

what is going to be so dramatically different in this new environment that 

will allow it to take off when it hasn’t attracted people, or agents very 

much, in the past. 

 And I think part of the problem is that long-term care insurance is 

principally sold by trying to convince people that Medicaid is a terrible 

program, and if you buy the product, you will stay off, and what the 

partnership program requires is kind of an 180 degree turnaround, and 

say you know, Medicaid, not so bad, buy it, and you will get on earlier 

than you would otherwise. So, I don’t think many agents are willing to 

kind of change their line of attack, and I think that has had a major 

impact, in terms of the number of sales. And I think the other part is, as 

Karen kind of alluded to in part of her testimony, people who buy private 

long-term care insurance do so for a variety of quite fuzzy and soft 

reasons, to increase their level of choice, to be more independent, and so 

on. The partnership has been so straightforwardly an asset protection 

program that it kind of hasn’t computed. So, you know, we will get to 

see, but I think there is reason, based on past history, to be skeptical on 

how far the partnership is going to take us. 

 MS. CAPPS. Mr. Chairman, could I make one comment, because I 

have overused my time so far already, but I appreciate this interchange, 

and I want to put myself on the record as being very interested in us 

taking on this issue, as difficult as it is going to be, because I think we 

have, well, I don’t want to use the word train wreck, but we have a 

combination of aging population and an overloaded Medicaid--I mean, 

we can’t afford it, even without the Baby Boomers coming on. I don’t 

think we have a very long window, this is not a luxury conversation we 

are having today, and I would hope that there would be a sense of 

urgency in our subcommittee, and I will be right there with you. 

 We have avoided this topic, all of us, here in this place for a long 

time, and I would like to be on the record as expressing the urgency that 

it be something we do. It is not going to be easy, and maybe, we will just 

make some steps, and we started some steps, but I think we have to push 

and push, because it is before us. 

 And now, I will yield back. Thank you. 
76

 MR. DEAL. Okay. Mr. Pallone, it is your turn. We are not going to 

give you as much time as Ms. Capps and I got. 

 MR. PALLONE. I apologize, Mr. Chairman. I had another markup 

that I had to vote on just for the last half hour, and I guess I only missed 

the last couple. I was here earlier when the panel testified. 

 I wanted to ask two questions of Dr. Wiener. It is Wiener or Wiener, 

I don’t know, Dr. Wiener. 

 DR. WIENER. Wiener. 

 MR. PALLONE. Wiener. One is about reverse mortgages, and then, 

the second one is just about long-term care insurance and young people. 

With regard to reverse mortgages, there are millions of Americans who 

are under 65 with disabilities, who are in need of long-term care services, 

but many of these individuals have little home equity, because of their 

disability, and many of these individuals with disabilities may not be able 

to obtain or afford private insurance. Could you please comment on how 

well you think reverse mortgages and private long-term care insurance 

will work for Americans living with disabilities? 

 DR. WIENER. Well, for younger people with disabilities, they will be 

almost always medically underwritten out of being able to buy private 

long-term care insurance. If they are lucky enough to work for a 

company that offers private long-term care insurance through a group 

plan, they may or may not have to go through medical underwriting, but 

in general, they will not be able to buy policies, and-- 

 MR. PALLONE. And that is because, on the one hand, they don’t 

build up equity, and on the other hand, because they are young, or on the 

other hand, they can’t get insurance, right, because of disability? 

 DR. WIENER. That is correct. And I think it is also worth noting, as 

I certainly put forward in my written testimony, that while there is a lot 

of home equity out there, if you actually look at people with disabilities, 

they have much less. For the elderly population, for which I have figures 

with me, in 2002, the median home equity for people with any disability 

was $56,000, and for people with severe disabilities, people who need a 

lot of services, it was about $36,000. So, that is certainly better than 

nothing, but it doesn’t necessarily take you terribly far, especially after 

you deal with the up front costs and rising interest rates. 

 In preparation for this hearing, I reviewed a very good paper on 

home equity conversion by Mark Merlis, and he was talking about 

interest rates of 5.5 percent. If I could get my home equity loan back to 

5.5 percent, I would be a very happy man. 

 MR. PALLONE. Now, what about long-term care insurance for 

younger individuals in general? You know, you said, I think, that it can 

be more affordable for younger people, because they have more time to 

pay into their policy, but one of the concerns I have is that with 46 
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million Americans without any health insurance, and with families 

struggling to save for retirement and higher education, is that really the 

best use of people’s money? In other words, are they likely to invest in 

that kind of a policy, when they are struggling to save for retirement in 

general, and higher education courses. Is it really a best use of their 

money to buy long-term care insurance, if they have these competing 

concerns? 

 DR. WIENER. Well, I don’t know that there is anyone on this panel, 

including the representatives of the industry, that would say that people 

should buy private long-term care insurance over acute insurance, or 

save for their children’s college education. I think you put your finger on 

an important issue, though, and people have to make tradeoffs, and to the 

extent that they are dealing with more fundamental issues, and I would 

certainly put coverage for acute care insurance as part of that, they are 

not going to be purchasing private long-term care insurance. 

 MR. PALLONE. And the other thing I wanted to mention. I don’t 

know if anybody--again, I missed the questioning, so in terms of 

consumer protections, what kinds of consumer protections would be 

necessary if someone was serious about buying a policy? In other words, 

should policies contain consumer protection, inflation protection, 

protection from total forfeiture if you miss a couple payments, a 

minimum daily benefit, and flexibility to change, as new innovations in 

care occur? I mean, should those kinds of things be considered? 

 DR. WIENER. Well, I think by far, the biggest gap in the regulation 

of private long-term care insurance has to do with inflation protection. 

Long-term care costs have been going up. Over the last 15 years, the 

price of nursing home care has gone up on an average of 6 to 9 percent a 

year. So, I don’t think, personally, that insurance companies should be 

allowed to sell policies that don’t increase with inflation. 

 It is in the nature of that kind of product, that you are buying it years 

in advance of using the services, and that even modest inflation rates, the 

purchasing power of policies erode tremendously, and that is especially 

true for employer sponsored plans, where it could be 30 or 40 years 

between initial purchase and use of the policies. It seems to me that that 

sort of portends that people have protection when the purchasing power 

just evaporates over time. 

 MR. PALLONE. My time is out. It is up to the Chairman if he wants 

the other panel members to comment. 

 MR. DEAL. I think in light of the fact that you have raised the issue, 

I think the others should be allowed to comment. 

 MR. PALLONE. Absolutely. 

 MS. IGNAGNI. Mr. Pallone, I think you have raised a very important 

issue about consumer protections. In our testimony, we noted some of 
78

the NAIC model protections. They have been adopted by 30 States. We 

fully support them, and we are in the process of trying to get the other 20 

to adopt them as well. 

 A number of issues, virtually all of them on your list, are included in 

the model. So, I think that is a very important step forward. Also, the 

data show that 70 percent of the policies purchased in 2005 have 

inflation protection, versus 40 in 2000, and the reason that a person 

wouldn’t want to purchase inflation protection, there are some 

individuals that do purchase this very late in life, and inflation protection 

doesn’t make as much sense as it would, quite rightly, as you suggest, for 

the 40 or even 50 year old, 55 year old. 

 A final point, Mr. Chairman. Dr. Wiener made some points about 

the partnership programs. If it would be acceptable to you, we would 

like to provide data to show what have been the constraints existing in 

the four States in the partnership programs, and why a number of the 

States now are trying to change that regimen, and we have some very 

productive data to report on that. So, I didn’t want to take anybody’s 

time, but if that would be acceptable, we would like to do that. 

 MR. DEAL. Yes, without objection. 

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 DR. STUCKI. Yes, if I could make a clarification with regard to 

reverse mortgages and younger people. 

 We have to keep in mind that currently, only people aged 62 and 

older qualify for a reverse mortgage. So, as a possibility for the younger 
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population, that simply isn’t an option. So, that is one of the limitations 

that-- 

 MR. PALLONE. Is that--I am sorry, with your permission, Mr. 

Chairman. Is that a legal prohibition, or just that is what they sell? 

 DR. STUCKI. Well, we have to keep in mind that the most popular 

reverse mortgage is the HECM, the home equity conversion mortgage, 

which is a HUD program, so under the HUD program right now, it is age 

62, and all the other products have adopted that same standard, at age 62. 

 MR. PALLONE. Theoretically, the ones that are private could sell to 

younger people, but they just follow the model, the HUD model. 

 DR. STUCKI. Well, again, one of the unique, I am sorry, one of the 

unique features of a reverse mortgage is that it is a non-recourse loan, 

which means that a person never owes more than the value of the home 

at the time of the sale, even if the value of the loan is higher than the 

value of the home. 

