<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:57738.wais]
LONG-TERM CARE INSURANCE FOR FEDERAL EMPLOYEES
=======================================================================
HEARINGS
before the
SUBCOMMITTEE ON THE CIVIL SERVICE
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
MARCH 18, APRIL 8, AND JUNE 14, 1999
__________
Serial No. 106-20
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
57-738 CC WASHINGTON : 1999
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
JOHN T. DOOLITTLE, California (Independent)
HELEN CHENOWETH, Idaho
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Carla J. Martin, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on the Civil Service
JOE SCARBOROUGH, Florida, Chairman
ASA HUTCHINSON, Arkansas ELIJAH E. CUMMINGS, Maryland
CONSTANCE A. MORELLA, Maryland ELEANOR HOLMES NORTON, Washington,
JOHN L. MICA, Florida DC
DAN MILLER, Florida THOMAS H. ALLEN, Maine
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
George Nesterczuk, Staff Director
Edward Lynch, Senior Research Director
John Cardarelli, Clerk
Tania Shand, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on:
March 18, 1999............................................... 1
April 8, 1999................................................ 135
June 14, 1999................................................ 235
Statement of:
Carr, William J., Deputy Director, Force Management Policy,
Department of Defense; Pat Freeman, associate executive
director, John Knox Village Medical Center, American Health
Care Association; and Kenneth A. Grubb, president, NYLife
Administration Corp., Health Insurance Association of
America.................................................... 185
Carver, David M., district manager for benefits planning and
analysis, AT&T; Kenneth A. Grubb, president, NYLife
Administration Group/New York Life Insurance Co., Health
Insurance Association of America; and David E. Cavanaugh,
manager of business development and special projects,
Wright & Co................................................ 323
Croach, Marilyn Cobb, area representative, National Military
Family Association; SMSGT Larry Hyland, USAF retired,
national director, the Retired Enlisted Association; and
COL Klyne Nowlin, USAF retired, State president, the
Retired Officers Association............................... 147
Kramer, Judy, Silver Spring, MD.............................. 14
Lachance, Janice, Director, U.S. Office of Personnel
Management, accompanied by William E. Flynn, III, Associate
Director, Retirement and Insurance Services, U.S. Office of
Personnel Management....................................... 34
Martin, David S., American Council of Life Insurance; Kenneth
A. Grubb, New York Life Insurance Co.; and David H.
Brenerman, Health Insurance Association of America......... 70
Yocum, Charles E., senior group patent counsel, Black &
Decker, resident of Howard County, MD; Georges C. Benjamin,
secretary, Maryland Department of Health and Mental
Hygiene; and Frank G. Atwater, president, National
Association of Retired Federal Employees................... 244
Letters, statements, etc., submitted for the record by:
Atwater, Frank G., president, National Association of Retired
Federal Employees:
Letter dated June 18, 1999............................... 318
Prepared statement of.................................... 253
Benjamin, Georges C., secretary, Maryland Department of
Health and Mental Hygiene:
Information concerning long-term care expenditures....... 315
Information concerning requests for proposals............ 271
Prepared statement of.................................... 248
Brenerman, David H., Health Insurance Association of America,
prepared statement of...................................... 95
Carr, William J., Deputy Director, Force Management Policy,
Department of Defense, prepared statement of............... 186
Carver, David M., district manager for benefits planning and
analysis, AT&T, prepared statement of...................... 327
Cavanaugh, David E., manager of business development and
special projects, Wright & Co., prepared statement of...... 365
Croach, Marilyn Cobb, area representative, National Military
Family Association, prepared statement of.................. 150
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statements of........ 9, 142, 240
Freeman, Pat, associate executive director, John Knox Village
Medical Center, American Health Care Association, prepared
statement of............................................... 194
Grubb, Kenneth A., New York Life Insurance Co., prepared
statements of....................................... 87, 202, 340
Hyland, SMSGT Larry, USAF retired, national director, the
Retired Enlisted Association, prepared statement of........ 158
Kramer, Judy, Silver Spring, MD, prepared statement of....... 17
Lachance, Janice, Director, U.S. Office of Personnel
Management, prepared statement of.......................... 37
Martin, David S., American Council of Life Insurance,
prepared statement of...................................... 73
Nowlin, COL Klyne, USAF retired, State president, the Retired
Officers Association:
Information concerning long-term care policies........... 177
Prepared statement of.................................... 168
Scarborough, Hon. Joe, a Representative in Congress from the
State of Florida:
Document from Fortis Insurance Co........................ 69
Prepared statements of............................. 3, 138, 237
LONG-TERM CARE INSURANCE FOR FEDERAL EMPLOYEES
----------
THURSDAY, MARCH 18, 1999
House of Representatives,
Subcommittee on the Civil Service,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:20 a.m., in
room 2203, Rayburn House Office Building, Hon. Joe Scarborough
(chairman of the subcommittee) presiding.
Present: Representatives Scarborough, Morella, Mica,
Cummings, Norton, and Allen.
Staff present: George Nesterczuk, staff director; Edward
Lynch, senior research director; Garry Ewing, legal counsel;
John Cardarelli, clerk; Tania Shand, minority professional
staff member, and Jean Gosa, minority staff assistant.
Mr. Scarborough. I would like to call this meeting of the
House Civil Service Subcommittee to order.
Ladies and gentlemen, this morning we are going to consider
legislative proposals to establish a program under which
Federal employees may purchase long-term care insurance.
Although our immediate focus is on the Federal work force, the
long-term care issue has more far-reaching implications.
As one of the Nation's largest employers, the decisions we
make here will influence employers across the country.
Employer-based plans represent the fastest growing market for
long-term care insurance. By offering this benefit to
individuals in their working years, we can help encourage the
purchase of this product at younger ages when premiums are
obviously lower and more affordable.
We need some common-sense ideas to help this Nation solve a
growing problem in financing the cost of long-term care. The
fact is that most Americans now cannot afford to pay the
average cost of $41,000 per year for a nursing home stay or the
$98 average per visit fee of a registered home care nurse.
While many believe that Medicare will provide for their
long-term care needs, they quickly learn that Medicare simply
is not enough to help out. For two out of three Americans
needing long-term care today, that help comes from the Medicaid
program, but only after the individual is impoverished. Faced
with a rapidly aging population, Medicaid will not be able to
withstand the demand for long-term care services in the near
future.
As we address this problem for the segment of the
population in our jurisdiction--current and retired Federal
employees, the administration, the Congress--have already
agreed on some basic principles involving long-term care. Both
bills before the committee will rely on private insurance--
privately managed and privately invested--to provide the
financing for long-term care. Both bills also call for
employees to fund the cost of the premiums.
These are very important principles, and the fact that we
agree on them brings us much closer to a compromise because
these agreements effectively eliminate the budgetary
considerations on this issue from the budget. What remains for
us to resolve is to how best to ensure that Federal employees
are afforded an adequate variety of planned choices at prices
they can afford.
Achieving maximum participation will require affordable
premiums and an ability to satisfy the widely varying needs of
a diverse population. Ultimately, the success of our collective
efforts will be measured by the number of participants that
decide to become engaged in this Federal long-term care
insurance program.
I am a firm believer in the strength of competition to meet
the needs of a diverse market. I don't believe that one-size-
fits-all options work. Looking at the administration's
proposal, I am concerned about a comparative lack of
competition, limited choice, and seemingly limited capacity to
serve our large Federal population.
As most of you know, we have a very diverse work force--1.5
million white collar employees and 250,000 blue collar workers.
Our employees range from highly paid executives and
professionals to more modestly compensated clerical and
administrative support personnel. They are scattered throughout
the country and across the world, in remote rural areas as well
as large metropolitan centers where a higher cost of living is
an important consideration. The average age is in the late-
40's, and they are single, married, divorced, widowed, some
with children, some without. Add to that 2,300,000 annuitants
and survivors at an average age of 74 and it becomes obvious
that their needs for financial planning and long-term security
are going to be vastly different.
Variety of choice in long-term care plans is the optimum
way, I believe, to ensure broad-based participation. I also
believe that providing variety of choice is also the best way
to guarantee value for the premium that each one pays.
Long-term care insurance is an important part of planning
for the future. As American's step into the 21st century,
living longer than ever before, this type of coverage can
safeguard hard-earned savings and assets.
The Federal Government can set an example by encouraging
its employees to consider this important benefit and to provide
as wide a range of options as they might seek.
I look forward to hearing from our witnesses as we discuss
these approaches in providing long-term health care insurance
to our work force, and I am sure it is going to be very
educational for all of us.
The ranking member is not here presently, but I would like
to yield to Ms. Norton for any comments she might have.
[The prepared statement of Hon. Joe Scarborough follows:]
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Ms. Norton. I thank you, Mr. Chairman.
I want to both thank and commend Chairman Joe Scarborough
for his work on long-term care, for bringing this problem
forward early in this session of Congress, and for continuing
the work this subcommittee began on this very important and
difficult issue in the last Congress.
The large number of bills filed by Republicans and
Democrats, and by the administration, is an indication of the
need and concern that should encourage us to pursue a
bipartisan bill this session. It is entirely appropriate for
the Federal employer to take the lead for employers everywhere.
It is a workplace well-suited to help the country develop a
long-term care model.
These are unchartered waters, except for the much admired
Federal Employees Health Benefits Program. Its genius has been,
its free market base, within a refereed system. That has made
competition work to hold costs far better than the unrefereed
costly universe of health care which often spins out of
control, in which many Americans are forced to fend for
themselves.
Federal employees and their relatives are going to have to
pay for the long-term care premium without a Government
subsidy. This does not mean that their Federal employee should
throw them to the wolves. It won't do much good to create a
long-term care program fraught with the cost problems of health
care in America today.
Both Democrats and Republicans believe that Government
cannot, and should not, control costs. The question for
Congress is, what will it take to produce the kind of
competitive environment that will allow the marketplace to
develop affordable, comprehensive varieties of long-term care
that employees and families can tailor to their needs.
This is a very tall order, but I am convinced that there is
enough goodwill, desire, and intelligence, on both sides of the
aisle, to do the job. Let's go to Hershey and figure this one
out. [Laughter.]
Mr. Scarborough. Well, can we figure it out without going
to Hershey?
Thank you for your words, and I would like to now welcome
Mrs. Connie Morella for any opening statements she may have.
Mrs. Morella. Thank you, Mr. Chairman.
Mr. Scarborough. It is good to have you here.
Mrs. Morella. Boy, what timing; I came just in time to,
also, have my constituent be--[laughter]--one of the people on
the panel.
A lot of talk in Washington these days is about Social
Security and Medicare, and the financial crises that these
problems face in the next decade. And as economic forecasters
look in their crystal balls, they foresee one more system for
seniors that teeters on the brink of bankruptcy, and that is
Medicaid. And now, more than ever, we must take a long, hard
look at that. But, also, with the aging of our population and
greater life expectancies, we need to, also, plan for the
financing of long-term care of older Americans, and that is why
I am glad that you had this hearing.
In 1995, Federal and State spending for nursing home care,
largely through the Medicaid program, amounted to $34 billion,
and an additional $21 billion was spent for home care. With the
average cost of nursing home care in Maryland averaging $50,000
a year--and I think that is pretty modest--and as high as
$91,000 in some areas, long-term care can have a devastating
financial impact on families, impoverishing them before a
spouse, a parent, a grandparent becomes eligible for Medicaid.
Situations in which long-term care costs force even the middle
class into the Medicaid safety net are typical and not
isolated. And in my State of Maryland, alone, nearly 85 percent
of nursing home residents rely on Medicaid for their long-term
health care needs.
I don't need to go into, Mr. Chairman, the statistics with
regard to the number of people that will turn 65 and how long
they are going to live, but I would like to have my entire
statement included in the record.
Mr. Scarborough. Without objection.
Mrs. Morella. Thank you.
But, however, beyond nursing homes, there is a wide range
of services available in the community to help meet long-term
care needs. Care given by family members can be supplemented by
visiting nurses, home health aides, friendly visitor programs,
home-delivered meals, and adult day care centers, respite care
for caregivers, and the litany goes on.
I sponsored in the 105th Congress a concurrent resolution,
House Concurrent Resolution 210, to call our attention to this
critical need of long-term health care financing and insurance-
based approaches to relieve the financial burden already
imposed on Medicaid. And now it is time for us to act.
We are making some strides in educating people and
advocating the purchase of private long-term care insurance
policies, but they have to be affordable, and that is why I
introduced, just a few days ago, H.R. 1111--easy to remember--
the Federal Civilian and Uniformed Services Long-Term Care
Insurance Act of 1999.
The legislation creates an innovative program to meet the
long-term care financing needs of Federal employees, Federal
annuitants, active and retired military personnel, and their
families. It was developed, this legislation, in consultation
with, and has the endorsement of, the National Association of
Retired Federal Employees, the Reserved Officers Association,
the Alzheimer's Association, a number of organizations whose
membership will directly benefit from having greater access to
affordable long-term care insurance. And, Mr. Chairman, and,
members of the committee, by so expanding the pool, we now have
about 20 million people who would be eligible.
The bill would offer participating long-term care insurers
a diversified risk pool to market a variety of policies. It
also empowers OPM, that I see here, to leverage the advantages
of a group of this size to obtain significant savings in
premiums. It also is attractive because it gives OPM authority
to enforce consumer protections and to monitor carrier
performance, with the authority to terminate if a carrier is
not performing.
H.R. 1111 gives guidance to OPM on asking insurers in their
proposals to design benefit packages, and that would allow for
care in a variety of settings, optional coverage in case of
medical necessity, and a number of other possibilities that
would be crafted.
No one likes to think of anything but a bright future, but
I think the reality is that we have got to come to grips with
offering long-term care. And I think that the Federal sector is
the way to begin, and expanding the pool makes sense.
So I, obviously, am delighted that you had this hearing set
up, Mr. Chairman, and I thank you for the opportunity of making
an opening statement.
I look forward to the rest of the hearing.
Mr. Scarborough. Thank you, Congresswoman Morella.
Now I am pleased to introduce for an opening statement the
distinguished ranking member, Elijah Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman.
Long-term care is an important priority for me, as the
ranking member of the Civil Service Subcommittee. We spent a
considerable amount of time on this issue during the 105th
Congress, holding one hearing and formally debating the merits
of the bill introduced by former Subcommittee Chairman John
Mica.
Though we failed to act on any legislation, there was a
bipartisan consensus that we would continue to work together on
this issue until we can reach agreement on a bill.
On January 6, I introduced H.R. 110, Federal Employees
Group Long-Term Care Insurance Act of 1999. My bill is one of
four elements of a comprehensive long-term care package
announced by President Clinton.
H.R. 110 would authorize the Office of Personnel Management
to purchase a policy or policies from one or more qualified
private-sector contractors to make long-term care insurance
available to Federal employees and retirees and family members
whom OPM defines as eligible at group rates. Coverage would be
paid for entirely by those who elect it.
The program would be available to Federal employees and
retirees, and their spouses, a former spouse who is entitled to
an annuity under a Federal retirement system, parents, and
parents-in-law. All participants, other than active employees,
would be fully underwritten, as is standard practice with
products of this kind. Coverage made available to individuals
would be guaranteed renewable and cannot be canceled except for
nonpayment of premium.
Though each participant would be responsible for paying the
full amount of the premiums, based on age at time of
enrollment, group rates will save an estimated 15 to 20 percent
off the cost of individual long-term care policies.
OPM will be responsible for the administrative costs of the
program which is estimated to be only $15 million over a 5-year
period. Initial year costs include developing and implementing
a program to educate employees about long-term care insurance.
The proposal would provide a substantial benefit to Federal
employees and retirees by providing access to quality long-term
care insurance products at cost-saving group premiums.
H.R. 110 has been endorsed by the National Treasury
Employees Union, the National Association of Government
Employees, and the National Association of Retired Federal
Employees. These organizations recognize the importance of the
Federal Government setting the example for private-sector
employers whose employees face the same long-term care
insurance needs. They also recognize that by further enhancing
its benefits package, the Federal Government will be better
able to attract and retain the best and brightest work force.
H.R. 110 helps to raise the public's awareness of the need
for long-term care and underscores the importance of assuming
personal responsibility and less reliance on public support for
one's long-term care needs through Medicaid.
I understand that earlier this week, my colleague from
Maryland, Connie Morella, introduced another long-term care
bill. Her proposal would add active-duty military personnel and
their family members as eligible participants. Further, it
would index benefits for inflation. It would include annuitants
in the same risk pool as active-duty Federal employees,
thereby, potentially increasing premiums for the active
employees.
I look forward to the testimony of today's witnesses and
the insight it will provide into the relative merits of the
three pending long-term care proposals.
Again, I thank you, Mr. Chairman, for placing this matter
near the top of the subcommittee's agenda. I look forward to
working closely with you and all the members of our
subcommittee to produce a consensus legislation that can be
enacted this session.
[The prepared statement of Hon. Elijah E. Cummings
follows:]
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Mr. Scarborough. Thank you, Congressman Cummings, and I
would just like to add a little to what you said regarding
military retirees.
We have obviously talked to TROA and other groups. We
certainly support the efforts of Mrs. Morella to add them in.
And, as with everything in 1999, we just have to figure out a
way to pay for it. And I am sure we can do that.
Mrs. Morella. We can, Mr. Chairman, because my bill would
not be paid for by the Federal Government.
Mr. Scarborough. Right.
Mrs. Morella. Yes; OK.
Mr. Scarborough. Thanks.
I would like to introduce Judy Kramer. Judy is a--well,
actually, Connie Morella claims her as her own. [Laughter.]
Mrs. Morella. May I?
Mr. Scarborough. She is a resident of Silver Spring, MD,
and is a private individual that has very extensive
experience--personal experience--with the intricacies of the
Medicaid system.
Mrs. Kramer's parents played by the rules. They worked hard
their entire life. They saved an awful lot of money, but were
placed in a nursing home at the age of 79. Within 2 years, they
had spent their entire life's savings of approximately about
$150,000 in order to qualify for long-term care under Medicaid.
Mrs. Kramer's husband is a Federal annuitant so,
consequently, she would be eligible for long-term care
insurance, under the terms of the bills that we are considering
here today.
As a result of her experiences, she is a consumer advocate
for long-term care reform, and I believe--as does everybody
else up here--that she has a very compelling story to tell.
As it is customary to swear in the witnesses, could you
rise and be sworn in.
[Witness sworn.]
Mr. Scarborough. If you could go ahead and testify, and I
will give you a gentle reminder that we have a 5-minute limit,
but will not have you dragged out if you go a few minutes over.
[Laughter.]
STATEMENT OF JUDY KRAMER, SILVER SPRING, MD
Ms. Kramer. Thank you.
Mr. Chairman, I appreciate the opportunity to address you
and members of the subcommittee.
I have 5 minutes to tell you about 5 years of my life; I
will try and work within those limits.
Healthy parents are both a genetic and a generational
blessing. As their children, we can then hope for long life and
the pleasure of benefiting from their accumulated wisdom and
experience. But for so many of us, when our parents' health
begins to fail, our relationship becomes one of increased
responsibility--for the quality of their lives, for their daily
activities, for their health care decisions, and for their
financial management.
The ravages of age often cause us to invade both their
privacy and their personalities, as roles reverse and we offer
them, or must impose upon them, the kind of care that they once
gave us.
My parents, Milton and Evelyn Lieberman, were solid
citizens of the middle class. My father was in the shoe
business for most of his adult life, and my mother worked as a
cashier in a bookstore. Between them, they put two children
through college, lived frugally, and managed to save a nest egg
of $150,000. My father retired in good health at the age of 62,
and my mother followed him by several months when she was 62.
For 17 years, thereafter, they lived very carefully on
Social Security and the interest from their savings. At the
ages of 79 and in failing health, both of them made the
decision to move into a nursing home so that they could receive
the care required for their maintenance and their safety. My
father had end-stage renal disease and needed frequent
dialysis. My mother suffered from the ravages of 40 years as a
diabetic.
Although they could no longer walk safely or care for
themselves, their minds were clear, and they were able to
participate in the decisionmaking process until they died 3
years later.
At the age of 52, I became their ``paper persona,''
managing their affairs and responding to expenses that quickly
devoured their nest egg. They shared a room in a nursing home
at a monthly cost of between $3,000 and $3,500 each.
Medications cost hundreds of dollars monthly for each of them.
My father's dialysis required that he be transported to a
hospital twice a week as I was working full-time helping to put
three children through college and was unable to drive him.
Private transportation bills grew to hundreds of dollars
monthly. The cost of medical supplies to manage their
incontinence grew. These were costs beyond what Medicare and
their private health insurance policy covered.
Their health needs dried up any financial security they had
been able to establish for themselves. Costs of paying for two
irrevocable funeral trusts, bringing current their advance
directives and health care durable power of attorney, and
getting help applying for Medicaid totaled more than $22,000.
Their savings lasted less than 2 years once they entered a
nursing home.
As their money disappeared, I began to drown in the
minutiae of their care--the bills, the laws, the regulations to
be understood and met.
I attempted to understand the requirements of a Medicaid
spend-down. Much of the required 3 years of financial
documentation had been lost or discarded when my brother and I
moved our parents from their tiny, cramped apartment into the
nursing home.
After months of attempting to reconstruct their past
financial lives, I applied for Medicaid on their behalf. I had
not spent down all of their resources, I was told. Certificates
of deposit, long held in trust for my brother and me, had been
set up incorrectly and were, therefore, a part of their assets.
I spent them willingly and quickly on their care.
In making a reapplication for Medicaid for both of my
parents, I was guided by an elder law attorney, and, after
another denial, the application was finally approved. My
parents, with total assets of $2,500 each, became poor on May
1, 1994. After a lifetime of saving, it had taken less than 2
years for them to become destitute.
They lived together for another year in the nursing home
before I was called upon to implement their advance directives
and remove them from life support. They died within 6 weeks of
each other.
Medicaid was not only their safety net, it was mine as
well. I could never have afforded to provide the care they
required. We all felt no shame in the spend-down of their
assets. Rather, we saw it as our obligation to the Government.
Neither my brother nor I expected or desired an inheritance. My
parents' money was to be spent on their care. We hid nothing;
we protected no revenues from scrutiny. We felt that, as
taxpayers, our parents had contributed to the system, had
supported the sustenance of others, and now it was their turn,
their need, their entitlement to be supported by the Government
and the rules they had lived by.
It is my growing understanding that Medicaid that sustained
my parents in the last 2 years of their lives will not be there
for my husband and me in the same form. My husband, a Federal
retiree, spent 27 years in Government service. We have helped 3
children complete a total of 17 years of college and graduate
studies. The debt incurred will take us years to reduce.
Based on my parents' experience, we would be interested in
long-term care insurance but cannot afford it as presently
available. Group rates might make this possible for us.
Employer contribution in the future might make this a
possibility for millions more.
The journey with my parents into their old age was a trip
none of us wanted to make. It was expensive; it was lonely; it
was frightening; it was frustrating, and it was infinitely sad.
As a writer and newspaper columnist for 5 years, I have
chosen to share these feelings with thousands of readers
seeking validation for their own experiences. They are
responding with hundreds of letters and calls asking for back
copies of my column. They are asking for my story because it is
their story.
Thank you for the opportunity to share all of our
experiences.
[The prepared statement of Ms. Kramer follows:]
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Mr. Scarborough. Thank you, Ms. Kramer, for your testimony.
You know, you are right; your story is their story for the
millions and millions of Americans who go through this. It is a
story that I know I have experienced in my family, and I am
sure everybody else has experienced something like it in their
family, too, where people play by the rules their entire life
and they work hard. I can tell you that the tragedy for me, as
a father of two young boys, the second you have children, you
are thinking all the time, ``How do I take care of them? I have
got to work hard; I have got to not only worry about getting
them through high school but, hopefully, to college and,
hopefully, leaving them something,'' if you work hard your
whole life.
Let me ask you this; you said you weren't expecting an
inheritance but, obviously, it sounds like your parents planned
for that, to give you some of that money to do the type of
things that I think, instinctively, parents want to do for
their children. What was it like for them?
You have told me what it was like for you, but what was it
like for them? Seeing that everything that they had worked for
to try to take care of their children, vanished in 2 years?
Ms. Kramer. When my parents went into a nursing home, they
asked me to manage their finances. I agreed to do that. As I
began the spend-down, they did not want to know the details.
They were busy trying to maintain themselves.
What I did not tell them was that they had set aside two
certificates of deposit--one for my brother and one for
myself--and in order to not impose a financial burden on us
because we had three kids in college at the same time. My
parents kept those certificates of deposit under my father's
Social Security number. Therefore, he paid the taxes on them.
Therefore, they were his assets. And my parents died not
knowing that that money had gone toward their care.
Mr. Scarborough. You mentioned briefly about some of the
administrative costs. I take it that you had to get an attorney
that specialized in elder care?
Ms. Kramer. I did, after the first Medicaid application
that I filled out on my own was denied.
Mr. Scarborough. What did--[laughter]--did this attorney do
it pro bono?
Ms. Kramer. No.
Mr. Scarborough. I--[laughter]--that was sort of----
Ms. Kramer. No.
Mr. Scarborough [continuing]. A leading question there,
with a smirk.
Ms. Kramer. No; it was not pro bono. [Laughter.]
Mr. Scarborough. As an attorney, I guess I can rib my
profession. [Laughter.]
What was the price tag on legal fees?
Ms. Kramer. You know, last year I threw away all of my
records, because I had kept them for 3 years, and it was just
painful to look at them. My recollection of the cost of the
attorney was around $4,000 for all of her help--with the
advance directive, with the irrevocable trust, with the durable
power of attorney for health care.
When I went to her, I told her that I had no funds to pay
her, that whatever her costs would be, they would have to come
out of what my parents had. And that was the arrangement that
we made.
Mr. Scarborough. OK.
And, again, you said you had no funds to pay her, you
were----
Ms. Kramer. I had none of my own funds available.
Mr. Scarborough. Right. At the time--and, again, the only
reason I say this is because your story is the story of so many
people. You had three children in college at the time. It
seems, again in our families, that we see time and time again
people work their whole life, and try to get their kids to
schools. Usually, if you are lucky enough to get your kids out
of school, then, unfortunately, the attention turns to the
parents.
Ms. Kramer. That is right.
Mr. Scarborough. And the stress is absolutely incredible.
I am going to give you a little more time, because I know
that you rushed through your story to get within the 5-minute
timeframe. But, could you share for the panel, for the
committee and everybody listening, what was one of the more
painful parts of the spending-down process for you?
Ms. Kramer. I felt totally responsible for the quality of
my parents' lives.
I can remember because it was around this time of year,
trying to get together the necessary information, going to the
banks with a laundry hamper full of notebooks and papers that I
had collected from my parents' file cabinet and saying, ``Can
you help me with this? I know things are missing.'' Trying to
fill out the form for Medicaid--night after night, I would get
into bed and literally lay there shaking because I knew that if
I didn't do this right, my parents were going to suffer. I felt
totally responsible for their lives. And it was very difficult
to get the information I needed.
There is no single point of entry for this kind of
information. When most of us are first presented with this
responsibility, it is in an emergency situation.
Mr. Scarborough. Right.
Ms. Kramer. My father had an emergency; he had to go to the
hospital. He had end-stage renal disease. The doctors came out,
they told me, ``He can't go home. He has to go into a nursing
home.'' That day, I took over for them. And I didn't know their
finances; I didn't know the difference between Medicare and
Medicaid. I had no idea what was involved, and I began to look
for answers.
And it is very hard to know where to turn. If you open the
Yellow Pages and look for information to help you, do you look
under ``Aging?'' Do you look under ``Seniors?'' Do you look
under ``Medicare?'' Do you look under ``Medicaid?'' Do you look
under ``County Government?'' ``Federal Government?'' It is a
maze to wade through.
Mr. Scarborough. What strikes me, from what you have just
said, is that you appear to be very educated, a journalist, and
obviously know your way around things and subjects. And if this
caused you to lie on your bed and shake, what in the world does
a less-educated person, who doesn't necessarily know where to
go and look, do?
Ms. Kramer. I agree.
Mr. Scarborough. OK. And, you know, if this causes you to
collapse and shake on your bed, then what about those that
aren't as equipped to handle this situation? It is frightening.
What happens, not only to them and their families, but what
happens to their parents? It is very frightening.
Ms. Kramer. When you go through this process, you can't
help but spend those nights also thinking, ``If this is for
them, what is for me?''
Mr. Scarborough. Right.
Obviously, with an aging population and the demographics
the way they are, your story I think magnifies what is going to
be happening in the next 10-15 years when baby-boomers start to
retire.
Ms. Kramer. There is one other thing I would like to--one
other point I would like to make.
When my parents went into a nursing home, the first year
they were there, they were there as private pay patients. Once
they applied for Medicaid and were accepted, I have to tell you
that their care never changed. The services never changed. The
level of attention they received never changed. I don't know
whether that is a quality of the nursing home they were in or
it is a quality, in general, but I felt that they had paid
their dues, and that they were receiving the services that they
needed, and that it was done fairly to them.
Mr. Scarborough. Well that is great news, in that instance.
Mr. Cummings.
Mr. Cummings. Thank you very much.
First of all, I want to thank you, Ms. Kramer, for being
with us today and sharing your story. I think you make it
abundantly clear that we need to do something, and I am sure
all the members of our committee are committed to doing that.
And what we constantly try to do up here and on the Hill, is to
make sure that we are effective.
In other words, it is wonderful for you to come and share
your testimony with us, but if we don't do something, then you
have taken a day off of your valuable time and shared your
thoughts and shared your feelings and your experiences with
us--but as I have said, say, in meetings in my office--is that
if we are still here 2 years talking about the same thing and
haven't done anything, then I think that it is very, very, very
sad. Because in the meantime, people will have gone through the
same things that you have gone through. And to that end of
effectiveness, I want to just ask you a few questions.
When you think about the things that--I take it that you
had an opportunity to kind of familiarize yourself with the
proposals that we put forth. Have you had an opportunity----
Ms. Kramer. I have read two of them, once.
Mr. Cummings. OK; all right. Are there particular things
that--I mean based upon your experiences, are there certain
things that you would look for in a long-term care policy--I
mean, that you would like to see in one?
Ms. Kramer. Let me tell you, I have discussed this with my
husband at length. Yes, there are two things that I would like
to see--two things that would make it possible for us to
consider purchasing long-term care insurance, not necessarily
being able to buy it. One is a group rate reduction of premiums
and the other is employer contribution.
I am not even sure at this point, given our financial
obligations in terms of paying our debts for our childrens
college educations, that we could afford long-term care
insurance without an employer contribution.
It is something that my husband and I have wrestled with,
trying to determine what our priority is. You know, what you
said was very moving. As soon as you have children, your
children are your priority. You don't want to have to become
their priority. And that is the point at which we are stuck
right now. We don't want to become their priority when we get
old, in the way that my parents and managing their finances
became my priority. But right now, we can't afford long-term
care insurance, as we understand it and as we have explored it.
Mr. Cummings. One of the----
Ms. Kramer. So that is what I would be looking for, and
that is what I was looking for when I read the bills that I was
sent.
Mr. Cummings. When you were--so I take it that there was
a--did there come a time when you, when all of these series of
things began to happen with your parents, that you looked into
long-term care insurance? I mean you just said----
Ms. Kramer. It wasn't on my radar screen. I didn't know--
I'll be honest with you--I didn't know it existed. I had not
heard of it, and I didn't know it existed. I didn't know the
possibility existed.
Mr. Cummings. One of the things that my proposal does is
that it gives OPM oversight, and it allows them to limit the
companies so that we could get possibly the best group rate--
because I think you make a very good point. I think what we--it
is one thing to have it, to have the insurance available. It is
another thing to be able to afford it. And if you can't afford
it, you might as well not have it. I mean does that make sense?
Ms. Kramer. It does. One of the things my husband and I
discussed is that we have taken advantage of the Federal
Employees Health Benefits policy over the years, and we have
particularly appreciated the choices that we had, because, at
different times in our life, we had different needs.
There was a time--we have a child with a disability--there
was a time when we selected our insurance policy from those
that were available, based on the coverage for her need. When
that need lessened, we changed policies to one that would
benefit more of us and our family in other ways.
So my feeling, based on that experience, is that, as you
said, different families have different needs, and the more
opportunity to tailor a long-term care policy to your desire,
to your need, the better, as far as I am concerned.
Mr. Cummings. You are a writer?
Ms. Kramer. Yes, I am.
Mr. Cummings. And is this your--what kind of things do you
write about?
Ms. Kramer. I began writing for the Gazette newspapers 5
years ago because I wrote, for myself, an article about my
father. And I looked at that and said, ``I cannot be the only
one who is going through this.'' So, I invested in eight
stamps, and I sent the article that I had written to eight
local newspapers.
The Gazette picked up on it, published it, and received
feedback that caused them to invite me to continue writing. I
had no idea when I began writing in 1993 that I was going to
document this experience with my parents.
What I wrote about in that first article was when my father
moved into the nursing home--how I felt, how he felt. I began
to just write articles about what was happening to them and
what was happening to me. And the response was overwhelming,
both to the Gazette and to me.
I ended up being asked to give a series of dialogs at a
local hospital where I would just meet with people who were
going through this experience, and we would trade success
stories and share experiences and talk about strategies.
So, you know--I know that when people go through this, when
families go through this, they go through it in isolation. They
don't talk about their finances, generally. They don't share
the difficulties of dealing with parents with whom you do, or
do not, get along for whom you are responsible. And so I found,
through the articles, that there is a tremendous market for
sharing this experience, because it is lonely. It is very
lonely, and it is also very painful.
Mr. Cummings. I just have a few more questions.
You know, one of the things that we run into now with
health insurance is that you get to a point where there is a
dispute as to what is covered--and I am sure you know this; you
may have even written about it. And folks are--the insurance
company says one thing; the patient needs another thing.
And as I listened to you, I couldn't help but think about
something like, in this instance, I imagine we might come up
with quite a few disputes, because of costs. I mean the cost of
taking care of--I mean when you told me that $150,000 had been
exhausted in 2 years, I think you said?
Ms. Kramer. Less than 2 years.
Mr. Cummings. Less than 2 years.
Ms. Kramer. Yes.
Mr. Cummings. And then the $3,000 plus, for the nursing
home room. That is a lot of money.
Ms. Kramer. That was per month, per person, so it was
really $7,000 per month.
Mr. Cummings. $7,000 per month?
Ms. Kramer. Yes.
Mr. Cummings. And so I can just imagine insurance companies
having some kind of--I mean saying, ``Well, maybe we don't want
to cover that.'' I mean do you--have you addressed that issue
in your articles at all?
Ms. Kramer. The articles that I--I have no expertise in
this.
Mr. Cummings. OK.
Ms. Kramer. Yes.
Mr. Cummings. I am just----
Ms. Kramer. No, No. I am just saying I have no expertise in
this. The articles I write don't deal with ``how to.'' They
deal with what it feels like to go through that process.
So if you are asking me if I had experiences like that with
my parents about costs that were not met, I didn't.
Mr. Cummings. OK. No, I am just going to the point where,
if the insurance was available, if you had insurance, and I was
just concerned because the bills. That is one of the key
elements that we have to deal with in the legislation, because
we can't see everything, but we certainly--I think it is kind
of reasonable for us to foresee that. The fact that we, even if
you--let's assume you are able to afford, you have it, and then
there comes a point in time where you have to use it, and the
disputes arise.
Ms. Kramer. Let me give you an example of just how
confusing it can be. When I made application for Medicaid for
my parents, I wanted to know whether I could ask to be allowed
to take out money for their--to continue their Blue Cross/Blue
Shield coverage, their private insurance coverage, which they
had carried all their lives.
I asked the nursing home; they weren't sure. I asked the
attorney; she wasn't sure. I asked the county; they weren't
sure. I could not get anyone to clarify for me whether or not
it was reasonable to be allowed to continue to pay the $97, or
whatever it was, for their health insurance.
