[Senate Hearing 107-491]
[From the U.S. Government Publishing Office]
S. Hrg. 107-491
BROKEN AND UNSUSTAINABLE: THE COST CRISIS OF LONG-TERM CARE FOR BABY
BOOMERS
=======================================================================
HEARING
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
MARCH 21, 2002
__________
Serial No. 107-22
Printed for the use of the Special Committee on Aging
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WASHINGTON : 2002
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SPECIAL COMMITTEE ON AGING
JOHN B. BREAUX, Louisiana, Chairman
HARRY REID, Nevada LARRY CRAIG, Idaho, Ranking Member
HERB KOHL, Wisconsin CONRAD BURNS, Montana
JAMES M. JEFFORDS, Vermont RICHARD SHELBY, Alabama
RUSSELL D. FEINGOLD, Wisconsin RICK SANTORUM, Pennsylvania
RON WYDEN, Oregon SUSAN COLLINS, Maine
BLANCHE L. LINCOLN, Arkansas MIKE ENZI, Wyoming
EVAN BAYH, Indiana TIM HUTCHINSON, Arkansas
THOMAS R. CARPER, Delaware PETER G. FITZGERALD, Illinois
DEBBIE STABENOW, Michigan JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri CHUCK HAGEL, Nebraska
Michelle Easton, Staff Director
Lupe Wissel, Ranking Member Staff Director
(ii)
C O N T E N T S
----------
Page
Opening Statement of Senator John Breaux......................... 1
Prepared statement of Senator Larry E. Craig..................... 3
Prepared statement of Senator Debbie Stabenow.................... 3
Statement of Senator Jean Carnahan............................... 40
Panel I
Hon. Paul Patton, Governor of Kentucky, Frankfort, KY............ 4
Hon. David Walker, Comptroller General, U.S. General Accounting
Office, Washington, DC......................................... 17
APPENDIX
Statement from the American Association of Homes and Services for
the Aging...................................................... 49
Statement from Yung-Ping Chen, the Frank J. Manning Eminent
Scholar's Chair in Gerontology at the University of
Massachusetts Boston........................................... 55
Testimony from the American Health Care Association.............. 60
(iii)
BROKEN AND UNSUSTAINABLE: THE COST CRISIS OF LONG-TERM CARE FOR BABY
BOOMERS
----------
THURSDAY, MARCH 21, 2002
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The committee met, pursuant to notice, at 9:35 a.m., in
room SD-628, Dirksen Senate Office Building, Hon. John Breaux
(chairman of the committee) presiding.
Present: Senators Breaux, Carper, and Carnahan.
OPENING STATEMENT OF SENATOR JOHN BREAUX, CHAIRMAN
The Chairman. The Committee on Aging will please come to
order. Our ranking member, Senator Craig, is on his way, so we
will go ahead and begin. Our Committee on Aging, as most of you
know who are here as guests and also our witnesses, has a
responsibility to really look ahead and see that we as a nation
are prepared to address the long-term health needs of the
pending age wave of 77 million baby boomers that are part of
our country who are right on the brink of becoming eligible for
entitlement programs such as Social Security and Medicare.
Over the past few years, we have had many hearings on the
question of Social Security reform and Medicare reform, and we
have tried to find some solutions to these very, very difficult
problems.
Now, of equal importance, we are focusing in on the
problems that we as a nation are experiencing along with our
states on the question of Medicaid, a combination Federal-state
program, in trying to find out what the problems are and what
we as a nation might do now to prepare for this problem that is
awaiting us all.
Medicaid was originally designed, as most people know, as a
health program to provide health care for our nation's people
who are on the edges and, in fact, are in poverty themselves.
It was basically a program for poor people to provide them
adequate health care.
It is really tearing into our nation's de facto long-term
health program, and it was never intended to do that. But most
people in this country now get long-term health care through
the Medicaid program, which was originally designed only to
provide health care for people in poverty-type conditions.
The unfortunate thing is that you see people having to
spend down their life savings in order to be able to qualify.
That is degrading and it is not how it should work. So I think
it is clear that we as a nation can do much better as we focus
in on solutions to long-term health care.