 Now, what that means is, the way that works out is that to provide 

that kind of protection, the amount of the loan that is available at younger 

ages is going to be smaller than at older ages, so the further down the line 

you push the age, the lower the loan is going to be. These loans, the 

reason that we are talking about them for aging in place is because when 

people are most likely to need long-term care, in their eighties, is the 

time when they are going to get the most benefit from a reverse 

mortgage. 

 MR. PALLONE. Thank you. 

 MR. JENNER. May I just add, Mr. Chairman, that with respect to 

inflation protection, Karen mentioned the NAIC model. The NAIC 

model mandates that the purchaser of insurance be offered the option of 

inflation protection. They need not take it, but they must be offered it. 

So, it is a question of whether you mandate that, or whether you offer the 

consumer the choice. 

 MR. THAMES. Mr. Chairman. May I please respond briefly to Mr. 

Pallone’s question with, and meld that with one of the things that the 

chair has already demonstrated that he is interested in, and that is the 

demonstration project. 

 One of the things our testimony would show is that we are interested 

in a demonstration project, in people with severe disabilities, and those 

who do, indeed, have some equity. We would believe that you could do 

a demonstration project with those people who have equity and are 

disabled, and that HUD could, for instance, forgive some of the up front 

mortgage insurance premium for those people, and lower the allowable 

origination and servicing fees, and the lenders could compete to 

participate in the program, again, lowering the origination and the 

servicing fees they would charge, and loan investors could also compete 
94

with the interest rate, in decreasing it. The State governments could be 

into the program, because they could target supportive services to the 

bars, paying the loan fees, providing information, referral services, home 

modification grants or loans, care assessment, and coordination services. 

 What all of these do, then, is give what all of our surveys show these 

older people with or without disabilities want. They can stay in their 

homes as long as possible, and they have choice about how they spend 

their money, and they would have more of their money to spend on home 

and community services, and in changing their home environment to 

make it where they could stay longer there. 

 MR. DEAL. Well, thank you all. I think this discussion that we have 

had, and it has fortunately been a discussion, I wish we could have more 

hearings that were more on this model. It is that we are facing great 

challenges. The demographics of an aging population present 

challenges. It does require us to think in new ways. It does require us to 

be resourceful. It does require us to use the resources both that are 

available in the private hands of individuals, as well as the resources of 

the Federal government, in a more responsible manner. We may be late 

in the game of deciding what direction to take, but we are in the game 

now. 

 We did make some significant changes in the Deficit Reduction Act, 

whether it be the partnerships that have been referred to, or the incentives 

that we have provided now, that States can do more community, home 

and community-based services without having to get a Federal waiver to 

do so. I think we are moving in the right direction. I appreciate very 

much the contributions of this panel, and with that, we will let the first 

panel go, and we will get to the second panel, if they would come 

forward. 

 Well, thank you all for your patience in waiting around for us. This 

is one of those days when votes do interfere, but we are pleased to have 

you here. This is a panel that is made up, and I will introduce the people 

at this time: Mr. Scott Conner, who is Vice President of Products and 

Health and Safety Services of the American Red Cross; Dr. Larry 

Wright, Director of the Schmieding--is that close enough-- 

 DR. WRIGHT. Yes. That is perfect. 

 MR. DEAL. --Schmieding Center for Senior Health and Education in 

Springdale, Arkansas; and Ms. Candace Inagi. 

 MS. INAGI. Inagi. 

 MR. DEAL. That is good. I did good. Good for a Southern accent, 

isn’t it? Who is Assistant to the President for Government and 

Community Relations of the Service Employees International Union 

Local 775 in Washington. 
95

 Lady and gentlemen, we are pleased to have you, and we will have 

your testimony made a part of the record, as the previous panel’s 

testimony was, and we would recognize each of you for 5 minutes, and 

starting with Mr. Conner. 

STATEMENTS OF SCOTT CONNER, VICE PRESIDENT, 

PRODUCTS AND HEALTH AND SAFETY SERVICES, 

AMERICAN RED CROSS; DR. LARRY WRIGHT, 

DIRECTOR, SCHMIEDING CENTER FOR SENIOR 

HEALTH AND EDUCATION; AND CANDACE INAGI, 

ASSISTANT TO THE PRESIDENT FOR GOVERNMENT 

AND COMMUNITY RELATIONS, SERVICE EMPLOYEES 

INTERNATIONAL UNION LOCAL 775 

MR. CONNER. Thank you. Chairman Deal and members of the 

subcommittee, thank you for providing us the opportunity to testify today 

on such an important issue. We at the American Red Cross commend 

you for your leadership in addressing the needs of the elderly in our 

Nation, and specifically addressing the needs that caregivers face. 

 Recognizing that caring for a loved one is a very personal 

experience, I am proud that the American Red Cross plays a role in 

helping caregivers provide support to their loved ones. For 125 years, as 

of last week, actually, the American Red Cross has been America’s 

partner in preventing, preparing for, and responding to disasters. 

Annually, the Red Cross responds to over 70,000 disasters. 

 In addition, we train more than 17 million Americans each year in 

lifesaving skills. From first aid and CPR to babysitting courses, the 

American Red Cross is committed to preparing our neighbors for any 

disaster. To that end, we have established a program to prepare 

individuals on caring for the elderly. In 2004, the American Red Cross 

began offering a family caregiving course that covers the skills needed in 

caregiving. There are nine 1 hour modules that cover subjects ranging 

from general caregiving skills to assisting with personal care, eating 

healthy, and home safety. Additionally, and importantly, we offer a 

course to the caregiver themselves on caring for the caregiver. Anyone 

that has taken care of a loved one knows how taxing these services can 

be. 

 We are expanding this program by developing new ways to make the 

skills available to more people. The Family Caregiving Reference 

Guide, to be sold in retail outlets, will come out later this year. 

Furthermore, we are working on developing an enhanced website and 

offering online education. We also offer, for professional caregivers, a 

nurse assistant training program, and together, we prepare a program for 
96

seniors that includes disaster and health and safety emergency 

preparedness. 

 We have a variety of other programs offered to benefit caregivers. 

These include Lifeline, which is a personal response system, 

transportation services, where volunteers help seniors get to 

appointments, volunteer shopping programs for those who are disabled 

or shut in, community feeding support, and in certain chapters, we have 

adult day care centers. 

 Our family caregiving skills training program is still fairly small by 

our standards. While we have more than 800 chapters, we only delivered 

about 18,000 family caregiving modules last year, and the reasons for 

this are several. Many caregivers simply do not self-identify, and they 

have very limited time to attend presentations. There is also, sometimes, 

a financial issue. New ways need to be found to help support this. We 

believe that the expansion of family caregiving skills knowledge within 

the American public will help to ameliorate the long-term care problem 

that we have been talking about all afternoon, but families simply cannot 

do it alone. 

 To that end, we encourage the committee to consider three critical 

areas. First, awareness. Large-scale health communications programs to 

raise awareness of rewards of caregiving, and encourage people to selfidentify. Members of Congress can help promote caregiving programs in 

their local communities, and we encourage each of you to do so. 

 Second, resources and time. Congress could consider public policy 

that encourages insurance companies, again, what we have been talking 

about this afternoon, and Medicare and Medicaid to help pay for family 

caregiving education, as well as requiring the healthcare industry to 

provide the training. Doctors in hospitals should prescribe caregiver 

education. However, many healthcare providers will not recommend 

education, unless it is covered by insurance. Diabetes education is 

reimbursed, as is childbirth education. It is time that we reimburse for 

caregiving education as well. 

 And last, how to lessen the hardships of caregiving. Continuing to 

provide for growth of all manner of nationally supported services and 

programs for caregivers, such as the National Family Caregiver Support 

Program, FMLA, and so many others. Congress should also consider 

economic support to families, be it through tax credits or allowing 

education costs to be deducted on Federal taxes. 

 I thank you again for the opportunity to be here today. 

 [The prepared statement of Scott Conner follows:] 
97

PREPARED STATEMENT OF SCOTT CONNER, VICE PRESIDENT, PRODUCTS AND HEALTH AND 

SAFETY SERVICES, AMERICAN RED CROSS

Chairman Deal, Congressman Brown, and Members of the Committee, thank you 

for providing me the opportunity to testify today before you on such an important issue. I 

commend you for your leadership in addressing the needs of the elderly in our nation, and 

specifically addressing the needs that caregivers face. I know that for many of us in this 

room, caregiving is an especially personal issue. And I know that I am very proud that 

the Red Cross plays a role in helping caregivers provide support and comfort to their 

loved ones. 

I am also pleased to be here today because this hearing sheds light on an important 

program that the American Red Cross launched in 2004 to help better prepare individuals 

to provide caregiving services to their loved ones, as well as to train individuals to 

provide caregiving services. 

