[House Hearing, 109 Congress]
[From the U.S. Government Printing Office]
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/
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COMMITTEE ON ENERGY AND COMMERCE
Joe Barton, Texas, Chairman
Ralph M. Hall, Texas John D. Dingell, Michigan
Michael Bilirakis, Florida Ranking Member
Vice Chairman Henry A. Waxman, California
Fred Upton, Michigan Edward J. Markey, Massachusetts
Cliff Stearns, Florida Rick Boucher, Virginia
Paul E. Gillmor, Ohio Edolphus Towns, New York
Nathan Deal, Georgia Frank Pallone, Jr., New Jersey
Ed Whitfield, Kentucky Sherrod Brown, Ohio
Charlie Norwood, Georgia Bart Gordon, Tennessee
Barbara Cubin, Wyoming Bobby L. Rush, Illinois
John Shimkus, Illinois Anna G. Eshoo, California
Heather Wilson, New Mexico Bart Stupak, Michigan
John B. Shadegg, Arizona Eliot L. Engel, New York
Charles W. "Chip" Pickering, Mississippi Albert R. Wynn, Maryland
Vice Chairman Gene Green, Texas
Vito Fossella, New York Ted Strickland, Ohio
Roy Blunt, Missouri Diana DeGette, Colorado
Steve Buyer, Indiana Lois Capps, California
George Radanovich, California Mike Doyle, Pennsylvania
Charles F. Bass, New Hampshire Tom Allen, Maine
Joseph R. Pitts, Pennsylvania Jim Davis, Florida
Mary Bono, California Jan Schakowsky, Illinois
Greg Walden, Oregon Hilda L. Solis, California
Lee Terry, Nebraska Charles A. Gonzalez, Texas
Mike Ferguson, New Jersey Jay Inslee, Washington
Mike Rogers, Michigan Tammy Baldwin, Wisconsin
C.L. "Butch" Otter, Idaho Mike Ross, Arkansas
Sue Myrick, North Carolina
John Sullivan, Oklahoma
Tim Murphy, Pennsylvania
Michael C. Burgess, Texas
Marsha Blackburn, Tennessee
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 Sherrod Brown, Ohio
Michael Bilirakis, Florida Ranking Member
Fred Upton, Michigan Henry A. Waxman, California
Paul E. Gillmor, Ohio Edolphus Towns, New York
Charlie Norwood, Georgia Frank Pallone, Jr., New Jersey
Barbara Cubin, Wyoming Bart Gordon, Tennessee
John Shimkus, Illinois Bobby L. Rush, Illinois
John B. Shadegg, Arizona Anna G. Eshoo, California
Charles W. "Chip" Pickering, Mississippi Gene Green, Texas
Steve Buyer, Indiana Ted Strickland, Ohio
Joseph R. Pitts, Pennsylvania Diana DeGette, Colorado
Mary Bono, California Lois Capps, California
Mike Ferguson, New Jersey Tom Allen, Maine
Mike Rogers, Michigan Jim Davis, Florida
Sue Myrick, North Carolina Tammy Baldwin, Wisconsin
Michael C. Burgess, Texas John D. Dingell, Michigan
Joe Barton, Texas (Ex Officio)
(Ex Officio)
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
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, 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:]
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 long-term 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 long-term 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.
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?
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.
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 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.
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.
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, 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.
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.
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
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. 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 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.
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 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. 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.
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.
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. 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. 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.
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.
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.
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 "spend-down") 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.
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.
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 long-term 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 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 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 long-term 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.
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 $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 long-term 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 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 Co-operation 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-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. 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.
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 long-term 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). 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."
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
long-term 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.
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 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.
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:
Broadening the conversation on long-term care to recognize the continuum
of health care services Americans will need throughout their lives;
The importance of moving forward to implement the newly expanded long-
term care partnerships in a timely manner;
The innovative strategies AHIP members are using to contain costs and
improve quality in Medicaid;
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
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 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
21st-century 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. 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.
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 study, 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 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. 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.
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.
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. 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.
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, 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
community-based, 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 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 long-term 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.
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 $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 long-term 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, home-delivered 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 non-forfeiture
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 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 study, 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 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 long-term 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 above-the-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 number of individuals purchasing long-term
care insurance by 14 percent to 24 percent. 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.
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-for-
service 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.
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 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, long-term 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, 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
middle-income 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 care.
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. 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 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. 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 working-age 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 long-term 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. 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 long-term 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.
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 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.
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 Long-
Term 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
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 moderate-
income 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 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/long-
term 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.
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 long-term 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:]
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 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 long-term 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.
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 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 long-term 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 long-
term 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
pre-existing 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 p
urchasers 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 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
community-based 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
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 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 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.
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.
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.
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.
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 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 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--
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 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.
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, 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 community-based 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--
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 community-based
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 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
long-term 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.
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.
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 long-term 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 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.
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 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 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.
[The information follows:]
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 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 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.
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 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 self-identify. 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:]
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 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
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-a-year.
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
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
Self-identification by Caregivers
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.
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 long-term 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 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 long-term 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 in-home 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 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 home-centered system. We will
need both:
An improved Medicare/Medicaid system of long-term care system for the
most chronically-ill, low-income seniors
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:
Review federal (and all state) home health regulations and de-regulate
in-home caregiving; i.e., remove Personal Caregiving from home health
regulations.
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.
Develop a comprehensive public/private delivery system of personal
in-home 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 in-home caregiving (personal care) from the
home health regulations"except when in-home care is prescribed
by a physician as a medical necessity (skilled nursing). Right
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 in-home 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 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,
professionally-trained 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 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
Long-term Care.
With regulatory barriers removed and with a program for
providing professionally-trained 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 & Faith-based Model to Help Older Adults
Stay at Home For Life")
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 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 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.
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.
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 low-income 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.
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.
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.
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.
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 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 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.
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. My information is that most of the better
policies now do cover these in-home 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.]