Clearly trying to make the Medicaid program a long-term
health care program without significant changes is simply not
going to work. It was never intended to do that. We have sort
of forced it to try and meet that need. It is interesting to
note that the Federal Employees Health Benefit Plan, which I
and folks behind me are probably all in and nine million other
Federal employees as well, is beginning to offer a program for
long-term health care insurance for Federal workers.
I think that that sets a good example as to what are the
possible solutions to this very serious problem. But it is an
issue that just cannot continue to be ignored and swept under
the rug. We have two distinguished witnesses this morning to
present testimony.
We are delighted to have Governor Paul Patton of Kentucky
who is a distinguished Governor back in Kentucky. It is
interesting that they tell me that, Paul, you were the first
Governor of Kentucky in 200 years to be reelected to a second
consecutive term. That is an outstanding achievement. In my
State of Louisiana, you get in once, you are almost guaranteed
a second term.
You serve now as vice chairman of the National Governors'
Association, and in July will become the chairman of the NGA,
and you have been a real leader in this whole effort in
determining what we do as a nation in long-term health care and
health care problems, and we are very, very pleased to have you
give us your thoughts on this issue today.
We also are delighted to have once again David Walker who
is Comptroller General of the General Accounting Office and has
been there since 1998. I want to thank him for appearing once
again. You have been with us, I think, for eight hearings on
long-term care and the problems of Medicare and Social
Security.
GAO has just done an outstanding job for this committee and
for many other committees in the Congress in doing special work
on some very significant issues. Mr. Walker himself has a long
history on these entitlement reform issues and has served as a
public trustee for both Social Security and Medicare, and we
have worked with him on these issues and have been very pleased
with the work that he has personally done, as well as the work
that the General Accounting Office has done, particularly for
this committee.
Gentlemen, we thank you both. Governor you may go first. If
you would like to start, we would be pleased to have your
testimony.
[The prepared statement of Senator Breaux follows along
with prepared statements of Senator Craig and Senator
Stabenow:]
Prepared Statement of Senator John Breaux
This committee has the responsibility to look ahead and see
that as a nation we are prepared to handle the long-term care
needs of the pending ``age wave'' of 77 million baby boomers.
Over the past few years we have had many hearings on Social
Security and Medicare reform and tried to move closer to
solutions. Now, of equal importance, we are tackling Medicaid
reform and examining Medicaid's growing role in financing long-
term care.
Although Medicaid was originally designed to provide health
care to low-income women and children, it has become our
country's ``de facto'' payor of long-term care for elderly and
disabled. Most people do not know that Medicaid expenditures
are now outpacing Medicare nor do they realize that Medicaid is
the second largest expenditure for state budgets. The
unsettling notion here is that we have no real, comprehensive
long-term care system in this country and yet we are spending
billions of dollars for a system that was not designed--it just
evolved. Unfortunately, the system we have is inefficient,
outdated, incomplete and unable to meet the needs of current or
future recipients.
Simply stated, this is an issue that just can't wait.
------
Prepared Statement of Senator Larry Craig
Thanks to Chairman Breaux's leadership, this committee has
held many hearings on the issue of long-term care. Today we are
holding what may prove to be one of the most important hearings
on the subject. This hearing will be a hard look at the
finances that will be required to care for the 77 million aging
baby-boomers as they start retiring within the next ten years.
This committee is very aware that the long-term care system
that we have in place now most likely will not be able to
accommodate the needs of the soon-to-be-retiring. Not only does
our current system lack a coherent system of care that seniors
can turn to for help, but as this hearing will demonstrate, a
solid financial foundation for the future may not be in place
either.
Last week this committee heard from LT. Governor of Idaho,
Jack Riggs, and Karl Kurtz, the Director of Idaho Health and
Welfare regarding the tight fiscal constraints they have to
consider when developing Medicaid and long-term care policies.
States like Idaho are having to make substantial changes right
now in their policies to provide care to current beneficiaries,
and this says nothing of the changes they will need to make to
prepare for the future. As I am sure we will hear from Governor
Patton, these fiscal strains are felt in all states.
If long-term care financing changes are not made to our
current system, both state and federal governments may be
unable to meet the needs of the many seniors who depend on
these programs. This country has focused many debates on the
important need to keep Social Security and Medicare solvent,
yet little attention has been given to the need to shore up
long-term care finances. For this reason, I am happy the
committee is looking at this topic and I welcome the
opportunity to discuss this issue further.