For 125 years, the American Red Cross has been America’s partner in preventing, 

preparing for, and responding to disasters. The American Red Cross is known from coast 

to coast for our response to more than 70,000 disasters annually, the vast majority being 

single family home fires. We have more than 800 chapters spread throughout the United 

States and the territories, and we provide the nation with nearly one half of the blood 

supply. 

As important, the American Red Cross trains nearly 15 million Americans each year 

in lifesavings skills. From first aid and CPR, to AED training and babysitting courses, 

the American Red Cross is committed to preparing our neighbors for any disaster that 

comes their way. To that end, we established a program to prepare individuals on caring 

for the elderly. 

Services to Seniors 

Seniors are critical to the mission of the American Red Cross. In fact, seniors 

comprise a large percentage of our volunteers. But when seniors fall ill, 78% rely on 

their own family members to take care of them. 

A 2005 study showed that 36% of Americans mentioned the American Red Cross 

first when asked what organization should be involved in teaching home nursing in case 

of a pandemic. This was 5 times as many people as the second most often selected 

organization. 

For family members who are confronted with an unforeseen combination of 

circumstances that requires them to step in and provide care, the American Red Cross 

Family Caregiving program prepares them to respond. It is indeed a family emergency 

when a grown son or daughter finds themselves totally unprepared the day an elderly 

relative becomes sick. A busy and full life one day is taken over with caregiving 

responsibilities the next. For many days thereafter they may find themselves cleaning up 

hazardous environments, helping with personal care, and managing medications. Recent 

research has brought to light that caregivers endure personal and financial hardships – 

trouble in their jobs and the decline of their own health and relationships. These are 

some of the same kinds of things the American Red Cross volunteers face in disaster 

situations. Training makes a difference. 

Our Family Caregiving program prepares families to respond in a manner to prevent 

hardship and further injury, keep basic needs met, and keep their loved ones health stable 

under the guidance of the family doctor. 

Lay caregivers need training to deal with life-threatening emergencies – infection 

control, administering medications, moving a sick person without doing further injury. In 

Family Caregiving we teach the emergency action steps (Check, Call, Care), responding 

to sudden illness, safe disposal of syringes, oxygen, medications, food safety, disposal of 
98

hazardous waste, and many other skills needed to keep people alive till the situation 

stabilizes. 

History of the Family Caregiving Program 

The program was developed with funds from a private donor – Josephine A. 

Osterhout – whose estate provided money to Red Cross National Headquarters to “help 

the elderly in America.” In 2001, before embarking on the Family Caregiving program, 

National Headquarters, in partnership with the National Caregivers Alliance and AARP, 

commissioned a national telephone survey of caregivers. We learned that 22 million 

households are caring for a sick or elderly loved one. We found that Josephine Osterhout 

was not alone in thinking that America’s elderly could be helped by the American Red 

Cross. 

Our study also revealed that Americans see the American Red Cross as a logical 

source of information on Caregiving. It was generally felt that the American Red Cross 

had a good deal of experience, either directly or indirectly, with caregiving – 

• Experience with Bloodmobiles transferred to developing transportation service 

for the elderly and disabled 

• Disaster relief efforts transferred to developing a respite care program 

• Experience as a trainer in first aid and CPR, the American Red Cross was seen 

as having the expertise to produce caregiver training materials. 

• A reputation as being reliable and caring in an emergency would be a value in 

obtaining the trust necessary to have caregivers and their loved ones accept the 

services that the American Red Cross might provide. 

Most adults receiving long-term care at home – 78% rely exclusively on family and 

friends to provide assistance. (Thomson, 2004, Georgetown University). Research has 

shown that providing care to elderly family members is a serious health risk for 

caregivers. Studies consistently find high levels of depressive symptoms and mental 

health problems among family caregivers as compared to their non-caregiving peers 

(Family Caregiver Alliance, 2003, L. Gray). The caregivers that provide the greatest 

level of care often experience the greatest financial burden, including lost wages and 

missed work. 

Red Cross Programs that Train Caregivers 

Family Caregiving 

The American Red Cross Family Caregiving program offers nine modules that help 

participants provide better care and gain an understanding of safety, nutrition, general 

care, and legal and financial issues. Since each session is just one hour, the presentations 

can accommodate even the busiest schedules. 

Our modular program design lets participants choose any presentation, in any order, 

and pay a nominal fee for only those they attend. No matter which presentations are 

selected, participants enhance skills, reduce stress and build confidence. 

Topics include: 

• Home Safety 

• General Caregiving Skills 

• Positioning and Helping Your Loved One Move 

• Assisting with Personal Care 

• Healthy Eating 

• Caring for the Caregiver 

• Legal and Financial Issues 

• Alzheimer’s disease or Dementia 
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• HIV/AIDS 

In 2005 the American Red Cross delivered 18,000 Family Caregiving modules. The 

program may be delivered by any American Red Cross Chapter, by Authorized 

Providers, or by any senior serving organization or community based organization. 

The Family Caregiving program is currently being expanded to reach more 

caregivers by developing new ways to reach out to them such as: 

• New products: Our new Family Caregiving Reference Guide to be released 

later In 2006 – a skills reference book with a DVD that will be distributed in 

retail outlets in addition to the American Red Cross Chapters. 

• Online programs to help train caregivers. 

Nurse Assistant Training Program 

American Red Cross had 12,000 nurse assistants enrolled in the Nurse Assistant 

Training program in 2005. The program meets all federal requirements and complies 

with state regulations for training nurse assistants. Additionally, it provides the 

participant with the knowledge and skills needed to appropriately care for individuals in 

the extended care setting as a nurse assistant. 

The purpose of the program is to provide information and skills enabling nurse 

assistants to provide quality care for residents in nursing homes, as well as supplemental 

information and skills that will enable them to provide quality health care for clients at 

home. 

Together We Prepare For Seniors 

Together We Prepare is a program that includes presentations and materials 

provided by chapters to help seniors take key steps toward preparing for natural disasters 

and man-made emergencies. These steps include 1. Make a plan; 2. Build a kit; 3. Get 

trained; 4. Volunteer; and 5. Give Blood. For seniors, making a plan and building a kit 

are two key actions to prepare for all hazards. 

Additionally, the Red Cross developed a targeted resource for seniors entitled the 

“Disaster Preparedness for Seniors by Seniors Guide.” Chapters often combine the 

Together We Prepare program with the Family Care Giving Program to provide basic 

preparedness information as well as skills for caregiving for seniors. 

Other Senior Serving Programs: 

Local American Red Cross chapters throughout the US offer a wide variety of 

services to seniors in their own communities such as: 

• Lifeline – Lifeline® is a personal response and support services system for 

seniors and the physically challenged. It promotes independence, peace of 

mind and early intervention to those in need and for loved ones. This Personal 

Emergency Response Service (PERS) is available 24-hours-a-day, 365-days-ayear. 

• Transportation – Volunteers, many of which are seniors themselves, transport 

other seniors in need to medical appointments and other important trips. 

• Shoppers Programs – volunteers helping those who are shut in by going to the 

store for them. 

• Community Feeding Support and Meals on Wheels 

• Friendly Visitor and Tele-Care programs – Volunteers who call each morning 

or pay a visit regularly to home bound, elderly and disabled seniors. 

• Adult Day Care 
100

Challenges and Growth Opportunities for Family Caregiving Program 

Although 18,000 Family Caregiving presentations have been done in 2005, the 

American Red Cross has encountered challenges in implementing our Family Caregiving 

program. Some of the challenges include: 

• Caregivers do not attend chapter delivered training. 

• Initial low turnout 

• Sizeable initial resource requirements 

• Lack of grant funding to support initiatives 

• Caregiver issues 

o Self-identification by Caregivers 

o Time constraints 

Overview of Challenges 

In general we have found that there is a reluctant market for Family Caregiving 

Skills. Caregivers do not self-identify, and do not have time to learn the skills of 

caregiving. Yet the “work” of training Family Caregivers is likely to become an 

important concern in the near future because 78% of long term care is done by the family 

caregiver. There are roles the Federal government can play to address these challenges, 

and that will help to create an environment that expands family caregiving. Families 

providing a greater percentage of the care their loved ones need offers a humane solution 

to the long term care issue and goes a long way to helping solve the nation’s long term 

care problems. But families cannot do it alone. 

I encourage this Committee to consider three critical issues: first, a lack of 

awareness in communities across the country; second, the strains faced by caregivers 

with both limited resources and time; and third, the tremendous hardships of caregiving. 

We offer three promising steps that will lead to an environment where family caregiving 

can grow: 

1. Awareness: Large scale health communications programs to raise awareness of 

rewards of caregiving and to encourage people to self-identify so they can get the 

help they need. Members of Congress can help promote caregiving programs in 

their local communities, and I encourage each of you to do so. 