Finally, I called the financial director of the nursing
home back and I said, ``I can't get an answer for this. Please,
help me.'' And her answer--which I will not forget, was,
``Well, it can't hurt, and it might help.'' So when I made the
application for Medicaid, I asked to be allowed to use, from my
parents' Social Security, money for their private health
insurance, and that was granted.
The point of what I am saying is that there was nobody to
tell me. There was nobody to advise me. There was nobody that
knew, that I could find. And that is just a tiny, tiny part of
the frustration of trying to understand what is available, what
I am supposed to do, and what they were supposed to get.
Mr. Cummings. Thank you very much.
Ms. Kramer. You are welcome.
Mr. Scarborough. Mrs. Morella.
Mrs. Morella. Thank you.
Thank you, Mrs. Kramer, for being here and testifying.
In response to Mr. Cummings comment, the article appears in
probably like 26 newspapers, because the Gazette goes into
every community in Montgomery County and----
Ms. Kramer. I think they have a circulation of something
like 450,000.
Mrs. Morella. It is incredible.
And your articles are great. They are very sympathetic,
empathetic, evocative, and everybody can kind of identify with
them. I remember Browning's poem that you all know. ``Grow old
along with me. The best is yet to be. The last of life for
which the first was made.'' But for many people, that isn't the
case.
And I can empathize with what you say because my mother
died at age 96. But when she was 95, she had to go into the
nursing home. We had cared for her at home for well over 2
years. It finally reached the point where nobody could even
handle her. And we paid $200 a day, a day. The other nursing
homes that we looked at were only about a $50 difference a day,
and so we vied for what we thought would be giving the most
attentive service. Well, obviously, that means that if you
don't have Medicaid, you are going to be straining the
resources, not only of the person, but of the children. And
this is what we were able to assume for that period of time.
But I know she wasn't cognizant of what was really going on.
And if she were, she would have been so heartbroken, because
she was one of those hard-working people who wanted to save for
her children. Her children were her life.
And that is the kind of thing brought out in our
questioning--and our chairman mentioned it, too--is that people
in that situation lose their dignity as well as their
independence by virtue of not being able to give anything to
their children if, in fact, their resources are going to be
used for that. The children, in turn, have their own children
in college, have other fact qualities of life that are
imperative that they save for, so it really is a situation
where nobody wins. And in the society where the greatest
numbers, in terms of the percentage increase of age, is 85 and
over, then we just must take note of this.
With the bills that we have, then, in terms of long-term
care, I think it is availability--people don't know they exist
because we really haven't brought them out on the radar
screen--and affordability and the kinds of services that they
would offer. So truth in insurance is important but, in
addition to that, it has to be affordable.
If, from what you know, you could have a premium that was
about 20-25 percent less than what you saw, under a group rate,
would you be interested in it?
Ms. Kramer. That is hard for me to say because there is so
much about long-term care insurance I don't yet understand, and
I will give you one of my greatest fears.
What happens when one spouse dies and the other--or one
spouse requires nursing home care and the other remains in the
community? You know, what kind of assets--I understand, and I
have not read it, that Senator Mikulski had legislation that
allowed the community spouse to retain $65,000. I don't know
what that means. When I think of everything, in terms of
myself, that would mean selling my house. Where would I live,
if I had to do that?
I have talked with my husband, endlessly, about this. We
have really tried to understand it. I don't know at what
percentage you would----
Mrs. Morella. Now, you are talking about Medicaid and
spousal impoverishment.
Ms. Kramer. Yes, I am.
Mrs. Morella. And I support Mikulski on----
Ms. Kramer. Right, and you are asking me, if I understand
you correctly----
Mrs. Morella. Insurance.
Ms. Kramer [continuing]. About insurance, and how much
would I be willing to spend? If it were offered at a 20 percent
group reduction, would we be willing to consider it? Yes, we
would be willing to consider it. Absolutely.
Whether we could afford it or not, I couldn't tell you
because I have no idea what the premiums would be.
Mrs. Morella. I am looking at a plan here that we fashioned
mine sort of after, CALPERS. California has done it, and I look
at--[laughter]--you are much younger than this, but let's say
somebody were 59, and they wanted to take out lifetime long-
term care insurance, lifetime. At that rate, with the inflation
that would, you know----
Ms. Kramer. Yes.
Mrs. Morella [continuing]. Be entered into it, it would be
$64 a month. So, I am not saying that this would ultimately be
what would happen with my legislation or any other, but the
point is, I think it can be affordable--and it depending upon
what age you take it out, obviously. If you took it out at age
50, it would be like $35 a month.
Ms. Kramer. Right.
Mrs. Morella. So I guess I am saying that if you felt it
were affordable, you would be willing to----
Ms. Kramer. Exactly.
Mrs. Morella [continuing]. Particularly, with your
experiences?
Ms. Kramer. If I felt it would be affordable, it is
something I would do, not only for myself, but for my children.
Mrs. Morella. I don't know of any employers that subsidize
long-term care, maybe in the future they will. I just don't
know; I will have to learn more about that, but at this point,
the bill that I have introduced expands the pool to allow the
best rates and requires certain things like consumer protection
with a variety of choices, in order to get the Federal
Government moving toward something which, ultimately, could end
up being in national--even go beyond the pool that we have
suggested.
I just want to thank you very much for sharing with us such
a poignant experience, in the hopes that we all learn.
Thank you, Mr. Chairman.
Mr. Scarborough. Thank you.
Ms. Norton.
Ms. Norton. Just briefly, Mr. Chairman.
It is interesting that Mrs. Morella has spoken about $64 a
month, and would that be affordable?
One wonders why there isn't long-term care, since many
employers are paying a great deal more than that per month for
health care, for example. And we are all paying much more than
that because everybody now knows, and has known, that the
taxpayers are going to spend $40,000 and $50,000 a year unless
there is an incentive for people to buy their own long-term
health insurance.
I found your testimony absolutely compelling. And I found
it compelling because I had, in my mind's eye, your parents
who, in the real sense, I think would be like my own. These are
the generations that they are now beginning to write about as
the ``best generation''--I think they probably are--in the
entire 20th century. These are people who saved. The people
today aren't saving for their old age; many of their children
will not have money and are not putting aside any money for
their old age.
They, indeed, put aside money for their old age, and they
put aside money for their children. Or, if there had been long-
term care insurance, I bet they probably would have spent the
money for long-term care insurance.
Ms. Kramer. You are right; they would have.
Ms. Norton. The importance of what you are initiating here,
Mr. Chairman, cannot be overemphasized. Because the real
question is, how are you going to pay for it? Because you are
going to pay for it.
There is a safety net there for each and every one of us,
and that safety net is Medicaid, which has become a giant
benefit, essentially for the middle class in this country, and
well should it be. Until we find a way to encourage people to
buy their own long-term care insurance, there is no other
solution. But that is the most outrageously costly solution. It
is one of the great problems of this Congress. That is why it
behooves us to quickly set the example by coming forward in, I
think, this session of Congress so that employers can see that
this will not break them, that in many ways it can save them,
ultimately.
Ms. Kramer. Do you know what they would benefit--what my
employer would benefit from, if they provided that for me?
Ms. Norton. Could you tell us? [Laughter.]
Ms. Kramer. Well, I would feel very cared for, very loyal.
There is a lot of give and take between an employer and an
employee when you are caring for ill parents. And I am very
happy to see that our society is becoming more cognizant of
that, and more flexible about that.
But for an employer to contribute to a long-term care
insurance policy that would potentially include me and my
parents; I could feel very loyal to that employer.
Ms. Norton. At the very least, you would think that
employers would want to have, among their benefits, long-term
care benefits, and more employers would want to do that--if we
break the ice, Mr. Chairman, I think that may well happen.
Thank you very much.
Mr. Scarborough. Thank you, Ms. Norton. I agree with you
that I think one of the most positive aspects not only of this
hearing, but also this exercise that we are going through is
hopefully to get one bill passed. I mean I think just about
everybody has a bill now on the floor, except for you, Ms.
Norton--[laughter]--up here, so--[laughter]--you need to go
back and get to work on it.
Ms. Norton. Mr. Cummings has my bill. [Laughter.]
Mr. Scarborough. Oh, he has your bill? [Laughter.]
OK, great.
So, anyway, I think that it is important as we do this, as
we debate which is the best way to go, that we engage in an
educational process. There are a lot of people like you who,
before, had not even heard of long-term care. I know I
certainly wasn't aware of it too far back.
So, I think you are right. I think we can certainly educate
a lot of people across this country and, hopefully, put in a
plan that works for the Federal Government and that sends a
message to employers across the country about the importance of
long-term care.
In closing, I just wanted to emphasize something that you
said earlier in your testimony, when asked by Mr. Cummings,
about what you would prefer in a package. You talked about
choices and plans that were flexible--and, also, regarding what
Mrs. Morella said, in talking about what you could afford and
what you couldn't afford.
I certainly think, hopefully, we could get a package out
that would provide as many choices as possible, so we could
tailor it as much as possible to individual needs, and
certainly allow beneficiaries to determine whether they want to
be in an inexpensive plan, a mid-range plan, or what they call
a ``cadillac plan.''
Ms. Kramer. May I ask you a question?
Mr. Scarborough. I probably can't answer it, but go ahead.
[Laughter.]
Ms. Kramer. I had----
Mr. Scarborough. As I explained in a previous meeting, I
went to the University of Alabama, undergrad.
Ms. Kramer. My understanding of long-term care insurance is
that you buy it in increments of time. If I were to purchase 2
years of long-term care insurance--2 years, or any amount of
time--and outlive that, what happens? Who pays? Where does the
money come from?
Mr. Scarborough. I would guess it would go back to
Medicaid, but Mr. Cummings is an expert in this area.
[Laughter.]
He will answer it for you now. [Laughter.]
Actually, I believe it would go back to Medicaid.
Ms. Kramer. At that point, if you had set aside money for
your children, purchased long-term care insurance, utilized
your long-term care insurance, outlived your long-term
insurance, your money is already in your children's hands, but
it would be--fall within that 3-year period for which a
Medicaid application requires that you not give away your money
to your children.
Mr. Scarborough. Right.
Ms. Kramer. What happens?
Mr. Scarborough. I think the average stay is 4 to 5 years
in nursing homes.
Ms. Kramer. My parents stayed 2; my father-in-law lived 5
years.
Mr. Scarborough. Right.
Ms. Kramer. So, you know, that is another thing that my
husband and I have talked about. If you buy it, you have
limited coverage, you know. I guess they are betting you are
going to die--[laughter]--or you are betting you are going to
die within 2 years.
Mr. Scarborough. If I am not mistaken, you can buy lifetime
coverage which, obviously----
Mrs. Morella. Would the chairman yield, please?
Mr. Scarborough. I certainly will.
Mrs. Morella. Or you pay a certain amount per month as long
as your lifetime and, therefore, you get a lower amount that
you pay. So when you die, you pay no more. I mean you will get
the coverage that you negotiate for at the very beginning, so
if you start young----
Mr. Scarborough. Right.
Mrs. Morella [continuing]. You are paying a very small
amount for the rest of your life for that same kind of coverage
that you would get later, but you would have some choices, and
you could change the choices.
Ms. Kramer. Yes.
Mrs. Morella. That is the simplest way.
Mr. Scarborough. I will tell you what, we are going to have
some testimony from insurance people that will really expand
upon this and I think probably will answer a lot of those
questions.
Ms. Kramer. There is only one other question I have, in
closing, and that is, if you do this, if there is any way
possible to make a single point of entry, for people like me, a
number that they could call, as a beginning place to get
information? That would be very helpful.
Mr. Scarborough. That is a great idea, and that is
certainly something that I am sure most members on this
committee, I think, would agree is a great idea, and so we
appreciate it.
We certainly appreciate your testimony. It was moving, and
I think it was something that all of us certainly can relate to
and is going to help us frame the debate, I think, not only in
today's hearings but also throughout this process.
Mrs. Morella. And, Mr. Chairman, the next panel with OPM
would be the point of contact. It would be a very good one.
Mr. Scarborough. Exactly; that is right. Except, start
asking them some questions, OK? [Laughter.]
Actually, I guess I should say two things before we go to
our next panel.
The first thing is, if there is anybody from the University
of Alabama, it was self-deprecating humor--[laughter]--which
always seems to work--[laughter]--especially when you are
talking about Alabama.
The second thing is we have a lot of people standing in the
back, so why don't we take a 5-minute break? We will move some
more chairs in before we have our next panel come up.
Thanks, again.
Ms. Kramer. Thank you.
[Recess.]
Mr. Scarborough. All right. If we could start back up.
In our next panel, we have two distinguished guests from
OPM. We have the Honorable Janice Lachance, who is Director of
the U.S. Office of Personnel Management, and we have Ed Flynn,
III, Associate Director of Retirement and Insurance Services
for the Office of Personnel Management.
If you could, please, stand and take the oath.
[Witnesses sworn.]
Mr. Scarborough. Thank you.
Ms. Lachance.
STATEMENTS OF JANICE LACHANCE, DIRECTOR, U.S. OFFICE OF
PERSONNEL MANAGEMENT, ACCOMPANIED BY WILLIAM E. FLYNN, III,
ASSOCIATE DIRECTOR, RETIREMENT AND INSURANCE SERVICES, U.S.
OFFICE OF PERSONNEL MANAGEMENT
Ms. Lachance. Thank you, Mr. Chairman, and members of the
subcommittee.
It is extraordinary for us to have the opportunity to work
with people who are committed to getting a bill through, the
way all of you apparently are, and I am very, very grateful for
that.
I think we can all agree that this is an idea whose time
has come. There are too many Mrs. Kramer's out there who are
struggling with this problem, and I hope that we can move
quickly to bring some relief to them and their families.
Before turning to my statement, I would like to note that
your invitation did contain a number of questions, some of them
rather complex, and we are working hard to put together those
answers which aren't addressed in my statement, but we will get
those to you as soon as we can, for the record.
Mr. Scarborough. Thank you.
Ms. Lachance. With your permission, I would like to
summarize my remarks and ask that my full statement be
submitted for the record.
Mr. Scarborough. Without objection, so ordered.
Ms. Lachance. On January 4, of this year, President Clinton
announced an initiative to improve access to long-term care for
all Americans. H.R. 110, entitled, the Federal Employees Group
Long-Term Care Insurance Act of 1999, is one component of the
President's proposal.
The bill would authorize the Office of Personnel Management
to contract for long-term care insurance on behalf of the
Federal Government, the Nation's largest employer.
The proposed statutory framework would enable the
Government to offer more affordable coverage on an enrollee-
pay-all basis to Federal employees and annuitants and their
families. By negotiating group rates, we estimate that we can
provide an attractive long-term care product at a cost that is
some 15 to 20 percent lower than a comparable policy purchased
in the individual market.
We expect that, initially, some 300,000 eligible
participants would enroll in such a program.
We have seen a dramatic evolution of long-term care
insurance products since the 1980's. H.R. 110 gives us a
framework to work with stakeholders, including the insurance
industry, employee and retiree groups, and Federal agencies, to
design a flexible long-term care benefit. This would be
coverage with the ability to evolve over time as the market
changes, thereby, allowing the Federal Government to keep the
policy consistent with industry standards.
The fact of the matter is that group insurance products are
less costly than individual insurance. Economies of scale
mitigate both administrative costs and underwriting risks, so
if we offer long-term care on the same basis as employers in
the private sector, the discounts available to Federal
enrollees will be at least comparable.
Under the authority given OPM in H.R. 110, we would seek
competitive bids for long-term care insurance that meets
specified quality and price criteria in order to select the
best contractor or contractors possible.
Now, under H.R. 602, the Civil Service Long-Term Care
Insurance Benefit Act, OPM would be required to accept
virtually any long-term care insurance product that meets only
basic requirements. Our role would be reduced to ensuring that
adequate payroll deductions are made and making information
available on all offerings. There is no real advantage to this
approach, since it gives our Federal population the same
choices already available on an individual basis in the private
market, with little or no additional financial incentive to
enroll. This is decidedly contrary to existing employer
practices. We would not be able to take advantage of the
economies of scale that work in our favor, and we would not be
able to pass any savings on to our enrollees.
It is our belief that H.R. 602 makes an incorrect
assumption, that product and vendor competition will reduce
costs, but I ask you to look at the numbers, since only about 6
percent of the eligible population typically purchases long-
term care insurance. Segmenting the risk pool even further is
more likely to increase, rather than reduce, premium rates.
Under H.R. 110, OPM would be able to offer a long-term care
benefits package that not only reflects the requirements of the
Health Insurance Affordability and Accountability Act, but also
meets the standards endorsed by the National Association of
State Insurance Commissioners in its long-term care model
regulation.
The coverage would be more attractive because it would
provide for a variety of services and offer flexible options to
participants.
Eligible participants would pay the full cost of the
benefit, based on age at time of enrollment. This is consistent
with the practice among private employers who offer this
benefit now. Our early estimates indicate that annual premium
costs could range from $200 to $3,000, depending on the
insured's age.
Consistent with other Federal benefit programs, H.R. 110
would require financial and program accountability from
contractors and would give OPM the authority to determine the
reasonableness of premium rates established.
We estimate OPM's cost to administer the program at
approximately $15 million over a 5-year period. Initial costs
cover the solicitation process, including actuarial analysis,
to determine the reasonableness of rate proposals, as well as
implementation of an extensive education program.
We feel very strongly that communication will be a major
factor in determining the success of the program. We must make
a commitment to inform employees about the costs of long-term
care, the need for long-term planning, and the benefits of
purchasing coverage sooner rather than later in life.
We firmly believe that the employer-sponsor model of H.R.
110 offers the best vehicle for delivering a quality product.
We urge you to give it early and careful consideration. A new
long-term care product, such as the administration is
proposing, will certainly mean greater financial stability and
peace of mind for Federal an-
nuitants, employees, and members of their families.
This concludes my statement, and I will be happy to answer
any of your questions.
[The prepared statement and followup answers of Ms.
Lachance follow:]
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Mr. Scarborough. Thank you, Madam Director.
You talked about cost, and you said that right now you
estimated that there was approximately $15 million in
administrative startup costs. This really goes back to
something that Mrs. Morella and I were talking about briefly at
the beginning, I think, and before you stepped in, about the
plans to possibly bring in active and retired military.
Do you have any estimates? Obviously, we have got to
concern ourselves with the jurisdiction of HASC, the House
Armed Services Committee, and, also, DOD.
Let me ask you, do you have any rough estimates on the
administrative costs that would add to it, so we know what we
have to offset?
Ms. Lachance. I am afraid we don't. That proposal is
relatively new. We had been looking at this as part of the
overall compensation package for Federal employees, as another
benefit to enable us to attract and retain the best people. We
have no objection, on the surface, to broadening the pool.
There are benefits to being a Federal employee, whether you are
in uniform or not----
Mr. Scarborough. Right.
Ms. Lachance [continuing]. And, obviously, retirees.
So we would have no objection and think it may actually
help the risk pool to have it larger and include more people.
So we would be glad to work with the Department of Defense on
that and maybe get back to you with some specific numbers.
Mr. Scarborough. Great.
Do you foresee any underwriting problems, by adding this
group?
Ms. Lachance. Not that we can see on the surface. When we
look at underwriting, what we are hoping is that active
employees will be able to have access to this insurance with
either no or minimal underwriting, and then, certainly, all of
the family members, as is customary practice in the industry,
would undergo underwriting. And so, if we had a comparable rule
for the additional population--or a comparable practice--it
probably would be a ``wash'' and----
Mr. Scarborough. OK.
Ms. Lachance [continuing]. And probably would work out, but
we would be glad to look at that.
Mr. Scarborough. Great. And if you could get us any of that
information----
Ms. Lachance. Certainly.
Mr. Scarborough [continuing]. As soon as possible, that
would be great.
I am already getting ``letters to the editor'' at home, why
we didn't start with that process. [Laughter.]
So, the sooner the better.
You know, we have talked before about--in my opening
statements--about how diverse the Federal work force is.
Obviously, you have got full-time employees, part-time
employees. You have got blue collar; you have got professional.
Let me ask you, should all of these employees be permitted to
purchase a long-term care program through the Federal
Government?
Ms. Lachance. Absolutely.
Mr. Scarborough. Any areas at all----
Ms. Lachance. Absolutely.
Mr. Scarborough [continuing]. That should be excluded at
all?
Ms. Lachance. I can't think of any offhand.
What Mrs. Kramer faced is what anybody faces and it,
frankly, doesn't matter how much you make when you are faced
with these tremendous bills. It is just a matter of how quickly
your own personal savings run out.
This is something that makes sense for everyone, at every
income level.
Mr. Scarborough. What about intermittent part-time
employees--intermittent employees?
Ms. Lachance. Well, I think that they should be given an
opportunity to have access to this as well. Since the
administration proposal has no--or none of the proposals have
an employer contribution----
Mr. Scarborough. Right.
Ms. Lachance [continuing]. We certainly could open it up to
a much broader range of employees.
Mr. Scarborough. Which actually expands that pool----
Ms. Lachance. Yes.
Mr. Scarborough [continuing]. And, obviously, drives down
the cost for everybody--which brings me back to something.
Again, this is something I certainly hope that we can work out
and negotiate. Obviously, one of the areas that we need to
compromise on is the administration's view that is sort of a
more ``one-size-fits-all'' approach, and our view where we
offer the consumer as many choices as possible.
You had said earlier that--I think you had said 6 percent?
What was it? I think----
Ms. Lachance. Yes, 6 percent.
Mr. Scarborough. Only 6 percent purchases now.
Ms. Lachance. Typical.
Mr. Scarborough. So fragmentation of those groups would
drive costs up. Certainly I want to offer you an opportunity to
rebut it. My only point would be, if we bring in this huge
Federal work force and allow the military and everybody else in
and, obviously, we expand our pool.
Don't you think the more we expand our pool, the more
possibilities we have to offer choices without driving up
prices.
Ms. Lachance. I think that fundamentally we agree, but we
just have a different way of going at it. We do agree with you
that one size does not fit all, but we think that we can get at
that by the way the benefits are designed and providing the
maximum amount of flexibility in the plans that we offer. We
think it can be done without having to expand the number of
insurers and then, consequently, keeping the price up. We think
we can do both. And we would love to work with you on that, and
maybe show you some of the studies, and introduce you to some
of the experts who we have worked with who have given us
information on this.
We think we can accomplish your goal.
Mr. Scarborough. Great. Well, I would look forward to doing
that--and I see the red light is on, and I will pass it on to
our ranking member, Mr. Cummings.
Mr. Cummings. Tell me something, when you talk about--first
of all, thank you for being here.
Ms. Lachance. Thank you.
Mr. Cummings. We appreciate what you do everyday.
Ms. Lachance. Thank you, sir.
Mr. Cummings. When you talk about limiting the pool, talk
about--explain to us why you see that as being beneficial. In
other words, the number of insurers.
Ms. Lachance. I think it is important for a number of
reasons. And, as you know, Mr. Cummings, your bill and Mrs.
Morella's bill both limit the number of insurers that are
involved.
We are trying to accomplish a number of things with this
legislation. First of all, we have to not only make it
available, but we have to make sure that employees understand
the need for it, and that they understand what is being offered
to them.
Our experience, and the experts that we have worked with in
developing our proposal have informed us, is that when people
are faced with a complex array of choices, they have a tendency
to just walk away. If things get too hard, if they are
bombarded with too many choices, it is going to be very, very
difficult for people to decide, or they will decide to just
postpone the decision. And, obviously, what we need to do is
get people enrolled early and soon.
So we think we can achieve a flexible package of benefits
that will meet the needs of individuals with very diverse
health backgrounds and still keep the premium down and keep the
take-up rate as high as possible.
We think it can be done, but we are very concerned that
having too many insurers involved would just defeat the
purpose. And, in fact, Federal employees have access to all of
those products now. And part of the problem this country is
facing is that Federal employees aren't buying them.
So we have to do something better, something different,
something to try to get employees to take a second look at this
option.
Mr. Cummings. You think one of the factors--and if you
listened to Ms. Kramer, she talked about the cost. Do you think
one of the major factors of this 6 percent that you talked
about a little bit earlier, then, taking advantage of long-term
care insurance--do you think a lot of it is the cost?
Ms. Lachance. I think that is a lot of it. I think that is
what Mrs. Kramer talked about. That is what my parents talk
about, and they end up postponing the decision, they end up
just putting it off for another day.
We think that we can achieve a great advantage. It is a
win-win for everybody. Our employees and their families can get
a better deal if we limit the number of insurers that are
involved in this.
Mr. Cummings. How would you see the contracting process
working? How would that work?
Ms. Lachance. Well, first of all, we have already started,
and we are very excited about this, our stakeholder
conversations. We want to bring everybody in who has a
viewpoint in this. Yesterday, for example, we met with over 15
representatives in the insurance industry to start talking
about the very problems that you are discussing among
yourselves.
What we want to do is make sure the employee organizations
are involved--NARFE, the retirement organizations, the
management organizations. Of course, we want to work with you
and try to find a broad consensus, with respect to product
design and some of the other options, and make sure that there
is industry capacity to handle this. There, hopefully, will be
a great wave of people signing up for this insurance.
Once we have arrived at that consensus, which we believe we
can achieve, we will issue a request for proposal which will
look at each company's financial strength and their
underwriting arrangements. We are going to look at the
company's demonstrated success for offering insurance of this
type to other large employers and how well they have done with
that, their capacity to deliver top-notch services to our
employees, the features of the product that they can bring to
the table, and, finally, the price.
Mr. Cummings. Ms. Norton spoke a little bit earlier about
the cost that society pays when we don't have this. And I
mean--I think we all see the urgency and we want to make sure
this happens. What do you see, I mean the longer we put this
off? Let's say it is put off for 2 or 3 years. I mean do you
have any idea what that is costing society?
Ms. Lachance. I don't.
Mr. Cummings. The taxpayers?
Ms. Lachance. Unfortunately I don't have a dollar amount,
but I think--like Mrs. Kramer--I can talk about the emotional
toll of that kind of strain, that kind of pressure, that is
happening every day to families all across this country. And if
we, collectively, can do a little something to alleviate it, I
know I will sleep better at night.
Mr. Cummings. I see my time has run out. Thank you.
Ms. Lachance. Thank you.
Mr. Scarborough. Thank you, Mr. Cummings.
Mrs. Morella.
Mrs. Morella. Thank you, as usual, for not only your
testimony but the cooperation that we get from OPM. I value
that very much.
And I know that my bill was reintroduced earlier this week
and, therefore, you didn't have a chance to have it included
within your testimony, but you were there at the press
conference, and you've already alluded to some parts of it. It
goes beyond the other bills that have been introduced that have
merit. And I do want to see us come out with one bill. But let
me point out--so I want you to feel free to comment on that
bill. I mean do you think that that gives OPM the appropriate
role?
Let me point out a few things that that bill has in terms
of--and then ask you how you would respond to it.
Long-term care insurance policies are guaranteed renewable
as long as the premiums are paid on time. What will be the
procedure for dealing with the rights and responsibilities of
the carriers, OPM, and the policyholders in the event that OPM
terminates a contract? Have you had a chance to think about
that?
Ms. Lachance. We are confident that--and I apologize, Mrs.
Morella, for not knowing the specifics of your bill--but, in
our scheme that we are proposing, the contract would expire
every 5 years. But we are confident that if there is a change
in carrier or carriers, our beneficiaries and our employees
will not suffer any adverse consequences for that--that the
pool of money, their benefits, all of the premiums that have
been collected can be appropriately transferred from one
insurance company to another.
Mrs. Morella. And I would direct you to consider about what
OPM would do, with respect to the valuation and the disposition
of the reserves.
Ms. Lachance. Yes. Do you want to----
Mr. Flynn. I might try that, just real quickly, Mrs.
Morella.
Whether a contract terminates during the period or every 5
years on renewal, we look at this as something where
individuals are building up the value of this insurance over a
long period of time, and we would want to make sure that there
was separate accountability and that the value that people
built up, if a contractor changed, didn't diminish. It would
just simply transfer to a new insurer, and we would move on
from there.
Mrs. Morella. How do you see OPM satisfying its obligation
to administer the program on behalf of those particular
individuals who enroll with the carrier, once OPM terminates
the carrier or allows the carrier to leave the program after
that 5-year period?
Mr. Flynn. The insurer? It would certainly be our intent to
maintain an insurer or insurers in the program so as to make
long-term care insurance available to all eligible individuals
on a continuing basis.
There are always circumstances when a particular insurer
pulls out, and we have seen that, of course. We have examples
of that in the health insurance program. And we have always
been successfully able to make arrangements to ensure continued
coverage for the individuals that are participating. And I
don't believe that there is anything in the proposal that would
inhibit our ability to do that.
Mrs. Morella. You would have to do something like that----
Mr. Flynn. Exactly.
Mrs. Morella [continuing]. In terms of preserving, you
know, the consumer protections that would be absolutely
necessary.
Ms. Lachance, you want to comment on that?
Ms. Lachance. No, I agree that I think there is a way to do
this so that our employees would see a continuation of their
coverage without interruption. And we are confident that we
could resolve any administrative issues that may arise from
that.
Mrs. Morella. And dispute resolution----
Ms. Lachance. We think that is an important----
Mrs. Morella [continuing]. Adjustments you could----
Ms. Lachance [continuing]. Feature of both----
Mrs. Morella. I think it is, too.
Ms. Lachance [continuing]. Your bill and our bill, that
consumers have a place to go when there is a problem. There is
not always agreement. We deal with insurance companies every
day, and they are honorable people, doing their best to provide
a very important service, but there are disputes, and we would
like to make sure that people have one place to go to try to
get a resolution for that.
Mrs. Morella. Do you think OPM could handle all of those
points that I have mentioned--which I think are critical points
in that what my bill would allocate to you--[laughter]--to
handle.
Ms. Lachance. Yes.
Mrs. Morella. And handle well.
Are you familiar with the process of negotiating employer-
based group long-term care insurance programs? I guess I am
asking, what role does the employer play, acting on behalf of
the group, to make these programs more affordable than an
individual acting alone?
Ms. Lachance. We have looked at a lot of private-sector
experience in this, Mrs. Morella, and what we find is that,
generally, the employer will act as an advocate to try to get
the most flexible benefit, at the best price. I think there is
a recognition, particularly in the long-term care arena that
individuals just aren't entering the market and aren't buying
these policies as much as they should be. And this is a way to
get those costs down and still provide flexibility that
individuals need to enhance the enrollment rates. We feel we
could replicate that if the Federal Government----
Mrs. Morella. So what I am getting at in my question is,
here are elements that I think are important----
Ms. Lachance. Yes, ma'am.
Mrs. Morella [continuing]. That I have allocated to OPM.
Can you handle them? And, you know, we go from there.
My final question; how will NARFE be involved in your
process of working this out?
Ms. Lachance. NARFE is one of our most important
stakeholders in this arena. Obviously, they have a lot of
personal experience with these issues. They also have a
wonderful amount of institutional knowledge and talented staff
that they can bring to the table and they have shown their
willingness to do that. So we are looking forward to continuing
to work with them on this.
Mrs. Morella. I agree with you, and I thank you for that
statement.
Ms. Lachance. Thank you.
Mrs. Morella. Thank you, Mr. Chairman.
Mr. Scarborough. Thank you.
Ms. Norton.
Ms. Norton. Ms. Lachance, I am trying to see the difference
between what you are proposing in the bills that would have you
operate differently from the role you play in the FEHB program.
What role would you have if you had--if any company could
simply come forward and claim Federal employees? What role
would OPM have, then?
Ms. Lachance. We would have a limited educational role
because if there were competing companies, we could not, in
fact, then, be the cheerleaders that we would like to be for
this.
Part of the reason we want to do this is to get more people
to buy at an earlier age. We are very concerned that, much like
the FEHB program which has a variety of insurers involved, that
we would have to stand back and be neutral. We think that is
the wrong approach for this product, and we would like to be
able to go in and be cheerleaders and encourage people to get
that, so we would have a limited----
Ms. Norton. You could not comment--are you saying you
couldn't comment on the practices of the particular insurers?
Ms. Lachance. I think it would be very difficult to do that
if we had people who were competing against each other.
Ms. Norton. Even if you knew some things that people ought
to know? Even if you knew some things that the employees ought
to know?
Ms. Lachance. I think so.
In addition to that, we obviously would be the people who
would withhold the premium payments from employees' paychecks
or retirees' annuity checks and forward those on to the various
insurance companies.
Ms. Norton. So you, in a sense, would be doing the
administrative work for the insurance company?
Ms. Lachance. Yes, ma'am.
Ms. Norton. Because they would be working through you,
rather than on an individual basis? So that would relieve them
of, I take it, substantial amounts of money and administrative
costs?
Ms. Lachance. That is possible.
Ms. Norton. But those administrative costs would be paid by
whom?
Ms. Lachance. OPM.
Mr. Flynn. And the individual departments and agencies with
their payroll systems.
Ms. Norton. Would the employee pay any part of those
administrative costs?
Ms. Lachance. I don't think so.
Mrs. Morella. If the gentlelady would yield?
Ms. Norton. I will yield.
Mrs. Morella. In my bill, they would. I mean that is one of
the differences, is that mine does not depend on governmental
exigencies and vicissitudes. It has the stability in that it is
passed on and is leaned away as possible because it would be--
--
Ms. Norton. Oh, but listen to this.
Mrs. Morella [continuing]. To the employees.
Ms. Norton. Well, listen to this.
Under Mrs. Morella's bill, the employee gets stuck with the
administrative costs. [Laughter.]
And without her bill, the taxpayers get stuck with the
administrative costs. But who does not get stuck with the
administrative costs are the insurance companies.
Ms. Lachance. That is correct.
Ms. Norton. I say this so my friends in the next panel will
already know--[laughter]--I say this, although----
Ms. Lachance. They can leave now. [Laughter.]
Ms. Norton [continuing]. Before I came to Congress, I was
on the board of the Metropolitan Life Insurance Co., and I
don't think life insurance companies--at least the ones at that
level--are hurting terribly much. I do know some Federal
employees that are hurting much. And I do know that--look, the
health care dollar--the thing that kills me about the health
care dollar is the way in which administrative costs eat it up.
Not, of course, in Medicare, where the Government plays a role,
but the administrative cost of health care and this problem, I
would not like to see repeated for long-term care, where we
don't do what is necessary to contain those costs and end up
paying those costs which could, otherwise, go to the underlying
care.
Let me ask you about the premiums. If you enroll early and
pay a low premium, would your premium go up, or would it remain
stable because you enrolled early?
Ms. Lachance. We are trying to envision a system where it
would remain stable, although we would like to give the
opportunity, at various points in time, for the enrollee to
purchase inflation protection. But the premium would remain
stable, and that is the advantage of coming in early.
Ms. Norton. This is a huge incentive.
Ms. Lachance. Yes.
Ms. Norton. Especially when people know what it could cost
if they don't come in early, and especially since you are
apparently talking about low premiums.
And you think low premiums would work because of the nature
of our risk pool? That is to say that, because it is so
diverse, that you could contain these premiums, because of the
age diversity of the risk pool?
Ms. Lachance. That is exactly right, Congresswoman. We
anticipate savings of 15 to 20 percent. And that has to be a
better deal than what is available now.
Ms. Norton. But how would this work if, in fact, these
people were spread across hundreds of companies? I mean how
could the low rates be maintained?
Ms. Lachance. Then we would lose the advantage of a group
rate.
Ms. Norton. So what we want is to encourage as many people
to choose the best companies as possible--as many people as
possible to choose the best companies because, together, they
keep the cost down.
Ms. Lachance. And that would be very, very hard if we had a
lot of companies, which is why we are very interested in
limiting the number of insurers who are involved in this
benefit plan.
Ms. Norton. Well, how many companies are in this business
anyway? I mean, a lot? [Laughter.]
Ms. Lachance. There were 15 yesterday. [Laughter.]
Mr. Flynn. Good answer. [Laughter.]