I am delighted that Governor Patton is here to share some
of the issues that he is facing in Kentucky and I look forward
to Mr. Walker's testimony and his analysis on projected
spending of long-term care.
------
Prepared Statement of Senator Debbie Stabenow
Chairman Breaux and Senator Craig, I thank you both for
holding this important hearing. Long-term care services are
becoming increasingly important. As our population ages and
lives longer, the amount of care we need increases. I am glad
you are bringing attention to the fact that the way we pay for
these health care costs today is increasingly problematic and
will need to change as the baby boomers begin to require these
services. Today's hearing will provide a basis from which we
can create effective and efficient changes for covering these
costs.
Today, Medicaid pays a significant amount of long-term care
costs. If patients do not meet the strict qualifications for
Medicaid, often their only other option is to pay for these
critical services out of pocket. Due to the increasing costs of
health care and prescription drugs, this option is not
available to many of our seniors. We all know that this problem
will only get worse as the baby boomers get older. Medicaid
funds are already stretched in many states, as we discussed
last week. As more and more seniors enter the Medicaid roles,
those funds, as they are structured now, will not be adequate
to help provide our seniors with quality long-term care.
It is vital that we review how long-term care is funded. we
must also review ways in which we can educate and encourage
baby boomers and young people alike to invest in long-term care
insurance. I am very excited about the new initiative offered
to federal government employees and their families for
purchasing long-term care insurance. We must consider programs
like this and other innovative methods in order to ensure that
we provide our seniors with the quality care that they deserve.
I am very interested in hearing from our witnesses today on
this important issue.
STATEMENT OF HON. PAUL PATTON, GOVERNOR OF KENTUCKY, FRANKFORT,
KY
Governor Patton. Thank you, Chairman Breaux, for the
opportunity to appear before this Special Committee on Aging
and discuss some serious problems with long-term care and the
Medicaid program. I do appear both as Governor of Kentucky and
on behalf of the National Governors' Association, and quite
simply we have at present a crisis in Medicaid that is heading
toward catastrophe, and so we need to have some short-term
relief, and we need long-term solutions.
During the years when revenue was increasing, states were
able to keep up more or less with the growing Medicaid
expenditure. It was not easy given the pressure to find money
for education, public protection, and other vital state
services, and it also was not easy given the rapid growth of
the cost of Medicaid.
The return of medical inflation and the new dynamic of
pharmacy spending, growth of 20 to 25 percent a year, have made
it a real challenge. The demands have been such that Medicaid
now takes on average 20 percent of state budgets across the
country.
Let me illustrate the problem by relating our experiences
in Kentucky since I became Governor 6 years ago. During that
period, Kentucky state government revenue has increased about
26 percent. The consumer price index has increased 16 percent,
so we have had real growth, but we have experienced increases
in our expenditure for elementary and secondary education of
only 20 percent. That is it did not get its proportional part
of the real growth.
Our social programs only grew by 18 percent, barely kept up
with inflation. Our Medicaid program has increased 47 percent,
almost double the growth in actual state revenue.
When revenue was growing, we really could not say no to the
real medical needs of our needy citizens. Now that revenue
growth is stagnant, we have no other choice. While my
legislature was willing to give Medicaid more than its share of
our growth revenue over the past 6 years, it is unwilling to
take money away from other needed programs or to raise taxes to
pay for double digit annual increases in the cost of providing
the services that our Medicaid program has promised to our
people.
Because of the downturn in the national economy, the
Kentucky general fund revenue in the second year of the next
biennium, and we are just right in that budget right now, is
estimated to be less than the originally budgeted expenditures
for the current fiscal year. Our challenge is to find ways to
not cut services when we have less money than we had the year
before.
There is absolutely no way that we can absorb a 10-percent
increase in Medicaid with a zero percent increase in revenue.
Our only choices are to increase taxes, and that is not going
to happen, or decrease services, unless the Federal Government
steps to the plate and helps us.
We will be forced, and I think this will be true of all the
states, to cut optional services and/or optional eligibles by
the end of the next biennial budget cycle. This is not what
government is supposed to be. So while I am here today to
discuss the burden of long-term care costs in the Medicaid
program, I want to make an urgent plea for some short-term
relief, specifically, a temporary increase in the Federal match
rate to states.