2. Resources and Time: Congress could consider public policy that encourages 

insurance companies and Medicare and Medicaid to help pay for family caregiving 

education for individuals, as well as requiring the healthcare industry to provide the 

training. Studies show that people prefer to get health information from their own 

doctors. Doctors and hospitals should prescribe caregiver education, however many 

health care providers will not recommend education unless it is covered by 

insurance. Diabetes education is reimbursed; as is childbirth education. It is time 

that we reimburse for caregiving education as well. Caregivers are an important 

component of the patient care team, and we ought to help insure that programs are 

available to meet the growing demand for caregivers in the United States. 

3. Lessening the Hardships of Caregiving: Continuing to provide for growth of 

all manner of nationally supported services and programs for Caregivers such as the 

National Family Caregiver Support Program, FMLA and so many others. Congress 

should also consider economic support to families, be it through tax credits or 

allowing unreimburseable education costs to be deducted on federal taxes. 

Mr. Chairman, Congressman Brown, I thank you again for the opportunity to be 

here before you today. On behalf of the entire Red Cross, I thank you for your leadership 

in addressing this difficult issue, and I can assure you that the American Red Cross stands 

ready to support any efforts to promote and expand family caregiving services and 

support. At this time, I am happy to answer any questions you may have. 
101

 MR. DEAL. Thank you. Dr. Wright, you are recognized. 

DR. WRIGHT. Mr. Chairman. I would like to thank you, Mr. 

Chairman, and other members of the committee for convening this 

hearing, and for the opportunity to address you on this important issue. 

My name is Dr. Larry Wright. I am a medical doctor and a geriatrician. 

I have been in community-based geriatric medical practice for about 26 

years, and the last 7 years, I have been the Director of a Regional Center 

on Aging affiliated with the Reynolds Institute on Aging, and the 

University of Arkansas for Medical Sciences. I am also the Medical 

Director of a community-based hospital senior health system in 

northwest Arkansas with the Northwest Health System. 

 My testimony today is based on my many years of medical practice 

in geriatrics, and working with older adults and with their families 

around caregiving issues, and my last 7 years as the director of a 

nonprofit education program that has been dedicated to developing an 

outstanding curriculum for training home caregivers. And we have now 

trained, at last count, over 500 caregivers to give the kind of care that I 

am going to describe in my testimony. 

 We believe that professionally trained in-home caregivers are a key 

to keeping older adults at home for life, and helping resolve America’s 

long-term care crisis. To create an open environment in which a new 

generation of well-trained in-home caregivers can flourish and help older 

adults stay at home for life will require the removal of regulatory 

restrictions, the development of a delivery system that matches 

caregivers to those who need them, and a system for training professional 

caregivers that is linked to a certification process that assures qualified 

in-home caregivers. 

 I would like to clarify that the in-home caregivers I am referring to in 

my all remarks are the workers who give basic care to older adults in 

order to stay in their home. We are really not talking about healthcare 

and medical care in this regard. We are talking about those, much like 

family caregivers, but these hired caregivers who can give all sorts of 

assistance, including hands-on assistance for people who don’t so much 

have skilled nursing needs at all, but have dependency in some activities 

of daily living, and therefore, need assistance with these basic needs. 

This is not really medical care, but what is often treated in the regulations 

as if it is. 

 Variously, these workers are termed direct care workers, care 

professionals, and personal care workers. Demographics demand a shift 

from institution-centered long-term care to a new, home-centered system. 

We need both, an improved Medicare/Medicaid funded system of longterm care for the most chronically ill, frail, and low-income seniors, and 

we need a new alternative, a new home-centered system of long-term 
102

elder care for seniors, both those of low-income, and those who can pay 

privately. 

 Keeping more older adults at home is the only way, we believe, we 

can afford to care for twice as many elders living decades longer, with 

more chronic diseases. It may be America’s best solution to the longterm care problem, if we do three things. Number one, we must improve 

the quality and availability of in-home caregiving by developing 

professionally trained and certified home caregivers, including family 

members, and a new corps of volunteer caregivers, as well as these hired 

direct care workers that I have referred to. Currently, there are no 

training requirements for independently contracted workers that do inhome paid caregiving. We must develop and implement national 

standards for the education and training of in-home paid caregivers, 

including a national certification organization, and tie payment to 

successful training. 

 Number two, we also need to review Federal and all State home 

health regulations, and deregulate the in-home caregiving. Again, 

caregiving, or personal care, as I am referring to, has been made in the 

regulations too often synonymous with home health, and has been tied 

to, therefore, the need for skilled nursing, and the resulting regulations 

represent a barrier to delivery of personal in-home caregiving to most 

Americans, whether they qualify for Medicaid or they are private pay, by 

any organization other than a home health agency. Caregiving is not 

healthcare, and should not be regulated like home health. 

 And number three, we should develop a comprehensive 

public/private delivery system of personal in-home caregiving that 

applies all available resources, family, volunteer, private, and public 

sectors, to integrated, home-centered, long-term care delivery. 

 In April, we at the Schmieding Center announced a partnership 

between the Schmieding Center for Senior Health Education and the 

International Longevity Center in New York, that organization, headed 

by Dr. Robert Butler, widely regarded as the father of geriatric medicine 

in this country, and the first Director of the National Institute on Aging. 

In this partnership, we are launching a project, a national project, for 

caregiving, in-home caregiving, and this project will intend to include 

national research and consensus-building among caregiving stakeholders, 

including organizations such as the National Alliance for Caregivers, 

headed by Gail Hunt, and other national caregiver organizations, as well 

as those involved in policy and academics interested in the subject of 

caregiving; and along with them, come to a consensus about this issue. 

Improving public awareness also, and developing a national model 

caregiver curriculum for in-home caregiving, along with pointing to the 
103

development of a caregiving delivery model that can be replicated across 

America. 

 So, we will continue to work toward these important goals, and Mr. 

Chairman, I want to thank you for the opportunity to present our vision 

of an achievable approach to home-centered long-term care. 

 Thank you. 

 [The prepared statement of Dr. Larry Wright follows:] 

PREPARED STATEMENT OF DR. LARRY WRIGHT, DIRECTOR, SCHMIEDING CENTER FOR 

SENIOR HEALTH AND EDUCATION

Improve and Refine Current Long-Term Care System

 We all agree we must continue to improve and refine the Medicare/Medicaid-based 

long-term care system we have in place. Many improvements still remain to be made 

that will be beneficial to older adults, particularly those older adults burdened with the 

kind of serious chronic conditions that truly require skilled nursing home care and, most 

particularly, those without the ability to pay. 

 But we can never “improve” or expand nursing homes enough to make them the 

preferred choice for most older Americans. Even if we could make nursing homes 

desirable enough, we can’t build enough new facilities to care for double or triple the 

number of seniors who will need long-term care over the next 20-30 years. 

Develop a Home-Based Long-term Care Alternative

 Baby Boomers increasingly demand that we change our system of long-term 

eldercare from an institution-centered method of long-term eldercare to a new homecentered system. We will need both:

1. An improved Medicare/Medicaid system of long-term care system for the most 

chronically-ill, low-income seniors 

2. and a new alternative, a new home-centered system of long-term eldercare for 

all Baby Boomers—both those of low-income and those who will be private 

pay. 

The demographics before us demand an alternative long-term care system that helps 

keep most elders at “home.” Staying at home is what most elders and their families want. 

Keeping them at home is the only way we can afford to care for twice as many elders 

living decades longer than ever before. And it can be done—it may be America’s best 

solution to the Age Boom of long-lived elders—if we do three things: 

1. Review federal (and all state) home health regulations and de-regulate inhome caregiving; i.e., remove Personal Caregiving from home health 

regulations.

2. Improve the quality and availability of in-home caregiving by developing 

professionally-trained and certified home caregivers, family members, and 

a new corps of volunteer caregivers. 

3. Develop a comprehensive public/private delivery system of personal inhome caregiving that applies all available resources—family, volunteer, 

private and public—to integrated long-term care delivery. 

Separate Caregiving (Personal Care) from Home Health (Skilled Nursing)

 I am not suggesting that we change home health regulations. Simply remove inhome caregiving (personal care) from the home health regulations—except when inhome care is prescribed by a physician as a medical necessity (skilled nursing). Right 
104

now the home health regulations are unintentionally blocking access to in-home 

caregivers trained and provided through any reputable agency. How can that be? Current 

regulations do not differentiate between skilled nursing and personal caregiving under 

Medicare/Medicaid Home Health regulations--even when the older adult does not need, 

qualify for, or receive Medicaid benefits. 

 Because we have intermingled in-home personal Caregiving with Home 

Healthcare (skilled nursing) nearly all Americans, including the 70 percent of older 

adults who do not qualify for Medicaid benefits, are excluded from access to trained 

home caregivers from any reputable agency even when they are private pay. 