I think that the number that offer group insurance policies
run about a dozen, but there is a much larger number of
companies that offer individual policies in the market.
Ms. Norton. In your investigations, have you found the
group insurance business growing at any particular rate? I mean
is this something that is a growth industry in this country?
Ms. Lachance. Well, it is growing because I think employers
see the need to offer this benefit to their employees, so that
seems to be growing. I would have to defer to the insurance
companies to find out how they are doing on their individual
business.
Ms. Norton. Are you modeling your group notions after
anything that is now in the marketplace?
Ms. Lachance. We are using as a standard and as a model,
the plan that has been developed by the Association of State
Insurance Commissioners who have been working on this situation
very hard and who incorporate a number of the features that are
in both Mr. Cummings' bill and Mrs. Morella's bill.
Ms. Norton. Thank you.
And thank you, Mr. Chairman.
Mr. Scarborough. Thank you, Ms. Norton. I am glad to know
that you were on the board of MetLife, and I am sure they are
still pleased with their wise decision. [Laughter.]
Especially after your questions today. [Laughter.]
Any MetLife representatives here?
Now, returning to us again is former chairman, Mr. Mica.
Glad to have you back.
Mr. Mica. Thank you, Chairman Scarborough.
Ms. Norton. Would the gentleman yield for a moment?
I would just like to note for the record that the
youngsters coming into the room are from Barcroft Elementary
School, and these are children from the District of Columbia
who are part of a program that I have in the Congress called
``D.C. Students in the Capitol''--so you won't grow up in
Washington, DC, and never been to the Capitol, or seen a
hearing, or met your own Congressman, or met Chairman
Scarborough. [Laughter.]
Mr. Scarborough. All right. [Laughter.]
Which let me tell you, children, is a very important thing.
[Laughter.]
[Applause.]
A very important thing for your education. Unfortunately,
we are going to hurt your education now by letting you----
Ms. Norton. Oh, no. [Laughter.]
Mr. Scarborough [continuing]. Speak to Chairman Mica.
[Laughter.]
I am just joking. Go ahead. [Laughter.]
Actually, I would like to turn it over to Chairman Mica who
has been extremely helpful in getting us to this point and also
helping me out.
Mr. Mica. Thank you, Mr. Chairman. And I was going to say
some nice things--[laughter]--but I will get right to my
regular standard operating procedure which is to pick on OPM.
Where are we on our life insurance project? [Laughter.]
Are we still studying it?
Mr. Flynn. We have a deadline of May 1, I believe, to
submit a report. I believe that is the correct date and should
have it in plenty of time for you, sir.
Mr. Mica. What disturbs me about your proposal for long-
term care is it almost models what we are trying to do away
with, with the life insurance fiasco that has been in place for
40 years without real competition and to me served a great
disadvantage. I happen to be a Federal employee, believe it or
not, and I don't like the terms of my life insurance, and I am
not looking very kindly on what is being proposed to either a
single system or very limited competition for long-term care.
That wasn't my idea in the beginning.
I don't know how anyone can look at a group of 1.8 million
Federal employees, 2.2 million Federal retirees, a pool of that
number, and not be able to provide some access to very
competitive rates in life insurance and long-term care
insurance. And the people who are part of employee groups ought
to be just astounded that you can go back and face your Federal
employees and tell them that it is March 1999 and they don't
have lower life insurance costs, better benefits. The
provisions in law are absolutely pitiful for spouses in the
life insurance area.
Then we got by with this study which further delays the
process. And now to not have long-term health care and access
for a group like that--if this was a private organization and
any of you all worked for me, I would fire every one of you.
So, those are my sort of--[laughter]--opening statements.
And to come with a proposal like this today, to take us back to
the dark ages of no competition, little access, and probably
higher premiums, I think is a step in the wrong direction.
I don't know if that is a question, Mr. Chairman, or not,
but----
Mr. Scarborough. That doesn't sound like one to me, Mr.
Chairman, but----
Mr. Mica. But I am really stunned.
OK, Ms. Lachance, how can you tell me that having one
carrier--and, again, how can we have the Government administer
anything more efficiently than the private sector? You are
going to do the administrative work you are saying? OPM is
going to do it?
Ms. Lachance. Yes, sir.
Mr. Mica. Is there any calculation how many people will be
involved?
Ms. Lachance. Approximately 15 full-time.
Mr. Mica. Oh, yes; we hear that. I want that--that should
be encoded. We ought to get a chisel and stone and say,
``approximately 50.'' If they could administer any program with
50 people, I would love to live to see the day, to service
those kind of folks.
The intent here was to get the private sector to offer a
group rate, get as many people competing, because we have
hundreds of thousands of potential participants in this, not
just in Washington, DC, but across the land, possibly overseas,
and getting organizations out there to give us some benefit
because we have a large viable group.
So you all are taking a simple idea and making it into a
potential bureaucratic nightmare and delaying the process. So I
just don't see, for the life of me, how a proposal that, again,
relies on Government to administer, it limits the choices, and
it does not create competition that can be effective.
Would you want to comment?
Ms. Lachance. Well, we certainly appreciate your
perspective, Mr. Mica. And we enjoyed working with you for the
last several years on some of the----
Mr. Mica. Unfortunately, I am still around.
Ms. Lachance. Well--[laughter]--and I am happy for that,
because you do provide a unique perspective--[laughter]--on
some of these issues that I think is important for us all to
deal with.
But we believe, sir, that we can find a way to design these
benefits that provide enough flexibility to meet the individual
needs of all of the different kinds of people who are going to
need access to this insurance.
We also believe that Federal employees have access to much
of what you are describing today, and they are not buying it.
Nobody is buying it, because it is so expensive.
Mr. Mica. Well that was the purpose for having a group come
together.
Ms. Lachance. Well----
Mr. Mica. And also maybe offering some options, some
benefits for assistance in payment from their Federal partner,
their employer, so that this is available: One, on a more cost-
effective basis; and, two, that we are a participant in making
this available.
I don't know what kind of impact this will have on some of
the other Federal health care systems, but I am sure some of
our Federal employees are now relying on other Government
programs for that assistance--so, some creative ways in which
to access that care.
Ms. Lachance. Well, unfortunately, it has alluded us about
how we would arrive at a group discount using your system. So
perhaps we can sit down with you to try to talk to you more
about what it is you are trying to achieve. But the way we look
at it----
Mr. Mica. Well, I could achieve it in 30 to 60 days sitting
down with some carriers and say, ``This is basically what we
want to offer. We have this many folks, and we would like to
make this available. What kind of a group rate, if people
enroll, can you give us? What kind of a special deal can you
give us for people to participate?'' Not turning this into some
complex bureaucracy. It is just like life insurance.
It is appalling that we do not offer more options to our
Federal employees. They are paying higher premiums and getting
less. They are getting screwed.
Ms. Lachance. I believe----
Mr. Mica. The kids have gone. [Laughter.]
Ms. Lachance. Thank you. [Laughter.]
You made me nervous. [Laughter.]
Mr. Mica. And what are we doing? We are studying it more.
All I want is to provide--and I have a selfish interest; I am a
Federal employee. I need life insurance. I am getting older.
You all are causing me great stress and pain. [Laughter.]
I could go at any minute, or I could end up in a long-term
facility--[laughter.]
So I am very parochial about my interest in this. Just make
it available; OK? And usually the private sector can do it,
administer it, very well. And I think part of our role, or
OPM's role, would be to monitor the quality, see who--set the
standards for this, see that they are performing well. And we
keep those pools available of life insurers, of long-term
health care--and it is just like we do with FEHBP, to a degree.
We have a small--it is a great program. It services 4 million
people, retirees and employees----
Ms. Lachance. With 160 employees.
Mr. Mica [continuing]. And 5 million dependents, almost 10
million, Mr. Chairman. You oversee the largest health care
system for employees in the country, with 100 employees?
Ms. Lachance. 160.
Mr. Mica. 160. Well, that is getting a little bit big but,
in any event, that is what I had envisioned.
Mr. Flynn. Mr. Mica, if I could offer just one observation.
You cite the FEHB. I would simply say that if you looked at the
Federal Employees Health Benefits Program and the number of
insurers that offer products there, the type of market and the
evolution of that market for long-term care is in striking
contrast.
And one of the things that we want to do, given the fact
that take-up rates for long-term care insurance are about 6
percent, is to focus a really good comprehensive, flexible
benefit program on one or a handful of carriers so that we can
do everything in our power to be a cheerleader, to get people
to enroll, so that we can get to a level of maturity where
perhaps some day, any number of carriers could participate
because the products were, more or less, standards, the
benefits were well-understood, and we could come in, like we do
with the FEHB----
Mr. Mica. Well----
Mr. Flynn [continuing]. Where you could see that work that
way.
Mr. Mica [continuing]. I would rather that we opened it to
all who qualifies, set those qualifications and do it now
rather than later.
And, also, you find a changing market, just like in health
care. In health care, 15 years ago, my sister called me from
California and she told me that she was joining an HMO, and we
thought she--the Kaiser plan or something. We thought she had
joined a ``hippie'' farm--[laughter]--in California. I had
never heard of an HMO, and I hadn't heard of Kaiser.
And today, you know, HMO's control a large portion of the
market, so I don't see any reason why we can't make this
available, sooner rather than later, have more competition
rather than less, and, again, provide it across the broad
spectrum. And some people don't fit into our neat Washington,
DC environment. We have got Federal employers, as I said, all
around the world, and if they want to access this, now, on
these terms, we should do that and then make it flexible as we
go along.
So, I have taken too long in my--I tried, Mr. Chairman,
but----
Mr. Scarborough. Oh, I didn't even notice that the red
light was on.
Mr. Mica. A former chairman gets some minor leeway. I thank
you and yield back--[laughter]--the balance of my time.
Extended time. [Laughter.]
Mr. Scarborough. Thank you, Mr. Mica, for making your
presence known to the committee once again--and OPM. We
actually have changed things. We actually have one of these
little green lights now that when it gets to 5 minutes--this
year.
But I do thank you for your insight, and I think you bring
up a good point about FEHBP. In fact we have 300 insurance
carriers right now to cover a pool of 4 million which, I think,
that is a better approach, myself.
Mr. Allen.
Mr. Allen. Thank you, Mr. Chairman. My apologies for being
late. This is a difficult morning. As other Members know, you
sometimes have everything going on at once.
But I want to thank both of you for being here and the
others who have already testified.
I would like to continue a little bit along the lines that
were being discussed when I came in. Mr. Mica said that he
favored more competition rather than less, and I want to think
about this question of price and how we get the best deal for
employees. Because it seems to me, from my private-sector
experience, that the existence of long-term care insurance does
not mean that people go out and buy it. It is still a product
that is not widely purchased. And it seems to me that we would
be mistaken to equate more competition with more companies.
Because I would believe that if you add, say, a handful--one or
two or three or a handful--of carriers, who are able to offer
long-term care insurance to this vast pool of people, that that
is how you get the most competition, that is how you get the
best price.
I would really be interested in your reaction to that. And
please respond to the suggestion that you have 300 insurance
carriers, I take it, under the FEH----
Ms. Lachance. BP--[laughter.]
Mr. Allen [continuing]. BP. What you think the differences
are between the health care insurance and the long-term care
insurance that you envision providing.
Ms. Lachance. I am sure that Ed could help me with more
detail, but we agree with you Mr. Allen, that in fact trying to
work with a small number of companies to come up with a
flexible benefit designed at a group rate would be much more
financially advantageous to our potential enrollees than just
having a variety of choices, all of which are available now and
which I think everyone will acknowledge, we are having a
difficult time convincing people to buy.
It also would help us in our ``cheerleader'' role, as we
have called it here. If we are involved with a number of
companies, as we are with FEHBP, we maintain a neutral posture.
What we have to do with this is go out there and convince
people to spend extra money on this very important coverage,
and do it at a young age when they are far more likely to think
they will never need anything like this.
So there is a formidable challenge ahead of us, and we have
really looked at this and thought this was the best way to
achieve it.
One of the differences with the Federal Employees Health
Benefits Plan is that 85 percent of those who are eligible to
buy health insurance through the Federal Government do so. We
don't have a penetration problem there. People understand the
system; they have been doing it for years. Everyone wants
health insurance. We make the information available. It is a
very different kind of effort. This time, we have to convince
people to even do this. That is not a hurdle that we have with
the health insurance benefit.
Mr. Allen. Mr. Flynn.
Mr. Flynn. Couldn't do any better than that, sir.
[Laughter.]
Mr. Allen. OK.
I don't know whether this has been covered before, but I
assume that inevitably, at some point down the road, there will
be some sort of claims disputes that would typically happen, I
assume, after someone has left Federal employment. Is there any
role for OPM dealing with claims disputes?
Ms. Lachance. It could happen at any time, because what we
are hoping is to try to get benefits that are so flexible that
if something does happen to you during your work life and you
need some additional assistance with it, you can use the
benefit to pay for that. So, it could happen while you are
still working.
But what we would like to do is similar to what we do with
the health benefits plan, try to sort things out between the
enrollee and the plan. We have a great, successful record in
that, in trying to resolve issues, trying to explain the
situation to all the parties, and we have been very, very
successful. And we think we could do it with this benefit as
well.
Mr. Allen. In the case that would come up when someone is
still in Federal employment, is that a case of a severe
disability, or am I missing something about the long-term care
insurance?
Mr. Flynn. Mr. Allen, it could be any of a variety of
needs. The benefits of this type of insurance typically engage
when you are unable to perform two or more of what are commonly
known as activities of daily living, and that can occur for a
variety of reasons, not just older age.
Mr. Allen. Right.
Mr. Flynn. And so it is conceivable that you could have
employees participating and getting benefits from this program,
though, clearly, it is expected that the large majority of
people would need it in their later years.
Mr. Allen. Thank you, Mr. Chairman.
Mr. Scarborough. Thank you so much, Mr. Allen.
We need to let you all go on, and I would say that anybody
else that has questions, feel free to submit them.
Ms. Lachance. We will be glad to answer.
Mr. Scarborough. I do want to ask you just one final line
of questions, very quickly, because it is not exactly clear
what the administration's position is, and I don't think Mr.
Cummings bill really addresses this directly.
Do you believe that the Government should require carriers
to offer policies on a guaranteed issue basis? If so, wouldn't
that have a pretty substantial impact on the actual price of
these policies?
Mr. Flynn. Let me try that, if I could, Mr. Scarborough.
That is an essential component of the benefit design, and
so all of those questions have not been fully flushed out right
now. I think that what we are trying to do--and I think
everybody is trying to do the same thing--is craft a benefit
design and eligibility to participate in the program that,
particularly for employees, offers the most access for the most
people possible.
If we get into a situation where policies are issued with
guarantee issue, no underwriting whatsoever, that will have an
effect on premium, and we need to find the best balance of
that. So we are looking at anything that ranges from guarantee
issue to some form of minimal underwriting and trying to
understand the implications of that, in terms of benefit design
and premium.
As the Director has noted, we will be meeting, have
started, and will continue to meet, on these issues and develop
a consensus around that to meet that objective. So that is not
something that has been completely nailed down at this point.
Mr. Scarborough. Well, great.
Mr. Flynn. And I think that it is part of why we think it
is very important to have a flexible benefit design because:
One, we want to make sure that it reflects consensus, and, two,
that as time goes on, we want to make sure that it remains
contemporary.
Mr. Scarborough. OK. Well, thank you. We certainly can ask
our next panel what, in fact, they believe that is. I have
heard that having that in would possibly increase premiums
anywhere from 25 to 35 percent for everybody. If this Federal
Government plan is going to serve as a model for the private
sector and employers, that causes me grave concern, because it
prices almost everybody out of the market.
So thanks a lot. We certainly appreciate it and look
forward to seeing you again soon.
Ms. Lachance. Thank you.
Mr. Scarborough. Thanks.
Now we will call up our next panel.
Before we start with our next panel, I would like to ask
unanimous consent that the document from Fortis Insurance Co.
that is contained in everybody's packet be entered into the
record.
Without objection, we will order that.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T7738.032
Mr. Scarborough. Our third and final panel includes David
Martin, of the American Council of Life Insurance; Kenneth
Grubb, New York Life Insurance Co.; and David Brenerman, also
from Mr. Allen's home State, on behalf of the Health Insurance
Association of America.
We certainly welcome all of you and like to ask that you,
please, rise to take the oath.
[Witnesses sworn.]
Mr. Scarborough. Thank you.
Mr. Martin, why don't we start with you.
STATEMENTS OF DAVID S. MARTIN, AMERICAN COUNCIL OF LIFE
INSURANCE; KENNETH A. GRUBB, NEW YORK LIFE INSURANCE CO.; AND
DAVID H. BRENERMAN, HEALTH INSURANCE ASSOCIATION OF AMERICA
Mr. Martin. Good morning, Mr. Chairman.
Mr. Scarborough. If you could move the mic further over.
Mr. Martin. Good morning, Mr. Chairman, and members of the
committee.
I am David Martin, general director of long-term care at
John Hancock Mutual Life Insurance Co. I also serve as chair of
the long-term care committee for the American House of Life
Insurance.
The ACLI represents 493 member companies; 88 percent of the
long-term care insurance marketplace is represented by ACLI-
member companies.
On behalf of the ACLI, I want to thank you for the
opportunity to talk about the legislation introduced by you,
Mr. Chairman.
ACLI supports the efforts of the subcommittee and the
administration with regard to offering long-term care insurance
to Government workers as an employee benefit. This benefit is
an integral part of employees' retirement security. Without
this protection, retirement savings can be wiped out with just
one long-term care episode. We look forward to working closely
with you and your subcommittee members on this issue, as well
as with the Office of Personnel Management.
Within 30 years, 32 States will have the demographics that
Florida has today. ACLI's 1998 study on ``baby boomers''
indicates that Medicaid and the individual out-of-pocket long-
term care expenditures could rise by over 360 percent by the
year 2030. That study was presented to the subcommittee last
year. The aging of the population has focused national
attention on long-term care, including bills to extend further
favorable tax treatment such as an above-the-line deduction or
tax credit.
Turning to the legislation introduced to offer long-term
care insurance to Federal employees, we note that Senators
Grassley and Graham have introduced S. 36, the same measure
introduced in the last Congress by Mr. Mica, the former chair
of the subcommittee. In addition, Senator Mikulski has
introduced S. 59, the administration's bill, as Mr. Cummings,
the ranking member of this subcommittee, has introduced H.R.
110, the administration's bill on the House side. Within the
past couple of days, Mrs. Morella has introduced a long-term
care bill as well. Your bill, Mr. Chairman, H.R. 602, has been
introduced this year, along with Mr. Mica and others.
ACLI's long-term care committee believes that a competitive
bidding process, where group and individual insurance carriers
have the opportunity to compete on a level playing field, will
result in the most successful Federal program.
Clearly, individuals have different long-term care needs.
Based on our experience dealing with large employers, it is
appropriate to offer employees a variety of options. We believe
the criteria for offering long-term care insurance to Federal
employees should also include the following.
Only HIPAA-qualified plans should be offered to Federal
employees. In addition to their tax-favored status, qualified
plans include strong consumer protections. The Federal long-
term care insurance program should also reflect the June 1998
NEIC models which contain additional consumer protections.
There must be a reasonable and affordable plan design and risk
selection process that recognizes current practices in the
private sector. The process used to evaluate and select
carriers should be consistent so that there is a level playing
field. Any program and participation requirements should be
consistent for all carriers.
We believe OPM may choose a group of carriers, including a
consortium of carriers, to ensure the program. We believe that
the best way to provide for a successful program is for the
risk to be spread over several carriers, since a group this
large is many times greater than any group underwritten by a
single carrier today.
A competitive bidding process will ensure that the Federal
employees, annuitants, and other eligible family members will
have a high-quality, long-term care insurance program with
appropriate features and plan design options at reasonable
rates.
Carriers participating in the Federal long-term care
program must describe their care and claims management
practices to OPM and to plan participants. A key service is
assistance by RN's and finding services, that coupled with 800-
numbers, oftentimes, with 24-hour service.
There must be a reasonable claim appeal process that will
deal fairly with disputed claims. Carriers will be the final
determinant of eligibility for benefits. This is in keeping
with standard practice for ensured long-term care products
today. Carriers must individually, or in a consortium, be
licensed to provide long-term care insurance nationwide.
Carriers must describe the resources they would commit to
marketing the program, and overall administration of the
program should recognize legitimate expenses and reasonable
risk margin of the insurers.
Successful marketing efforts for the long-term care
insurance program require a strong partnership between the
employer and the carriers. We both share the common goal of
maximizing participation in the plan, and both play an active
role in developing and implementing a successful enrollment.
Carriers must describe their performance standards for
their administrative services. OPM would have the authority to
monitor the performance of the selected carriers and authority
to terminate for cause. Once carriers are selected there should
be a fixed period of time during which those carriers are
designated carriers for the program, except for termination due
to cause.
An educational component is critical to the success of the
program. Offering private long-term care insurance, as a core
Federal Government benefit for its employees, needs to be
coupled with an educational program to increase awareness among
Federal employees and their families about the importance of
planning ahead for long-term care.
The Federal Government can take a leading role in ensuring
that people plan for their future by offering this benefit to
its employees and their families.
Thank you, Mr. Chairman, and members of the committee. And,
again, we look forward to working with you.
[The prepared statement of Mr. Martin follows:]
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Mr. Scarborough. Thank you very much, Mr. Martin.
Next we have Kenneth Grubb, and Mr. Grubb, from New York
Life Insurance, will present the views of carriers who sell
individual, as opposed to group, insurance products.
Mr. Grubb.
Mr. Grubb. Thank you, Mr. Chairman, and members of the
subcommittee.
Those of us who believe in the importance of long-term care
insurance appreciate your leadership in calling today's hearing
to examine ways to bring this important benefit to Federal
employees.
We, at New York Life, are very interested in working with
you and the Office of Personnel Management to make long-term
care insurance available to the largest possible number of
people throughout the country.
Wide acceptance of long-term care insurance, on a private
basis, is a win-win for taxpayers and the Government,
especially in view of the fact that most Americans continue to
mistakenly believe that Medicare and Social Security will cover
their long-term care needs. Through the committee's efforts,
more people will come to understand that Medicare and Social
Security do not cover the cost of long-term care, except in
very limited circumstances.
Under a Federal employee program, thousands of people will
take it upon themselves to arrange for their own coverage,
saving the Medicaid program billions of dollars and easing the
financial burden on family and friends.
I am confident that the committee members are well aware of
the high cost of long-term care; 2 million Americans are in
nursing homes today, and nearly $56 billion of Medicaid's $161
billion budget is spent on long-term care. Combine the rapid
growth of the over-age-65 population with the fact that 70
percent of single individuals and 50 percent of couples with
one partner in a nursing home are impoverished within 1 year,
then you quickly see the burden facing us all if insurance
against this risk is not used on a broad basis.
Prompt availability of long-term care insurance to millions
of Federal employees and annuitants will go a long way toward
spreading the positive message about the availability of this
product and the peace of mind it can provide.
Sadly, many relatively young people who are aware of
private long-term care insurance believe this product is just
for older folks. But think about this; of those currently in
nursing homes, 40 percent are under the age of 65. Who would
have imagined that actors Christopher Reeves, Superman, and
Michael J. Fox, the picture of perpetual youth, would be facing
years of long-term care need?
I am just like Mrs. Kramer; when she was telling her story,
I was really moved because I have lived that same story myself.
My parents--first my dad with Parkinson's and then my mother
with emphysema--were faced with very painful choices. Blue-
collar workers all their lives, with only Social Security and
personal savings for support, they had very few options. They
could spend-down their limited assets and take Medicaid
coverage or--and this was the really good one that I could
never bring to my parents' attention--get divorced, after 62
years of marriage and pass all my dad's assets to my mother so
that he could qualify for Medicaid. Hardly attractive choices
for proud, hard-working taxpayers who never wanted a Government
handout.
I was lucky enough to be able to pay for the care my
parents received, but for millions of Americans, financial
hardship in one's later years is all too real. That is why this
effort to bring long-term care insurance to so many is a cost-
effective way to help people maintain their dignity and give
them the choices that they have earned after years of hard
work.
Mr. Chairman, we are pleased to note that some of your
colleagues are promoting bills to offer tax incentives and to
encourage public education toward the purchase of long-term
care insurance. The strengths of your legislation are many.
Wide eligibility--including spouses, parents, in-laws,
children, and step-children of Federal employees and
annuitants--means a broader, younger risk pool and lower
overall costs.
The use of a competitive, multi-carrier model that lets the
marketplace dictate costs and benefits is key to both wide
acceptance of the product and long-term commitments from
strong, reliable carriers.
We are concerned about limiting the program to group
policies. Many companies currently offer discounts on
individual contracts or have specific, individual policy forms
priced for offering on a sponsored group basis. These
individual contracts are competitive with group coverage and
ought not to be excluded from consideration of the program.
But most importantly, please ensure that the coverage is
totally portable. H.R. 602 preempts State mandates, giving us
the opportunity to offer a uniform package of benefits at the
lowest possible price on a nationwide basis.
Like the American Council of Life Insurance and the Health
Insurance Association of America, we strongly endorse the use
of qualified long-term care insurance contracts, as defined in
the Health Insurance Affordability and Accountability Act of
1996.
We urge that the committee move expeditiously to approve a
long-term care insurance program for Federal employees. The
longer it takes, the older we get, and the more it will cost.
Thank you for the opportunity to participate. And with my
colleagues, I will be happy to answer questions.
[The prepared statement of Mr. Grubb follows:]
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Mr. Scarborough. Thank you, Mr. Grubb.
Mr. Brenerman.
Mr. Brenerman. Yes. Good morning, Mr. Chairman, and members
of the subcommittee.
I am David Brenerman, second vice president of Government
Relations for UNUM Life Insurance Co. of America, based in
Portland, ME. I am also the immediate past chairman of the
long-term care committee of the Health Insurance Association of
America.
HIAA is the Nation's leading health insurance trade
association representing members that provide health, long-term
care, disability, and supplemental coverages to more than 115
million Americans. My company, UNUM, is the Nation's leading
provider of disability income insurance and is a leader in both
the employer and the individual long-term care insurance
markets.
I am here to comment on the bills H.R. 602 and 110, which
propose to offer long-term care insurance to Federal workers
and annuitants. And, also, I want to comment on the critical
role this insurance can play in financing our Nation's long-
term care needs.
I would first like to commend the subcommittee and the
Clinton administration for realizing the potential of the long-
term care insurance market. Today, more than 100 companies
provide long-term care insurance to over 6 million people. In
addition, over 1,800 employers have now sponsored a long-term
care insurance plan for their employees. Long-term care-related
expenses cost employers $29 billion a year in lost time,
employees, and productivity.
Many believe that long-term care insurance can have its
greatest impact in the employer-sponsored market. With the
Federal Government, the Nation's largest employer, offering
this benefit to its employees, this impact would be magnified
tremendously.
HIAA would like to raise the following points, with respect
to these bills.
First, the key to a successful Federal long-term care
insurance program is an effective education and marketing
campaign. Successful employer plans invest in multifaceted
education and marketing programs. The Federal Government's
endorsement and active role in educating employees is critical
to the success of this program.
Second, it is essential that market competition determine
carriers that will offer plans under the Federal program. All
interested companies should be allowed to freely compete in a
fair selection process that will determine eligible
participating carriers.
Third, using artificially low premiums as a major
determinant of, ``good'' long-term care products is a dangerous
route to take. A policy with rich benefits at low premiums,
offered with minimal underwriting, is a sure sign of disaster.
Integrating such concepts for Federal employees signals a
program with unstable premiums in a market that cannot be
sustained. Such a scenario would likely discourage responsible
companies from participating, thus, attracting only companies
that participate to gain quick market penetration, but with the
intention of raising premiums in the near future.
Fourth, the Office of Personnel Management should not be
responsible for adjudication of disputed claims for benefits.
HIAA opposes any type of third-party claims adjudication. There
is little evidence of abuse in this area, but more importantly,
there is no precedent for this in any public or private long-
term care employer plan. Given the exposure insurers face in
paying potentially enormous amounts of long-term care benefits,
it is an unwise and unfair public policy for the employer to
make claims decisions. Instead, HIAA supports a fair appeals
process within the insurance company for contested claims.
Fifth, program funds should not be maintained separately
from a carrier's other contracts or lines of business. This
requirement is unnecessary. The financial stability of a
company's long-term care business is enhanced because of the
diversity provided by the entire company's portfolio. This is
especially important for the Federal program during its initial
stage when its viability is still not proven. A more
appropriate requirement would be that reporting of this
program's claims experience be available and that this report
be separate and apart from the carrier's other business.
Long-term care is the largest, unfunded liability facing
Americans today. HIAA applauds long-term care programs that
encourage personal responsibility, help people currently in
need, and increase educational efforts.
The administration and congressional proposals have an
important common factor. The recognition that private long-term
care insurance plays is a vital role in helping people pay for
their future long-term care costs.
I would like to commend Congress for passage of long-term
care insurance tax clarification in the HIPAA law passed a
couple of years ago. These have improved the climate for
private long-term care insurance. Nevertheless, we believe that
other tax-related changes could make long-term care insurance
more affordable for a greater number of people--like Judy
Kramer, who spoke earlier.
In summary, over time, HIAA fully believes that private
long-term care insurance will give millions of people an
opportunity to be financially independent throughout their
retirement years. Recognition of the private long-term care
insurance market in this hearing is a solid step in that
direction.
Thank you, Mr. Chairman, and members of the subcommittee.
And we look forward to working with you on this legislation.
[The prepared statement of Mr. Brenerman follows:]
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Mr. Scarborough. Thank you, Mr. Brenerman. We certainly
appreciate your testimony and the testimony of the panel.
I want to start my questioning with the question that I
ended with our friends from OPM, and that has to do with the
guaranteed issue basis. There is some question right now
whether the administration is going to want to move in that
direction or not. That means, as you all know, if they do, that
everybody is eligible. It doesn't matter how young or how old,
how healthy, how unhealthy. Our approach is more modified for
active employees, and we allow underwriting for everybody else
that applies.
Could you delve into this issue? I think this is a critical
issue for us to clean up. What type of impact would it have on
premiums for employees, not only in the Government, but
employees in the private sector if their companies had a
guaranteed issue requirement?
Mr. Martin. Yes, actually, you know I think you have to
look at guaranteed issue as a plan design feature that does
carry with it some price consequences. You know, what you want
to do, I think, is certainly have as many insureds as you can
reach in the Federal program, but you want stability of
premiums for those insureds. And the looser the underwriting
is, then the more likely it is going to be that you will have
some immediate claim exposure.
So there are examples in the private sector of both
guaranteed issue for employees. Some plans will not allow
guaranteed issue employees to come immediately into claim.
There are alternatives, perhaps, what is called, ``modified
guaranteed issue,'' where there are three short-form questions
that are answered--basically, a statement that you are not
currently receiving long-term care services. And there are
different ways to do it and still keep the plan simple and not
put the plan at the risk of having higher premiums. But they
are all options that you would have in designing the plan.
Mr. Scarborough. If we did have a guaranteed issue, that
would drive the prices up fairly radically, in your opinion?
Mr. Martin. It would drive them up, certainly. I think I
would have to rely on actuaries to look at the demographics of
the Federal population, but I would certainly think that you
are talking, at a starting point, at least a 10 percent premium
increase because of some immediate exposure.
Mr. Scarborough. Right.
Mr. Martin. But looking at, you know, what the demographics
of your population would be, I think would give you a better
feel for that.
Mr. Scarborough. Mr. Grubb, or, Mr. Brenerman, I have heard
that it would cost as much as 25 to 35 percent increases. Have
you heard any numbers like this? Does that make sense to you?
Mr. Brenerman. Go ahead.
Mr. Grubb. I am sorry.
I would think 25 to 30 percent would be on the high side,
but I think that you are faced with some other dilemmas. All
three of us here represent companies that have been in the
guarantee-issue business. And, in fact, we have current
accounts that we have written on a guarantee-issue basis.
One of the dilemmas that you face is that you are
considering offering this to multiple carriers. And one of the
things in a guarantee issue program that is very important is
the participation level. Obviously, the higher the
participation level, the more minimal the risk. If you spread
the risk amongst a number of carriers, and you have a guarantee
issue program, how would the three of us distribute the risks
fairly and equitably. If we were the three carriers--maybe
David gets all the bad risks; I get all the good risks. His
premiums are going to need to be increased dramatically. So you
layer a level of complexity in the guarantee issue program.
I think we all support the multiple carrier model, and
guarantee issue would make that a little bit more complex.
Mr. Scarborough. Should each company in that model have the
freedom to underwrite, based on their own policies?
Mr. Grubb. I think I would agree with David, in that you
can come up with simplified underwriting for actively at-work
employees. I think that is a more reasonable solution to what
you are facing and really gets most of what it is that you
would like to accomplish.
Mr. Scarborough. Who should--I am sorry, Mr. Brenerman.
Mr. Brenerman. I would agree with the comments that we just
had. Typically, in the employer group market, there is only one
insurer selected--and we are talking about cases that are much
smaller than this one--and guaranteed issue for basic amounts
of coverage, not for the entire amount that someone might buy,
may work well in that setting. But when you have more than one
carrier, which we recommend here because the case is so big,
guaranteed issue, would be difficult for the reasons that were
stated, such as anti-selection. This means that people may find
the company that they think works best for them and they are
soon to be in benefit status.
So I think some kind of modified guarantee issue where we
ask three or more questions to find out whether there are some
people who are close to being disabled, or are already
disabled, will work.
Mr. Scarborough. Great. I think this might be why the
administration just wants one carrier, to have a monopoly. If
that is the case, they may actually be able to force whatever
policies, including guaranteed issue, on that company.
My concern there is, what sort of an example does that
leave to the private sector and private-sector employers that
we want to get into this business?
Mr. Brenerman. I think we all believe that this case is too
large for one carrier, and so we think that a number of
carriers could handle it together.
Mr. Scarborough. From my understanding, only about 15
carriers right now could even afford to get into this, because
of the expensive costs up front.
Mr. Cummings.
Mr. Cummings. Just trying to figure out, first of all, when
you say a ``multi-carrier,'' I just want to make sure I
understand because I didn't understand you, Mr. Martin, as
being--I think we have two different--I have got a different
definition of ``multi-carrier.''
The one situation would be where you have OPM limiting it
to a number of carriers--whatever you call that. Let's call it
``limitation,'' a limited pool of carriers. And, then, on the
other hand, you have the world, all carriers. Which would you
prefer to see?
Mr. Martin. I think in my remarks and comments, we were
talking about more than one carrier.
Mr. Cummings. Right.
Mr. Martin. So it could be a small number of carriers, as
we have heard from OPM. I think all of the issues that we have
heard about, you have a huge variance in the expected
penetration for the long-term care plan than for the Federal
health plan. So, to the extent that you have, you know, a
smaller number of carriers so that you can effectively
administer the plan, you would want to have a level playing
field. Whatever the rules are for--you know, if one carrier has
guaranteed issue, then, certainly, you would want similar rules
for everyone.
If there are three underwriting questions for the whole
population--or maybe for spouses or however you did those plan
design features--you would want those consistent, so you don't
advantage one carrier over the other or shift, you know, the
risks, so that your premiums for the groups become unstable.
Mr. Cummings. Now, you heard the testimony earlier from OPM
where they were talking about trying to keep rates down. When
we have the universe as the insurers, do you all disagree or
agree with OPM that it is harder to keep the rates down?
Mr. Martin. I think if you have----
Mr. Cummings. In other words, when you, say, do what you
just said when you talked about having all insurers, as opposed
to a limited pool of insurers?
Mr. Grubb. I am sorry if I left the impression that it
should be all insurers. My view of multi-carrier would be some
limited number of highly qualified carriers.