I know, Mr. Chairman, that you and perhaps other members of
the committee serve on the Finance Committee, so I would like
to ask you to carry this request for us. It is a very important
issue to the states. We are having a hard time keeping our
heads above water.
But there is another reason that Medicaid programs are in
trouble. Demand for long-term care service under the Medicaid
program is growing so rapidly that it will bankrupt state
budgets unless another form of financing is found, and because
of this, Mr. Chairman, I am here to tell you that the Medicaid
program is indeed broken and unsustainable.
Traditionally, states took care, as you say, of the poor
and the Federal Government took care of the needs of the
elderly. Medicaid was created to provide health care to those
on welfare, mostly moms and kids and folks that we really
expected to eventually get back into the workplace.
But it is fast becoming the program to fund long-term care
services in our country, and because the cost of caring for
this group is so great, it is crowding out our ability to care
for our traditional state mandates. Today, older and disabled
beneficiaries account for only one-third of Medicaid
beneficiaries, but account for more than two-thirds of Medicare
expenditures.
A good bit of the financial burden of caring for the
elderly through Medicaid comes to the states through our own
decisions to provide coverage for optional programs. In fact,
83 percent of optional Medicaid spending is devoted to the
elderly and disabled.
Pharmacy is an optional program, although all 50 states
provide pharmacy services. Various spend-down programs for the
poor elderly are also optional, but ending these programs is
not a realistic option. What we need is flexibility in Federal
law to tailor the resources that we have to stretch them as far
as possible. Right now it is all or nothing. If you run a
program by Medicaid, you cannot limit benefits or require
adequate cost sharing, for example.
So I strongly urge that for those optional programs and
services, the states should be given broad latitude to design
an affordable program. The states have tried to deal with long-
term care services in as responsive a way as possible. Through
the creation of home and community based waiver programs and
services such as adult day care, states have sought to give the
elderly choices other than institutional placement, options
which the states hope would cost less than inpatient nursing
care, but we found in Kentucky--and I do not think it is unique
among the states--that the demand for these services is so
great that the alternatives ended up being program expansions
with no commensurate reduction in facility spending.
Why? For every individual in a nursing home, it is
estimated that there are as many as four people in the
community who need care. There is a sense of urgency in my
remarks today, Mr. Chairman, because at the time when state and
Medicaid budgets are rising annually at double digit inflation
rates and most states are facing budget deficits, we must find
long-range solutions or we will be ill-prepared to meet the
long-care needs of those 77 million baby boomers that you
referred to.
This is not an issue that can be put on the back-burner
until Social Security and Medicare are reformed. It is an issue
that will not wait. Again, I congratulate you for your
leadership, Mr. Chairman, and that of the members of the
committee for having the foresight to begin resolving this
crisis before the real flood of elderly persons comes into the
system.
No doubt hard questions about services, funding,
expectations, patient responsibility, shared program
administration and Federal/state responsibility will need to be
asked and answered. When all the Governors met late last month
here in Washington under the leadership of NGA Chairman
Michigan Governor John Engler, there was absolute agreement
that a crisis is at hand, that it must be confronted, and that
the program must be changed if we are to serve the needs of our
families.
There was also consensus in calling for a national Medicaid
commission to recommend fundamental long-term reform of the
program. The scope of this commission would include a look at
the current and future capability of state government to
finance health care for populations and services that Medicaid
currently covers, to more clearly delineate between Federal and
state roles and responsibilities and to make recommendations on
how health care coverage should be provided to those who are
dually eligible for both Medicaid and Medicare.
It was recommended that this commission be formed as
separate from the NGA and should include bipartisan
representatives from the administration, members of the House
and Senate, Governors, and nationally recognized experts in the
field.
So I urge you to join us in supporting the creation of a
Medicaid commission to ensure that the very best minds in our
country can elevate this issue to the top of the national
agenda. The commission can sort through the complex issues,
make recommendations for changes essential to the future of
Medicaid program, and I hope enjoy substantial bipartisan
support at both levels of government.
We look forward to working with you as our partners because
we know that we need to tackle this problem together if we are
to succeed. Again, thank you for the opportunity to be with you
and we would answer questions at the appropriate time.