Just remove in-home PERSONAL caregiving from Home Health regulations—

except when prescribed by a physician. Removing the regulatory barriers to in-home 

caregiving may be the single most important action you can take 

to provide better access to better caregivers for most Americans, including the 70% who 

pay for their own homecare. With this barrier removed, we can keep more elders at 

home for life, at lower costs, with more competition to provide professional in-home 

caregiving through professional caregiving agencies—both private and non-profit—and 

alleviate a colossal need. 

Create A New Group of Professionally-Trained In-home Caregivers

 There is an urgent need for the professional training of family, volunteer, and inhome paid caregivers, usually independent contractors, as well as the need for geriatric 

management services for families who are overseeing the care of a loved one in the 

home. 

 A large, new cadre of independent contract, in-home direct care providers is 

required to meet this growing need. However, almost none of these care providers have 

received professional training on how to care for an older adult in the home. Elders are 

thus very vulnerable to improper care and the family has no way to judge the competence 

of caregivers in the home setting. 

 Therefore, there is an urgent need for creating the standards and structure for support 

of a professionally-trained community of paid in-home caregivers who provide personal 

care and other non-medical services to older adults in the home and who understand the 

behavioral problems that may be present when caring for an older adults with a 

dementing or other chronic disease. 

 There are many barriers to the professional in-home caregiving many families need: 

• Currently, there are no caregiver training requirements for independent 

contractors working as in-home paid caregivers. There are no standards for 

training and no structure in place today to support independent contractors 

working as in-home paid caregivers. There is no well-organized national 

organization or association that supports this evolving cadre of direct care 

providers to help establish caregiving as a career. 

• There are caregiver training requirements set by Medicare/Medicaid 

regulations for personal care and home health aides working for home 

health agencies. However, only elders who require skilled nursing care can 

qualify for personal care provided by a home health agency. Such personal care 

must be prescribed by a physician and is available on a limited basis--not 24/7 

for extended periods of time--as some families need. This is not long-term 

care. Families cannot simply request personal care services provided by a home 

health agency. 

• Nearly all families must contract privately with individual caregivers--and 

they must find them on their own. Most of the caregivers they find are 

untrained. Families sometimes receive lists of potential in-home caregivers 

from hospitals or health care agencies. Sometimes they learn about potential 

caregivers by referral or through advertising. Many of the caregivers found 
105

through these means have a heart-to-serve, but they have no formal training and 

limited knowledge about caring for older adults in the home. 

• In-home caregiving is not considered a career path. Caregiving is generally 

viewed as minimum wage work. Currently there is no way for them to receive 

benefits, be bonded, receive further training and continuing education, etc. 

They are typically among the medically uninsured, a real problem in our health 

care system today. 

• As an independent contractor, the case load for an in-home caregiver 

varies and may not provide regular work; therefore, many in-home 

caregivers leave the field and seek other employment that is often more stable, 

better-paid, and may even include benefits. This environment results in families 

often finding it very difficult to find and keep in-home paid caregivers when 

needed. 

• For-profit companies do exist that provide non-medical caregiving to older 

adults in the home, but few such companies exist that also can and do 

provide the physical and behavioral care that is often needed to care for 

older adults with dementia or other chronic, debilitating conditions. Many 

of the private companies require little or no training for the caregivers they hire. 

When physical care is needed, most states have outdated regulations prohibiting 

any organization except a home health agency from providing that care. But if 

the older adult doesn’t require skilled nursing care, they can’t get the caregiving 

help they need to stay at home from any organization. 

 We must break with the past and find new ways to create a community of 

professionally-trained home caregivers--a community with the shared standards and 

structure needed to grow a large cadre of competent, compassionate, professionallytrained in-home caregivers. We suggest that we 

• Develop and implement national standards for the education and training 

of in-home paid caregivers.

• Create a national organization/association for the new generation of 

professionally-trained in-home caregivers, most of whom are independent 

contractors. The organization will oversee the accreditation process of 

curricula used to train this cadre of caregivers, the certification/licensing 

process, the continuing education requirements to maintain certification, 

provide opportunities for group rates on medical and dental insurance, bonding, 

etc. Family members needing in-home paid caregivers will then be assured that 

a caregiver certified by the organization has been professionally-trained in 

home caregiving skills, tested for competency, and is continuing to add new 

caregiving knowledge. 

• Establish new in-home caregiving quality standards so that all third party 

payers, including CMS, require that all in-home caregivers must be 

members in good standing in the national professional home caregiver 

certification organization to qualify for reimbursement. All agencies or 

companies providing in-home caregiver services for a fee to families must meet 

the same membership, training, continuing education, and quality standards for 

their employees. 

• Allow, encourage, and incentivize a new type of in-home caregiver staffing 

agency to provide families with caregivers who are professionally-trained 

in the physical care and non-medical care of an older adult and who 

understand the behavioral issues that might arise. Keeping the cost of 

caregivers placed through these agencies at an affordable level, while paying 

the caregivers a reasonable wage and benefits, would provide professional 
106

caregivers with career stability and provide families that need paid caregiving 

for a loved one with a reliable source for trained caregivers. 

 Again, all in-home caregiving recommendations depend on the removal of federal 

and state regulatory roadblocks to professional in-home caregiving and geriatric care 

management. In-home caregiving must be re-defined to separate it from “home health” 

care (skilled nursing) and its restrictions. Caregiving is not “health care” and should not 

be regulated as is medical care. 

Develop a Comprehensive Public/Private Delivery System for Home-based Longterm Care.

 With regulatory barriers removed and with a program for providing professionallytrained and certified home caregivers (including family, volunteer, and paid) is 

operational, there will still be a major issue of connecting older adults and their families 

with the resources they need to stay at home for life. 

 A model has been developed for a comprehensive, integrative delivery system 

combining public and private resources. It provides one-stop, one-call access to a 

community-based system of eldercare that provides information, referrals, and 

consultation to older adults and their families. The tool kit can be adapted as a private 

business, a non-profit service, a community-based service, a faith-based initiative and 

more. 

 It requires only the freedom from regulation so that the needed services can be 

delivered. There is great interest in pursuing this model at the community level and I 

believe this is the direction elder caregiving will develop over the next decade. It is 

flexible, fundable, affordable, and compassionate. (See Exhibit 1: “Community & Faithbased Model to Help Older Adults Stay at Home For Life”) 
107

 MR. DEAL. Thank you. Ms. Inagi. 

MS. INAGI. Thank you. Good afternoon, Chairman Deal, Mr. 

Pallone, and Mr. Allen. My name is Candace Inagi. I am Assistant to 

the President for Community Relations for SEIU 775, based in 

Washington State. 

 We have about 28,000 caregivers who are family caregivers, agency 

caregivers, and nursing home workers. SEIU represents 1.8 million 

workers nationally, and is the Nation’s largest healthcare union. 775, 

which is, again, based in Washington State, includes many family 
108

caregivers who are caring for Medicaid beneficiaries participating in the 

State’s program of consumer-directed care. 

 We face a national shortage of direct care workers. At least 35 

States currently report serious shortages of caregivers, and for 

individuals with chronic needs, often the biggest barrier is finding an 

available home care worker. It would be a mistake to think that the 

shortage of long-term care workers is a temporary phenomenon, a 

function of the current business cycle. It is important to see the labor 

shortage for what it really is, a rational response of people to a labor 

market that often pays lousy wages and has no benefits. The national 

average for a direct care worker is only $8.18, but average annual income 

for homecare workers range from $7,000 to $12,000 per year, since few 

can find full-time work. 

 We can expect the current shortage to get worse. The traditional 

long-term care worker, women between the ages of 25 and 45, have more 

economic alternatives these day. BLS estimates that we will need an 

estimated 5 million additional care workers to fill current vacancies, and 

meet the demand for additional services. 

 So, who will care for those with long-term care needs? We must 

support informal caregivers, and make it easier for friends and family to 

help with household activities, transportation, and chores that make it 

possible for those with disabilities to stay out of institutions. Homecare 

and other kinds of non-medical assistance often require more patience, 

strength, and sensitivity than technical skill. Because long-term care is 

often the most intimate of hands-on care, many people are more 

comfortable having, and actually prefer having, family members provide 

those services. 

 But informal caregiving is not the silver bullet to the workforce 

shortage. Trends like smaller families and greater economic mobility 

among families impact the supply of informal care. 

 We cannot meet the demand for long-term care solely through 

informal care. Our dysfunctional healthcare system already puts too 

much responsibility for long-term care services on the family. Medicaid 

and Medicare are enormously successful at helping low-income and 

disabled individuals access healthcare, but neither program is designed to 

address the long-term care needs of millions of middle class Americans. 