I think it is critical, and one thing that I would
absolutely recommend to you, is that whatever selection process
you or OPM goes through, that the financial strength of the
company be an overwhelming factor. Before you look at anything
else, you should look at the overwhelming financial strength of
the company. That, in itself, is going to limit the number of
carriers. There are 120, 130-some-odd companies that currently
are selling long-term care insurance today. Pick the ones that
are financially strong, because you are buying a coverage
today--I bought it for my three kids who are in their early-
20's--I want that company to be there to pay benefits 50 years
from now when they are going to need it. So be very careful in
that. I think that, in itself, will limit the number of
carriers. It would be parochial to say that, you know, ``pick
the carriers that were in the meeting with OPM yesterday.''
That would be the easy way to do it. [Laughter.]
Or the three of us; that would be good, too. [Laughter.]
But, pick carriers that are very well-qualified. And that
is going to get it to a reasonable and limited number of
carriers. I don't know if the number is 6 or if it is 10; I
don't think it would be a whole lot more than that. Maybe--I
don't know, but it wouldn't be the universe of carriers. If I
left that impression, I apologize.
Mr. Cummings. So, automatically, we get just a few
insurance companies doing this and based upon what you have
just said. So as far as what is in the policy, the benefits,
right now, is there a lot of leeway, with regard to--I mean is
there a broad scope?
Mr. Grubb. Very wide, very wide.
You can select benefit amounts in increments of $10. You
can get nursing home only; you can get 2-year, 5-year,
unlimited; you can get nonforfeiture; you can add inflation
protection. You can customize a plan to fit whatever your
particular needs are. All of our plans provide those kinds of
options and benefits.
And we would strongly recommend that you do that, to
simplify it, as we have done in our normal marketing. We could
work with OPM on developing what they view as the most commonly
available plan, or something that most people would like to
use, and make it easier for people to make that choice. But
there is an unlimited number of choices, and that is one of the
things that we could certainly recommend that you endorse.
Mr. Cummings. Mr. Chairman, just one more question.
Can you just give us, in a kind of snapshot, brief way, if
you can--I mean what is that average plan? What is the kind of
things that would be in that most common plan?
Mr. Grubb. What does it look like now?
Mr. Cummings. Yes.
Mr. Grubb. I will speak for us and let these gentlemen
speak for themselves, but our average plan is a 90-day
elimination period--which is like a 90-day deductible--a 5-year
benefit, $100 a day, without inflation. That is the typical
plan that people buy. Now you go to California, you go to
Alaska, you go to New York, people are going to buy a lot more
than $100. And the younger you are, the more you ought to buy
inflation protection. My children have inflation protection on
their plan.
Mr. Brenerman. And we do similar things. We offer a basic
plan which would include nursing home coverage, let's say $100
a day or $3,000 a month. And then the applicants would have a
choice of higher amounts, depending on where they live. In the
case of the Federal plan, if they live in New York, they can
buy up to $300 a day. If they live in North Dakota, they may
want to buy the $100 a day, as an example. UNUM also offers
professional home care as one plan, and another plan is total
home care, which pays for informal care provided by relatives
at home. So there are various kinds of care settings, including
assisted living. Those are all benefits that you can get, and
there are many more than that. Inflation protection is an
offer.
Mr. Martin. I would just agree the typical plan is $100 and
the care can be in a nursing home, institutional care,
community-based care. That is the real focus of today, a choice
of where the care is delivered, where the insured picks where
that care is delivered. That is a key piece of where policies
are today.
Mr. Cummings. Thank you all very much.
Ms. Norton. Could I yield for 1 second--on that question
about if you go into a nursing home, what percentage of nursing
home care today does this $100-a-day standard policy pay?
Mr. Grubb. It depends on where you are.
Ms. Norton. I mean the average--we have average figures for
nursing home care for----
Mr. Grubb. About $100 to $120 a day for nursing home care--
California is a lot higher; New York is a lot higher; Alaska is
a lot higher.
Mr. Scarborough. Thank you.
Mrs. Morella.
Mrs. Morella. Thank you.
Thank you, gentlemen.
Mention was made in the testimony that approximately 10
million people currently have long-term care insurance; pretty
accurate?
Mr. Grubb. Six.
Mrs. Morella. Six million?
Mr. Grubb. Six million.
Mrs. Morella. OK. [Laughter.]
Take a look at H.R. 1111. [Laughter.]
I think you have already, but this was not part of what you
were advised, with regard to this hearing, because it was just
introduced earlier this week. But actually in it, it would
increase the pool to 20 million. Obviously given that, you
would expect that you would be able to offer a group rate--I
mean you speak in general--a group rate that would be, not only
competitive with what is currently offered, but it could beat
it by a mile? A half a mile? Significantly--[laughter]--
dramatically? [Laughter.]
Just say, ``Yes.''
Mr. Grubb. Yes. [Laughter.]
You are just so easy to say ``yes'' to. [Laughter.]
Mr. Scarborough. Do you have anything else? [Laughter.]
Mrs. Morella. Well, OK. Among the array of plans that you
might propose, is there any reason why you could not offer a
non-HIPAA-qualified plan, such as a plan that would pay
benefits for medical necessity, only if there was a demand for
that kind of coverage and individuals that would be willing to
pay for it?
Mr. Brenerman. I think ``medical necessity'' benefit
triggers are not ones that many carriers would prefer to offer
because the current typical plan uses activities of daily
living or cognitive impairment as the triggers for benefits.
Those are the most objective measures of disability that we
know of; ``medical necessity'' is not, and so it is more--the
potential in a ``medical necessity'' trigger for abuse is far
greater. And as I said, it is a less objective measure. The
doctor says you need care and, that would be the extent of the
``medical necessity'' trigger. I think most companies would
prefer to use the activities of daily living and cognitive
triggers as the only triggers.
Mrs. Morella. But you wouldn't want to see a prohibition to
being able to offer it if you thought you could?
Mr. Brenerman. I wouldn't want to see it mandated that we
have to offer it.
Mrs. Morella. Oh, no, no, right. But you would not want to
see it prohibited by law either, that you offer it?
Mr. Martin. One thing, just in response. Looking at the
current employer market now, and within my company at John
Hancock, we do not have any clients that have asked for a non-
qualified plan, and that is in their role as the employer. I
think there is a concern certainly that they don't pass muster
relative to HIPAA. You get into a dilemma as to what you tell
the certificate holders and individual policyholders as to the
tax status. And I think some of the employers have some
fiduciary concerns about that, too.
Mrs. Morella. I think that is absolutely true. It is just
simply that one of the pieces of legislation that you have
looked at says that it has to be a HIPAA-qualified plan, and I
am just saying that it seems to me that if you wanted to offer
one of the others, recognizing the difficulties that, you know,
under certain circumstances you might be able to do it.
What I envision is that a limited number of insurers
offering a multitude of plans, each one of them. Is this the
kind of thing that you think is quite workable? Maybe one
insurance company could offer seven different kinds of plans,
you know?
Mr. Grubb. We do today.
Mrs. Morella. Right; right.
Mr. Grubb. That is exactly right.
Mr. Brenerman. Well, you could consider a----
Mrs. Morella. So, instead of a broad number of insurers,
you see offering different things.
Mr. Brenerman. You could consider it one plan with a broad
range of choices.
Mrs. Morella. That exactly--absolutely. OK; great.
Let's see, are you familiar with the process of negotiating
employer-based group long-term care insurance programs? And I
wonder, what role do you see the employer playing? In this
case, probably OPM.
Mr. Martin. Yes, I am familiar with it and, you know, I
think what you would expect to have happen is certainly a
discussion of what is best for the employee population that you
are talking about. And we are talking about the most diverse
population of any employer that is out there. So you do want
flexibility of options. I think at the same time, as you have a
back-and-forth on what is a good plan design, you want it to be
affordable. If there is a common goal, it should be that there
should be a successful penetration of this group, if you want
to provide valuable coverage at affordable rates, and stable
rates, rates that aren't going to bump out because they are
racheted down too far. So there are concerns, I think, in
clearly negotiating issues that have to be contended with.
Mrs. Morella. Could I just, very briefly, ask you, are
there companies that pay for long-term care for their
employers?
Mr. Grubb. Yes.
Mrs. Morella. I mean, such as--give us some examples that
we could--any that we could look at?
Mr. Brenerman. Well, I guess I am not here to promote my
company, but while I am here--[laughter.]
Of the 1,800 cases that I mentioned that have been sold,
UNUM has 1,400 of them. And most of them are small employers.
In half of our small employer cases, the employer pays
something toward the premiums, usually for a base level of
coverage, maybe some nursing home coverage, and then the
employee can buy additional coverages from there. So there are
a number of employers in the less than 500 employee companies
that do pay premiums.
Mrs. Morella. They probably have choices that the employees
make, in terms of do you want some help here or here or----
Mr. Brenerman. If you want, I can----
Mrs. Morella. Smorgasbord.
Mr. Brenerman [continuing]. Get the committee the names of
some of those companies if you----
Mrs. Morella. I am curious about any experiences with that,
basically.
Mr. Grubb. We have had similar experiences in that, just to
give you a couple of examples. We are finding a number of
school districts that are interested in providing a minimal
level of care, and they fund that, and then the employee, with
underwriting, can buy up. We have also had significant success
in selling to archdiocese who are interested in no longer self-
insuring priests.
Mrs. Morella. I can understand that.
Mr. Grubb. They are--the archdiocese is----
Mrs. Morella. I wish they would include nuns in that
category, too. [Laughter.]
Mr. Grubb. Well, they haven't so far, but they offer it to
them on a voluntary basis. [Laughter.]
I don't understand that.
But it is the same thing as David was speaking about.
Mrs. Morella. I would like you to, at some point in the
very near future to get me your response to the bill that I
mentioned to you--1111. I would appreciate it.
Thank you, Mr. Chairman.
Mr. Scarborough. Thank you, Mrs. Morella.
And, again, we certainly want to get that information in
front of all of our----
Mrs. Morella. Yes.
Mr. Scarborough [continuing]. Committee members today,
obviously. She dropped it a few days ago, and our material had
gone out before that.
Let me just say, briefly, one concern that I have and one
problem that we are going to have in this committee is, if we
go outside the HIPAA requirements, obviously, we are talking
about the possible tax liability on $3,000 worth of benefits,
and that is obviously something that Mr. Archer is going to
want to have to say something about it in Ways and Means.
So, let me now turn it over to Ms. Norton.
Ms. Norton. Thank you very much, Mr. Chairman. I think I
ought to say that I very much endorse the notion of OPM paying
for administrative expenses, as it does under FEHBP,
notwithstanding the chairman's joke at my expense. [Laughter.]
But I would think that when the Government picks up those
expenses, that the employee has to get something for it, as it
does in FEHBP, and as I think it would in the way your
testimony has discussed the plan.
I was interested--I guess it was you, Mr. Brenerman, that
talked about small employers----
Mr. Brenerman. Yes.
Ms. Norton [continuing]. Actually giving this as a benefit,
and that is not what we are doing. We are simply saying, ``We
will form a group,'' and--[laughter]--we will say, ``Go for
yourself.''
Mrs. Morella implied that this may be because they choose
this rather than something else, but I wonder. I think most
people would have to have health insurance. So I would like to
know something more about that, especially since you mentioned
smaller employers here. We are the grand daddy of them all, not
coming anywhere near that. And I would like to ask what the
premium--what is the average? Here we go to averages again--
premium cost of a long-term care policy?
Mr. Brenerman. Well, premiums are based upon the benefits
that are selected, as well as the age of the person selecting
the policy. So for a typical policy of $100 a day with half of
that for home care coverage, a 4-year benefit, for example, an
elimination period or deductible period of--in this case, the
numbers I have are based on a 20-day--most companies have more
than that. A 40-year-old would pay, with inflation coverage,
would pay about $500 a year. A 50-year-old would pay about
$650--this is all with inflation coverage; it is much less if
you don't have it. A 65-year-old would pay between $1,500 and
$2,000, and then it goes up from there, if you are over 65.
Ms. Norton. This is very interesting, because I think most
probably pay far more than that in health insurance, even
though the Government picks up about 70 percent of our payment.
I just think that one of the things we need to do is to find
out how much of this cost is myth and how much of it is real.
You heard Ms. Kramer's testimony. She just assumed that this
was way out of anything that she or her parents could have
afforded. It may not be the case.
I also want to clear up this notion about monopoly. OPM has
testified one or more companies and has not said it should be
only one company. I certainly would hope there would be more
than one because I want to see as much competition and to have
something to choose from, and because I am used to FEHBP, which
gives me something to choose from.
I would like to hear what you might have to say about the
scenario if there were not competitive bidding, if it was, you
know, open to everybody. What kind of scenario do you see
developing?
Mr. Martin. Well, I think you can get to a point where you
have high-quality competitive plans if you have a good
competitive bidding process. And that is what the companies are
used to.
Ms. Norton. When you say ``competitive bidding,'' you mean
based on what factors, for example?
Mr. Martin. Well, I think you would have to look--as, you
know, as Ken mentioned--you know, how the companies that are
able to meet the criteria of some of the things we have talked
about like being able to offer singly or in consortium,
nationwide coverage, meeting whatever the specifications of the
plan design would be, and carrying----
Ms. Norton. Would OPM set broad parameters, or would people
simply come forward with notions?
Mr. Martin. Well, I think you would want to have some
measuring stick so that you could assess all the players
equally. So that you would want some standards in there.
Typically, what happens in the private sector is, you know, 8
or 10 companies may respond to a bid proposal. And you have to
maybe hit 90 percent of the things they are asking for in there
in order to be considered for a finalist presentation. So there
is a selection process; there is competition, and what you want
to do is have good competitive rates, high-quality coverage,
but you want to be able to explain the plan design options. And
you can have quite a number of them in either scenario,
certainly, but you want it to be understood by people when the
plan rolls out.
Mr. Brenerman. When we say ``competitive bid,'' we don't
mean that you only have to say how much coverage is going to
cost. You get a whole booklet that employers ask you to fill
out. It includes financial information about the company. What
is your marketing plan? What is your experience in the employer
market or whatever market you are competing in? What is your
claims paying experience? And how do you deal with reserves?
Just a whole group of questions upon which the employer makes a
decision about which company to select for the program.
So, in this case, we are saying individual and group
carriers ought to be able to compete for the final selection
that OPM would make of the carriers to participate in the
program.
Ms. Norton. Mr. Chairman, thank you.
Mr. Scarborough. Mr. Allen.
Mr. Allen. Thank you, Mr. Chairman.
I want to welcome all members of the panel and say
particularly, David Brenerman, who lives in Portland, ME, and
works for one of the leading companies in my district that we
are very glad to have you here.
I would be interested in what the current industry
practices are with regard to dispute resolution. How does that
aspect of the business work now, in the private sector?
Mr. Brenerman. I guess I was the one that raised it so--so
the few times that there are disputes about benefit payments,
there is an internal appeals process that the insured is
educated about. It is in their policy. When a claim is denied,
they are alerted to the fact that they can appeal the claim.
And sometimes there are even second appeals, within the
company. And then after that, the choice for the insured, in
all cases, is judicial.
There are no employers that I know of that settle disputes.
Mr. Allen. That settled, that arbitrate them, or do you
mean----
Mr. Brenerman. Right. Employers----
Mr. Allen. No employers, or no employers that settle
disputes----
Mr. Brenerman. On behalf of their employees, they don't
have the employee come to them and say that they can't get
benefits and they want the employer to settle the claim with
the insurance company. They don't have the expertise to do
that. And, also, I guess we reserve the right to make decisions
on claimants.
Mr. Allen. Sure, and I take it from that, there wouldn't be
a practice of having some form of external appeal or
arbitration or mediation? It is, basically, you have got an
internal appeal and then you have an ordinary judicial remedy.
Mr. Brenerman. Yes. The judicial remedy often leads to
arbitration or mediation.
Mr. Allen. Of course.
Mr. Brenerman. They don't always have to end up in court.
Mr. Allen. Right. OK.
Mr. Martin. Just one thing, Mr. Allen, on that. Most
employer groups--the Government wouldn't fall into this
category--are subject to ERISA; so there is a formal claim
appeal process that is in place there. And, you know, certainly
something like that I think is what companies are used to
doing. A big difference, too--as Dave has pointed out--we are
talking about a fully insured block of business, as opposed to
a self-funded arrangement, which is more typical with health
benefits.
Mr. Allen. Are there any numbers out there about how often
claims are disputed? Does the industry collect them, or does
the Government collect them?
Mr. Martin. Well, it is interesting----
Mr. Allen. I would think it would be far less than your
ordinary health insurance?
Mr. Martin. Yes, and Dave might have some comments on this,
too, but a part of what happened with the passage of HIPAA was
a requirement that insurance companies have to report
information every year to State insurance departments.
Certainly, the feeling we get from the regulators, as well as
talking among ourselves, is this isn't a problem. But the
National Association of Insurance Commissioners is working on a
form that would be used to be a model filing for any of these
claim issues that would go in yearly. So I think the
information can be obtained. And there is a mechanism within
HIPAA for that.
Mr. Brenerman. First of all, long-term care insurance is a
relatively new business. So, while we do have a number of
claims, you don't nearly see the number of claims as you would
have in the health insurance policy where most people some time
take advantage of their policy. But people would hope never to
take advantage of their policies if they had long-term care
insurance.
Mr. Allen. Like fire insurance, sir.
Mr. Brenerman. Exactly, yes.
So claims disputes are not as frequent, because the benefit
triggers are more objective. While we do have disputes over
whether an insured is disabled or not, they are not nearly as
great as they are in disability insurance or in health
insurance.
Mr. Allen. Thank you.
Thank you, Mr. Chairman.
Mr. Scarborough. Thank you, Mr. Allen. The chairman
appreciates your questions and appreciates the panel's
testimony. I just want to conclude.
I am sure we might have some questions that we will be
sending to you to address.
In particular, Mr. Brenerman, you had cited a 5 percent
decline in the cost of premiums for long-term health care
because of some innovation and competition. Obviously, that is
something that we are very interested in. OPM has said in their
testimony that, I believe, vendor competition and product
competition would actually make prices more competitive is
something that they disagree with, and would certainly
appreciate you filling us in, in that area.
Mr. Brenerman. I think what we meant was that, since long-
term care has been sold, price of the policies has gone down,
because of innovation and competition.
Mr. Scarborough. Right.
Mr. Brenerman. Sure, we will provide you some more
information.
Mr. Scarborough. Great. All right, thanks a lot. We
appreciate it.
This meeting is adjourned.
[Whereupon, at 12:10 p.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record
follows:]
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LONG-TERM CARE INSURANCE FOR FEDERAL EMPLOYEES, PART II
----------
THURSDAY, APRIL 8, 1999
House of Representatives,
Subcommittee on the Civil Service,
Committee on Government Reform,
Jacksonville, FL.
The subcommittee met, pursuant to notice, at 10:04 a.m., in
the Officers Club, Jacksonville Naval Air Station,
Jacksonville, FL, Hon. Joe Scarborough (chairman of the
subcommittee) presiding.
Present: Representatives Scarborough and Cummings.
Staff present: George Nesterczuk, staff director; and John
Cardarelli, clerk.
Mr. Scarborough. I would like to call this meeting of the
House Civil Service Subcommittee to order.
Ladies and gentlemen, this morning we are going to continue
our deliberations over legislative proposals to establish a
program under which both civilian and military personnel may
purchase long-term care insurance. This is the third hearing
that this subcommittee has held on long-term health care. The
first hearing was held in March of last year and gave rise to a
bill that was introduced by then-Chairman John Mica, also from
Florida, to establish a long-term health care insurance program
for Federal employees and their annuitants. Later in the fall
of 1998, Senators Chuck Grassley and Bob Graham introduced a
bipartisan companion bill in the Senate. Unfortunately, the
105th Congress adjourned without acting on either bill.
I am pleased that the President has now joined Congress in
proposing to make private long-term care insurance available to
Federal employees and annuitants. In addition to my own long-
term health care bill, H.R. 602, our ranking member, the
Honorable Mr. Cummings, and Representative Morella have also
introduced long-term care bills. I certainly hope that by
working together, we will also make this an important benefit
and make it affordable and available to all Federal employees.
I want to emphasize too that I recognize that active duty
service men and women and military retirees have performed
valuable service to our Nation as employees of the Federal
Government. In fact, they and their families have endured great
sacrifices to perform the most valuable service that any
government employee can provide--keeping our Nation strong and
free. Neither I, nor I am sure my colleagues in the House and
the Senate, will lose sight of the fact that even as we conduct
today's hearing, American service men and women are putting
their lives on the line to serve our country in the Balkans and
in other dangerous regions throughout this world.
Prior to the introduction of H.R. 602, my staff and I
clearly stated my intent to include both active and retired
members of the uniformed services in the long-term health care
insurance program at the appropriate time. Being from the
district in northwest Florida that I believe has more military
retirees than any other district in the Nation, I do not think
I would be very well served to exclude them. I have heard their
needs and concerns and certainly I know that long-term health
care is very, very important.
I continue to welcome the opportunity to work with
organizations representing military retirees and military
families to ensure their inclusion in a long-term care
insurance program. In particular, I am interested in how this
program might contribute to the recruitment, retention, and
morale of military personnel. Inclusion of the uniformed
services will require the coordination of the Department of
Defense and the House Armed Services Committee, on which I
serve. It is my hope that we can begin this process with the
testimony received today from the Department of Defense.
With 1.4 million active duty and 1.6 million retired
uniformed services personnel plus their families, the
eligibility pool would grow significantly. When you combine the
1.8 million Federal civilian employees and the 2.3 million
civilian annuitants and survivors, the expanded pool may also
serve to lower premiums for all participants. I believe that is
what would ultimately happen.
As one of the Nation's largest employers, we can encourage
our Federal workers to assume personal responsibility for their
future long-term care expenses through the purchase of this
insurance product. Competition among carriers and the volume of
sales should generate group discounts that would keep premiums
affordable for all participants. And in making long-term care
insurance available to individuals in their working years, the
Federal Government can help encourage the purchase of this
product at younger ages when premiums are lower and more
affordable.
Appealing to people during their prime working years is a
common sense approach to solving a growing problem in long-term
care financing. The fact is that most Americans simply cannot
afford to pay the $41,000 average annual cost of a nursing home
stay or the $98 average per visit fee of a registered home care
nurse. Most people mistakenly believe that Medicare will
provide for all of their long-term health care needs. They
quickly learn that it will not. For two out of three Americans
today, that help will only come from the Medicaid program but
only after the individual is impoverished. We have heard
testimony in Washington, DC on this issue, and I know each one
of us has a family member or relative or friend that we have
seen their life savings completely diminished before they were
eligible for any help. It is a heartbreaking procedure and one
that I think we should do without. If we can create a program
that will allow us to avoid that tragedy late in one's life, we
need to do it. With a rapidly aging population, Medicaid will
not be able to withstand the demand for long-term care services
in the future, so we must do something about it today.
In crafting legislation to address this problem, we should
build on our past successes and not repeat our past failures.
Our measure of success for the long-term care insurance program
will be the extent to which Federal employees will purchase
this needed protection. In order to meet the varying needs of
the diverse population, we have got to have competitive benefit
plans at affordable prices.
I look forward to hearing from our witnesses to make the
case for expanding the participant pool to include members of
the uniformed services, and also to clarify some remaining
issues concerning access to benefits.
I pledge that I will work in good faith with all Members of
Congress, any organization of employees and retirees, insurance
carriers, the administration, and any other interested party to
make the promise of affordable long-term care insurance a
reality for the Federal community.
I thank everybody for showing up today. I am looking
forward to a very productive hearing. Right now, I would like
to recognize the ranking member, the Honorable Mr. Cummings
from Maryland.
[The prepared statement of Hon. Joe Scarborough follows:]
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Mr. Cummings. Thank you very much. I want to thank you, Mr.
Scarborough, for bringing us together today here in
Jacksonville, and I think it is an appropriate place for us to
be.
Long-term care is an important priority for me as ranking
member of the Civil Service Subcommittee. A few weeks ago, the
subcommittee held a hearing on three legislative proposals for
long-term care for Federal employees. At the hearing, we
discussed the merits of long-term care bills introduced by
myself, Chairman Scarborough and Congresswoman Connie Morella
of Maryland. Though the differences between the bills are
significant, the subcommittee is committed to working in a
bipartisan manner to reach agreement on a consensus bill.
On January 6, I introduced H.R. 110, the Federal Employees
Group Long-Term Care Insurance Act of 1999. My bill is one of
four elements of the comprehensive long-term care package
proposed by President Clinton.
H.R. 110 would authorize the Office of Personnel Management
to purchase a policy or policies from one or more qualified
private-sector contractors to make long-term care insurance
available to Federal employees, retirees and eligible family
members at group rates. Coverage would be paid for entirely by
those who elect it.
The Clinton administration and I support modifying H.R. 110
to extend long-term care coverage to active duty military
personnel, military retirees and their families. And I want to
thank Mr. Scarborough for being so sensitive to the issue of
military personnel and retirees and their families. I believe
that extending coverage to military personnel would make the
risk pool larger and more diverse.
All participants other than active employees and active
duty military personnel would be fully underwritten, as is
standard practice with products of this kind. Coverage made
available to individuals would be guaranteed renewable and
could not be canceled except for non-payment of premiums.
Though each participant would be responsible for paying the
full amount of premiums based on age at time of enrollment,
group rates will save an estimated 15 to 20 percent off the
cost of individual long-term care policies.
OPM will be responsible for the administrative costs of the
program which is estimated to be only $15 million over a 5-year
period. This would include developing and implementing a
program to educate employees about long-term care insurance. I
am convinced that a lot of people do not even know it exists.
Extending OPM's marketing efforts to active duty military
personnel and retirees would further increase the costs.
I believe that H.R. 110 will help to raise the general
public's awareness of the need for long-term care insurance and
underscore the limitations associated with reliance on Medicaid
for one's long-term care needs.
With an aging society, the need for good long-term care
facilities is rising. Nursing homes, where most elderly
Americans receive long-term care, are increasingly coming under
fire for malnourishment of residents, inadequate treatment of
bed sores, records falsification, and lack of qualified
supervision.
Cuts in Federal Medicare payments and difficulty in finding
satisfactory employees are contributing to an increase in
nursing home complaints. In addition to cracking down on
nursing homes by stepping up inspections and imposing tougher
sanctions, this problem can be addressed by more Americans
investing in long-term care insurance.
Federal employees that enroll in the Government's long-term
care program will be able to choose home and/or community based
care to meet their long-term care needs. They will have a
greater say in the type and quality of care that they and their
family members receive, and they will not be dependent on
government subsidies or affected by program cuts. No doubt, the
non-federally employed who obtain long-term care insurance
would realize the same advantages.
By 2025, the number of Americans over 65 will be over 60
million. Many families will find it impossible to afford
nursing home care which will increase from $40,000 to an
estimated $97,000 by the year 2030. Under current law, a family
would deplete all of its financial resources to qualify for
Medicaid which would only pay for a portion of needed long-term
care services. By offering long-term care as a benefit option
for its employees, the Federal Government, as the Nation's
largest employer, can set the example for other employers.
Just a few days ago, I had an opportunity to meet with some
representatives of the insurance industry and the nursing home
industry in Baltimore, and one of the things that they echoed,
and it was very clear, and I assured them that we were
listening on both sides of the aisle in Congress, is they said
you have got to do it, but make sure you do it right; make sure
you do it right because you are setting the example for the
entire country and for the civilian population.
So I am looking forward to hearing from today's witnesses.
I want to thank all of our witnesses. Just in case we do not
say it enough, we are going to say it over and over, and do not
get upset with us, we really appreciate you taking up your time
to be with us today. Because it is your testimony that will
help to do it right. So we thank you.
And again, I thank you, Mr. Scarborough.
[The prepared statement of Hon. Elijah E. Cummings
follows:]
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Mr. Scarborough. Thank you, Mr. Cummings. I just want to
echo your sentiments of how important this is. A lot of times,
we lose sight of it, but the Federal Government obviously is
one of the largest employers in the country and what we are
doing here today is not going to affect the Federal work force.
What we want to do is implement a plan and a program that will
be a good example to private employers across the country. With
the aging population, with the baby boomers, the so-called baby
boomers, moving toward retirement in the year 2010, we are
going to be facing an aging crisis that this country is not
going to be able to handle with just the Federal Government. It
is going to require the Federal Government and private
employers stepping in and standing in the gap and filling the
holes.
That is why it is so absolutely essential that we put a
program together that works for Federal employees, that will be
a guide for hopefully private employers and so this long-term
care crisis can be resolved before things get especially
difficult in the year 2010.
Right now, I want to ask our distinguished panel if they
could please rise; I want to swear you in.
[Witnesses sworn.]
Mr. Scarborough. Be seated. We have with us today Marilyn
Cobb Croach, the area representative for the National Military
Family Association; we have Senior Master Sergeant Larry
Hyland, U.S. Air Force retired--I cannot believe they let you
on the base, an Air Force man--national director of the Retired
Enlisted Association, he is actually a constituent of mine. We
also have Colonel Klyne Nowlin, he is also U.S. Air Force
retired, State president of the Retired Officers Association.
We are certainly honored by all of your presence.
Ms. Croach, if you could begin your testimony.
STATEMENTS OF MARILYN COBB CROACH, AREA REPRESENTATIVE,
NATIONAL MILITARY FAMILY ASSOCIATION; SMSGT LARRY HYLAND, USAF
RETIRED, NATIONAL DIRECTOR, THE RETIRED ENLISTED ASSOCIATION;
AND COL KLYNE NOWLIN, USAF RETIRED, STATE PRESIDENT, THE
RETIRED OFFICERS ASSOCIATION
Ms. Croach. Thank you. Mr. Chairman and members of the
subcommittee, my name is Marilyn Cobb Croach and I am here
before you today in my role as a volunteer area representative
for the National Military Family Association.
I appreciate this opportunity to express the views of the
association and the uniformed service families we represent.
Although the area I represent is Orlando, FL, the staff at NMFA
headquarters asked if I would be able to travel to Jacksonville
to represent military families on this very important issue.
Ironically, on the day that headquarters called, I was
chauffeuring my father-in-law to and from a hospital visit with
my mother-in-law.
I am in Jacksonville today not only to represent the
uniformed service families at this hearing, but to accompany my
mother on a visit to the Mayo Clinic. Needless to say, the
subject of long-term health care for my mother and the parents
of my Air Force retiree husband are in the forefront of my
mind.
At the same time, the situations with our parents has made
both my husband and me realize that we too could become
vulnerable. National statistics indicate that at some time in
the future, we may be unable to provide the care needed for
each other and one or both of us could be reliant on some form
of long-term health care.
NMFA understands that current proposals for long-term care
for Federal civilians do not include any subsidy by the Federal
Government. We believe that including the relatively young,
active duty military force in the eligible population can only
serve to increase the buying power for the total community and
thus reduce premiums. Since few military families have
significant disposable income after the basics of housing,
health care and food are purchased, they would be unable to
afford a policy with high premiums, no matter how wise an
investment they thought it would be. Mr. Chairman, military
families need the ability to purchase such care at affordable
group rates.
NMFA also firmly believes that service members and their
families should not, once again, be left out of a program for
all other Federal employees and retirees. My association has
long supported an initiative that would allow military families
to have access to the Federal Employees Health Benefits
Program. We strongly believe that such an option is of
particular importance to those unable to fully participate in
the Tri-Care Program, the over 65 dual Medicare-military
eligibles, and active duty members and retirees and their
families who do not live near a military health care facility.
With long-term health care a possibility for Federal civilian
workers and retirees, we implore this subcommittee to remember
that we too are part of the Federal family.
Mr. Chairman, NMFA is also aware that the proposals for
Federal civilians would extend coverage to their parents and
their parents-in-law. This coverage would be of particular
importance to the active military force. The advent of the all-
volunteer force has undoubtedly given us the brightest and the
most well-educated armed force this country has ever seen. It
has also brought us a force that is married. Service members
are not just concerned about their own families, but the
parents of both the member and the member's spouse. Department
of Defense statistics reveal that over 8 percent of the total
active force and 12.7 percent of senior career enlisted--E-7
through 9--and 14.3 percent of career officer--O-4 and above--
have responsibility for elderly relatives.
Since thousands of miles and often an ocean separate
military families from their parents, significant stress occurs
when the parents can no longer care for themselves. How does
the military family stationed in Japan care for an elderly
parent in Florida? As difficult as caring for elderly parents
may be for any family, such distances make a difficult
situation an almost impossible one for a service family. The
high operations tempo the armed forces are currently facing
often puts the care for both sets of parents squarely on the
shoulders of the military spouse--a spouse who is already
trying to balance a needed job and being a single parent to the
couple's children. When this spouse is living in Washington
State, adding the care of an elderly parent or parent-in-law in
Orlando may be a task the spouse just cannot adequately
perform.
Unfortunately service families have few alternatives in
these situations. They are unable to spend weeks and months
away from their own children caring for an elderly parent
located at a great distance from their duty station. They are
hesitant to uproot such a parent and make them endure the
nomadic military lifestyle, and they do not, in most cases,
have the financial reserves to assist their elderly parents
with the enormous costs of long-term care. The safety net of an
affordable policy for such care would relieve the frequent
nagging worry that often accompanies orders to remote areas.
NMFA also believes these relatively young families who might
ordinarily consider the expense of a long-term care policy
would quickly realize its advantages for themselves.
NMFA represents the interests of all seven uniformed
services and therefore requests that not only military families
but the families of those in the uniformed corps of the U.S.
Public Health Service and the National Oceanic and Atmospheric
Administration be also included.
Thank you, Mr. Chairman, for this opportunity to express
the strong desire of uniformed service families to be included
in any long-term care proposal.
Mr. Scarborough. Thank you, Ms. Croach.
Mr. Hyland.
[The prepared statement of Ms. Croach follows:]
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SMSGT Hyland. Good morning, Mr. Chairman and Mr. Cummings.
My name is Larry Hyland and I sit before you today as both a
national director of the Retired Enlisted Association and also
as a constituent of the chairman, who resides in Crestview, FL.
On behalf of TREA, we thank you for the opportunity to
address the issue of long-term care as it relates to the
concerns of our members. TREA has over 100,000 members and an
auxiliary representing all branches of the armed services,
retired, active duty, guard and reserve. Their concern over the
accessing of health care in the future stems from cost
implications in medical care, not only for themselves but, also
their families.
With base closures, military treatment facilities
downsizing, demographics changing, the need to provide access
to health care to our ever-growing number of aging retirees
creates anxiety with those that were promised lifetime health
care. The support from this subcommittee for the Federal
Employees Health Benefit Plan for Medicare Eligible Military
Retirees Test Program is very much appreciated. This expands an
equitable benefit to the men and women who have patriotically
served this country. As this committee is aware, this is only
one part of the matrix for accessing health care for our aging
war heroes and heroines, long-term care is becoming a
particular topic of concern for both our members and also this
Nation.
As this committee reviews the current legislation for long-
term care insurance, I ask that you include the active duty,
the guard, the reserve and retired members of the uniformed
services in your final legislative proposal. The administration
and Congress have proposed different legislative initiatives to
providing long-term care insurance products to Federal
employees, including your bill, Mr. Chairman, H.R. 602, and Mr.
Cummings' bill, H.R. 110. As men and women who have served and
continue to serve in the uniformed services, we feel we should
be included under the same population as Federal employees and
retirees for accessing long-term care insurance products. As
you are already aware, Congresswoman Connie Morella's bill,
H.R. 1111, long-term health care, includes members of the armed
services, both active duty and retired. It includes as well
their spouses, parents, parents-in-law and other annuitants.
Incentives to purchasing long-term care now at lower
premium rates would ensure some financial security in the
future for those of the uniformed services. Offering long-term
care insurance at a group rate, which includes both Federal
employees and uniformed service members, could further reduce
the cost of private insurance products and lower premium rates.
As we know, one can never plan fully for the diagnosis of a
deteriorating health condition or of an accident resulting in a
lifetime disability to one's self or a family member. However,
paying into an affordable long-term insurance product can
reduce some of the financial burden associated with either of
these.