[The prepared statement of Governor Patton follows:]
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The Chairman. Thank you very much, Governor Patton, for a
very precise and concise statement. We appreciate your being
with us and for your leadership. We would like to recognize now
Mr. David Walker, David, for any comment that you might have.
STATEMENT OF HON. DAVID WALKER, COMPTROLLER GENERAL, U.S.
GENERAL ACCOUNTING OFFICE, WASHINGTON, DC
Mr. Walker. Thank you, Mr. Chairman.
The Chairman. Plus charts.
Mr. Walker. There we go. We have got some big charts for
you. These are big numbers. You need big charts.
The Chairman. Those may get the award for the largest
charts, I will tell you that.
Mr. Walker. You will need a bigger room next time.
The Chairman. Wow.
Mr. Walker. Mr. Chairman, it is always a pleasure to appear
before you in your various capacities and here as chairman of
the Special Committee on Aging to talk about a very important
topic, and that is long-term care. I would ask, Mr. Chairman,
that my entire statement be entered into the record if that is
all right, and I will move to summarize it now.
The Chairman. Without objection.
Mr. Walker. Thank you. I think it is important to be able
to put the issue of long-term care in context. On the right,
Mr. Chairman, I know this is a graphic that you have seen
previously in various capacities including your capacity as a
member of the Senate Finance Committee.
I think we have to put this in the broader context. Because
of known demographic trends including the aging baby boom
generation and rising health care costs, primarily because of
those two reasons, the Federal Government faces severe long-
range fiscal challenges of unprecedented proportions.
The chart on the right shows that if we assume that tax
levels as a percentage of the economy--these are Federal tax
levels, percentage of GDP, which is the black line--if they
stay constant, and if we assume that discretionary spending
grows at the rate of GDP, which is historically what it has
done over the last 10 to 20 years, and if we assume that the
Medicare and Social Security trustees' best estimate
assumptions are reasonable, then this is what our future looks
like at the Federal level, that by the year 2030, we will be
faced with a choice of either cutting discretionary spending by
two-thirds or raising taxes at the Federal level alone by 30
percent or some combination thereof.
The Chairman. The green is discretionary.
Mr. Walker. The green is discretionary. That is correct,
Mr. Chairman. As you know, discretionary includes certain
things like national defense, it includes our judicial system,
infrastructure investments, the Federal portion of education,
and a variety of other items that are deemed to be
discretionary spending.
If we look out to 2050, the Federal Government faces a
choice of either doubling Federal taxes or cutting Federal
spending in its entirety by 50 percent. Now, again, these are
based on CBO's projections of economic growth. It is based upon
the Social Security and Medicare trustees' best estimate
assumptions, and I think a reasonable assumption of what
discretionary spending is likely to grow in the future.
The Chairman. Could I interrupt?
Mr. Walker. Yes, Mr. Chairman.
The Chairman. If you had another block in there between
2000 and 2030, you know, split the difference, and maybe 2015,
where would that line likely to be?
Mr. Walker. Well, as you know, Mr. Chairman, it gets
progressively worse between 2000 and 2030. These are just point
in time estimates, and I think one key date, Mr. Chairman,
would be in 2016 based upon the last Social Security and
Medicare trustees' report. That is when Social Security and
Medicare start turning negative cash-flow which has real fiscal
implications for the government. Even though the trust funds
still have assets, we start running negative cash-flow at that
point in time.
The Chairman. In Social Security?
Mr. Walker. Social Security and Medicare.
The Chairman. And Medicare both.
Mr. Walker. We would be more than happy to provide that
information for you if you want.
The Chairman. I think that would be helpful to show that a
lot of Members of Congress--I do not mean to interrupt your
testimony.
Mr. Walker. No, that is fine.
The Chairman. But since it is just you and I, we can do
that. The question is a lot of members will think I am not
going to be here in 2030, you know, somebody else will solve
that problem then. I am looking in the short term. The short
term really is 2015. I mean that is not that far in the
distance as far as making changes now that will be available in
2015.
So I think to bring it closer to a sense of immediacy, you
know, I think it would be helpful to concentrate on that 2016
timeframe and let us see something on that. 2050, I mean, you
know, nobody in this room will probably be here, I guess. Well,
maybe.
Mr. Walker. Well, I hope some of the people against the
back wall will be. I am sure they do, too.
The Chairman. As chairman of the Aging Committee, I stand
corrected. You are right. [Laughter.]