Medicare provides health insurance for seniors, as you know, and the 

disabled, but benefits are time limited, and the program excludes social 

supports. Medicaid addresses the long-term care needs of low-income 

Americans, but the income eligibility requirements make it a program of 

last resort. Many States have used Federal waivers to create home and 

community-based services that substantially improve the spectrum of 

long-term care choices available, but in most States, the program has yet 
109

to shake the institutional bias completely. Washington State has done a 

very good job of rebalancing, so that we offer more home and 

community-based services in place of nursing homes, but many States do 

not have those choices. 

 Unpaid or informal care complements paid or formal care, since 

most consumers receive a mix of both over time. Paid care is an 

important source of respite for family members. Paid care can also 

supplement the efforts of family members during work hours. Paid care 

can substitute for unpaid care when individuals with multiple disabilities 

are physically and emotionally too much for family members to handle, 

or when family members simply burn out. 

 I would like to shift gears for a moment and mention the effort by 

several States to address the workforce shortage through the creation of 

Medicaid consumer-directed care. This arrangement, in which individual 

beneficiaries are allowed to select, manage, and if necessary, dismiss 

workers, offers beneficiaries greater autonomy and more choice. 

Beneficiaries that take advantage of consumer-directed care often have 

greater consumer satisfaction, because they get the type of care they want 

when they want it, and no longer are they stuck in bed waiting until an 

agency can provide assistance. 

 So consumer-directed programs can be problematic, too, however. 

Because the Medicaid beneficiary is the employer, not the State that 

actually pays for services, workers are in a very difficult position. They 

are unable to increase their wages or benefits, because their employer is 

indigent and lacks the resources to make caregiving a sustainable job. 

 SEIU has worked with Governors and policymakers in States like 

Washington to develop a solution that allows for an expansion of 

consumer-directed care. We have created a public agency--it is often 

called a public authority, or a home care commission--that can serve as a 

co-employer for the purposes of determining wages and benefits. 

Consumers retain the right to hire, fire, train, and supervise the care 

provider, and the care is provided when, and in the manner determined 

by the beneficiary. But workers have a co-employer, the State, with the 

resources to provide an adequate wage and health insurance. SEIU, 

representing the workers, is then able to negotiate with States, acting as 

the co-employer, for adequate wages and decent healthcare coverage. In 

California, Oregon, and Washington, the result has been a significant 

expansion of the labor market for direct care workers. 

 And I want to say that really, when we are talking about training and 

improving the workforce and meeting the needs that we have before us, 

with Baby Boomers entering the system, we have to look at wages and 

benefits and training as a means to stabilize and professionalize the 

workforce. 
110

 On the note of training, in Washington State, we have problems with 

accessibility. We are currently working with the State to make sure that 

there is a program of training that allows for portability of certification, 

so that you can take that training certificate across various parts of the 

long-term care continuum. We are working with the State to make sure 

that there are mentorship and apprenticeship programs. 

 But I think that I will close with the idea that in Washington State, 

and this sort of puts an exclamation point on the issue for the importance 

of training standards across the States, is that a hairdresser is required by 

the State to have 1,000 hours of training, a manicurist, something over 

600 hours, and a caregiver, just 32 hours. So, on behalf of SEIU, I leave 

you with that thought. 

 We appreciate the opportunity to express the concerns of caregivers 

struggling to improve the care and quality of life for their clients. 

 [The prepared statement of Candace Inagi follows:] 

PREPARED STATEMENT OF CANDACE INAGI, ASSISTANT TO THE PRESIDENT FOR 

GOVERNMENT AND COMMUNITY RELATIONS, SERVICES EMPLOYEES INTERNATIONAL UNION 

LOCAL 775 

Good morning Chairman Deal, Ranking Member Brown and other Members of the 

House Energy and Commerce Subcommittee on Health. My name is Candace Inagi. I am 

Assistant to the President for Government and Community Relations for Local 775 of the 

Service Employees International Union. SEIU represents 1.8 million workers nationally 

and is the nation’s largest health care union. 

Local 775, based in Washington State, represents 28,000 home care and nursing 

home workers, including many family caregivers who are caring for Medicaid 

beneficiaries participating in the state’s program of consumer-directed care. 

We face a national shortage of direct care workers; at least 35 states currently report 

serious shortages of caregivers. For individuals with chronic care needs, often the biggest 

barrier is finding an available home care worker. 

It would be a mistake to think the shortage of long term care workers is a temporary 

phenomenon –– a function of the current business cycle. It is important to see the labor 

shortage for what it really is: a rational response of people to a labor market that often 

pays lousy wages and no benefits. The national average wage for a direct care worker is 

$8.18, but average annual income for home care workers ranges from $7,000 to $12,000 

per year since few can find full-time work. 

We can expect the current shortage to get worse. The traditional long term care 

worker –– women between the ages of 25 and 45 –– have more economic alternatives. 

BLS estimates that we will need an estimated 5 million additional direct care workers to 

fill current vacancies and meet the demand for additional services. 

Who will care for those with long term care needs? We must support informal 

caregivers and make it easier for friends and family to help with household activities, 

transportation and other chores that make it possible for those with disabilities to stay out 

of institutions. Home care and other kinds of non-medical assistance often require more 

patience, strength and sensitivity than technical skill. Because long term care is often the 

most intimate of hands-on care, many people are more comfortable having family 

members provide those services. 
111

But informal caregiving is not the silver bullet to the workforce shortage. Trends 

like smaller families and greater economic mobility among families impact the supply of 

informal care. 

We cannot meet the demand for long term care solely through informal care. Our 

dysfunctional health care system already puts too much responsibility for long term care 

services on the family. Medicaid and Medicare are enormously successful at helping lowincome and disabled individuals access health care but neither program is designed to 

address the long term care needs of millions of middle-class Americans. Medicare 

provides health insurance for seniors and the disabled but benefits are time-limited and 

the program excludes social supports. Medicaid addresses the long term care needs of 

low-income Americans, but the income eligibility requirements make it a program of last 

resort. Many states have used federal waivers to create home and community based 

programs that substantially improve the spectrum of long term care choices available, but 

in most states, the program has yet to shake the institutional bias completely. 

Unpaid or “informal” care complements paid or “formal” care since most consumers 

receive a mix of both over time. Paid care is an important source of respite for family 

members; paid care can also supplement the efforts of family members during work 

hours. Paid care can substitute for unpaid care when individuals with multiple disabilities 

are physically and emotionally too much for family members to handle or when families 

burn-out. 

I would like to shift gears for a moment and mention the effort by several states to 

address the workforce shortage through the creation of Medicaid consumer-directed care. 

This arrangement, in which individual beneficiaries are allowed to select, manage and if 

necessary dismiss workers, offers beneficiaries greater autonomy and more choice. 

Beneficiaries that take advantage of consumer-directed care often have greater consumer 

satisfaction because they get the type of care they want, when they want it. No longer are 

they stuck in bed until an agency decides to provide assistance. 

Consumer-directed programs can be problematic too. Because the Medicaid 

beneficiary is the employer –– not the state that actually pays for services –– workers are 

in an impossible position, unable to increase wages or improve benefits because their 

“employer” is indigent and lacks the resources to make caregiving a sustainable job. 

SEIU has worked with governors and policymakers in states like Washington to 

develop a solution that allows for expansion of consumer-directed care: creating a public 

agency (often called a public authority or a home care commission) that can serve as a 

co-employer for the purposes of determining wages and benefits. Consumers retain the 

right to hire, train, and terminate a personal care provider. Care is provided when and in 

the manner determined by the beneficiary. But workers have a co-employer -- the state -- 

with resources to provide an adequate wage and health insurance. SEIU, representing the 

workers, is able to negotiate with the state acting as the co-employer for adequate wages 

and decent health care coverage. In California, Oregon, and Washington, the result has 

been a significant expansion of the labor market for direct care workers. 

On behalf of SEIU, we appreciate this opportunity to express the concerns of 

caregivers struggling to improve the care and the quality of life for their disabled clients. 

MR. DEAL. Well, thank you all. I will get started. 

 For the last about 8 and a half years, my wife and I have been 

caregivers to our parents. I am probably the only one on this panel who 

had the pleasure and opportunity last night to put my mother to bed, to 

take off her prosthesis, to put her teeth in the right container and her 

hearing aid in the right place, pull the covers up, and kiss her goodnight. 
112

 I would have repeated that process this morning, had I not gotten up, 

left at 5:30 to catch an airplane, so I could be here with you. Eight and a 

half years of caregiving takes its toll. But, since my mother will be 100 

years old in six months, I feel like that is the least that I could do for her. 

My wife’s father, who also lives in the same house with us, will be 93 in 

about less than 2 months. 