Living here in the State of Florida, one cannot read a
newspaper or turn on a TV without seeing something about
planning for your senior years. Being able to have affordable
access to long-term health care, if needed, is part of that
planning.
I am no expert on this subject, but I come before this
committee to help ensure that as a military retiree and a
member of TREA that I have the same choices in long-term care
as my civil service neighbor. I realize that potential risk to
my wife's and my own health increases with age. This forces me
to look for ways to reduce the financial destruction to not
only our own life savings, but those of our children as well,
due to costly medical bills out of long-term care. Also, I do
not desire to exhaust all our assets in order to be left on
Medicaid.
Planning now for the unexpected is as important as planning
for our retirement--actually they go hand in hand. In my
profession as a business owner, I have--and in order to ensure
success, must plan for the future and assess all risk. This is
true not just in business but in life as well.
Today, I speak to you as a military retiree, but let us not
forget the active duty member stationed overseas. This member
may be burdened with the additional responsibility of a parent
or a parent-in-law, who requires skilled nursing care. He or
she needs reassurance that a benefit exists to ensure the
family's needs are met.
My wife and I both served on active duty with the Air
Force. I am now retired and she continues to serve as a
reservist. The benefit promised us upon our enlistment and re-
enlistment ceases to exist as it pertains to the promise of
lifetime health care. As military careerists, we both feel
betrayed. Let us correct this wrong by not forgetting to offer
a truly good benefit package to our young new recruits as well
as our retirees, by providing a long-term care benefit equal to
Federal employees.
In closing, we are requesting that the uniformed service
men and women who are serving now or are retired have the
choice to purchase long-term care at a group rate alongside
Federal employees. This again is an equity issue. This
committee has worked with us diligently to have 66,000 military
retirees included in FEHBP and we appreciate the hard work
associated with that. We now ask that we have access to the
same long-term care benefits as other Federal employees.
Mr. Chairman, on behalf of the Retired Enlisted Association
and all military retirees, I would like to offer my sincere
appreciation to come before you today to request the inclusion
of the uniformed services participation into the Federal
employees long-term health care proposal.
Thank you.
Mr. Scarborough. Thank you, Senior Master Sergeant Hyland.
I certainly appreciate your testimony. You talked about the
sense of betrayal that many military retirees felt because they
did not receive the health care promised, and I have got to
tell you that is something that is very important to us on this
panel and needs to be a message that we do take back with us to
Washington, DC. I certainly know last year and the year before
when we held Tri-Care hearings in my district, there was that
recurring sense that the Federal Government had not kept their
word to those men and
women that served so ably throughout the years and that is
certainly something that we will remember as we agree on a
final bill. I thank you for your testimony.
Colonel Nowlin.
[The prepared statement of Mr. Hyland follows:]
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COL Nowlin. Mr. Chairman, distinguished members of the
committee, on behalf of the Retired Officers Association, TROA,
I am pleased to be here today to address the important issue of
long-term care for our almost 400,000 active duty, retired,
reserve officers of the seven uniformed services. Included in
our membership are approximately 71,000 auxiliary members who
are survivors of former members of our association. This
subject is not only of great importance to our members, but to
all uniformed service members everywhere, regardless of their
status and their rank.
I want to thank you, Mr. Chairman, for allowing us to
present our views on long-term care and its importance to
military members and their families. I am most pleased that you
decided to hold these hearings in Jacksonville Naval Air
Station in Florida.
Mr. Chairman, the hearings today are important to the
44,600 TROAns living in Florida, of which 6,400 live in your
district, and of the 173,200 military retirees in Florida, of
which 30,600 military retirees live in your district.
Worldwide, there are 1.8 million military retirees plus their
dependents and family members who, if included, are potential
participants in a government-sponsored long-term care proposal.
Like many Floridians, uniformed service members, active,
reserve, guard and retired are concerned about their health
care and the potential need for long-term care in case of a
debilitating illness or injury which can happen at any time.
Please allow me to digress a little now. I want to take
this opportunity to state our sincere appreciation to you for
supporting the congressional efforts to restore health care
equity to uniformed service retirees who lose Tri-Care at age
65. Curtailment of military health care services because of
legislative restrictions, staffing drawdowns, reduced operating
budgets or base closure actions like that in Orlando and
Homestead areas, is a breach of the promises made to retirees
that health care would be there for them if they served a
career in uniform.
Historically, Mr. Chairman, you have been a strong
supporter of the military and for the people issues so
important to all of us. So thank you for being a friend and a
strong supporter of the military community.
Now I want to address the growing concern among our older
Americans, and those who have to care for them, that long-term
care insurance is also a health care imperative. Without such
insurance, most Americans who are responsible for caring for a
parent, a parent-in-law or a disabled spouse who is suffering
from debilitating illness or injury will not have the resources
to do so. Medicaid and Medicare are not the answers. The
solution for many Americans is to promote enrollment in group
long-term care insurance plans to make such coverage available
to more senior citizens. Every incentive that Congress can give
toward enrollments in group long-term care insurance will
lessen the demands that may otherwise be placed on Medicaid,
the government and the taxpayer.
There are different approaches in how a Government-
sponsored long-term care plan could be structured and what role
OPM should play. Which is the right one is for your committee
to resolve? I do not or I am not an expert to address these
matters. What concerns us is that until recently, each long-
term care bill introduced in Congress has excluded the
uniformed services community.
TROA greatly appreciates the lead of Representative Morella
for developing a more expansive bill which includes members of
the uniformed services.
Let me highlight an experience that I had, and it is one
which is similar to many--to some of my friends who have run
into the same situation. My particular case was with my mother,
but some of the people that I know it has been with their
spouses.
A few years after my father passed away, my mother,
Kathleen M. Nowlin, age 77, suffered from acute myocardial
infarction, diabetes, blindness and incontinence. Her physician
determined that she required 24-hour skilled nursing care. She
was placed in Medic-Home Health Center, a nursing home in
Melbourne, FL on November 9, 1982.
At the time, the cost of nursing home care was about $2,000
a month, not including pharmacy, physician costs, personal
needs such as laundry, clothes, et cetera. My father had been
an automobile mechanic most of his life and my mother a
homemaker or a housewife. They did not have much to live on
after retirement except for Social Security and interest earned
on their meager savings which, to the best of my knowledge, was
around $50,000 to $60,000. With mother's medical problems, it
did not take long for my mother's assets to be drawn down to a
point where she had to apply for Medicaid to be able to stay in
the nursing home. At that point, all of her valuable
possessions were gone and she became property of the State. She
remained property of the State until she died on January 12,
1988.
My mother was very fortunate, as was me and my family, to
have Medicaid as an alternative when her assets were depleted.
At the cost of about $30,000 to $35,000 a year at that time,
which has grown now, we could not have afforded the huge cost
of nursing home care without going into poverty ourselves. And
this is true for many whose spouses have gone into nursing
homes.
Most military retirees cannot afford current long-term
insurance on our own. Thus, today we take the gamble that we
will be one of the lucky ones who will not need long-term care.
And if we do need it, I am afraid we will go down the same path
that my mother experienced.
Mr. Chairman, your support of the military members has been
very apparent over the years and I must say that we were
heartened during hearings that you conducted last month when
you gave your endorsement for including us in whatever
legislation the committee reports out to the full House. Your
endorsement is truly appreciated by all of us in Florida.
According to DOD--I'm not sure our figures match, but they
are close--according to DOD, there are 3.4 million active and
retired service members and survivors who could participate in
a Government long-term care plan, if offered. Last week, I ran
a survey of just my chapter in the Cape Canaveral area, and in
that survey there were--of the 100 that I passed out, I
received 78 responses, 88.5 percent said they want the option
to have long-term care. Now that is a large number. Now if that
is true across the State, or if only half, say 42 percent would
want it, it tells you that our people are concerned about long-
term care and they are concerned about their health coverage
and they are willing to sign up for it.
According to OPM, there are about 4 million active and
retired Federal civilian employees and survivors who would be
eligible to participate in a government long-term care plan.
Based on these figures and using the national participation
rate of 6 percent conservatively, we expect that the
participation rate for military members could be around a
little over 200,000, probably higher given favorable premiums
available through a group plan. The participation for Federal
civilian employees could be about 243,000 using the national
rates. However, OPM projects the participation to be closer to
300,000 given the favorable premiums under the Government group
plan.
If active and retired uniformed service members are
included in the Government's long-term plan, it is likely that
a more favorable group rate could be achieved and thus make
long-term care coverage affordable for service members.
In closing, I want to reaffirm for you, Mr. Chairman, that
uniformed service members want to be treated equally and fairly
in programs developed for Federal employees. We want to have an
opportunity to participate in the Government's long-term care
program on the very same basis as other Federal civilian
employees.
Uniform service members are proud people who, like Federal
civilians, do not want to burden their sons, their daughters or
their spouses with having to care for them when their health
declines and they become too infirmed to care for themselves.
For the defenders of this country--and I think you spelled that
out--past and present, please reassure us again today that you
will include us in the long-term care legislation this
committee reports out to the full House this year.
Mr. Chairman, on behalf of TROA's members and all the
military retirees here in Florida, I want to thank you for
allowing me the opportunity to present the views of the Retired
Officers Association on this very critical and important issue.
I thank you.
[The prepared statement of COL Nowlin follows:]
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Mr. Scarborough. Thank you, Colonel. We certainly
appreciate your input and want you to know that we do
wholeheartedly support military members and military retirees
into this plan. Not only does it make good economic sense, it
is what the Federal Government has to do to keep its word.
The numbers that you were kind enough to give regarding the
number of military retirees that are in my district right now
would suggest that I would be stupid not to include them and
would have trouble actually driving back to my district if I
did not include them.
But actually, when we were holding the Tri-Care hearings, I
heard so many heartbreaking stories across northwest Florida
about this breach of faith that I think the Federal Government
really engaged in with those men and women that have done so
much for this country in protecting our shores and the
Constitution. You can see the heartache.
I want to assure you and everybody on this panel, it is
very personal to me. My grandfather was on the Maryland on
December 7, 1941 in Pearl Harbor, and survived the attack. He
was an enlisted Naval officer throughout that war and also
throughout the Korean War and served in the Navy until the
early 1970's when he retired in China Lake. But as he was
dying, he was very bitter toward this country and toward the
government that he had fought for his whole life and given his
whole life for. I remember asking my uncle out in California, I
said, ``What is it with grandad, he devotes his entire life to
the Navy and to this country and now as he is dying, he is
bitter toward it.'' And he said well, you know, Joey--and only
my family can call me that--he said, Joey, you know, your
grandad is a pretty simple guy, he is from Oklahoma and he
believes that if a man gives him your hand and you shake on it
and gives you his word, if he does not keep his word, he is no
good. And that is what your grandfather thinks of the Federal
Government right now. That is something that we carried
throughout Tri-Care, that the Federal Government had broken its
word on military health care.
We are here and I know all of us believe that this is the
right thing to do and it makes sense for everybody involved. We
are not going to let it happen again on this bill.
So we certainly appreciate your testimony.
Now let me ask you, and I open this up for the entire
panel, does the military or does the VA right now, as far as
any of you know, provide any type of long-term care coverage
for any class of participant in the military or any military
retirees?
COL Nowlin. Well, the only thing I can answer is, I guess,
if there is a person--a veteran who I think has 100 percent
disability and there is room in a nursing home, I think they
will be accepted, but that does not cover everybody. And as I
understand in Florida, our facilities are overcrowded in many
cases and there is not, particularly in nursing homes in the
area, there is just not room for these people.
So I cannot speak any further than that.
Mr. Scarborough. Are you all aware of any?
SMSGT Hyland. No, I am not.
Mr. Scarborough. Let me ask you, have your organizations
ever offered a long-term care coverage policy, or group policy,
to members of your organization, or have you ever considered
it?
COL Nowlin. Yes, TROA National has a long-term care policy.
If you need some specifics, I would have to look into it. The
only thing I have heard is it is kind of limited in coverage
and it is very expensive.
Mr. Scarborough. OK. I am sure it is very expensive because
the pool is not as expansive. If we bring in Federal employees,
if we bring in--you were retirees and the National Guard, and
also reservists then I think we all believe that expanding the
pool, especially with some of the younger, more healthy, active
duty members right now, that are obviously not going to need
long-term care for 30 or 40 years, will drive down the price.
So that inclusion makes a lot of sense.
COL Nowlin. You know, it sounds like a win-win situation
for the Federal employees and for the military, because they
are both pooling together the resources to bring those prices
down. It appears to me it would be a win-win situation.
Mr. Scarborough. Are you aware of anything in your long-
term care policy--and I know again that there are other
specialists and this is not your specialty--but have you heard
of anything that could be helpful to us as we are trying to
craft a plan for long-term health care about what has worked
with your plan or what has not worked with your plan?
COL Nowlin. I really cannot answer that specifically. I can
get that information.
Mr. Scarborough. OK, if you could provide that for us and
we will put it in the record.
COL Nowlin. OK.
Mr. Scarborough. That way, when we have a record of the
hearing, it will be included.
[The information referred to follows:]
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Mr. Scarborough. Let me ask you all a question about
choice, and I think this is one of the differences right now
between the competing bills and something that I am very
confident that we are going to be able to work out. Right now,
the question is whether we are going to provide more choice to
our Federal employees and retirees in purchasing long-term
care. Our approach is a bit more expansive and we want to open
it up and allow more insurers to come in and I know that Mr.
Cummings' bill, like the administration's, believes in
narrowing that focus. Obviously--and he will certainly be able
to talk on this more--obviously OPM and Mr. Cummings think it
has more to do with quality control. Our belief is the more you
open it up, the more expansive the choice, the more
opportunities for members whether they are wealthy or whether
they have a little more trouble paying.
Let me ask you, do you all have any feeling on whether your
members would prefer to be able to choose from a variety of
options offered by competing carriers or have the more limited
choice that is among the benefit packages right now that is
being dictated by OPM?
COL Nowlin. Well, I think it would depend on cost, would be
the big driver, whether by offering more opportunities, whether
that is going to drive the cost up, I do not know. But I know
in our organization, the people I have talked to, some would
like nursing home care coverage, some want just to have home
care coverage, things like that. So, you know, it has different
options there.
But again, I think the main driver in this whole thing is
what is the cost going to be. And if you have a lot of options
which is going to make the cost drive up because you have got
people that are--well, whatever the reason, just like most
insurance, that would be the determining point. But I think
there is a lot of interest in knowing what are the options. And
that is something I find I think most of the people are not too
familiar and they don't know too much about long-term care and
what the program is going to be.
Mr. Scarborough. Right.
COL Nowlin. What are those options going to be? We sort of
went through this I guess with Medicare, who recently has
opened a lot of options and a lot of people did not know what
the options were and it took awhile for it to get out from
Medicare itself, to get it published to the people.
Mr. Scarborough. Right.
COL Nowlin. And I think this is the same situation. I think
there needs to be an education program to educate the people as
to what is going to be offered or what is being planned.
Mr. Scarborough. I think you are right, I think the
education process is important. In fact, one of the concerns
from OPM would be if you opened it up to a lot of different
organizations, that it might be confusing to participants. Let
me ask you all, for the organizations that you all are members
of, is this the sort of thing that you would help provide
education for, sort of like Tri-Care. When Tri-Care was
implemented, I know everybody was scrambling to try to educate
as quickly as possible. But if we were able to give your
members a variety of choices and open it up and make it very
expansive, is this the sort of thing that you all would provide
education for, to help guide your members through this process?
COL Nowlin. Definitely. We did this with Tri-Care, we have
done this with Medicare and we have done it with the FEHBP
program. You bet our organization is going to publicize that
highly.
Mr. Scarborough. Larry.
SMSGT Hyland. I would like to piggyback on that, Mr.
Chairman. Our organization would also, we would definitely get
it out in our magazine and provide that information to our
members because we know the benefit and the return on it.
Mr. Scarborough. Ms. Croach.
Ms. Croach. Absolutely, NMFA would fully support,
absolutely.
Mr. Scarborough. All right, at this point, Mr. Cummings, do
you have any questions for the panel?
Mr. Cummings. Oh, definitely.
First of all, let me again thank you all. Your testimony
has been very meaningful. I agree with Mr. Scarborough, as I
said a little bit earlier, I think that the military enlisted
people, uniformed and retirees should be included in this
proposal.
But I want to just piggyback on a few of the questions that
Mr. Scarborough asked, particularly with regard to education.
One of the things that has become real clear from your
testimony and just from my experience in studying this
legislation is that that education piece is so important, it
really is, because as I think all of you have pointed out, if
you are expanding the group of people who can benefit, then
that is important, but it is also important that they take
advantage of it. And so I am glad to hear you all say that and
you are absolutely right, Mr. Hyland, when you said that it
would inure to your benefit by doing this extensive education
piece.
One of the things that--we had some testimony before at an
earlier hearing where the insurance industry came forward and
basically said that because of the nature of this insurance,
that it would probably be only between five and six companies
at most that would even be willing to offer it, be in a
position to do it, in the country, which, you know, kind of
surprised me, but after I began to look at it, I could kind of
understand that. But I wanted to go to you, Ms. Croach, and
just ask you, you were talking about your mother-in-law, I
think it was.
Ms. Croach. Both my mother-in-law and my mother, over the
last 3 weeks I have taken leave to take care of.
Mr. Cummings. When you see what is going on in your life, I
mean what kind of things would you like to see in a long-term
care policy? In other words, what are the things that are
foremost in your mind, the things that you would like to see. I
mean Mr. Nowlin--I do not have my glasses on--Mr. Nowlin spoke
about there are a lot of questions as to what the terms are.
You are absolutely right, when you talk to people even in the
industry, sometimes they have some questions, to be frank with
you. We want to make sure that whatever we do, we do it right
and try to make sure that the things that you are concerned
about, that we see how we take those and then make sure that we
have some type of benefit package that fits that, but at the
same time taking into consideration what you have all talked
about and that is cost. Because if it is too costly, we still
have a problem.
So I was wondering, you know, in light of what you see
yourself--I do not know whether you are just beginning this
process of problems or whether it has been ongoing for a good
while, but what are the kind of things that stand out most in
your mind that you would like to see?
Ms. Croach. From a personal standpoint, my mother is a NASA
retiree, after 30 years, so she would be the Federal employee
that you are talking about, retiree, civil service. I am a
product of an Army father, an Air Force husband and an Air
Force father-in-law. As I spoke with my mother last night
about--she wanted to be here today but she has very important
tests at Mayo this morning--I told her, I said you know, it
just seems that if we were to go from this hearing on a tour,
and I think we will, that if we go into the Naval facilities
around here, we will see civil servants sitting shoulder-to-
shoulder with a person in uniform. We have spent our lives
working together as part of the Defense family in support of
the national security of the United States, and therefore,
anything that would be afforded to one should be afforded to
all.
I think if we need due diligence on policy providers, to
make sure that whoever comes to the table offering, that it be
clear that as Members of Congress, what are the kinds of things
that you would look for in your own policy? What you would take
home to your kitchen table and sit with your spouse and your
families? What would you select as important things for a plan
that you would subscribe to? These are the kinds of things that
we also would like to have. What works in this zip code does
not work in another zip code. Many of us are--as military
retirees, we migrate to the three most popular States of former
military personnel, which would be California, Texas and
Florida. So clearly, a provider, in my personal opinion, would
be asked to come to the table and say that in collaboration
with the Department of Defense, with the Veterans'
Administration, with the Office of Personnel Management, how do
we develop a program so that collaboratively, particularly with
the military coalition because we represent 23 associations I
believe, that we basically are in touch with those who have
served. If we collaboratively work to help educate, to bring
that information to every person who has served, through
retiree pay stubs, through direct deposit announcements that
come with our retired pay--whatever it is to be able to touch
the life of every person who has raised their right hand and
sworn to protect our country, or their family members, or
family members that are left behind, I think that if we show
the cost/benefit in real terms, speaking to them in language
that they can understand so that you give examples of what it
would be like. When you tell me that the cost by the year 2030
will be almost at the $100,000 level, I will be 44 years old in
June, and in the year 2030, you can put the numbers together. I
would, depending on how well I take care of myself and what God
has bestowed upon me inside my genes and what I have
propensities to grow to be ill perhaps, much of which I have
learned in the last few days at Mayo because of my mother, I
can tell you that I would perhaps be a candidate for this
program and I just believe that clearly if we are embarking
on--I remember I worked at the Pentagon when we put together
the family policy office. Mr. Weinberger wanted very
desperately to make sure that as we looked at recruitment and
retention--and you mentioned that earlier about quality of life
issues, recruitment and retention--it was clear that we could
recruit a member, but we had to retain a family.
We talk a lot about quality issues for families but at that
point, and this was posed to ABF in 1976 when we went from
conscription to an all volunteer force, we looked very
carefully at what kinds of things, in terms of childcare and
other things that make it very difficult for military families
to serve when they are deployed and many of them are single
parents and there are children involved. I can tell you that in
putting together the family policy office, it was very clear to
those of us working on staff at the time that we had to be able
to help a military family understand that it was really worth
their while to be deployed to places where they could not go
home for holidays, where it was a long distance phone call to
talk to any family member back home, where these kinds of
things where--it was more important for us to serve than it was
to have our personal lives put first.
But now, in order to equalize that difference for that
service, I think that a policy--the opportunity to participate
in a policy that takes into account the differences in
geographic location, the differences in services that can be
provided in every zip code, I think that we can all come
together. We all have bright minds and I think that we can put
together a program that makes really good sense, make providers
sit at the table and work together to provide something for
this unique population, that it be something that a retiree's
family can benefit from. They are no different than other
Americans, we are just like everyone else. I always said, we--
and not to endorse any products, but we put air in the tires of
our cars just like anyone else does, we use Pepto-Bismol, we do
the whole thing just like everyone else, we are just like
everyone else. We just happen to be persons who decided to give
a lot to our country as a member of the services and as spouses
of those who also fell in harm's way.
Mr. Cummings. Well stated.
One of the things, as you were talking, I was just--and
this is opened up to all of you all--it is true that if we--I
guess like health insurance, the more you expand your pool, the
more--you know, the younger people that you have in, the more
you are likely to--and healthy people--the more you are likely
to reduce premiums in the end. And I think it may have been
you, Ms. Croach, or one of you all mentioned the fact that when
you are talking about military people, they have a limited
amount of income and when you think about say a young family, a
young military person thinking about maybe two or three
children, trying to support them and do all the things that go
along with raising a young family, how do you all see educating
someone to say well, look, it may not really be upon them,
maybe their parent has not gotten but so old and they are
saying well, wait a minute, I have got a choice, do I put money
in a long-term care policy or, you know--in other words, how do
you get that message through when you have got all these other
competing forces? I mean you touched on it a little bit just a
moment ago, but I guess that is one of the things that I wonder
about, how do you get that message through that, look, this is
something you really need to do and you should not wait until
it is right at your doorstep, because if you wait until it is
right at your doorstep, we do not even know exactly how all of
this--the premiums will work out, but it is probably going to
be pretty high. The other thing is that you--certainly if
people are waiting until it is at their doorstep, then the
premium, the thing that all of you are concerned about, that is
that the cost be reasonable, sort of goes out the window.
So I was just wondering, when all of you said that you
would be willing to do what you have done in the past,
educating your constituencies with regard to this product, I
was just wondering how do you see getting that kind of message
through, because like you said, MSGT Hyland, that inures to
your benefit, you know.
Ms. Croach. Could I make a statement?
Mr. Cummings. Sure.
Ms. Croach. I read at one point in time that often when we
are active duty, if we are transferred from one duty station to
another, young enlisted families ask a very different question
than a family that is more established, perhaps an officer's
family, in the military. A young enlisted family will say I
wonder if the car will make it. I understand your point about
the fact that there is always not enough money to go around for
housing and basic expenses.
But how will we educate? One of the things that has always
fascinated me is in the Department of Defense, about the time
that the Gulf war began, there were stop loss gates engaged so
that there would not be a massive drawdown of strength. During
that time, the services, excluding the Army, developed
transition assistance programs to help transitioning military
families, the member and family, to transition from civilian
life to active service. These programs--the Army contracts its
out to the private sector, but the other services provided
theirs in-house. And what that program consisted of is an
opportunity to help a person package themselves to be
competitive in the marketplace. It might also consist of
looking at educational credentialing or other training and
those kinds of things that a person might need to re-engage in
the private sector.
These programs are very successful and it appears that
oftentimes we might require that as part of a training program,
that a member and their family be afforded an opportunity to
come to a training session, which is part of a family's
opportunity to learn what this could mean for them, real
scenarios where we show over time the purchasing power of your
dollar and what that means for you.
It cannot be a lot different than our discussions that we
have with young enlisted members to say to them, you know, if
you participate in the new Montgomery GI Bill, the good news is
you will have an opportunity to go to college after your years
of service; the bad news is we are probably going to have to
take about 25 percent of your pay once a month, about $100 a
month, for 1 year. And when you tell a young person that has
just been sworn in that 25 percent of their pay will go to the
GI Bill for their portion, that sometimes can be difficult. But
I can tell you as a person who is Director of Federal Relations
for a university here in Florida, that we have no problem--you
know, we have lots of people who are interested in going to
college and they are going on their GI Bill, our Veterans'
Affairs office is teeming with people who are using that which
they co-invested with the Government to be able to provide
educational opportunities for them post-service.
This can be done. It is not something that we cannot do for
ourselves and collaboratively with the Federal Government and
with the private sector, the associations, particularly the
Military Coalition which represents all of us. Clearly you have
to somehow have an interest in what is going on, you have to
read the Service Times or you have to read the local newspapers
or you have to read association information, and most of them
are membership-based. But for those of us who do volunteer
work, we see people throughout the community that are
interested in getting the word out.
I think there is no question that we will not try to do
that, but trying to reach everyone, I think it is an
opportunity for the services to engage and to talk about the
kinds of things that give comfort to a person while they serve.
If these things are taken care of, even though we understand
compartmentalization in thought, clearly if we know that we
have an opportunity to participate in a program that others
have and that is something, one less worry, I can assure you
that those kinds of things will pay off in our day-to-day work
and those who are particularly in harm's way that it is also in
the back of their minds wondering whether or not their aging
parent--if Meals on Wheels made it before it was time for them
to take their medicine or whatever. It needs to be brought down
to the level of two fingers right here, bump, bump, bump over
your heart--the real world. It needs to be provided by people
who are credible--the educational process I am speaking of--
needs to be provided by people that we can count on and depend
on to be telling us the truth.
Mr. Cummings. Thank you.
Mr. Scarborough. Thank you.
We want to finish up this panel and get to the next because
I know there is one member of the next panel that needs to
catch an airplane and we certainly do not want to be
responsible for making him miss that plane. Before we do that,
I want to ask a couple of very quick questions, just for the
record, to help us as we prepare this bill and prepare the
inclusion of military retirees.
First of all, regarding demographics, one of the complaints
that we might hear is that the inclusion of military retirees
would actually might not help the cost of the programs. Do you
all believe that there is anything about the health or age of
your groups that would complicate the long-term care program if
they are added?
COL Nowlin. I can answer that from a military standpoint I
guess, retirees. We are normally considered pretty healthy for
the organization, when we look--I should say, across the age
groups. We are going to need that care though, but I do not
understand why that would have any effect on it. I think adding
us, our organizations, into it I think are going to help in the
cost area and I do not think it is going to be detrimental in
the health area.
Mr. Scarborough. OK.
SMSGT Hyland. I would also like to say the same, Mr.
Chairman. I believe if we open it up to the military retirees,
I do not think we are any different than the ``Federal
employees'' that it is going to be offered to. And again,
across the full spectrum, I think probably our health care is
probably a little bit better.
Mr. Scarborough. Great.
Ms. Croach. I think that if you have a job where you have
to be able to be mobilized and show up to have an annual
physical every year, that is probably--you are getting persons
who are drug free, their entire career they have had physical
training, physical fitness. I am not saying that we are 100
percent healthy and all of that, some of us are more than
others, but we still reflect that cross section of the world
that I mentioned earlier.
Mr. Scarborough. OK, great.
And one final thing regarding recruitment and retention.
And again this has been touched on before, but just for the
record, do you all feel that adding long-term care as a benefit
will help us with recruitment and retention of those in the
military?
SMSGT Hyland. Mr. Chairman, I would like to address that,
speaking as a former enlisted, I definitely believe that would
help. Because currently, as we all well know, one of the
problems or one of the creations of the exodus that we are
seeing in the armed services, especially in the junior ranks,
is that there is a feeling, a compelling feeling, that there is
no support out there, mainly in military retirement benefits.
By instituting something like this and bringing it forward and
having it on the table, I think that would convey back to the
people who are considering to go to the career status or those
who are debating whether to even join the military, I think it
would definitely help us in that area.
Mr. Scarborough. Thank you, I appreciate----
Mr. Cummings. Just one thing.
Mr. Scarborough. Oh, sure.
Mr. Cummings. I just wanted to take a quick 30 seconds to
thank you all again as volunteers for your organizations. You
know, I often say that there are a lot of people who stand on
the sidelines of life and they are high on opinion and low on
information, and they never do anything to make a difference.
But the fact that you all took your time to come here today to
help us make some very crucial decisions, and all of you spoke
so well for your organizations and your organizations are truly
blessed to have you. And I just wanted to take a moment to
thank you, and compliment you also.
COL Nowlin. Thank you also.
Mr. Scarborough. Thank you very much, we appreciate it.
Why don't we call up our second panel now. We will let the
audience try to guess who has the plane they have to catch by
how quickly the members read their testimony. And we will not
reveal that until the end.
Mr. Grubb. I plead guilty.
Mr. Scarborough. You plead guilty already?
Mr. Grubb. But this is more important than an airplane.
Mr. Scarborough. Oh, thank you, correct answer.
We have--while they are being seated--we have Mr. Bill
Carr, who is Deputy Director, Force Management Policy for the
Department of Defense. We are certainly honored by your
presence. We have Pat Freeman, associate executive director of
the John Knox Village Medical Center, American Health Care
Association, we certainly appreciate you being here, thank you
so much. And we have Kenneth A. Grubb, president, NYLife
Administration Corp., Health Insurance Association of America,
who has already testified and been very helpful in Washington,
DC.
We thank all of you for being here today, and because
Government Reform is an investigative committee, we do require
that you stand and take an oath.
[Witnesses sworn.]
Mr. Scarborough. Director Carr.
STATEMENTS OF WILLIAM J. CARR, DEPUTY DIRECTOR, FORCE
MANAGEMENT POLICY, DEPARTMENT OF DEFENSE; PAT FREEMAN,
ASSOCIATE EXECUTIVE DIRECTOR, JOHN KNOX VILLAGE MEDICAL CENTER,
AMERICAN HEALTH CARE ASSOCIATION; AND KENNETH A. GRUBB,
PRESIDENT, NYLIFE ADMINISTRATION CORP., HEALTH INSURANCE
ASSOCIATION OF AMERICA
Mr. Carr. Thank you, Mr. Chairman, Mr. Cummings, in
deference to my colleague to my left who has to make a flight,
I will be brief.
In behalf of the Department, I welcome the opportunity to
be with you today to discuss the proposed extension of long-
term care insurance to people in the uniformed services. The
Department appreciates the subcommittee's interest in the
possibility of including active and retired uniformed service
personnel and their families in the population of individuals
that would be eligible to purchase long-term care insurance.
We are prepared to study and work on how to pursue the
inclusion of the uniformed service people in long-term care
proposals that might contribute to the recruitment, to the
retention and to the morale of those who serve the Nation.
There is no comparable program in place today that could serve
as a model for the program to really know how it could operate,
so we need to work with OPM in helping to shape those
requirements. The DOD requirements are nonetheless unique, as
the demographics of the active and retired uniformed service
populations are different from the population at large, as the
previous panel pointed out.
We do believe that it is important to consider whether to
include uniformed service personnel should a program for
Federal employees, such as H.R. 110, be enacted. And we look
forward to working with the appropriate committees in the
development of these issues and in the pursuit of this very
valuable addition to the benefits package.
Thank you, Mr. Chairman.
Mr. Scarborough. Thank you, Mr. Carr.
Ms. Freeman.
[The prepared statement of Mr. Carr follows:]
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Ms. Freeman. My name is Pat Freeman and I am associate
executive director at John Knox Village in Orange City, FL,
which offers both nursing and assisted living services for
approximately 160 residents. I would like to thank you on
behalf of the those residents for continuing to address the
very important issue of long-term care insurance. On behalf of
the American Health Care Association, I applaud you,
Congressman Scarborough and Congressman Cummings, along with
your colleague Congresswoman Morella, for giving such time and
effort in your proposed legislation to fix a very big problem.
I am testifying today on behalf of the American Health Care
Association, a federation of 50 affiliate associations
representing 11,000 non-profit and for-profit nursing
facilities, assisted living residences and subacute providers
nationally. My organization, much like your legislation, is
working to educate Americans and policymakers about the urgent
need to reform the way long-term care is financed in this
country.
The plan that is decided upon by this subcommittee can be
used as the model for private employers who want to help baby
boomers protect their retirement savings. Without the
opportunity to purchase long-term care insurance through an
employer, three out of five baby boomers who fall ill could see
their retirement savings strained by the cost of long-term
care.
On March 18, this committee began debate on a key aspect of
President Clinton's long-term care initiative--providing
Federal employees long-term care insurance as a part of their
benefits package. This field hearing today in Jacksonville
continues debate on three important pieces of legislation; H.R.
602 and H.R. 110 are designed to make long-term care insurance
available to Federal employees, while H.R. 1111 would provide
members of our Nation's military access to long-term care
insurance as well.
Offering long-term care insurance to Federal employees,
including extending this benefit to members of our Nation's
armed forces, will set an important precedent and will
encourage private businesses to offer this benefit to their
employees.
Holding this hearing at the Naval Air Station here in
Jacksonville is particularly fitting. Many of our Nation's
veterans, who risked their very lives to keep this country
free, face impoverishment should they need long-term care as
they age. Giving military personnel the ability to purchase
long-term care insurance at group rates is an important step in
helping them protect their and their families' life savings and
assets.
Long-term care insurance is a very important employee
benefit that we hope will signal the private sector employers
across the country. Long-term care insurance provides
tremendous security for individuals and their families. In
fact, later this afternoon, during your tour of the Heartland
Healthcare Center, you will meet several individuals who have
benefited from owning long-term care insurance. Juanita Russell
and her husband William have personally benefited from owning
such a policy. After Juanita was admitted to the Heartland
Center in February 1998 for a fractured hip, Medicare covered
the first 100 days of her stay. Past that, she, along with her
husband, would have had to pay out of pocket were it not for
long-term care insurance. You will have the opportunity to ask
Mr. and Mrs. Russell yourselves about the excellent care
Juanita has received and how long-term care insurance has made
that all possible.
My own father, who just passed away 6 years ago, was a
retired Naval officer and was cared for by my mother and myself
in the latter stages of his fight with lung cancer. I truly
believe if he knew the option existed, he would have invested
in long-term care insurance, to both assure a consistent, high
level of care for himself, and to alleviate some of the burden
of his care from my mother and myself.
This field hearing is particularly timely, given a new
survey released in New York and Washington this week that finds
baby boomers--particularly boomer women--are headed for
financial ruin in their old age. The survey found that while
boomers are concerned about their retirement security, they are
not saving adequately for potentially devastating long-term
care costs that nearly three of five of them will encounter as
they grow old.
Let me give you a little background on the survey. The
American Health Care Association commissioned the Republican
polling firm Fabrizio, McLaughlin & Associates and the
Democratic polling firm Penn Schoen & Berland to conduct a
national telephone survey last fall of 800 adult Americans
between the ages of 34 and 52 years--the baby boomers. Fabrizio
then conducted a followup national survey of 800 baby boomers
to gauge their reaction to the administration's long-term care
initiative outlined in President Clinton's State of the Union
address.