But I mean if you give us something on that 2015, I think
it would be very helpful.
Mr. Walker. I think your point is an excellent one, Mr.
Chairman. We will do that.
But I think while it is important to be able to help
members understand this, and I think that clearly would be a
help, I think members also have children and grandchildren, in
some cases great-grandchildren. I think one of the things that
I find that you have to do is to be able to put a face on these
issues, and sometimes by thinking of close family members and
loved ones, that helps to do it.
So that is our future. It is clearly unacceptable. It is
clearly one that we have to face some difficult choices. As you
see the red, the red represents Medicare and Medicaid. By far,
the fastest growing portion until we end up getting to a period
of time where debt starts amassing and therefore interest ends
up becoming a major portion.
If we look on the left here, Mr. Chairman, you will see the
projected burdens of Social Security and Medicare and Medicaid
as a percentage of GDP, as a percentage of our economy, and you
will see how they are projected to grow dramatically.
Interestingly, while Medicaid clearly represents a major
challenge for the state governments, as Governor Patton has
noted, and while their challenge is a more immediate challenge,
and one that obviously they believe cries out for action, at
the Federal level, Medicaid is actually our smallest challenge,
although a considerable one, as it relates to these three major
entitlement programs.
The bottom line is that we are going to have to make some
tough choices because we now have a situation where we have
made promises that are unsustainable, and we are going to have
to go about reconciling the differences between what people
want versus what they need versus what can be afforded and what
can be sustained over the longer term.
There is a huge expectation gap among individuals, and I
think at the Federal and state level that ultimately we have to
move to try to reconcile.
The next board, I think, is helpful to be able to
demonstrate what is happening in the long-term care area,
because the next board will demonstrate that long-term care,
and these are in constant 1999 dollars, is projected to
increase significantly, as the Governor mentioned, in the years
ahead, and the red represents the Medicaid portion of spending
as it relates to total long-term care.
Bottom line, Mr. Chairman, I think one of the things we
have to keep in mind is that long-term care is not just a
health care issue. It also comprises a variety of services for
the aged and disabled persons that deal with maintaining
quality of life, including housing, transportation, nutrition
and social support, to help maintain independent living.
Given the challenges of providing and for paying for these
different types of services and the growing population and the
growing needs, we think it is important to be able to look at
this from a variety of dimensions which I lay out on page two
of my testimony. You need to look at what is the appropriate
division of responsibilities, not only between the Federal and
state levels of government but also between individuals, family
members and government and other parties, to look at the
potential role of social insurance and financing, to do more
with regard to education to encourage people to prepare more
for what is likely to be a significant need in future years, to
recognize the fact that much of this care is provided by family
members or other friends and loved ones, and that that does
impose certain burdens and costs on those parties, to recognize
that we are not going to be able to fiscally sustain the
current system. We are going to have to make some tough
choices.
In addition, I think it is also important to note that if
you are going to look at Medicaid, that we need to consider
changes in Medicaid or long-term care or long-term care as it
relates to Medicaid and changes there as it relates to our
broader health care challenges, Medicare and other challenges,
because they do have domino effects.
One of the things that the Congress is considering right
now is whether or not to add a prescription drug benefit.
Clearly, when Medicare was created in 1965, prescription drugs
were not as important or prevalent. They now are. However, we
already know that we have got an unsustainable program, and so
we are going to have to start making some tough choices as to
how should this program be designed, administered, how should
the burdens be shared, and there are things that could be done
in the short term that quite frankly we may not be able to
fiscally sustain in the longer term. Trying to be able to
recognize that and have that as an important part of current
debates, we believe is imperative for our children,
grandchildren and those that will go after them.
So Mr. Chairman, I hope this is helpful to you, and I am
more than happy to be able to answer any questions that you may
have and Senator Carnahan.
[The prepared statement of Mr. Walker follows:]
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The Chairman. Thank you very much, Mr. Walker, for an
excellent statement. Let me just ask you before I begin with
the real questions a factual thing. The increases on the
Medicare and Medicaid, the projections, would that include a
Medicare program that would have prescription drugs in it or it
does not?
Mr. Walker. No. No, it does not.
The Chairman. Because it does not now. So that does not
even include Medicare with prescription drugs?
Mr. Walker. No, it does not, Mr. Chairman.