 So, I know firsthand from whence I speak. Caregiving is a difficult 

job. It is even more difficult to find someone who can assist a family in 

doing that job. Dr. Wright, I am very intrigued with your testimony from 

the standpoint of the project that you are working on for a model. One of 

the most difficult things that we have encountered is finding people who 

can come into our home and do the day-to-day 9:00 to 5:00. I have a 

joke saying that my wife and I work the nightshift at the nursing home, 

because everything in our life revolves around being there at 5:00, 

because that is when the people that we have been able to hire go home, 

and on weekends, it is up to us. 

 It is very difficult to find people who will work, and we can’t get that 

national average of $8. Ours is in the $10 range, plus we don’t provide 

benefits, obviously, but just finding somebody who is available. The 

irony of it is that of the three ladies that we have had work for us in the 

last year, two of them have themselves been Medicare eligible. They are 

over 65, and it is very difficult to find anybody at any age who is willing 

to do this. 

 Now, I am intrigued also by your statement that we need to get 

regulations out of the way, and I am totally in agreement that what we 

are talking about, in most of these in-home situations, is not medical 

care. It is not medical care in the context of what we think of as home 

healthcare, either. How do we go about that, and what regulations are 

there, and whose regulations are they that we need to deal with? 

 DR. WRIGHT. Well, I think it is primarily Federal regulations about 

the home healthcare agencies, and that it basically, in most jurisdictions 

in this country, most States for certain, there has been no effort to get 

around this. It results in the fact that any agency that is not a certified 

home health agency under Medicare, they may be a home care agency, or 

they may a Center on Aging, like us. We cannot send our trained 

caregivers into the home to do anything but just helper, chore sort of 

things. In fact, for most, the specific limitation is characterized by the 

admonition that you cannot touch the individual. So, we are talking 

about people who, even when they have been through our training, 100 

hours by the way, if they are not working for a home health agency, if 

they are working for anybody but themselves, if that individual they are 

working for falls on the floor, they are not allowed to pick them up. 
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 Now, you know, honestly, you know, if the family, this individual, if 

you are contracting with an individual contractor, of course, they can do 

anything, but then, if that is the way much of the care is being delivered, 

this kind of care is being delivered, there is no way to get, you know, we 

do need this regulation, that is, we need standards to certify these people, 

which in itself could incentivize people to come in, but right now, even 

these organizations who, by the way, then kind of double what it costs to 

the family, the organizations that might hire these individuals, and 

provide service to the family, or providing replacement if someone is 

sick, and bond them, and that kind of thing, typically, they will charge 

$18 an hour. So, you haven’t really helped the worker or the family very 

much by doing that, but again, under those regulations, those 

organizations can’t let their workers actually touch the patient and do 

anything. 

 And they presumably claim to give some training, but in most cases, 

what we have found is they hire these people. They give them a book, 

say if you can’t find an answer in the book, call the nurse who is on call 

for you, and they will try to help out, and so, we are neither giving 

quality nor are we giving access, and yet, a major, major part of the kind 

of care is just what your family needed, and it usually happens in a 

trigger event, like a hospitalization, where at the end of that 

hospitalization, the doctor says either you will have to be able to provide 

this care at home, or she is going to have to go to a nursing home. And 

then, the social worker comes in, and says well, we have got a short list 

of people that have done this kind of work in the past, and we will see if 

we can get them in the next 24 hours. And the family, under that 

scenario, is happy just to have a warm body that will show up. They 

don’t ask about training, and unless it just happens coincidentally, that 

would be someone who is a retired nurse, or used to be a CNA in a 

nursing home, they won’t get any training. And if someone has done this 

work long enough, they think they are trained, even if they are doing all 

the wrong things. 

 So, to create this workforce, going forward for the long-term care 

needs in home that we have, we have got to set some standards, and in 

doing so, we also could develop a national organization that might 

actually create some benefits for these workers as well. 

 MR. DEAL. My time has expired, even though my questions have 

not. Mr. Pallone, you are next. 

 MR. PALLONE. Thank you, Mr. Chairman. I wanted to ask Ms. 

Inagi. Inagi? 

 MS. INAGI. Yes. 

 MR. PALLONE. Okay. But again, I guess if anybody else wants to 

comment, please feel free. 
114

 First of all, today, we heard about a number of problems with direct 

care workers: low wages, lack of benefits, coupled with demanding work 

that is not always dependable, leads to high turnover. Basically, I just 

wanted you to tell me what is the effect of such a high turnover rate on 

the quality of care received by beneficiaries, and then, what 

recommendations do you have to increase worker retention in these 

areas, and reduce the high turnover rate? 

 MS. INAGI. Well, I spoke a little bit to this issue earlier. High 

turnover rates have every impact on quality care. If you think about 

Chairman Deal and his situation, or my own situation, with my sister in 

providing her care, if I can’t rely on the person who I have hired to come 

in, and come in consistently, that is a strain on not only the family, but 

the client, who needs that stress the least in their lives. 

 I think that when you are talking about improving turnover, it comes 

back to the issue of what are we doing to improve the workforce as a 

whole, with regard to wages and benefits and access to training and 

mobility within the training program, so that people aren’t coming into a 

job where, perhaps, they are making a little bit more than they can make 

at a hamburger stand, or maybe making a little bit more, but they are 

coming into an opportunity to be trained and move up through, perhaps 

coming from a caregiver to a certified nursing assistant, and then 

onward, and taking their training through the continuum of care in other 

services. 

 MR. PALLONE. I had--I wanted--did you want to say something? 

No. Okay. I just wanted to mention two possible, you know, programs 

or changes that, you know, might be of benefit, so if I could. 

 One is from my district. In my district, there is the Visiting Nurse’s 

Association of Central Jersey, the VNA as it is called, recently 

implemented a Tele-Health program that nurses can use to monitor 

patients, and this helps reduce the demand on the VNA to provide care, 

and keeps the patients actively involved in their care. 

 Would any of you know about a similar model being adopted, and 

the pros and cons of such a model? I mean, the idea, from what I 

understand, is that the patient gets a computer, and they basically can 

interact with their caregiver, and it is like a videoconference, essentially. 

 MR. CONNER. The one program that we have at the Red Cross, we 

are affiliated with Lifeline. 

 MR. PALLONE. Yeah, I wanted to mention, you talked in the 

beginning about your babysitting course, and my eldest daughter took 

that course, and now she goes around and, well, she was 11 at the time 

getting babysitting jobs, because she is certified by you guys. 

 MR. CONNER. She should be able to command a higher wage, too, 

with that. That is a real plus. 
115

 MR. PALLONE. At any rate-- 

 MR. CONNER. And Chairman Deal, you are exactly the kind of 

person, you and your wife, that we would encourage to take our family 

caregiving program. It is excellent, and teaches you all the skills you 

need. One program that we are very involved in, and very proud of, is 

with an organization called Lifeline, and it is somewhat similar to what 

you are talking about. You may have seen these services where you 

wear around your neck, or around your wrist, a button, and it is 

connected to a call center, this one happens to be in Massachusetts, and it 

is a fantastic system. If you fall, or something happens, you hit that 

button, you are immediately connected. They have, in their computer, all 

the neighbors. They have all the family members, et cetera. They can 

access 911 for you, so it is not exactly the visiting nurses, but it is one 

way to be very connected, and we really like that program. 

 DR. WRIGHT. I think these programs are being developed pretty 

quickly. I hear every time I go to a professional meeting, I hear of a few 

others, and they are particularly addressed at those healthcare needs of 

specific types of, especially monitoring diabetes, or monitoring certain 

diseases. At this point in development, it doesn’t address the basic 

caregiving that we are talking about, but in terms of monitoring the 

health status of, I think, they are very promising programs. 

 MR. PALLONE. I was just going to ask Ms. Inagi again, the 

Washington State, there is this, in your home State, there is this 

Washington State public authority with caregiver workers. They have 

developed, under the State Medicaid program, an innovative partnership 

with caregivers for the consumer-directed care, under Medicaid, that has 

this public authority that acts as a co-employer with the beneficiary and 

helps them manage. Could you just talk about that a little bit? I know I 

am out of time, but maybe just quickly. 

 MS. INAGI. Thank you for that question. The public authority acts 

as a co-employer, so that caregivers across the State have the ability to 

negotiate for higher wages and benefits, and other training standards, and 

other standards in caregiving, like training. It gives the opportunity for 

consumers themselves to have a voice at the table. It has served to 

improve the standards of care, by making sure that caregivers go through 

background checks, that certain standards are met, that it has served to 

improve the quality of care for consumers by developing a referral 

system that previously did not exist, and is intended to be online and 

statewide. 

 And I think that the most important contribution that we have been 

able to see through this development is the beginning of this 

professionalized caregiver workforce. Again, caregivers started off at 

just about $8.62 an hour, just a few years ago, with absolutely no benefits 
116

whatsoever, no vacation time, no sick time, so if they were sick 

themselves, they had to go to work anyway, and put the client at risk. 