The overall conclusion from this survey is an alarming
reality gap in how baby boomers view their retirements needs.
Retirement is not all travel and golf--in fact, three of five
baby boomers will become ill enough to require long-term care,
but almost none of them are taking steps to address this threat
to their retirement savings. Only now are baby boomers just
beginning to realize the sheer size we will have on the
Medicaid and the Medicare systems. In fact, over 80 percent of
baby boomers applaud the President's plan for a national public
education program about long-term care services and financing.
The survey found that boomers get a flunking grade in
retirement planning. In addition, four out of five boomers
interviewed are totally confused about how health care and
long-term care are paid for in their retirement. While 91
percent of boomers are covered by health insurance, many
boomers incorrectly think their health insurance policies will
pay for long-term care or they believe that Medicare will pay
for their long-term care costs as they grow older. They are
wrong, absolutely wrong.
Just 15 percent know the principal source of long-term care
funding assistance is Medicaid--the Government program for the
poor--not Medicare. Only one in four Americans can afford
private nursing facility care and two out of three nursing home
residents must rely on Medicaid for their care.
Failure to provide for the cost of a nursing facility stay
or other long-term care needs is the primary cause of
impoverishment among the elderly. In fact, two out of every
three nursing home residents must rely on Medicaid to pay their
bills. To qualify for Medicaid, individuals must spend down
their total assets to the poverty level of $2,000. They then
need to give up control over where and how they are going to
live.
The survey also uncovered a number of startling findings
that do not bode well for boomer women.
As women, we live longer than our male counterparts. We
still typically earn less than men, and therefore save less for
retirement. We receive lower Social Security payments but we
are the primary caregivers when a loved one becomes ill. We are
emotionally and financially torn between the demands of a busy
career, raising our children, taking care of our households and
providing care--either directly or indirectly--to our aging
parents.
Perhaps the most troubling finding from the survey is that
41 percent of boomer women who have provided care for a family
member or friend were forced to quit their jobs or take a leave
of absence to provide that care. The financial drain of having
to provide care to aging relatives and spouses is only a part
of the burden boomer women face. Once they have cared for their
parents and spouses, who will take care of them? Who will pay
for that care?
By our sheer numbers, baby boomers have dramatically
impacted society and increased the demand for services at every
stage of our lives.
By 2030, when the last of our generation reaches
retirement, our generation will virtually double the current
nursing home population to 5.3 million individuals. And because
70 percent of nursing home residents rely on Medicaid to pay
for their long-term care costs, our generation threatens to
bankrupt the Medicaid system. In fact, by 2030, Medicaid
expenditures for nursing home costs are expected to increase
360 percent. This massive cost will require either significant
cuts in the program or a major overhaul of our system for
funding.
The legislation being debated today stems from the long-
term care initiative announced by President Clinton in January.
The survey found that boomers are very receptive to the
administration's proposal to address long-term care financing.
In particular, boomers favor proposals for a tax credit for
caregivers, a national program to educate Medicare
beneficiaries about the program's limited long-term care
coverage, as well as long-term care insurance for Federal
employees, to help set an example for American businesses. They
also favor the administration's proposal to create a national
family caregiver support program that would allow States to
establish centers for one-stop shopping for information and
support on long-term care concerns.
While the administration's initiative and your legislation
are a good start, more must be done to assure baby boomers will
be able to afford long-term care when they need it. To
accomplish this, major changes must be made in how we finance
long-term care.
A Federal commission, similar to the Medicare Commission,
should be convened to develop additional meaningful solutions
to the current long-term care financing system. The long-term
care industry welcomes the opportunity to work with the
administration
and Congress to develop meaningful solutions to the long-term
care financing crisis.
Thank you.
Mr. Scarborough. Thank you, Ms. Freeman.
Mr. Grubb.
[The prepared statement of Ms. Freeman follows:]
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Mr. Grubb. Thank you. First of all, let me apologize for my
voice. Everything is blooming back home and it is allergy
season. So if I cough a little, please excuse me.
Good morning, Mr. Chairman and Mr. Cummings. I am Ken
Grubb, president of New York Life's long-term care subsidiary.
Today I am testifying on behalf of the Health Insurance
Association of America, the Nation's leading health insurance
trade association representing members providing coverage to
more than 115 million Americans. Today, more than 100 companies
provide long-term care insurance to over 6 million people, with
over 1,800 employers sponsoring this type of insurance program.
I purchased long-term care insurance for myself, my wife
and our three children, who are all in their 20's, through our
company's sponsored plan. It is very easy to understand why my
wife and I have coverage, but why did we buy it for our
children? As I said to you in Washington, DC, it is really
important to note that long-term care insurance is not just for
the elderly--40 percent of the people in nursing homes are
under the age of 65.
I am keenly aware of the problems families face because of
long-term care. My parents both needed long-term care and had
no insurance coverage. They had saved about $100,000 during
their working years and had only Social Security as a source of
income. I paid for their care to allow them the dignity they
deserved and to avoid the painful choices they would have had
to make to apply for Medicaid.
In addition to being associated with the insurance
industry--and I kind of hesitate to mention the word Air Force
at the Jacksonville Naval Air Station--but I am also a retired
Air Force Reserve Colonel. As such, I am pleased that
consideration is being given to offering the Federal long-term
care insurance program to military personnel and their
families. No pun intended, I salute offering these fine people
an affordable option for protecting themselves and their
families from the financial ravages of long-term illnesses.
Long-term care related expenses cost employers $29 billion
a year in lost time and productivity. Many believe that long-
term care insurance can have its greatest impact in the
employer-sponsored market. As the Nation's largest employer,
the Federal Government would magnify this impact tremendously
through its program.
HIAA would like to make the following points with respect
to the bills under consideration.
No. 1, the key to a successful Federal long-term care
insurance program is an effective education and marketing
campaign. And you have spoken very eloquently to that this
morning. Successful employer plans invest in multi-faceted
education and marketing programs. This would be critical to the
success of the Federal program.
No. 2, it is essential that market competition determine
the carriers that will offer plans under the Federal program.
Interested companies should be allowed to freely compete in a
fair selection process that will determine eligible
participating carriers.
No. 3, this point I think is very important. Using
artificially low premiums as a major determinant of good long-
term care products is very dangerous. A policy with rich
benefits, low premiums and minimal underwriting is a sure sign
of potential disaster. This could lead to a program with
unstable premiums and would likely discourage responsible
companies from participating. Only companies looking for quick
market penetration with the intention of raising premiums over
time would be attracted.
No. 4, OPM should not be responsible for adjudicating
disputed claims. There is no precedent for this in public or
private long-term care plans. Given the exposure that insurers
face in paying potentially enormous amounts of long-term care
benefits, it is unwise and unfair public policy for the
employer to make claims decisions. Instead, the HIAA supports a
fair appeals process within the insurance company for contested
claims.
No. 5, program funds should not be maintained separately
from the carrier's other contracts or lines of business. This
requirement is really unnecessary. The financial stability of a
company's long-term care business is enhanced because of the
diversity provided by the entire company's portfolio. It would
be appropriate to require that the program's claims experience
be available for reporting, separate and apart from the
carrier's other businesses.
Long-term care is the largest unfunded liability facing
Americans today. HIAA applauds long-term care programs that
encourage personal responsibility and increase educational
efforts. The administration's and congressional proposals have
an important common factor--recognition that private long-term
care insurance plays a vital role in helping people pay for
their future long-term care costs.
I commend Congress for passing long-term care tax
clarifications under HIPAA. Examples of other tax incentives
that would make this insurance more affordable are included in
our written testimony.
HIAA fully believes private long-term care insurance will
give millions of people the opportunity to remain financially
independent through their retirement years. This hearing is a
solid step in that direction.
Thank you, Mr. Chairman and Mr. Cummings. We certainly look
forward to working with you on this very important issue.
[The prepared statement of Mr. Grubb follows:]
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Mr. Scarborough. And thank you, Mr. Grubb.
I want to start with you. No. 3--you do not mind us
starting with you, right?
Mr. Grubb. Good.
Mr. Scarborough. Mr. Cummings actually said he is going to
save yours to the end and talk very slowly.
Mr. Grubb. I like that you said, ``I am going to start with
you.''
Mr. Scarborough. On your third point, you talked about we
should not go after the companies that just talk about
providing artificially low premiums with rich benefits and
basically no underwriting.
Mr. Grubb. Yes.
Mr. Scarborough. Or very little underwriting. That brings
up the guarantee issue that we talked about at the last
hearing. And I want to clarify an important issue from our last
hearing concerning the automatic coverage of any participant in
the long-term care insurance program.
OPM's testimony at our last hearing suggested that the
administration is giving serious thought to providing this
guaranteed issue by any carrier in our program. Whether OPM is
contemplating guaranteed issue for annuitants or just active
employees is still unclear, but OPM did seem to imply that the
question of guaranteed issue is a relatively minor benefit
design question and basically one with which Congress should
not concern itself. I wanted to ask if you agreed with OPM's
assessment that Congress need not be concerned with the
guaranteed issue, or if they should. Just how important is this
issue in determining whether this program basically sinks or
swims?
Mr. Grubb. With all due respect, I think I would disagree
that it is a minor issue. The guaranteed issue is a big issue.
Basically what you are doing is opening the entire population
to acceptance under a program that is generally medically
underwritten, and it does have, it would have a major impact on
the cost.
Guaranteed issue means that you accept anyone who applies.
I am not aware of any program in the long-term care industry
that guarantee issues policies to people who are retired. We
have guaranteed issue programs in our company as do some of my
colleagues, but none of them offer guaranteed issue to
retirees, because in essence, you would be offering people who
already need nursing home care or home health care the
opportunity. It is like winning the lottery. With your
application, you could submit an application to go into a
facility.
Guaranteed issue also, if you have multiple carriers, would
get very difficult. If you are going to have a guarantee issue
program, it almost mandates the selection of a single carrier
because I am sure--I think in our last testimony, my colleagues
agreed with this--that if you have five or six carriers, how
would any of us know that we were not being anti-selected
against. Ultimately the people who are paying the premiums pay
the price. So, if a company got all the bad experience, they
would be forced to raise their premiums.
I think guaranteed issue is not something to be taken
lightly. Typically the way guaranteed issue works is you will--
if the employer funds the entire premium themselves, which you
are not contemplating, then you get everybody and you get a
broader spread of risk. On the other hand, if it is a voluntary
basis, then there are participation levels that are required.
And the way we do it in our company depends on ages, lower
participation levels for lower ages. But typically over 50, the
participation level will go up. So it makes the administration
of the program somewhat more complicated.
I think in a multi-carrier environment, you would have a
very difficult time convincing insurance carriers that
guaranteed issue is viable.
Mr. Scarborough. Do you think there are any particular
groups in the Federal marketplace that should undergo full
underwriting? For example, should we provide the same
underwriting criteria to everybody or should some be fully
underwritten and some be less?
Mr. Grubb. Well, again, I will go into my experience in the
employer marketplace. Typically what we will do is if it is not
a guaranteed issue program, you can have simplified
underwriting for people that are actively at work. Simplified
underwriting basically means you complete your application, you
answer some basic medical questions, somebody will call--a lot
of times it is a nurse--and just go over the questions on the
application. If there are no apparent major health problems,
then the policy is issued. Only if the application reveals or
the interview reveals that there are significant medical
problems do you do complete medical underwriting.
Then for people who are over age 65 typically or retirees,
you do medically underwrite those. That is really for the
protection of the entire plan. Everybody has talked today about
how important affordable premiums are. Excluding people
initially who already need care will have a positive impact on
that. The good news is that as people buy it in their active
years, it never goes away because it is guaranteed renewable.
So, over time, you would have everybody in the program.
Mr. Scarborough. Should each carrier be free, in your
opinion--and again, we are talking about what is in the best
interest of the entire population, to use its own underwriting
standards, or do you believe that all carriers are going to
need to follow the same standards?
Mr. Grubb. I would think in a program of this kind that if
there is oversight provided by OPM or the legislation, that
there should be similar rules that are followed by all of the
carriers in terms of how the underwriting is done.
Mr. Scarborough. Who do you think should provide that
oversight--Congress, OPM, OPM and the carriers?
Mr. Grubb. I would think OPM and the carriers.
Mr. Scarborough. Jointly?
Mr. Grubb. Yes.
Mr. Scarborough. Let me ask you, Ms. Freeman, your
testimony referenced the boomer survey and you highlighted how
baby boomers are confused--what a surprise. [Laughter.]
Baby boomers are confused or just beginning to realize the
impact the sheer size of the demographics will have on the
Medicaid and Medicare systems and the incorrect belief that
their health care insurance policies are going to be paying for
their long-term health care costs.
You also brought up some important points about how women
typically earn less than their male counterparts, therefore are
not able to set aside as much money for savings and retirement.
I know I have seen my mother in a crunch that all women seem to
be in where they go from raising their children, getting them
in college and getting them out of college, then immediately
having to move on and most likely caring for their parents,
being the primary caregiver. Somewhere in the middle they get
torn between children and parents and it is just an awful
situation.
Some of us have been concerned about the possible
limitations on the variety of benefits in the plans that would
be offered. In your opinion, what effect would a limited choice
have on the number of lower income Federal employees and
annuitants that would benefit from this program? And I want you
to emphasize women in particular--if we limited the choices.
Ms. Freeman. Well, I think you heard earlier from the
earlier testimony, you know, premiums are a big concern of
everyone, as well as the coverage issues. And I think now that
we know, you know, from the survey and the studies that have
been done, that women do earn less, obviously they have to set
priorities in terms of where their money goes and they would
end up looking possibly for a cheaper premium. It may not
necessarily be the best quality plan for them in terms of
having had some choices, but at least they would end up with
some coverage.
Mr. Scarborough. Let me ask you, from your experience, you
have had the opportunity to see this first-hand probably I
think as well as anybody here--let me ask you, could you just
provide us, provide the committee and all those in attendance
today your experiences on comparing the difference. Give us a
contrast, a real life contrast between somebody or a family
that has been fortunate enough to plan ahead and invest in
long-term care, compared to the horror stories that we hear all
the time about those that have to spend down their life savings
and basically become broke and poor and have to depend on
Medicaid. What is the difference in just sheer quality of life,
especially in those last final years?
Ms. Freeman. Let me share a little bit about my background
with you. I am a registered nurse and I have worked in the
field of long-term care for about 15 years on both for-profit
and the non-proprietary side.
Prior to rejoining John Knox Village just 6 weeks ago,
which is a continuing care retirement community, which
essentially was the forerunner of long-term care insurance--
those of you who know anything about CCRCs. Approximately 47
percent of the premium, the monthly service fees and the
endowments that residents pay go toward future care or long-
term care because we take care of them for the rest of their
life, regardless of their financial situation.
So people who can afford to come to that kind of setting
such as John Knox Village have the financial resources and have
already thought about what their long-term care needs will be.
Obviously they come to a setting like that for a very active
retirement, but the services are there should they ever need
them--there by the grace of God go I.
Many of them are living away from their families. Children,
as you well know our children and our families are separated,
not just sometimes across town, but States and even around the
world, and they do not want to be a burden. So many of the same
issues that we talk about people who have financial resources
or those who do not, they are many of the same issues, of
wanting to pay their own way, not be a burden to their children
and be well taken care of.
For the past 6 years, I have worked for Genesis Eldercare,
which is a national nursing home, eldercare company. They have
nursing homes and assisted living facilities. Most our--30 of
our facilities are here in Florida, and approximately 70
percent of the residents in our facilities are--their care is
paid for by Medicaid.
As an administrator, as a nurse, as a caregiver, I have had
to counsel many residents and families through this very
difficult process of spending their life savings and now having
to essentially become impoverished, go on what they deem to be
welfare, to take care of them in their later years. They really
thought all the years that they worked, they saved their money,
that they would have enough income to take care of their needs.
And it is just overly devastating.
I guess the biggest issue for most of our residents is one
of maintaining dignity. As we grow older--and being a baby
boomer and working in the field, I am very sensitive I think to
many of these issues--trying to maintain one's dignity after
you have had to give up so much is very, very difficult,
regardless of your financial circumstance, but especially for
those who are having to become impoverished.
Mr. Scarborough. It really is heartbreaking. We had
testimony from Ms. Judy Kramer at our first hearing on long-
term care in Washington. She told the story of her parents, I
think they went through about $145,000 in a year or so until
they became impoverished and were eligible for Medicaid. It is
just heartbreaking, and I was saying to her you talk about
losing your dignity--as a parent, I have got an 11 year old boy
and an 8-year old boy and you are thinking all the time, OK,
how do I care for them to get them through college, how do I
care for them through their entire life, and these parents of
Ms. Kramer had set aside $140,000-$145,000 to pass on to their
children, only to see in their last 2 years of life this entire
amount of money going away and then as a witness on the last
panel said, basically becoming property of the State in the
final months of their life. It is heartbreaking, it is
something we have to take care of.
Ms. Freeman. You lose the right to make choices about where
you want to live, how you want to live your last days, and to
know that you are dependent now on the State to take care of
you and to provide for your care has got to be devastating.
Mr. Scarborough. It has got to be devastating, and because
of demographics, this is not just a Florida problem. Florida is
the future. How Florida looks today, the rest of the country is
going to look 15-20 years from now. You are right, the State--
obviously everybody is grateful that Medicaid has been there
for them. Ms. Kramer was grateful, but Medicaid is not going to
be there for everybody 20 or 30 years from now if we have the
entire baby boomer population retiring and nobody planning for
their retirement and their future and for their long-term care.
So that is why this is so absolutely critical.
I thank you for your testimony because it highlights that.
Let me ask you, Mr. Carr, one of the issues that really has
been highlighted in Washington over the past 4 or 5 years since
I have been on the Armed Services Committee, has dealt with
quality of life issues. We have been talking about recruiting
and retention. Numbers for recruitment have gone down. In fact,
I believe two services right now are below their recruiting
levels for the first time in a long time.
Mr. Carr. That is true.
Mr. Scarborough. What two are those, do you know offhand?
Mr. Carr. The Army and the Air Force are off on their
numbers.
Mr. Scarborough. Army and Air Force, and----
Mr. Carr. And it is unusual for the Air Force to be off on
its numbers, as they are this year.
Mr. Scarborough. Yeah, very unusual.
Let me ask you this question, do you see the possibility of
long-term care as something that would actually help
recruitment and also help in retaining the top quality
personnel that we need to get us into the 21st century?
Mr. Carr. Probably more on the retention side. I was struck
by a comment Ms. Croach made, and it is accurate, we hear it
often and it is that you recruit a member and you retain a
family.
Mr. Scarborough. Right.
Mr. Carr. Now I would suspect that most recruits consider
themselves relatively invincible and so this may not be at the
forefront of their thinking, but with respect to retention
discussions taking place at the kitchen table, recall that when
one's family believes that the organization that their partner
is a member of has a real interest in their long-term welfare,
then they identify more easily with that institution and that
could do nothing but help retention. So I am not confident that
it would produce a hike in recruitment, but with respect to
retention, there it would have the more pronounced effect I
believe.
Mr. Scarborough. That is a great point that you make,
talking about the conversations around the dinner table and
what sort of attitude family members and friends have toward a
service or toward the armed services in general. As you know, I
told this story before of my grandfather. I cannot tell you how
many grandfathers and how many fathers in northwest Florida
have been complaining bitterly at the kitchen table about Tri-
Care, complaining about health care problems, complaining about
how the military is not keeping their word.
Now I can tell you, as a college student hearing my
grandfather talk about how the military let him down and how
they broke their word, if we are getting that on one side of it
and then on the other side, you have, let us say somebody's
older brother or sister saying well, you know, I am not getting
paid as well as my friends are getting paid and I am gone 8 or
9 months straight and then I come home for 2 months and then I
am gone again--I think you are right, I think that may be why
we have the problems, but while those 18 or 19 year olds who
feel invincible and do not think they will ever need long-term
care, while it may not hit them immediately, I think they will
pick it up, like you said, from the conversations at the dinner
table and it will sort of help with loyalty.
Let me turn it over to Mr. Cummings for any questions he
has.
Mr. Cummings. Thank you very much, Mr. Chairman.
Mr. Grubb, you said something that kind of struck me. You
said in your No. 3 of your things that you said you wanted to
make sure we were careful about, that there are no artificial
premiums. Is that what you said?
Mr. Grubb. Let us see exactly what I said.
Mr. Cummings. OK.
Mr. Grubb. A policy with rich benefits, low premiums and
minimal underwriting is a sure sign of potential disaster.
Mr. Cummings. Right.
Mr. Grubb. This could lead to a program with unstable
premiums.
Mr. Cummings. OK.
Mr. Grubb. And would likely discourage responsible
companies from participating.
Mr. Cummings. I am concerned about that too and I am sure
Mr. Scarborough is too. You heard the testimony of the previous
panel with regard to the military.
Mr. Grubb. Yes.
Mr. Cummings. Can you just give us an opinion on that, on
your feelings about making sure the military is included? I am
just curious, do you have any opinion on that?
Mr. Grubb. I would support what the panel said in that
probably the entire military population on average would be
more healthy because of the kind of lifestyle they have led.
They are also a true cross section of the rest of the American
population. So I think including the military would certainly
have no negative impact on the program and potentially a
marginally positive impact.
Long-term care insurance is age-rated, so whatever age you
buy the policy at is what determines the premium that you are
going to pay, hopefully for the rest of your life, or for as
long as you pay the premiums. The healthier you are when you
get the policy, the lower your premiums are likely to be.
I see no detriment whatsoever to including the military,
from either an insurance perspective or from a public policy
perspective.
Mr. Cummings. Help me make sure I understand this,
connected with what you just said.
Mr. Grubb. Yes.
Mr. Cummings. Let us say Ms. Croach, I think she said she
is 44.
Ms. Croach. I said 43. [Laughter.]
Mr. Grubb. I had to admit on national television my wife
just turned 50, so if I can do that, I guess we are safe.
Mr. Cummings. I must admit I was surprised when she said
that, I thought she was a lot younger than that, but 44.
Mr. Scarborough. He is good. [Laughter.]
Mr. Cummings. Let us say her mother, I do not know the age,
but let us say her mother is 64. Now if she went to get this
type of insurance, you have got to look at the fact that her
mother is 64.
Mr. Grubb. Absolutely.
Mr. Cummings. And so--and I guess what I am trying to go to
is it is not just her age, but it is her mother's age. Am I
right?
Mr. Grubb. Each person would be rated individually, so she
would be rated based on the fact that she is 44.
Mr. Cummings. That is for her own.
Mr. Grubb. For her own.
Mr. Cummings. And her mother would be rated----
Mr. Grubb. At 64.
Mr. Cummings. All right. Now you said something very
interest-
ing about you do not know of any policies that would insure--
these kind of policies that would insure retired people--was
that correct?
Mr. Grubb. What I said was I am not aware of any company
that guarantee issues----
Mr. Cummings. Guarantee issues, all right.
Mr. Grubb [continuing]. People who are retired. We issue up
to age 85.
Mr. Cummings. OK.
Mr. Grubb. So we will issue people in reasonable health up
to age 85.
Mr. Cummings. So that means that if her mother is 64, she
is in reasonable health, then she is OK.
Mr. Grubb. Absolutely.
Mr. Cummings. But let us say her mother had a chronic
disease, then that throws her into a whole other category, is
that correct?
Mr. Grubb. That is true. In our company, for example, we
have four tiers of rating. We have preferred, which are people
who are very healthy; standard, which is most of us; and then
we have tiers three and four for people who have some illnesses
but are still insurable. We do everything that we can do to
bring in as many people to the program as we possibly can. And
depending on what the chronic disease would be, they may or may
not be accepted.
Mr. Cummings. So then I guess that goes back to what you
said about the military and it was an interesting point that
the previous panel made, that the military--our military folks,
because of the lifestyles that they have to lead because of
what Ms. Croach said about making sure they have physicals and
things of that nature, then it is quite possible that they
could bring premiums down.
Mr. Grubb. Could be. When we look at this, we will look at
the demographics of the total population and make some
determinations based on the size of the group and also what we
know about them demographically.
Mr. Cummings. Now you know, I think when we look at the
carriers, I want you to talk just briefly about the factors
that--you have testified to this before--the things that you--
factors that you think are important in keeping the premiums
low. In other words, trying--not low, but as low as we can get
them. What are the things that we have to look at to do it
right? Because it seems like if you really listen to the
testimony at this hearing and the last hearing, there becomes a
question of affordability.
Mr. Grubb. Yes.
Mr. Cummings. If you cannot afford it, it seems like it is
not going to do us too much good anyway, so what are the things
that you see as those key things that we need to look at when
we are talking about trying to keep this insurance at some type
of affordable rate so that when, as everybody talked about,
sitting at the kitchen table, you can say well, we can do this.
Mr. Grubb. Let me speak to a couple of different issues. I
would like to talk about the affordability because I think it
is a huge issue and could not have been more eloquently
presented, but I think there is a lot of misconceptions about
affordability.
First of all, the thing that you ought to consider, to do
it right--I said this before and I will reiterate it again--the
financial stability of the company or companies that you deal
with is critical to that, because--and that is why I made the
statement that you are asking about. Financial stability of the
company, because these are benefits that you are buying that
hopefully you will maybe not ever use, but will use 20, 30, 40
years from now. So you want to make sure that the company is
stable enough and has done its work right, so that those
premiums remain level throughout that entire period. So I think
the do it right part is the financial stability and strength of
the company and its ability to stay the course with you.
In terms of affordability, let me just give you some
examples, because I hope this will be, hopefully eye-opening to
some degree and these are generalizations, but I can speak
specifically for my family and for policies that we issue. My
wife and I have a $300 a day unlimited benefit policy, that is
the best you can buy in the industry.
Mr. Cummings. How long have you had it so we can put it all
in context.
Mr. Grubb. About 3 years.
Mr. Cummings. OK.
Mr. Grubb. My wife pays about $450 a year for that, and I
am sure my colleagues here would agree that this is a pretty
rich benefit. Since I am significantly older than she, my
premium is about $1,100.
Our kids have $100 a day with inflation protection, so by
the time they are 50, 60, 70 years old, that will be a $700,
$800, $900, $1,000 a day benefit. They pay $207 a year.
Now there are very few families who cannot afford $207 a
year, that is less than they spend at McDonald's. One of the
marketing pitches that we make to people, when you are talking
to a grandparent, the 64 year old to 75 year old, who has just
bought a policy and is paying $2-, or $3-, or $4-, or $5,000,
when you tell them that they can buy the same coverage for
their 25 year old grandson or granddaughter for $200. It really
opens their eyes. It is something that is very affordable at an
early age. It only becomes unaffordable if you wait.
In my last testimony, I talked about the cost of waiting.
So I think one of the benefits of your proposal is to
encourage, to educate people to buy this at a young age when it
really is affordable, so that you are not looking at the
$100,000, $150,000, there are other forecasts out there that go
up to $300,000 a year--there are not many people who can write
checks for that.
So affordability is a very critical issue. But it is
affordable.
Mr. Cummings. For the benefit of the wonderful people who
have come out here today, can you kind of--you told us before
what pretty much the standard kind of benefits package looks
like. Now could you kind of share that with us so that they
might have the benefit of that?
Mr. Grubb. Let me tell you another little aside, which
hopefully will help. We actually have somebody who is a client
of ours who has bought a nursing home only policy and it costs
him $5.07 a month. Now that is affordable.
The standard policy right now, what most people buy, is a
$100 a day benefit, because in most parts of the country, New
York, Alaska and some other places excluded, the average
nursing home cost is about $100 a day. So the thing that most
people buy is a $100 a day, a 5-year plan, 90 day elimination
period, which is like a deductible, so you pay yourself for the
first 90 days that you are in the nursing home, with 50 to 80
percent home health care benefits. What that means is your
maximum daily limit of $100 a day, if you have home health
care, it would be 80 percent of that. So your bucket of money
is $100 a day times 365 times 5. So if you only spend $80 a day
in the nursing home, your bucket of money really is extended
beyond 5 years. That just sets the limit of your bucket. Or in
my case, I bought an unlimited plan and I certainly recommend
it for younger people. My dad's roommate in John Knox Village
nursing home was a 41 year old man who had been there for 18
years because of a car accident. People cannot afford to pay
that kind of expenses for that period of time. So for a young
person, unlimited makes all the sense in the world.
Mr. Cummings. Do prescriptions come in there at all?
Mr. Grubb. No, no. That is covered by your health plan.
Mr. Cummings. OK. That is all I have.
Mr. Scarborough. Thank you, Mr. Cummings.
I want to end with a question, and Mr. Grubb, if you would
like to sprint out now, you are certainly welcome to do that.
Mr. Grubb. This is entirely too much fun.
Mr. Scarborough. Too much fun. [Laughter.]
Well then we are going to do a couple more rounds.
Mr. Grubb. I would be happy to participate.
Mr. Scarborough. You know, as we are envisioning this
program for Federal employees, obviously one of the questions
that we have in Washington has to do with the cost, and we have
been very conscious trying to make sure that the costs of our
program, the administrative costs, are low. We believe that our
program is less expensive than the administration's right now,
but let me ask you, what sort of impact does the cost of the
program have on the decision on whether DOD would support
implementing it or not?
Mr. Carr. I think the support is probably contingent on the
popularity with and the availability of the members--is it
something that they would use and that would advantage them? I
think for the cost, if we are talking officers versus enlisted,
the enlisted obviously as a community are going to be more
challenged by cost. Probably the pattern you would see among
the enlisted force is initially with discretionary money--well,
the first thing you would see is investment in education, in
Montgomery GI Bill, along with a concern for life insurance.
When those are taken care of, there would be interest in other
types of security, of which this would be one, but the pay that
the enlisted--the military generally, but the enlisted
particularly feel is so tight that we could easily price them
out of this, and despite the best education program and the
noblest of intentions, they would look and compare that with
other uses and near term risks and threats to their family and
the ability to have a car that runs, and we could easily lose
that population. And so for that reason, out of our concern for
the soldiers and sailors would be a concern for the price
because they could be excluded if we are not careful.
Mr. Scarborough. Thank you, Mr. Carr and Ms. Freeman and
Mr. Grubb for your testimony, it certainly has been helpful. I
am going to have some followup questions that I will submit in
writing.
Mr. Cummings. I have some too.
Mr. Scarborough. OK, Mr. Cummings will also have some, and
if you all could answer that, we will make that part of the
record.
I would certainly like to thank everybody for coming out
today and thank the fine people at Jacksonville, and certainly
want to thank NAS Jacksonville for allowing us the opportunity
to hold this hearing today. In particular I want to thank
Captain Smith and Captain Dudley for their warm welcome as well
as Lieutenant Tim Weber for his assistance in preparing for
this hearing.
It is always exciting for me, I have participated in a few
of these outside of Washington, DC, and even though the cherry
blossoms are in full bloom in Washington, DC, I would rather be
in Florida any day of the week. So I thank you all. It is so
critical, because like I have said before, if you look at the
demographics, Florida is the future, we need to figure out how
to make it work and figure out how to make it work for Florida
in 1999 because that is how the rest of the country is going to
look 10, 15, 20 years from now.
Thanks again for coming out, we appreciate it, and we are
adjourned.
[Whereupon, at 12:12 p.m., the subcommittee was adjourned.]
LONG-TERM CARE INSURANCE FOR FEDERAL EMPLOYEES, PART III
----------
MONDAY, JUNE 14, 1999
House of Representatives,
Subcommittee on the Civil Service,
Committee on Government Reform,
Baltimore, MD.
The subcommittee met, pursuant to notice, at 1 p.m., at the
War Memorial Building, 101 North Gay Street, Baltimore, MD,
Hon. Joe Scarborough (chairman of the subcommittee) presiding.
Present: Representatives Scarborough and Cummings.
Staff present: Garry Ewing, counsel; John Cardarelli,
clerk; and Jennifer Hemingway, policy director.
Mr. Scarborough. We will call to order this meeting of the
Civil Service Subcommittee. Ladies and gentleman, it is great
to be in Baltimore and I certainly am grateful that Congressman
Cummings suggested this and has worked tirelessly with his
staff to see to it that this hearing in Baltimore happened. I
think his commitment to this hearing is an extension of his
commitment to the people of Baltimore, the people of the 7th
Congressional District and to the people of Maryland. He has
been a tireless advocate not only for people in this area but
especially on this issue for those who are going to be affected
by this long-term care legislation.
It's extremely important, whether you're talking about
residents that are suffering from this humidity in Baltimore
today or residents that suffer from humidity in northwest
Florida just about every day, that this legislation pass.
This is our third hearing now that this subcommittee has
held on long-term care, and I'm pleased with the level of
importance that Members, not only of this subcommittee, but
across the entire span of Congress have put toward making this
long-term care pass into law.
In addition to my proposal, of course, H.R. 602, the
ranking member, Mr. Cummings and Representative Morella have
also introduced long-term care legislation. While we have some
issues that are still out there that need clarification, and
while we need to bring our two bills together, in the spirit of
compromise, I continue to believe that we can work together and
make this bill a reality.
It's an employment benefit that needs to come to pass now.
Employees' needs for long-term care insurance are as diverse as
their occupations, their duty stations and their family status.
The decision to buy long-term care insurance is a very personal
one. Achieving maximum participation is going to require that
the premiums are affordable, and that we have a benefit
structure of sufficient variety to satisfy the diverse needs of
our Federal population.
I can't emphasize enough the need to let beneficiaries and
not just government officials make their own long-term care
decisions. By offering beneficiaries choices among competitive
plans I believe we can best offer the range of options
employees might seek for themselves and their families. The
long-term care benefit we're discussing can safeguard Federal
employees from having to deplete their assets through the
painful Medicare spend-down process.
To be fully viable, the Federal program must learn from the
successes of the current marketplace and follow this lead.
Above all, long-term care insurance must remain flexible. The
insurance industry continues to innovate as it develops
products and this marketplace evolves and matures.
Today we hear about policies that offer the benefits of
long-term care insurance and life insurance combined in a
single policy. Long-term care insurance exists in a very
rapidly changing environment and I think we all want to ensure
that legislation we put forth will allow that creativity to
flourish.
I look forward to hearing from our witnesses as we discuss
the current proposals to provide long-term care insurance to
our work force. Again I thank Congressman Cummings for his
fight in this battle. I thank our witnesses and certainly thank
everybody that's come to attend this very important hearing.
And now I would like to turn it over to the ranking member
of the Subcommittee on the Civil Service, Congressman Elijah
Cummings.
[The prepared statement of Hon. Joe Scarborough follows:]
[GRAPHIC] [TIFF OMITTED] T7738.240
Mr. Cummings. I want to thank you, Mr. Scarborough, for
making it possible for this to happen today. It did not have to
happen, our subcommittee, which probably sets an example that I
wish the entire Congress would follow of bipartisanship. We are
probably the epitome, we display the epitome of bipartisanship
in our subcommittee, and I think that says a lot for you, and
the fact that we are here says a lot for our spirit of
bipartisanship.
And the legislation that we are here talking about today is
one that deserves a bipartisan effort. Helping Federal
employees and all Americans afford the cost of caring for
elderly family members without losing their life savings, their
family homes or their dignity is a bipartisan objective.
President Clinton, Chairman Scarborough, and I, along with
other Members of Congress, are determined to achieve that
objective.
My bill, H.R. 110, the Federal Employees Group Long-Term
Care Insurance Act of 1999, is the Federal employee portion of
the administration's four-prong initiative to help all American
families afford the cost of long-term care. H.R. 110 would
authorize the Office of Personnel Management to purchase group
insurance policies for Federal employees, retirees, and family
members from qualified private sector insurers at the more
affordable group insurance rates.
Senator Barbara Mikulski has introduced the Senate's
companion bill to H.R. 110. I look forward to working with her,
Chairman Scarborough and the other members of this subcommittee
to move long-term care legislation through the Congress this
session.
Affordable long-term care insurance and the other
components of President Clinton's long-term care initiative,
including President Clinton's proposed $1,000 tax credit to
help with the cost of caring for ourselves or our family
members, reflect the financial burden which long-term care
costs will present to an aging America as we find ourselves or
our relatives unable to perform daily living activities without
assistance.
Addressing the problem of paying for long-term care
requires accurate factual information; therefore, I asked the
staff of our House Government Reform Committee to prepare a
report, estimating the future long-term care needs of the
Baltimore area residents.
With the assistance of Mike Nolan and Virginia Thomas of
the University of Maryland in Baltimore County Center for
Health Program Development and Management, and Dr. Joshua
Wiener of the Urban Institute, committee staff was able to
prepare an eye opening and enlightening analysis entitled,
``Future Long-Term Care Needs in Maryland's 7th Congressional
District,'' which I am releasing to the public and the media
today. On behalf of the citizens of Baltimore, I thank everyone
whose hard work contributed to the report.
Based on the demographics of Baltimore City and County and
using estimates of life-span and projected nursing home use, we
now know that 420,000 current residents, nearly one-third of
us, will spend time in a Baltimore area nursing home. While
many of us will stay in the nursing home for only a short
period of time, our analysis predicts that over 200,000
Baltimoreans will spend over 1 year in a nursing home, and
approximately 70,000 of us will spend over 5 years in long-term
nursing home care.
We also believe that the costs of long-term nursing home
care will continue to increase faster than the inflation rate.
In 1996, the median cost for 1 year in a Maryland nursing home
was approximately $37,000. Even when adjusted for inflation,
moreover, the costs of a 1-year stay in a nursing home could
increase by approximately 40 percent by the year of 2020, and
more than double by the year of 2050.
Based on these projections, by the year 2020, when many of
today's 50-year-old Baltimore residents will require long-term
care, a 1-year stay in a nursing home could cost approximately
$108,000. By the year 2050, when many of today's 20 to 30-year-
olds will require long-term care, the costs of a 1-year stay in
a nursing home could be as high as $400,000, and so it's clear
that this legislation is needed.
I've had an opportunity to review the testimony of our
witnesses, and I want to thank all of you in advance for the
tremendous effort that you put in to preparing the documents
that have become and will become a part of this record.
By taking the time to prepare your testimony and to be with
us today, you give us the basis for making sound decisions.
When we were in Florida, someone came up and gave some
testimony, I think a lady who had some problems similar to
those of Ms. Pika, who is here today, where she was not able to
get long-term care insurance at one point in her life and she
managed some very difficult problems when her husband became
ill, but she said one thing that I will never forget, and it
sticks in my mind and she looked us in the eye and she says,
when you do it, make sure you do it right, do it right. And
that's what it's all about, we just want to do it right.
Because we realize that what we do with this Federal
legislation will probably impact the private sector also. So we
want to have this legislation that is an example of what it
should be, what long-term group insurance efforts should be
about and policies should be about.
And so we want to thank you again, Mr. Chairman, and I look
forward to hearing from our witnesses.
[The prepared statement of Hon. Elijah E. Cummings
follows:]
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Mr. Scarborough. Thank you, Congressman Cummings.
I would like to ask our first panel if they could rise to
be sworn in. But before you do, let me introduce you. We have
Charles Yocum, a resident of Maryland who, along with his wife,
has a responsibility of being caretaker for their parents and
other elderly relatives. Currently he serves as senior group
patent counsel for Black & Decker.
We also have Dr. Georges Benjamin. Dr. Benjamin currently
serves as secretary of the Maryland Department of Health and
Mental Hygiene. Maryland is planning and implementing a series
of initiatives to control the growth of public long-term care
spending.
And finally we have Frank Atwater. Mr. Atwater serves as
president and CEO of the National Association of Retired
Federal Employees. He's a life member of that organization and
is a member of Chapter 583 in New Port Richey, FL.
And now, gentlemen, if you would, please rise to take your
oath. Because we are an oversight committee, we're required by
the rules to swear you in. If you could raise your right hands.
[Witnesses sworn.]
Mr. Scarborough. Please have a seat. Thanks.
Mr. Yocum, if you could, go ahead and begin your testimony.
We ask everybody if they can limit their testimony to 5
minutes, because we're going to have a long, hot hearing. You
can submit any additional statements to the record, and,
obviously, any questions that we have or anything you want to
amplify in the questioning and answer session, you can.
So, Mr. Yocum, please begin.
STATEMENTS OF CHARLES E. YOCUM, SENIOR GROUP PATENT COUNSEL,
BLACK & DECKER, RESIDENT OF HOWARD COUNTY, MD; GEORGES C.
BENJAMIN, SECRETARY, MARYLAND DEPARTMENT OF HEALTH AND MENTAL
HYGIENE; AND FRANK G. ATWATER, PRESIDENT, NATIONAL ASSOCIATION
OF RETIRED FEDERAL EMPLOYEES
Mr. Yocum. Good afternoon, my name is Charles Yocum.
Congressman Cummings, Chairman Scarborough, thank you for
giving me the opportunity to testify today on my experiences
with long-term care, with Medicaid and on the need for
affordable, portable long-term care insurance.
Although I'm speaking as a citizen employed in the private
sector, my hope is that the Congress will enact legislation
enabling Federal employees to acquire long-term care insurance,
and that this example will encourage insurance carriers,
employers, and employees to participate as well.
My wife and I are members of the sandwich generation; that
means that although our children are not yet fully on their
own, we have the added responsibility for seeing to it that our
parents and other elderly relatives are cared for. We now have
plenty of practice, in locating and dealing with hospitals,
hospice care, short- and long-term custodial care and assisted
living facilities as well as helping our relatives find
independent living apartments.
And I also would like to say that the last 3 years,
especially 1998 and 1999, have been the most demanding and the
most emotionally wrenching that we can remember. I'm 55, my
wife Kathy is in her early 50's, we have two sons, 20 and 23.
I'm an active member of the Maryland Bar and am registered to
practice before the U.S. Patent and Trademark Office. My wife
is a media assistant in the Howard County Public School system.
But this testimony is primarily about my father-in-law Otts
Denchler. Otts is an 87-year-old gentleman, strong as a bull.
Physically fit, great appetite, who has worked practically his
entire life as a refrigerator mechanic and all around fix-it
genius. Just a few years ago, he was diagnosed with Alzheimer's
disease. Up until the middle of August 1998, he was living with
his wife, Liz, in Baltimore City. His dementia caused him
constantly to want to go home to his childhood house in
Baltimore on Ridgely Street. That house no longer exists.
Nevertheless, because he was constantly wandering off, we
installed deadbolt locks on all the outside doors in his house
in Baltimore.
He also would get quite agitated if he was restrained in
any way. At this point, including their home, their total
assets amounted to $63,200. In late August 1998, my wife had to
rush to Baltimore to be with her mother who was bleeding
internally. Because Otts could not be left alone, my sister-in-
law took him in. We always worried that if he did wander off,
he would forget what red or green meant and be hit by an
automobile.
The hospital diagnosed my mother-in-law with advanced liver
cancer and her heart would not permit surgery. She was moved to
a nursing home in Catonsville, MD, which was less than
satisfactory, but we were fortunate to get her into a more
satisfactory nursing home, St. Elizabeth's Rehab and Nursing
Center. She had hospice care there and she died the end of
September.
Now, while her mom was dying, my wife was faced with
another crisis, her sister had to return to work to support her
own family, what to do with Otts. None of us could stay with
him around the clock, so the VA placed him in a contract
nursing home in Catonsville. He escaped from there twice. The
second time they didn't even know he had left. He had gotten
easily a mile away before a good samaritan family took him in,
called the police and he was returned.
My wife at this point was frantic. We had to find a safe
place for Otts. By the grace of God, an opening occurred in St.
Elizabeth's Alzheimer's unit and we were able to move Otts into
the same nursing home in which his wife, Liz, was staying. A
few days later, she died.
Now even though I'm an attorney, it took several consults
with an elder law specialist to help navigate the medical
assistance process, starting with cashing in Otts' assets, then
filling out the applications, then going to my in-take
interviews on North Avenue in Baltimore City. Here's where life
got even tougher. Otts isn't going back to his home in
Baltimore City; that means his house has to be counted as an
asset that must either be drawn down or liquidated to pay back
the State for medical assistance in the event medical
assistance is awarded.
That has meant that my wife and I and occasionally some
other relatives have had to empty the house and do a lot of
fix-up to prepare it for going on the market, and it's still
not ready. Inasmuch as the medical assistance office has given
me notice that they may place a lien on Otts' house, I'm faced
with yet another dilemma, it will be some time before the house
actually sells. It's very likely that the back balance at the
nursing home will exceed the net proceeds from the sale. But to
whom do I send the check?
Assuming the State grants medical assistance to Otts, if I
send it to the nursing home, the State can come after me for
the money, because they have a lien for reimbursement of any
funds they've expended on his behalf. If I send it to the
State, the nursing home could argue that the sale of proceeds
should go to pay Otts' bills incurred prior to the month that
Medicaid had set in.
So not knowing which way to go, I called the nursing home.
They were most understanding. They said if the State grants
medical assistance and then enforces a lien on the proceeds, so
be it. As far as the application process goes, the biggest
hurdle was getting the reams of documentation together. I had
most of it in time for my interview on March 19th at Broadway
and North Avenue; however, the intake person correctly pointed
out that I still needed to get about 6 more months of back bank
records of the 36 months that the rules require, plus some
other records.
I finally got those and I sent them in. I'm now awaiting a
decision from the Department of Social Services. At this point,
I would like to mention to Congressman Cummings that all of the
people with whom I have worked at the North Avenue location
were most helpful, very friendly, and patient with me.
So here I am. My wife feels that because we believe
Alzheimer's has a genetic link, she may contract the disease.
Her family lives well into their 80's and 90's. It certainly is
conceivable that she would need long-term care for a long, long
time. That's why, ladies and gentlemen, I ask the Congress to
enact legislation to enable Federal employees to obtain
portable, affordable long-term care insurance.
Ideally the insurance should not have a cap on the maximum
benefits paid for the reasons I've just stated; at $50,000 to
$60,000 a year, a cap is exhausted pretty quickly. Also, it
should cover the care, whether provided as medical or custodial
care, and whether it is in a nursing home, in assisted living
or at home.
This is not the first time I have had to exhaust a family
member's entire resources. With your help, perhaps it will be
the last. Thank you for listening.
Mr. Scarborough. Thank you, Mr. Yocum. Dr. Benjamin.
Mr. Benjamin. Chairman Scarborough, Congressman Cummings,
let me just tell you that certainly this bill and this concept
is very important. It is appropriate, and it's absolutely
necessary. The State of Maryland strongly supports all efforts
to encourage individuals to prepare for their long-term care
future, and that certainly includes the purchase of long-term
care insurance.
This proposal to offer private and long-term care insurance
for Federal employees would benefit at least 128,000 Federal
employees here in the State of Maryland and, of course, you may
want to add their beneficiaries that are appropriate to that
number.
Now currently back in 1993, the Maryland General Assembly
authorized the State to look at a proposal under the Robert
Wood Johnson Foundation to develop incentives to support long-
term care insurance in Maryland, but that program we were not
able to participate in, because the Omnibus Budget
Reconciliation Act of 1993 limited that program demonstration
to the four original States, which were California,
Connecticut, Indiana, and New York.
However, we pressed on, and the State of Maryland is
currently soliciting bids for companies to provide group long-
term care insurance for our State employees to purchase
insurance very similar to what is being offered here or
proposed for Federal employees.
We certainly agree that if more people assume
responsibility for their current and future long-term care
expenditures, public spending on long-term care would certainly
be able to be reduced, and we believe this will become
extremely important as many of us, and I'm a baby boomer, about
to enter seniorhood. So we're very much concerned about that.
Now during the fiscal year of 1997, Maryland's Medicaid
program spent close to $557 million on long-term care for
recipients 21 years of age or older. That represents about 22
percent of our total Medicaid budget. We spent $503 million on
nursing facilities for about 24,000 adult recipients. Almost
$31 million was spent on medical day care for about 3,300
adults and another $22 million was spent on personal care for
almost 5,000 adults.
Now, what we're beginning to look at are new and creative
ways to deliver long-term care in Maryland. We think that the
potential of expanding insurance coverage would allow us
certainly to do that. So that when you look at long-term care
coverage, you have to make sure that we expand the capacity of
that coverage to allow for, not only institutional care, but
community-based care. In many ways, as you know, community-
based care can be cost effective, to be very, very creative we
can provide wraparound services for seniors in their homes. We
all believe it's a terrible, terrible tragedy for someone to
have to exhaust all of their resources to do that.
As Congressman Cummings knows, I also run the Developmental
Disabilities Administration in Maryland, and we have committed
millions of dollars recently through our Governor for
implementing his initiative to provide services for individuals
with developmental disabilities in the community. We have found
this program over the last year to be terribly cost efficient,
to provide adequate services, wraparound services, and
significant support services for individuals with developmental
disabilities. I believe our seniors in Maryland deserve the
same kind of compassionate, aggressive and assertive care.
I thank you very much for allowing me to speak today, and
we absolutely support you in your efforts.
[The prepared statement of Mr. Benjamin follows:]
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Mr. Scarborough. Thank you, Dr. Benjamin.
Mr. Atwater.
Mr. Atwater. Mr. Chairman and Congressman Cummings, I'm
Frank G. Atwater, president and chief executive officer of the
National Association of Retired Federal Employees. I represent
some 430,000 active members in my association and perhaps 2.4
million in Federal employees and retirees. I appreciate the
opportunity to participate in today's hearing, and I commend
you, Mr. Chairman, and you, Mr. Cummings, for your interest in
making long-term care insurance available as a Federal
employment benefit.
Absent a national response to long-term care needs, many
private and public sector employers have begun offering group
long-term care insurance to their employees. In fact, half of
the current Fortune 500 companies make private long-term care
insurance available to their workers. Many employers realize
that they have to provide a competitive benefits package to
attract the best and the brightest, and many corporate leaders
have come to understand that more employees are faced with the
challenge of caring for a disabled family member.
Employer provider long-term care insurance helps some
employees shoulder that burden by providing a full range of
long-term care options, including community and home-based
care. Although employees usually pay the full amount of long-
term care insurance premiums, the premiums they pay are less
expensive and the benefits they receive are better than similar
products available to individuals in the private market,
because of the economy of scale achieved through purchasing
long-term care insurance on a group basis.
The availability of group long-term care insurance is
consistent with NARFE's goal of ensuring financial stability in
retirement for government employees. The knowledge that
retirement benefits and hard earned assets will be protected
while long-term care services are guaranteed cannot be
overstated for NARFE members. NARFE commends Representatives
Mica, Cummings, Morella and you, Mr. Chairman, for introducing
long-term care bills in the House. Without your leadership, we
would not be having this conversation today.
Although everyone agrees that long-term care insurance
should be offered, NARFE has concerns regarding how the program
will be managed. NARFE strongly believes that OPM will have no
leverage to secure group discounts on minimal benefits without
the authority to negotiate with long-term care insurance
carriers.
Most, if not all firms that sponsor long-term care
insurance appreciate their role as plan purchaser and
administrator. If benefits specialists at IBM have the
authority to negotiate group discounts, benefit design and
medical underwriting of long-term care insurance, then there is
no reason why the equivalent professional OPM staff should not
be given the same authority.
We are pleased that such negotiation authority has been
included in the bills introduced by Mr. Cummings and Mrs.
Morella. There has also been significant discussion on the
number of carriers that would be allowed to participate in this
program. Representatives from carriers that primarily sell
long-term care insurance in the individual market argue that
encouraging several carriers to participate would ensure a full
range of choices for participants and encourage competition
just like the Federal Employees Health Benefits Program.
Although Federal workers and annuitants enjoy the benefits
of competition in the FEHB Program, using several carriers in a
long-term care program could fragment the risks of providing
this insurance. When long-term care insurance is offered to
employees in the private sector, only about 6 percent of those
eligible buy policies. Alternatively, 82 percent of the Federal
employees and annuitants participate in the Federal Employees
Health Benefits Program.
The reason for this difference is simple. Nearly everyone
needs health care, but not everyone is sold on the notion that
long-term care insurance should be part of their financial
planning. Given a smaller community of coverage, splitting the
risk of providing long-term care insurance between many
carriers could reduce a group's plan economy of scale and not
produce lower premiums.
NARFE supports the concept of limiting the number of
carriers that would participate in the Federal long-term care
insurance program, since fewer insurers would reduce the
possibility of adverse selection or risk fragmentation. We are
confident that limiting carriers will not result in a one size
fits all or a cookie cutter product. Instead, a full range of
benefit choices would be available to enrollees and active
competition between insurance carriers and the program bidding
process would be encouraged.
Carriers that participate in this program and OPM should
also negotiate medical underwriting requirements. OPM says that
it will attempt to minimize underwriting requirements for
active employees during the initial offering to encourage them
to buy long-term care insurance before they retire. Relaxed
underwriting requirements would help attract employees into the
long-term care program.
Their participation in sufficient numbers is essential if
the group is to secure discounted rates and better benefits. We
realize that annuitants and family members probably would face
medical underwriting standards. However, NARFE's goal is to
ensure that annuitant underwriting standards are less
burdensome than those offered to mature and older Americans in
the private market.
While program ground rules must make insurance carrier
participation in this program feasible, NARFE will insist that
the greatest possible number of employees and annuitants would
be able to buy long-term care insurance at reasonable rates.
Of all of the House proposals, NARFE's preferred vehicle is
H.R. 1111. This legislation builds on other proposals by
providing OPM specific guidance on benefit design without being
overly proscriptive.
Beyond the core benefit design, H.R. 1111 permits plan
participants to make their own decisions about some of the most
important coverage features of a long-term care policy. For
example, it would guarantee participants the option of
receiving long-term care in a variety of settings, including
nursing homes, assisted living facilities or home and
community-based care.
In addition to benefits, H.R. 1111 requires OPM to create
consumer protections for participants. OPM would be required to
create an external dispute resolution process to resolve
differences between policyholders and carriers, and the bill
prohibits Federal preemption of State consumer protections when
State standards are more stringent.
The Morella bill adds military personnel and retirees to
the lists of persons eligible for the long-term care insurance.
Those who were present for last year's hearing on this issue
may remember that my predecessor Charles R. Jackson said that
he had difficulty believing that he might need long-term care,
and as a result, he had not bought a long-term care policy. He
said, ``I suppose I cannot justify paying the premium costs for
something I find hard to realize I may ever need. Now if I'm a
hard sell, just think how difficult it will be to persuade a
30, 40 or even 50-year-old Federal employee to buy long-term
care insurance.''
Mr. Jackson's testimony underscored the need and the
challenge of building a sufficiently large risk pool to achieve
the group discounts that will make long-term care insurance
affordable. Inviting military personnel and retirees into this
program will only help build this community of coverage.
Neither military personnel nor civilian workers will buy long-
term care policies without a major education effort.
Beyond the insurance policy itself, information and
referral service counselors must be capable of telling
employees and annuitants about the full range of long-term care
services available to them.
Finally, it is important to recognize that this insurance
product is not a comprehensive solution to present and future
challenges of providing long-term care. Admittedly, this
insurance will not be helpful to individuals who have an
immediate need for long-term care or persons who are already in
a long-term care situation. For that reason, NARFE has endorsed
the administration's plan to offer a $1,000 per year tax credit
to long-term care recipients or family care givers.
This proposal would provide some relief to individuals and
families that provide or pay for long-term care. Likewise, we
support the White House's $625 million family caregivers plan
that would provide respite home care services, counseling,
support, information and referral services to families
nationwide. And for all its shortcomings, Medicaid is the only
safety net program that guarantees long-term care benefits for
eligible individuals.
NARFE urges Congress to preserve this guarantee for persons
presently eligible for Medicaid. The challenge of creating a
better way to deliver and finance long-term care will not be
resolved overnight. NARFE is committed to working with Congress
and other organizations to preserve the quality of life for
those who may need this long-term care, those who already
receive it and those who care for disabled loved ones.
In closing, I want to commend you, Mr. Chairman, and, Mr.
Cummings, and Representatives Mica and Morella and others for
recognizing our critical need for private long-term care
insurance. That concludes my testimony, Mr. Chairman.
[The prepared statement of Mr. Atwater follows:]
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Mr. Scarborough. Thank you, Mr. Atwater. I certainly
appreciate it. And, of course, congratulations on your
election. I will say this, there's one area I'm a little
concerned about right now and that's your diplomacy of the
bills, the few bills introduced, Mr. Cummings and I introduced.
He has 110 and I have 602, and you endorsed the plan by the
Member that's not here. We will work on that though.
Mr. Atwater. I'm sorry. I had that going around in my head
that there must be a couple of bills that I'm missing.
Mr. Scarborough. Yes, yes.
Mr. Atwater. I couldn't get them written down. But I did
mention your name afterwards.
Mr. Scarborough. You did, and you pronounced it correctly,
too. So that's a good start.
Mr. Atwater. You told me earlier I could call you anything
I wanted to, but I wouldn't go so far as to calling you Mr.
Golds-borough or something like that.
Mr. Scarborough. You can still call me whatever you want,
just support my bill, and I'm happy, or Mr. Cummings'.
Mr. Atwater. I certainly will. I wouldn't be here if we're
not supporting your bill.
Mr. Scarborough. We will all work together.
I want to first of all ask you, Mr. Yocum, to expand a
little bit on your testimony, because I think it's very
compelling. I, myself, practiced law before getting into
Congress, and the one thing I knew about patent law was that I
didn't know anything about patent law because it was so
extraordinarily complex. You engage in a field of practice that
is about as complex as any field and yet you had to hire your
own attorney to wade through the complex issues involved in
taking care of your parents.
Now, I will say, by the way, you are very good with
diplomacy, because you identified your age as 55, but you just
made a general reference to your wife's age. That was very
good. You picked that up, didn't you?
Mr. Yocum. Thank you, Mr. Congressman.
Mr. Scarborough. I noticed that. But let me ask you, first
of all, how much have you had to spend on legal representation
just to figure out the basics of how to best protect your
parents?
Mr. Yocum. I was very fortunate, Congressman Scarborough, I
paid zero.
Mr. Scarborough. Because you have friends who are
attorneys?
Mr. Yocum. It was professional courtesy on this gentleman's
part.
Mr. Scarborough. Let me ask you this question then for the
members out there that aren't as fortunate as us to have
attorneys who are friends that will occasionally do that, how
much can you estimate would it cost somebody that didn't have
the same professional courtesy extended to them, a rough
estimate?
Mr. Yocum. If we assume a billing rate of around $150 to
$200 an hour, something like that----
Mr. Scarborough. That's a good assumption.
Mr. Yocum [continuing]. I would say easily anywhere from a
$1,000 to $2,000 depending upon how long you're on the phone.
Whenever I encounter someone who says, Chuck, can you do this
or that for my father-in-law, we're looking at preserving
assets or things like that, this is an area of the law that I
feel the same way as you feel about intellectual property.
I'm completely lost, but I will refer every single person
to legal counsel before entering this particular adventure.
That would be my recommendation. I think even if I had to pay
the fee, and I was quite prepared to do so, I wouldn't take
step one without having consulted counsel.
Mr. Scarborough. You know, it's a real shame that we've
gotten to that point regarding this issue because it adds
insult to injury, financial insult to injury for so many people
that have to go through this very, very expensive process. I
would guess this would actually help accelerate the spend-down
process, which in itself can be very distressing not only for
the parents, but the children of the parents that are taking
care of them.
Let me ask you about your experience in this area, because
we've had some testimony in past hearings about just how
difficult it was for parents and children to go through their
spend-down process where basically they had to spend everything
that they had made over 40 years just to qualify for Medicaid
and be able to get long-term care.
Could you tell me for you and your wife, what was the most
difficult part of this spending down process?
Mr. Yocum. There were a couple of difficult parts, and the
part that I absolutely missed, notwithstanding the hours of
advice that I received, was having to make sure that the timing
was right when certain account balances show a certain figure
in the relative's bank accounts. It took a long time to draw
down the cash value of my father-in-law's insurance policies.
That took a long time dealing back and forth with the insurance
companies and what not, but you deposit the asset proceeds into
the bank account, and if it shows up in the wrong time of the
month, then it's well above the figure, even though the very
next month you turn it around, and you either pay the health
care provider or apply it to the family member's other needs.
And so I made several mistakes along the line, because I
have a feeling that my father-in-law Otts would have qualified
for medical assistance sooner had I handled things differently
so that on the right time of the month the balances would show
the right amount of money.
Mr. Scarborough. Right. Do you have any children?
Mr. Yocum. Yes, sir, I do. I have two sons, one who is 23,
just graduated from the University of Maryland last year.
Incidentally he's working for a contractor for the State
Department, which was his first really good job. And a son in
his third year, majoring in art, also at University of Maryland
College Park.
Mr. Scarborough. Well, I ask that question, because this
really feeds into the one before. You know, I've got two boys,
one is aged 8 and one is 11, and you know the second you have
children, you realize that is your commitment and you start
working to build for their future, to set aside money to get
them get through college and hopefully to take care of them,
and maybe even leave them with something.
I want to ask you on the emotional side of things, what do
you think it would be like for your father-in-law, who worked
his entire life, or like you, you're going to be working your
entire life obviously very hard to see everything that you have
earned over 30, 40, 50 years evaporate in a matter of a year or
a year and a half just so you can qualify to be treated
decently?
A followup to that is, what advice are you going to give
your two boys to make sure that this sort of thing doesn't
happen to them or happen to you, drawing upon all of your
experiences?
Mr. Yocum. Well, it was pretty wrenching. I have this
gentleman who I look upon as my surrogate father, who has been
dead for a good while now. He was a very proud man, very proud.
And he was also proud of his having amassed, having put
together a family, and their life savings when my mother-in-law
died was around $7,000. That's worth about a month and a half
in terms of private pay nursing home care.
And I think if I were to try to step in his shoes and look
at that, I would be heart broken. We, the family, had made a
decision that we were going to apply the proceeds of the house
to get him the best care we could, even though there was an
opportunity based on advice of counsel of somehow possibly
sheltering part of the assets for our use after he were to die,
but that's not how we wanted to do it. So it all goes into the
black hole.
As far as advice for my two sons, they and I and my wife
have seen the elder care side of the coin big time. We have
worked with three or four of my wife's elderly relatives and my
own mother, and we all see that in our future. And so my advice
to both of my boys would be that when and if you can afford it,
try to get long-term care insurance, and the big word there is
affordable.
Mr. Scarborough. Mr. Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman. I wanted
to just recognize our Department of Aging secretary, Secretary
Sue Ward for the State of Maryland. Would you stand up, Ms.
Ward? Thank you very much for being with us today.
Dr. Benjamin, I just want to talk about a few things that
you mentioned. You were saying that Maryland is aiming more at
community-based care because it's cheaper I take it than the
nursing homes; is that right?
Mr. Benjamin. That's correct.
Mr. Cummings. OK. So what's the difference? Would you give
us an idea of what you project the difference is? I know it
varies. But between say nursing care, nursing home care, and a
year of at-home care, just the range?
Mr. Benjamin. Well, it depends. Let me walk you through
some examples if that might be helpful. You have an individual
who is at home and you have--let's say you still have a couple
there, and you're now able to--the wife is not able to handle
this person, unable to give them a bath, unable to keep them
clean, and unable to change them and, in essence, she may just
initially need someone to help her do those kinds of things in
a much more intensive way than some of our personal care
services would offer.
It seems to be that that's a much cheaper way than to take
that individual and put them in a nursing home to give them
more care than they probably need. Here's a person who is
comfortable, they're at home, they've got their bed, they've
got their slippers, they've got their television set. What they
really need is some assistance part of a day or for portions of
the day, with parts of their daily living.
Let's go to a much more complex case, where you have
someone who needs fairly intensive nursing care, but, again,
not 24 hours a day, 7 days a week, you can do that same
scenario by providing that person in-home care for the
component of time that they need, again, versus putting that
individual in a nursing home.
We're beginning to see probably as the side effect of
managed care that our hospitals are becoming intensive care
units, that our nursing homes are becoming medical surgical
wards, and that our communities are now becoming what we used
to take care of in nursing homes.
I believe we need to buildup that capacity in the community
to provide for that care, particularly as we see those of us
who are going to become seniors, become seniors because, as you
pointed out in your so eloquent testimony, the numbers are
going to be extraordinary. And so I believe that we need to
have the full spectrum of care.
I strongly support our long-term care facilities. I don't
want to leave you with that message. I strongly, strongly
support that. But also what I support is the flexibility to
give people what they need when they need it, instead of having
these very rigid systems that say we're not going to pay for
that until you spend every dime that you have. We're not going
to offer you the care you need, the right kind of care you need
when you need it. To me that's not cost efficient, nor good
government. So I would like to see some flexibility in that,
and I believe insurance can cover that, if we craft it, if
we're smart about the way we craft that.
Mr. Cummings. On that note you said a little bit earlier
that the State of Maryland is currently soliciting bids, is
that right?
Mr. Benjamin. That's right.
Mr. Cummings. Tell us what the criteria is, what kind of
criteria you are using to choose.
Mr. Benjamin. I don't know. I will be happy to provide that
to the committee.
Mr. Cummings. Will more than one carrier be allowed to
participate?
Mr. Benjamin. My understanding is that is true. It is
basically to do a group process similar to what you are
proposing, but I can tell you those details.
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Mr. Cummings. Mr. Atwater, your organization provides long-
term care insurance?
Mr. Atwater. Yes, through Maginnis & Associates.
Mr. Cummings. How long have you been doing that?
Mr. Atwater. Certainly before my watch. I was national
treasurer for 4 years. I have been president for 7 months.
Several years before I came on board we had the Maginnis Co. as
an insurance carrier.
Mr. Cummings. Is there more than one carrier?
Mr. Atwater. Actually under contract to NARFE, Maginnis is
our broker. Within Maginnis, there are several insurance
companies that offer different types of insurance, long-term
care, dental plans and things like that.
Mr. Cummings. You know, David Carver of AT&T, who will be
testifying in a moment, very interestingly one of the things
that AT&T did, and maybe I have read so much testimony that
some may be coming together, but offered the long-term care
insurance with life insurance and another thing that they did
that was interesting, when they decided to offer the long-term
care insurance they wanted to ensure that they would get
maximum participation so they offered it at the time of the
open enrollment so that more people's attention would be drawn
to it, to the opportunity.
One of the things that Mr. Scarborough and all of us have
been concerned about is that once we figure out exactly how we
are going to do this and create the mechanism to do it, making
sure that Federal employees take advantage of it. How do you
make sure that you maximize the opportunity?
We know that cost is something that is very important. We
understand that. But even when you get the cost down to a
reasonable amount and you have a decent package, do you have
any recommendations as to how you get the word out and sell it?
And I also ask the same question of you, Mr. Yocum.
Mr. Atwater. I don't think much about offering the long-
term care insurance and life insurance together, and I would
like to know more about it. However, on selling long-term care
insurance, and I have said this to Ms. Janice Lachance, the
Director of OPM, we need to sell long-term care insurance to
our younger Federal employees at the very beginning of their
employment similar to the way we sold the Federal Employees
Health Benefits Program and the insurance program. If we could
get a long-term care program and offer it in a package with
FEHBP and sell it to them early on, I would have had no problem
when I first came in civil service many years ago if I had to
contribute 1 percent or 2 percent of my pay, like I did for my
retirement, as long as it was sold to me and offered as a
package.
I have a daughter who is 34 years old and she is with the
National Park Service headquarters here in Washington, DC. She
has worked for the Air Force and the Coast Guard, she
understands the need for long-term care and she and her husband
are looking for it right now. As I said, they are both in their
30's. But I think whatever program we have has got to have that
selling part of it right from the beginning.
I have just come back from about 11 or 12 State conventions
where I talked about long-term care to our Federal retirees and
I told them maybe if you need long-term care you should look
for it now.
The bill that will be passed in the future may not be
exactly what they need at the time, so I think we need to start
a program that would sell, encourage new employees to buy long-
term care from the beginning.
Mr. Cummings. Mr. Yocum.
Mr. Yocum. Thank you, Congressman Cummings.
Before I and my wife went through these last few years, our
eyes just weren't opened. I think maybe there is some
reluctance on the part of anyone to purchase long-term care
insurance because they don't want to see themselves in this
position. They just positively don't want to.
So I think one thing that would help sell it would be to,
if possible, make it almost like a quasi-health insurance, you
are going to need it sometime. Somebody in the family is going
to need it and I think Dr. Benjamin's testimony has been very
revealing because and my wife and I have seen this, the need is
to provide some additional help at the home level and not
necessarily in an institution. If we can point the prospective
enrollee to all the different ways that long-term care can help
them in the future, that it is not limited just to long-term
care at a nursing facility, I think that would go a long way.
And for me personally if we were to lose, get rid of the cap, I
think I would be a lot more willing to spend the money on a
monthly basis to keep a policy in effect.
Mr. Cummings. I just wanted to again thank all of you for
being with us today, and I also want to thank Delegate Shirley
Pullian for being here, too. Thank you for being with us.
Mr. Scarborough. I want to thank you, Mr. Cummings. I
wanted to do a very brief followup, a couple of quick
questions. Dr. Benjamin, I wanted to ask you, first of all
hearing Mr. Yocum's testimony brought to mind the question of
how much would it cost for an average stay in a Maryland
nursing home for a year. Do you have a rough estimate that you
can give the subcommittee?
Mr. Benjamin. I can give that for you in writing. There is
a fairly wide variation. I can get that for you in writing.
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Mr. Scarborough. Let me ask you this. Obviously it is going
to be fairly expensive. In your capacity, have you found
traveling across this State that most residents of your State
believe that they are covered for long-term care in some way,
either through their job or through Medicare?
Mr. Benjamin. Yes. That is a misperception that a lot of
people have that they are covered and they are not. Or that
Medicaid does cover it or Medicare covers it. A lot of people
think that Medicare will cover it and they do not know that
they have to spend down to do that, that is correct.
Mr. Scarborough. Mr. Atwater, I wanted to ask you, just
clarifying a point or two, we had gotten the information that
your organization's long-term care plan was temporarily closed
or closed down for now. Are you still offering new policies?
Mr. Atwater. Yes, sir. We are offering it under the broker
that I mentioned earlier, Maginnis & Associates. We have not
stopped it. It is still being offered unless it happened in the
last few weeks or so. I need a new legislative department if
they have.
Mr. Scarborough. We had called Florida and identified
ourselves as being from Florida, and we will get the
information to you, and we were told that they were not
offering it currently. I was going to expand upon that just to
ask if that was the case, then what worked for you all and what
didn't? In your capacity as president right now, what are you
finding to be the successful points of the program that you are
offering? What is working and what is not working?
Mr. Atwater. Well, it is an individual choice whether you
buy long-term care insurance or not. I may have some statistics
here, how many we do have on long-term care insurance, if I can
just look through this. Through our program we have some 3,100
of our members who do have long-term care through our Maginnis
& Associates broker. I have not heard what is working and what
isn't. It is an individual choice whether people want it or
not.
When I have been traveling around to the different States
recently this spring, many of our members are truly interested
in long-term care. Some have gone out and gotten their own at a
private insurance company, American Express or something like
that, and others have gotten it through Maginnis & Associates.
I haven't heard any complaints.
Mr. Scarborough. You know, there are two areas where we are
separated, and I touched on them and I think they are the two
areas that we are going to need to move together and find
common ground and make sure that this bill does pass in some
form, I suspect in the end in a form that takes a little bit
from everybody; that is, a compromise form, but let me ask you,
the first point you talked about was sort of the field of
insurers that were eligible. My personal belief is that the
more qualified insurance companies you have, the more choices
that the insureds have and the more competition you have in the
market. Obviously you agree with OPM's position that the field
should be limited, very limited and restricted. Let me ask you,
you just talked about choice, individual choice and
flexibility. Don't you think in some way having more insurers
out there, in the free market, would drive down the prices? And
offer more flexibility in plans for your membership?