And now, through the public authority, workers have been able to, in the 

service of improving care for their clients, negotiate for wages and 

benefits. They now have healthcare. They even have dental and vision, 

and are working towards better standards and training as we speak. 

 MR. PALLONE. Thank you. 

 MR. DEAL. Mr. Allen, you are recognized for questions. 

 MR. ALLEN. Thank you, Mr. Chairman. 

 This doesn’t want to come over toward me. You have trained it, 

Frank. 

 Thank you all for being here today. I just wanted to make a couple 

of comments, and then ask a question. I think that you people may have 

covered this before, but when you look at people, I think, too many 

people think Medicare is going to take care of their long-term care, but in 

this country, that is clearly not true. About half of the revenues from 

nursing homes comes from Medicaid, and then about a quarter was paid 

out of pocket, 12 percent only by Medicare, and only about 10 percent 

was covered by private insurance. So, I think the issues, the broad issues 

that we are trying to figure out here are where the burden of long-term 

care and planning should fall, and whether Medicaid, which was 

designed to be a long-term safety net for the poor, should really assume 

so much of the cost. 

 We have a new House Long-Term Care Caucus dedicated to 

working in this area, and that is going to be chaired by Representative 

Shelley Moore Capito, Earl Pomeroy, Nancy Johnson, and me. And we 

are going to be working in this area as much as we can to try to develop 

some ideas. I appreciate all that you have been, that you said today. I 

thought, Ms. Inagi, I would like a couple of questions. 

 My experience goes back to my father, who spent the last 2 years of 

his life, or most of the last 2 years of his life, were in a nursing home, so 

it wasn’t a care at home situation that you have been talking about in 

Washington, but it was a nursing home, and I was struck by the staffing 

issues they had. They wound up, for reasons I am not quite sure, 

basically hiring people from agencies, to whom they had to pay a great 

deal of money, or at least they had to pay a great deal of money to the 

agency. Those workers were better paid than they could afford to pay 

their own ongoing staff. 

 And I don’t know, it seems to me you have talked at some length 

about this whole issue of improving wages and benefits for the staff in 

nursing homes, and I think you have dealt with this before, but the 

biggest barriers, one of them is funding. Do you have any suggestions, 

Ms. Inagi, or anyone else, for how to structure the funding, so that 
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ordinary staff for the nursing homes actually get compensated at a level 

at which the nursing homes can keep them? 

 MS. INAGI. Thank you for asking that question. We are doing a lot 

of work this year, and hopefully in the years to come, with good, 

responsible nursing home owners who are grappling with just those 

questions. Some private pay nursing homes can afford to pay their 

workers better wages and better benefits, just because of the fact that 

they are better resourced, while the nursing homes who provide the lion’s 

share of Medicaid services really can’t afford those same wages and 

benefits, and at the same time, they are struggling with buildings that are 

in disrepair, or that need improvement and modernization. 

 Funding is the key. We are working in the States to improve 

funding, and make the case in our State that we need to look at our 

vendor rates, and think more smartly about how we do our Medicaid 

reimbursement systems. Those are all incredibly challenging situations 

that we are involved with, and I would love to continue to work with 

your caucus, the Long-Term Care Caucus, as we delve through some of 

these very issues. We are working very closely with the Governor, as 

well as, as we like to call them, the techies at the different nursing 

homes, to try and grapple with those questions. 

 MR. ALLEN. If I could just add this. Part of this is a State problem. 

Part of this is a Federal problem, but at both the State and Federal level, 

the same thing is happening. As Medicaid costs go up at a rapid rate, 

and the feeling is we can’t deal with them, we here in the Congress are 

considering ways to cut providers, to cut the reimbursement to providers, 

and it is almost as if we treat hospitals and nursing homes and every 

other provider the same way, and that leads to some overpayments and 

underpayments in the system. But also, at the State level, when it comes 

budget time, the urge is to cut payments to providers. It is certainly what 

has happened in my State of Maine. 

 And you are working for the State of Washington, or in Washington. 

I mean, can you sort of describe for us how much of this is a Federal 

issue, how much is a State issue, and give us some guidance on that, and 

I would ask the same question of the others who are here. 

 MS. INAGI. It is all about the Federal issues. We are all looking to 

you, and are, at this point, very fearful about those potential cuts. We 

don’t know how we will manage, but it is driving some innovation, in 

terms of our looking at programs like worker’s compensation and Social 

Security, in the sense that workers and employers both pay into a system 

that would meet the needs of long-term care for the long term, to put 

more money in where there is seemingly less money every day. 
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 These are long-term solutions, not short-term solutions, 

unfortunately. But we want more money from you. That is what it 

comes down to. 

 MR. ALLEN. Thank you. Thank you all. 

 MR. DEAL. I am going to make a further observation and a question, 

and I will extend the same time to both of you, if you would like to 

participate in discussing this further. 

 We are really talking about something that is two different levels of 

what we are talking about here. My situation is with a mother and a 

father-in-law who are both retired public schoolteachers, who are not, at 

93 and 99, not asking the Federal government or the State government 

for a penny. They have done it on their own, with the help of their 

family, and we work at counter purposes here sometimes. If we ratchet 

up the reimbursement levels, as Ms. Inagi would like for us to do, and 

that is certainly a laudable and understandable position for the worker, if 

we ratchet it up from the Government side, of requiring training and 

certification, we ratchet up at the same time the reimbursements that 

people are having to pay for those services. 

 If we do that, we create a disincentive for families like ours, and 

many, many others across the country, to try to do it themselves, and not 

make their parents a burden on the State or the Federal government. But 

because there are limited resources, they can only do so much, and they 

can only pay so much, and then, they are forced into the choice of saying 

okay, well, we will just go ahead and make sure that we make mom or 

dad Medicaid eligible, and we won’t worry about the cost, because the 

Government is going to have to pick it up anyway. That is the dilemma 

that many families across this country are in. They want to keep their 

families at home, in a home setting. They want to be able to do it, and 

yet, they are caught in this conflict. 

 Now, my question is this. As we in the previous panel talked about 

trying to incentivize private systems, whether it be primarily long-term 

care insurance, and some other alternatives to funding for this kind of 

care, are most long-term care insurance policies keyed to the same 

regulatory scheme that State and Federal programs are, in terms of 

certification for the individual? I have looked at some policies, and they 

all say you can pick your caregiver, et cetera, et cetera, but I have a 

feeling that most of them, if you really would look at the fine print, are 

keyed to being employees that are going to be paid through the insurance 

policy, that are keyed to the level of control that the Federal or State 

policies do. Is that right, Dr. Wright? 

 DR. WRIGHT. Mr. Deal, my understanding is that that is the way it 

started out years ago, with the first long-term care insurance policies. 
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My information is that most of the better policies now do cover these inhome care workers without the qualifying skilled nursing. 

 MR. DEAL. Which has a dangerous side to it as well, obviously. 

And that is what all of you, I think, have expressed concern about. 

 One of the things I recently learned that my State is doing through 

some programs in their State vocational technical schools is they are 

beginning to offer, in some of these, a limited training program for home 

healthcare workers, for this kind of environment. I think it is a 10 week 

course, they told me, and they do get a certification of a sort. I don’t 

know the extent of what that is. Is that similar to what you have been 

looking at? 

 DR. WRIGHT. That is similar to what we are doing, and I do think 

the community colleges around this country are a great resource for the 

kind of training, you know, the dissemination of this kind of training. 

 MR. DEAL. Well, I do, too, and what we are also dealing with is 

difficult to categorize sometimes. There are individuals who would like 

to do this kind of work, who would be willing to accept this kind of 

work. Many of them are in that retirement stage of their life, but want to 

come back, and need additional income, and are physically able to do so, 

and I think we are going to have a continuing number of those 

individuals past 65, who are going to be physically able to do a lot of 

things, and this is one area where I think they can be encouraged to 

participate. 

 So, my concluding comment is, I want to thank all of you for what 

you are doing. I think you are on the cutting edge of an issue that is 

going to mushroom substantially, and I thank you all, and would urge 

you to share with this committee any further developments, especially 

Dr. Wright, as you begin to model this program that you are talking 

about, I think it would be the kind of information that we would all like 

to have. 

 And I will stop, and Frank, I will let you, Mr. Pallone, I will give you 

time to do it. 

 MR. PALLONE. I don’t have any questions. 

 MR. DEAL. Okay. 

 MR. PALLONE. Thank you. 

 MR. DEAL. Well, thank you. I appreciate your being here, too, 

Frank. Thank you for being here. This has been a long day, I know, for 

you, longer than you probably anticipated, because of our votes, but we 

do appreciate your input, and urge you to continue to supply us with 

information in the future. 

 And with that, the hearing is adjourned. Thank you. 

 [Whereupon, at 5:45 p.m., the subcommittee was adjourned.] 
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