Mr. Atwater. Sure, I agree that more choices would be
better.
Mr. Scarborough. Right.
Mr. Atwater. That is something that we are going to have to
talk about and work together in reaching an agreement on this.
Right now of course we are in agreement with OPM on the plans.
As far as offering choices, I would like to see it opened
up as a personal statement. On the other hand, I kind of have
to agree with the folks that are the experts in this area,
which I am not, that maybe a limitation like our Federal
employee insurance program would be a better way to go. I have
to do more studying on that. But we are willing to open it up
and talk to you and certainly work with you on it.
Mr. Scarborough. That is something obviously that we do
need to talk about because obviously the life insurance program
is about as restrictive as possible where you only have one
carrier. That is a pretty good market for one carrier to have.
Obviously the FEHBP plan is expansive and I just tend to think
the more qualified carriers we have participating the better,
but again that is something that we need to come together on.
Also, you talked about relaxed underwriting, something else
that I think we need to balance out. Usually I think just about
every insurance person you bring in will tell you when you have
relaxed underwriting that actually causes the cost to go up,
which is the case 99 percent of the time. I do certainly
understand your point, though, that relaxed underwriting also
allows the field of participants to expand, so that is
something that we are going to have to balance also, because if
we relax the underwriting so much that absolutely everybody is
qualified, that means that this program is going to cost those
that you represent. Do you think that is a fair assumption to
make?
Mr. Atwater. It is a fair assumption and we need to work
with you folks on that.
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Mr. Scarborough. Mr. Cummings.
Mr. Cummings. Just a followup on that----
Mr. Atwater. I knew I should have mentioned your bill, sir.
Mr. Scarborough. You really should have.
Mr. Cummings. Just following up on Mr. Scarborough's
question, we have to maintain that balance. There has to be
that balance between how much latitude we allow as to who comes
into the program and that has a direct effect of course on the
cost. That is one of the problems that we are running into,
trying to figure out how to keep that balance, and have
reasonable restrictions as to who is covered so that the
premiums are at a decent rate because if we are not careful, we
will create a Cadillac package and nobody will want it and we
will have defeated our purpose.
I am just wondering, do you have certain things that you
look to for trying to maintain that balance. I am sure that you
have an appreciation based upon your answer to Mr.
Scarborough's question, do you have an appreciation for that
balance that we are trying to come up with?
Mr. Atwater. I guess I would have to research the whole
thing more, sir. I am not ready to make a comment regarding
that.
Mr. Cummings. I understand. I think in our next panel they
will probably be able to talk about some of their experiences
which might be helpful to us.
Mr. Scarborough. I want to thank all of you for coming and
testifying today. It certainly has been very helpful. We
certainly hope that we can continue to work together because
this is obviously something that is critical for the people of
Maryland and for the country. So thanks a lot. We appreciate
it.
Mr. Scarborough. We are now going to call our next panel
up. On our next panel we have Dave Carver, Ken Grubb and Dave
Cavanaugh. David Carver is currently the district manager for
Benefits Planning and Analysis for AT&T. In this position he
led AT&T's efforts to obtain long-term care insurance for their
employees. Ken Grubb, president, New York Life Insurance Co.,
is testifying today on behalf of the Health Insurance
Association of America as a member of its long-term care
committee. He has been with us before. We have David Cavanaugh,
Manager of Business Development and Special Projects for Wright
& Co. Wright & Co. is a national firm providing administration,
consultation and insurance benefits to the Federal and private
sector. Wright & Co. currently offers policies which link life
insurance and long-term care insurance in a single policy.
And the panel are obviously experts at testifying because
they are already standing and ready to take the oath.
[Witnesses sworn.]
Mr. Scarborough. We ask that you stay to the 5-minute
limitation, and any additional comments that you have that you
would like in the record that you can't get in during the 5
minutes, we will gladly submit to the record.
Mr. Carver, if you can begin.
STATEMENTS OF DAVID M. CARVER, DISTRICT MANAGER FOR BENEFITS
PLANNING AND ANALYSIS, AT&T; KENNETH A. GRUBB, PRESIDENT,
NYLIFE ADMINISTRATION GROUP/NEW YORK LIFE INSURANCE CO., HEALTH
INSURANCE ASSOCIATION OF AMERICA; AND DAVID E. CAVANAUGH,
MANAGER OF BUSINESS DEVELOPMENT AND SPECIAL PROJECTS, WRIGHT &
CO.
Mr. Carver. Mr. Chairman, Congressman Cummings, I
appreciate this opportunity to appear before your committee
today to discuss AT&T's experience as an employer that offers
long-term care insurance to our employees. I am the district
manager for Benefits Planning and Analysis at AT&T. In this
position, I led AT&T's effort to obtain long-term care
insurance for our employees.
In 1990, AT&T began work on the planning phase of their
long-term care program. The market at that time was
considerably less developed than it is today. Our initial
research began with the development of basic principles to
guide AT&T in its decisionmaking process.
Items that needed to be reviewed included tax status of the
product, review of employee need, product integrity and the
general communications approach that the company would follow
in order to maximize the benefits of this product for our
employee population.
In 1990-1991, there was considerable discussion of whether
an employer could offer long-term care as an employer paid
coverage and the potential tax consequences of the benefits
that the employee might receive from such a plan. At that time
there was no specific part of the IRS code that completely
covered this type of benefit.
Early on AT&T focused on employee need in two areas. First,
financial protection and second, determination by the employee
of their own personal evaluation of need. We were comfortable
that a carefully designed plan could accomplish both goals.
Financial protection could be assured by making the breadth of
benefits extensive enough and that determination by the
employee of their own needs could be accomplished by offering
significant choice of plan designs. It was determined that AT&T
long-term care would be a voluntary employee pay all plan. It
would be incumbent upon AT&T to ensure that the program was
designed such that it was fair and equitable for all plan
participants. While AT&T wanted to insure the largest group of
participants, we also needed to ensure that the product itself
was not compromised by allowing unreasonable advantages to
different population groupings.
AT&T was particularly concerned about anti-selection. We
struck a balance that would encourage employees to join when
first eligible, and minimize the likelihood that one individual
would have an advantage over another. Active employees that
were actively at work would be accepted without underwriting
during the initial open enrollment eligibility period. Spouses
and employees who enrolled later would be allowed to complete
the underwriting short form, all other potential participants
would have to go through the standard underwriting form.
AT&T would prefer not to exclude participants from its
plans. However, AT&T does not believe that a person with a
known preexisting condition should be able to apply for
insurance, pay the same rates as everyone else and know that
they will receive benefits or have a far higher likelihood of
receiving benefits than the general insured population. It was
felt that getting a long-term care insurance product in front
of employees at that time when employees needed to make benefit
decisions would be critical to the success of the initial
enrollment.
Our company research had shown that our employee population
had a tendency to do nothing when given the opportunity,
especially if doing nothing allowed them to maintain the status
quo.
The long-term care insurance program was launched when AT&T
introduced its new cafeteria plan, which was one of the largest
communication efforts that AT&T would undertake to its
management population in the 1990's. Once the general program
outline was completed, specific plan design features needed to
be developed. AT&T wanted employees to have as much flexibility
as possible while insuring that adequate coverage would exist.
The market in 1990 offered two major plan design features:
nursing home coverage and home health care coverage. Most
products available in the marketplace would be nursing home
only or nursing home and home health combined, which we would
know as comprehensive care. AT&T decided to offer both. A
survey of nursing home costs revealed that annual nursing home
expenses varied from $20,000 to over $50,000 per year. That was
1990. This translated into a benefit range of $60 to $140 per
day. Our initial design, therefore, was to create six plan
choices by offering $60, $100 and $140 per day benefit levels
in both of those coverage categories of nursing home only and
comprehensive care.
Our next decision was how long should coverage be given.
When we first looked at this feature, AT&T wanted unlimited
duration. However, in order to incorporate a sense of cost
control into the plan, we decided upon limits that were
multiples of the daily dollar amounts. The nursing home only
coverage was given 5 years duration, and the comprehensive
coverage was given 7 years. Under this design, if the
participant were to use the benefit less frequently than daily
and or obtain a daily benefit cost below the daily benefit
purchased, then the duration of benefits could be extended well
beyond the 5 or 7 years.
Determination of eligibility for benefit payment came next.
The long-term care market had developed a methodology to
determine eligibility for benefit payment based upon a person's
functional ability in several categories called activities of
daily living, or ADLs. AT&T would need to specify which ADLs
would be evaluated, and how many ADLs a plan participant would
need to have lost function in before the participant would be
eligible for benefit reimbursement.
Next was the waiting period once you are eligible for
benefits. This is the period of time that the individual would
be expected to spend in benefits status before the plan would
begin paying benefits. This period needs to be carefully
evaluated for its impact upon the premium costs of the plan,
meaning that you don't want it too short, and the individual
cost to the plan participant who must incur those costs until
benefit payments are made.
There are many more features that are necessary to ensure
the delivery of high quality long-term care product. The ones
that I have discussed just now are the major features AT&T
looked at in its initial plan design development. The next step
AT&T employed was to determine the principles that we would
follow in evaluating the potential vendors for our product.
AT&T looked at the following: A single carrier rather than
multiple carriers; financial strength and market commitment of
the carrier; and the carrier notability.
Our original bid went to 9 potential vendors. Four were
selected as finalists that received site visits. AT&T
incorporated principles into the bid specification. These were
to allow carriers to differentiate themselves. The bid
specification was written in such a way as to encourage
creativity.
We wanted to ensure and enhance program integrity. The
balance in this type of insurance program can be sifted down to
two elements, premiums and the incurred claims. The potential
vendors were encouraged to present ways to maximize coverage
and to minimize premiums. We needed to meet the diverse
employee retiree needs of the company. The population of AT&T
was a diverse group of employees, retirees and their eligible
family members, all with varying needs. AT&T wanted to present
a long-term care product that would be flexible enough to meet
this diverse set of individuals and their needs.
We also needed to balance affordability versus
availability. Affordability was measured by the percentage of
the population that could reasonably be expected to afford the
product. In this comparison, availability refers to the number
of potential plan participants that would be accepted into the
plan based upon the underwriting restrictions. With a selection
of our vendor, the next step was to develop enrollment
expectations. Based upon the six levels of benefits that AT&T
decided to offer, it was estimated that a 5 to 7 percent
overall enrollment rate should be expected for management
employees. Enrollment rates of 2 to 3 percent were expected for
retired employees and occupational employees. AT&T has exceeded
these targets with management enrollment currently at 14
percent, retired employees at 3 percent and our occupational
employees at 4 percent. These percentages strictly are employee
population and not their family percentages. We are very
pleased with the initial enrollment figures, and the continued
participation that the program has experienced.
The AT&T plan has been enhanced on two separate occasions,
once in 1996 and again in 1999. In 1996, AT&T changed the daily
benefit amounts from the $60, $100, $140 to higher amounts to
$80, $120, $160 and $200 per day. We also added the assisted
living facilities as a covered service under the comprehensive
plan.
In 1999, after Congress enacted the tax qualifications
under HIPAA, we amended the plan to comply. Working with our
long-term care carrier, we were also able to make additional
plan enhancements in comprehensive and nursing home only
coverage. In addition, we felt necessary to add a third plan
option.
Determination provisions to the contract were one of the
key elements of the entire bid process. No matter how well
intentioned the vendor may be or how diligent AT&T was in the
selection process, the ability to change carriers and do it
without harm to the plan or to the participating employees is
critical. Long-term care insurance is an asset intensive
product with a long potential investment horizon. The insurance
company established active life reserves to account for their
assumption of liability. However, the interest or investment
gains from these active life reserves would be critical to the
financial health of the program. There are a few items that we
were unsuccessful in implementing into our long-term care plan
or continue to be frustrated by, and that is the mandating of
certain provisions in certain States, difficulty in protecting
the integrity of the plan and exclusion from section 125 of the
Internal Revenue Code.
We have many general positives we feel, and that is in
general the development and availability of long-term care
product in the insurance marketplace, the increased awareness
across the country of the need for this type of coverage, our
enrollment experience and our continued good experience with
lower than expected lapse rates.
Clearly AT&T has a wealth of experience in putting together
a program for our employees. I am pleased to have the
opportunity to share this experience with you, and we look
forward to being available for your questions as you move ahead
in putting together the legislation that will enable Federal
employees to obtain long-term care insurance at the workplace.
[The prepared statement of Mr. Carver follows:]
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Mr. Scarborough. And because of AT&T's experience in this
field, I think your insights have been very helpful. I want to
say to all of you gentlemen, because we are pushed for time,
any additional comments you want to put into the record, we
will gladly do that. I have a lot of questions, so if you don't
have any objections, I am going to be submitting some
questions, and I am sure that Congressman Cummings will be
doing the same.
If you have the responses back to us within 30 days, that
would be helpful, and we can put them into the record.
Mr. Grubb, welcome back.
Mr. Grubb. Good afternoon, Mr. Chairman and Mr. Cummings. I
am Ken Grubb, president of New York Life Insurance Co.'s long-
term care subsidiary, and I am pleased to speak to you again on
behalf of the Health Insurance Association of America [HIAA],
the Nation's leading trade association of health insurance
providers. HIAA provides coverage to 115 million Americans. My
comments are intended to give you our association's thoughts on
the legislation under consideration that would offer long-term
care insurance to Federal employees and their families.
I purchased long-term care insurance for myself, my wife
and our three children through my company-sponsored plan. If
our children are only in their 20's, why do we insure them? We
should help Federal employees and their dependents understand
that long-term care insurance is not just for the elderly.
Forty percent of people in nursing homes today are under the
age of 65.
There has been a lot of talk in this hearing about
affordability. The cost of my children's insurance is under
$220 per year. And as Mr. Yocum said, it is unlimited coverage,
so it will never end. Like Mr. Yocum, I am keenly aware of
problems families face because of long-term care needs. My
parents both needed care, and they had no insurance coverage.
They had very limited savings. It is almost the same story Mr.
Yocum told, with only Social Security as a source of income. I
paid for their care to allow them the dignity that they deserve
and to avoid the painful choices they would have to make to
qualify for Medicaid.
Today employers lose $29 billion a year in lost employee
productivity due to long-term care related issues. By offering
this benefit to its employees, the Nation's largest employer,
the Federal Government, would send a strong message to all
employers that long-term care insurance should be part of their
benefits package, too. HIAA would like to make the following
summary points with respect to proposed bills with details in
our written testimony.
No. 1, the key to a successful Federal long-term care
insurance program is an effective education and marketing
campaign. The Federal Government's endorsement of long-term
care insurance and your playing an active role in educating
employees is critical to the success of this program.
Two, using artificially low premiums as a major determinant
for good long-term care insurance is a dangerous route to take.
A policy with rich benefits, offered at low premiums and
minimal underwriting is a sure sign of disaster. Implementing
such a program would result in an unsustainable plan with
unstable premiums.
Three, OPM should not be responsible for adjudicating
claims. HIAA opposes any type of third party adjudication.
And finally, No. 4, it is essential that market competition
determine which carriers offer the plans under the Federal
program. All interested companies should be allowed to freely
compete in a fair selection process. Some contend that too many
choices under a free competition model would confuse consumers,
discourage product purchases, drive up marketing costs and
increase prices. HIAA disagrees with these contentions. The
industry believes, and the current long-term care insurance
marketplace has proven, that free competition works.
We have many reputable and financially sound companies
offering a wide array of benefits at stable premiums because of
open competition. Some new generation products have actually
been introduced with lower premiums than their predecessors. I
know ours was, and we have never raised our rates. The risks of
consumer confusion, high marketing costs and uncertain
penetration rates are part of what carriers deal with today.
The industry has successfully overcome these challenges and is
thriving because of free competition.
We suggest care be taken to avoid fostering the growth of
only one company or a small consortium of companies. This could
actually hinder product development and stifle competition.
Limited consumer choice could cause Federal employees to look
outside the program for more affordable or better quality
coverage. HIAA is aware of a proposal to select a single
consortium of companies to offer the Federal program. We are
currently evaluating that proposal. Details of how such a
concept would work are unclear, and critical issues such as the
mechanics of how this proposal would work are unresolved. Until
they are clarified, HIAA is reserving comment.
Long-term care is the largest unfunded liability facing
Americans today. HIAA applauds tax incentives suggested for
those paying long-term care insurance premiums. These
incentives recognize the vital role that insurance plays in
helping individuals, rather than the government, pay for long-
term care costs. Long-term care insurance can give millions of
people the opportunity to remain financially independent.
Thank you, Mr. Chairman and Mr. Cummings, for considering
ways to give this sense of security to your fellow Federal
employees and to their families. We look forward to working
with you to, as Mr. Cummings said so eloquently, do it right.
[The prepared statement of Mr. Grubb follows:]
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Mr. Scarborough. Thank you, Mr. Grubb. We appreciate your
testimony.
Mr. Cavanaugh.
Mr. Cavanaugh. Thank you, Representative Cummings and
Chairman Scarborough, for asking us to be here. I am Dave
Cavanaugh and I am representing Wright & Co. in Washington, DC.
We are a national firm. We have been providing administration,
consultation and insurance benefits to the Federal and private
sector over the last 35 years. And because of time, I will make
my comments brief, but you did ask us to come and see if we
couldn't provide you with some information as far as the linked
benefits concept, that being where we take a universal life
insurance policy and put long-term care riders on there and see
if we cannot come up with some benefits. That is what we have
done.
The need for the linked benefits approach teaming the
universal life and long-term care is becoming more evident
every day. From your Civil Service Employee Benefit Association
members to our various Federal association members, such as
SEA--the Senior Executive Association--the message is clear.
Long-term care is an integral need for all Americans. Besides
relieving the U.S. Government of an increasing burden, the
linked benefits concept will serve numerous purposes to the
individual and family members. Purposes that include awareness,
flexibility, cost savings, asset protection, and even one area
which has been addressed today, and that is, an appeal to
younger people. We feel that is an imperative.
Because of the advancements in medical science, they are
creating a longer living American population. This ever
increasing and aging population needs to protect themselves and
their families from the financial burdens imposed by nursing
home or at home confinements. Not only is there the
consideration of money factors, but also the dignity and
integrity during the aging process of the individual and the
family members. Clearly this is a financial and peace of mind
issue.
With the creation of linked benefits, the pairing of
universal life insurance and long-term care addresses the
aforementioned problems in a very efficient manner. Not only is
long-term care and life insurance provided, but they are
provided on a sound economic basis while giving various options
during the completion of the aging process. These options
include the long-term care coverage, a cash accumulation fund,
death benefits and, if necessary, a recapture of dollars laid
out.
In further clarification of these points, we have put
attachment A into our testimony for the linked benefits, and
you can refer to it as necessary.
You also asked for assistance in areas of how the product
is typically sold, what the options are that are available, and
what classes and categories the Federal employees might find
for the product to be attractive, and so we will do that. In an
attempt to save time, again we have listed all of those items
for you and they are in our written testimony.
Finally, what we would like to say to you is that you've
requested modifications on the bills, and we believe that
attachment B will
provide you with the necessary wording for each of the bills
that have been recommended, and we would like to make ourselves
available for any further information and help that we can
provide you. In light of the time factor, I hope that I have
done a good job and haven't made this the old FedEx commercial.
[The prepared statement of Mr. Cavanaugh follows:]
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Mr. Scarborough. Mr. Cavanaugh, you are ruthlessly
efficient.
Mr. Cavanaugh. I take that as a compliment.
Mr. Scarborough. That is meant to be a compliment. You
represent your company well. I want to ask all three of you to
answer a couple of questions that I have. Obviously you all are
experts in this field. You have studied it extensively, and
know it better than 99 percent of people not only across
America, but especially in Congress.
The first question has to do with something that Mr. Grubb
actually touched on, but it was a question that I asked our
last panel, and it had to do with relaxed underwriting. The
argument has been made by some, and I suspect as this debate
gets more political, it will be made by many others on the
House floor that we must relax underwriting so much that just
about everybody can get into the plan.
While I have no objections to being extraordinarily
inclusive, I do think that we need to have experts testify as
to what the downsides of basically letting everybody in with no
underwriting requirements, especially for a plan that seeks to
do two things: one, to keep costs low for Federal employees
and, two, get as many people into the plan as possible, and
doing that through lower costs.
Let me ask you all to testify as to what impact that would
have, a very lax underwriting standard on long-term care. Mr.
Grubb, you have already testified to it, and if you would like
to restate your position.
Mr. Grubb. As we have described it in the past, guaranteed
issue works if you have the entire population as part of your
risk pool. Given that this plan is voluntary, you would have a
high risk of anti-selection if you just said we will take
anybody.
So the downside is that guaranteed issue would certainly
increase the cost of the program. We do have some guaranteed
issue programs in our portfolio, but all employees are part of
it, so you can spread the risk. Everything I have heard about
the Federal program is that it is going to be voluntary. So the
downside would be increased cost.
Mr. Scarborough. So there would be marginally or
substantially increased costs?
Mr. Grubb. Substantially increased costs. There is a way to
mitigate the risk a great deal. We have programs which we call
simplified underwriting. They allow us to ask several simple
questions which basically determine that the person applying is
not already eligible to go on benefit. You spoke to that
yourself a moment ago. If you do that, the risk goes down
dramatically, as would the potential impact on cost.
So my recommendation in a voluntary program would be to go
with simplified issue as opposed to guaranteed issue. That way
you keep the people out of the program who would drive the
costs up initially.
Mr. Scarborough. Mr. Carver.
Mr. Carver. The anti-selection, and if I may, I am going to
relate it to what we currently experience on our life insurance
program. We have a voluntary life insurance program also, and
basically what happens is when you allow everyone in, employees
will look at both the program that you are sponsoring and the
program that may be available individually or somewhere else.
So what happens is your good risks that can pass underwriting
will go somewhere else, and you will end up with the bad risks
because you are accepting all comers. That is why the rates
will go up. We wanted to accept as many as we possibly could.
We felt it was reasonable that we were trying to provide an
employee pay all plan for our employees. So we tried to
minimize the amount of activity that needed to take place in
the underwriting, and I do agree with Mr. Grubb you are going
to experience a program that is considerably higher in costs to
those employees that are going to pay for it.
Mr. Cavanaugh. I am probably going to echo the words
already said, but when you have a simplified issue program
where you can get a little bit of a peek under the tent of the
group of people that you are looking at, you are going to get
better results.
I know politically it would be a wonderful situation where
you would be able to say everybody is in the pool, but the
problem with that is at some point in time you are going to
create a bigger political problem, and that is are the
insurance companies going to be able to be financially solvent
and meet all of the risks that they have.
So there are ways that you can negotiate with the
underwriting departments and fool around with the design of the
policies as well as the individual being able to meet some type
of an underwriting process. But I definitely commend you for
addressing this problem so that it doesn't become a political
football or a bigger problem than you already have.
Mr. Scarborough. The second question that I have, and it
will be my last question for all of you to answer before I turn
the mic over to Mr. Cummings, is a question that to me seems
very obvious, but maybe I am missing something.
OPM has suggested that the best and perhaps the only way to
ensure the lowest premiums for employees is to basically have a
monopoly, have one carrier. I personally believe that the more
qualified carriers we can have in there, the more competition
we can have, the more choice we will have, and the more the
prices will go down, especially as more and more Americans
learn about long-term care and the universe of those that are
insured expands.
I don't want to ask too much of a leading question, but I
am going to anyway.
Does anybody on the panel believe that a monopoly will
provide lower prices for long-term care participants or having
more insurance companies in there for more competition? And I
am sure you will say a monopoly if it is your company.
Mr. Grubb. No, I wouldn't. And I think there is another
risk here, and that is whether a single company can really
handle this. A single company in an employer group can do it
because of the economies of scale and the critical mass, but
one company covering the entire Federal population, potentially
10 million people, becomes unwieldy from an administrative
perspective.
So I am not advocating a single carrier. My answer to your
monopoly, I think, would be 10-10-326, or whatever it is.
My wife has just placed on every telephone in our house a
10-10-326 sticker, which we use, and I don't think that we
would be getting 5-cents a minute telephone rates if we had
monopolies on the telephone. I don't believe that a monopoly
would result in lower prices. I think free competition clearly
drives down prices, as the new generation of lower price
products demonstrates.
Mr. Scarborough. Mr. Carver, you don't have to respond to
that AT&T part of his answer. He is saying monopolies and phone
companies are pretty good things.
Mr. Carver. No, we believe in competition. The way that I
look at it from an employer's perspective, you have to break it
down into competition for the selection process. We had nine
carriers. We broke it down to four carriers. When you get down
to a model where you are looking at four carriers, there is an
easy way of adopting a solution, and that is to say tell me
what your prices will be if you are the only one selected, and
tell me what your prices would be if there are going to be
three carriers selected.
You will see that their prices will be considerably
different given those two models, and they will be lower in the
single carrier situation. A carefully constructed one will
allow flexibility where you may have a limited number of
carriers given the size of what you are talking about.
But I think the point is to say the single carrier model
would be the least expensive model as far as what the carriers
will offer during the bid process. That doesn't necessarily
mean that it would be a model that you would be satisfied with
as only taking the lowest cost because once it is in place, the
cost to remove that model also must be considered, and you may
say two would be appropriate, but you can actually incorporate
that into the process and that way you can determine with the
facts of what the carriers are going to offer in product as to
what the differentiation is in cost.
Mr. Scarborough. Thank you.
Mr. Cavanaugh.
Mr. Cavanaugh. I want to take a little bit of testimony
from today and throw it right back. Mr. Carver himself said we
need to eliminate the do-nothing aspect of employees, whether
Federal or private sector. Mr. Atwater said we need to sell,
which means that we need to educate people on what the problem
is and how to solve it and we need to do that on an affordable
basis.
There is no way in the world one insurance company is going
to be able to go through all of the capital expenditures that
are needed to be able to do that and still wind up with an
affordable product for the individual. That is a strong
consideration that needs to be taken into consideration.
The other aspect is along the lines of what Ken said, a 10-
10, whatever that number is, that kind of assistance from the
Federal Government in educating or letting the Federal employee
know that it is available and out there in conjunction with
whatever companies provide the coverages is going to be an
important factor. I say that from an insurance broker aspect
dealing with a number of companies, not just with one
particular company in my particular sights. So affordability is
going to be an important factor from both sides of the
spectrum.
Thank you.
Mr. Scarborough. Mr. Cummings.
Mr. Cummings. I just want to get this concept, just
following up on Mr. Scarborough's questions. If you have a
consortium and if you have a group of insurance companies
working together but basically one policy, is that what you are
talking about or are you talking about something else?
Mr. Grubb. It certainly could be that. As we have discussed
how this might take shape, one of the things we have talked
about is having a core group of benefits. AT&T does that. We do
that in our group offerings, where the suggested plans are 3-
year, 5-year, and unlimited with amounts up to $300 a day.
However you go through that appropriate selection process,
the consortium could offer that core set of benefits maybe even
at a standard rate. Employees whose needs are different could
select from a wide variety of offerings that the companies in
the consortium could offer. So you would have a standard group
of benefits at potentially standard rates as well as a wider
variety if the standard benefits don't meet the needs of that
particular individual.
Mr. Scarborough. Mr. Carver, why did you offer long-term
care insurance? Why did your company offer it?
Mr. Carver. Essentially it was circumstances that the
company had identified areas where employees felt there was
gaps in our coverages with regard to our medical, really. We
had circumstances within the company where we had a number of
employees, I think that had basically written into benefits
administration and had said that here was the problem.
They were an AT&T employee, yet they had a spouse or they
were a retiree that had a spouse and the medical coverage that
was provided by AT&T was not covering the circumstances in
which the employee's spouse was experiencing their medical
difficulty, which ended up being the custodial care, a specific
exclusion under our medical plan, and that is what the long-
term care was being classified as. And so we saw it as a gap in
our coverage.
Mr. Cummings. In your written testimony you talked about
when you all initially offered the insurance, you had projected
a certain percentage of employees would take advantage of it
and, overall, a higher percentage than what you projected took
advantage of it. And I take it that you all were surprised by
that?
Mr. Carver. Actually I was very surprised by that. I felt
very comfortable with our projections going out, and I really
do believe the way that we presented it in our communications
where the employees were in a situation that our company had
created with the introduction of other programs where they had
to look at their package of benefits and they had to
investigate certain options, put them at a much more higher
level to investigate things like long term care and to take the
time and effort to understand it.
I hadn't really related that when I was putting the package
together, and I really felt that was what really drove the
increased participation.
Mr. Cummings. I know you had an open enrollment period, but
did you do a lot of pushing on the long-term care piece or was
it just part of the package?
Mr. Carver. It really was just part of the package. We did
have specifically the ability for our employees to call a
separate 800 line. They could get other information for the
long-term care product through that 800 line, and it was a
separate brochure that described long-term care because it was
a totally new product that was included in the open enrollment
package. We didn't send out great notices of this impending new
product coming down the line.
Mr. Cummings. You talk about the ADLs. You spent some time
in your written testimony talking about how people would be
able to take advantage of the policy. What is the triggering
mechanism for the policy?
Mr. Carver. When we designed the plan, one of the things
that I discussed with not only AT&T, the people on my project
team, but also with the carriers, was that when you are looking
at the activities of daily living, it is fairly clear that when
you are talking about an elderly population, that it is a
matter of degree when you do the evaluation. And then
eventually the deterioration would be expected to continue.
So when we talk about claims and claims denial, it is not
really claims denial, it is claims delay. When a person has
started to lose function in particular activities of daily
living, they are not expected to next year all of a sudden have
improvement in those activities of daily living. The propensity
would be as they grow older, they are going to continue to
deteriorate in the activities of daily living. So the point is
to be able to measure their functionality and at some point in
time trigger the benefits.
So you may have denial at one point, but it is not a denial
to say that we are never going to see this claim again, it is a
denial of delay, and eventually that person is going to achieve
benefit status. So when we did the ADLs, that is how we tried
to set them up.
When you first get contact, somebody may not qualify
because they may not understand all of the different things
that occur. But when they get evaluated they should have a file
on them because eventually I should expect that person is going
to deteriorate into claim status.
Mr. Cummings. You said a little earlier that you all upped
the daily benefit level at some point. How did that come about?
Mr. Carver. Which one?
Mr. Cummings. You said there was a time when it was $60.
Mr. Carver. $60, $100, $140.
Mr. Cummings. Then you bumped it up.
Mr. Carver. Absolutely.
Mr. Cummings. I'm asking how did that come about. I assume
you saw a need. I'm just trying to figure out how do you come
to the conclusion. Is there a group of people that say we need
to move this up a little bit; is it your office working with
the insurance company? I mean what happened there?
Mr. Carver. OK. Well, what happened there was that the
general survey of nursing home costs across the country, we
were doing that evaluation, because we have an inflation
increase that is more of a flexible inflation increase, not an
automatic. So we did on our evaluation, because we wanted to
give an inflation increase offer to employees, and during that
evaluation, it was found that nursing home costs had increased
sufficiently enough that we felt the $60 one was--would be
inadequate, and that there needed to be higher limits, because
the nursing homes costs, in particular cost areas, had
increased rapidly.
So we wanted to expand our offerings on the top level. And
also during that time, we offered employees that had originally
participated the option to increase their coverages under the
inflation increase, under the plan provisions. So it was a
total evaluation in the marketplace to reassess where we needed
to be as far as the average daily benefits were concerned.
Mr. Cummings. So I take it that you feel very strongly that
this is something that is needed, say, with regard to what
we're trying to do with Federal employees then?
Mr. Carver. Yes, I do.
Mr. Cummings. Mr. Cavanaugh, I just have one question. The
linked benefits, does that--I take it that that is more of--you
see that as something being more attractive than them not being
linked?
Mr. Cavanaugh. Yes, for two reasons. When you just have the
long-term care benefit, it's going to meet strictly and solely
that need, and the focus of that particular need is in an older
age group, which is going to limit the number of people that
are going to participate, which is going to limit your pool.
It's also going to limit the number of dollars that the
insurance company is going to be collecting.
When you get a wider span of appeal, then you're going to
get a wider participation. When you get a wider participation,
you get a bigger spreading of the risk, you get more people in
the pool, et cetera. So it just seems to be more of a logical
appeals situation, and it also solves more needs.
And no matter what, in the linked benefits concept, there
is going to be someone, whether it's the insured or whether
it's the members of the family that are going to derive any
benefit or some benefits out of the policy.
Mr. Cummings. You know, as I read the various testimony, I
think a dismal picture is being painted of the future with
regard to--I mean if we don't do things like this, would you
agree?
Mr. Grubb. Absolutely.
Mr. Cavanaugh. Absolutely.
Mr. Carver. Absolutely.
Mr. Cummings. I was wondering what you all see. Someone
once said people act on the basis or motivated on the basis of
two things or a combination of them, one of two things or a
combination; either they're trying to avoid pain or gain
pleasure. And I think here it's probably a combination, we need
to avoid some pain, and we need to make sure that we gain as
much pleasure as we can by allowing people to live in dignity.
And I'm just wondering, what do you all--my last question
is, what do you see happening if we don't have these kinds of
insurance policies available on a pretty wide basis, ranging
basis? I guess, with your population getting older, and you're
living longer and the health care costs are going up. I was
just wondering what do you all project? We will start from left
to right.
Mr. Carver. Your left?
Mr. Cummings. My left, I'm sorry.
Mr. Carver. Without the expansion into the long-term care
marketplace, what AT&T sees is that many of our employees and
our retirees who felt that they had saved and had sufficient
assets will find that those assets may be being utilized for
long-term care expenses that aren't being paid for under any
insurance policy, and that they will have less of an
inheritance to pass to their children. And they will also have
a reduced quality of life in the remaining years unexpectedly.
Mr. Grubb. I couldn't agree more. There's a term I heard
recently at a conference about the ``eccho generation.'' We
talk a lot about the boomers and then you have the decline and
now the ``eccho generation'' is coming behind it. The ``eccho
generation'' is bigger than the boomers ever thought about it
being. If we don't take care of this trend now, how many people
can afford using the numbers that were mentioned in testimony
today, of $100,000, or $400,000. It's amazing numbers for what
the costs of long-term care is going to be.
The government doesn't want to pay those bills. I go back
to my parents' situation. The most important thing is what you
just said, Mr. Cummings, and that's dignity. My parents saved
their entire lives, and it was the dignity that they wanted to
retain, the control over their own destiny. Long-term care
insurance allows and provides for that. That's why we bought
long term care insurance for our kids who were in their 20's.
We did it so they would know that they will always have that
dignity, and we know, as their parents, that we've taken care
of it, so they don't have to face the same situations we did.
Another thing that is critically important and as an H.R.
professional I'm sure the gentleman to my right is going to
speak to this too. Adult day care is very quickly going to pass
child care as the No. 1 issue that human resources people have
to take care of. That day is coming very, very quickly. When
we're no longer caring for our children, we're caring for our
aging parents. That is a very big issue. So if we don't take
care of this, I think the entire economy is in big trouble.
Mr. Cavanaugh. I think you can maybe make one analogy, and
that is we all need to get the stitches now on the wound, or
we're going to have some major surgery in the future, real
major surgery. We have to address the problem. And we have to
do something about it, because otherwise it's going to get much
bigger than any of us can ever imagine. And Dr. Kevorkian may
become a very, very popular individual.
Mr. Cummings. I want to just thank all of you for your
testimony. I want to thank everybody for being here. And I want
to also thank the people here at the War Memorial facility here
for doing such a good job, we really appreciate it.
And Mr. Chairman, again, thank you and your staff and my
staff for all they've done to make this happen.
Mr. Scarborough. Mr. Cummings, I want to thank you for
making this hearing possible, for working so hard to bring us
up here and make it work. I thank you and, gentlemen, thank you
for testifying today. I would like to thank everybody in
attendance.
We are adjourned.
[Whereupon, at 3:09 p.m., the subcommittee was adjourned.]
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