The Chairman. Obviously, if you added a $750 billion
prescription drug ingredient to Medicare today, which some are
advocating, that red box would be even substantially larger?
Mr. Walker. Well, that is correct, and as you know, Mr.
Chairman, the fastest growing cost in health care is
prescription drugs, and while some prescription drugs serve to
end up reducing the need for more acute care, many of them do
not. So there is a net cost increase, because a lot of
prescription drugs are not just with regard to extending life
or saving life, but it is also something that people want in
order to enhance their quality of life, but it may not
necessarily be a need.
The Chairman. Well, thank you very much. Governor Patton,
thank you again for your statement. We have been joined by our
colleague, Senator Carnahan. Senator Carnahan, do you have a
statement you would like to make?
STATEMENT OF SENATOR JEAN CARNAHAN
Senator Carnahan. Thank you, Mr. Chairman. I certainly
applaud your leadership on this issue of long-term care. This
committee is focusing on a serious problem that is right around
the corner. The demographics in our country are changing
rapidly. My home State of Missouri has the 14th largest senior
citizen population in the country. The growth of Missouri's 60
and over population now outpaces all other age categories.
Before we know it, the baby boomers will be retiring and
needing long-term care services.
We will not be prepared without laying the groundwork now.
Most Americans probably think little about this issue until
someone in their family needs assistance. When this situation
arises, one of the first questions that comes to mind is what
are the options? That is what we are discussing today, making
sure that seniors have options.
We need to explore and support options that allow citizens
to live independently for as long as possible in their own
homes and communities. That is why I have decided to cosponsor
the Long Term Care and Retirement Security Act.
This legislation would establish a $3,000 tax credit to
individuals with long-term care needs or their caregivers.
Seniors are most likely to receive long-term care from family
members, typically wives or daughters. Caregivers often lose
wages and benefits, sometimes even jobs, to be able to care for
family members.
These women provide care out of love, but to do so, they
sometimes have to make a huge financial sacrifice. This tax
credit would make a real difference to families struggling to
care for an ailing loved one.
In addition, the legislation would create a tax deduction
for the cost of long-term care insurance premiums. These tax
benefits would help seniors pay for the high cost of long-term
care insurance premiums and also provide incentives for younger
people to begin investing in long-term care insurance.
This legislation is a step in the right direction. I would
like to thank both the witnesses for being here today and I
look forward to hearing your testimony.
The Chairman. Thank you, Senator Carnahan, and thank you
for your cosponsorship of the legislation on the long-term care
tax credit. I think that is very important. I have questions,
and I know Senator Carnahan has questions, and we have a vote.
So I think that what we will do is take a short recess if that
is OK and come right back and get some discussion with you. The
committee would be in recess. [Recess.]
The committee will come to order. If everybody can take
their seats, we will continue. Governor, let me ask you
questions. I know you have to depart, and thank you very much
for your patience. I like your testimony up till the time when
you start talking about another commission. [Laughter.]
I think from a congressional standpoint, commissions really
reflect what Congress should be doing ourselves. I mean,
commissions normally, you know, the concept is that they are
going to make recommendations that Congress can accept. The
experience with commissions, Social Security and Medicare,
which I chaired, has really not been that good. I know we are
looking for a way to solve this, and I appreciate that. You
know, perhaps a commission is the right idea.
Let me ask you another question, in Kentucky, maybe from
your experiences. We are trying to say to the states that,
look, long-term care is not just nursing homes. Nursing homes
are good for people who need 24 hours a day, 7 day a week care.
But many people in nursing homes, at least a significant number
in nursing homes, really do not need to be there. Assisted
living facilities or home health care or something short of 24
hour a day, 7 day a week care would be sufficient to meet their
needs.
Has Kentucky utilized Medicaid waivers in order to use
those funds for assisted living facilities or other type of
care short of 24 hour/7 day a week care facility?
Governor Patton. Yes, but let me address briefly the
commission. We are looking for a way to elevate this issue to
its appropriate place, and we recognize that it is going to
have to be a partnership with the Congress. So the National
Governors' Association wants to work with you to try to figure
out how can we bring attention to this issue.
Yes, Kentucky has a waiver on in-home care, but we find the
need so great that, to be very frank, the only way we are able
to contain the cost at all is just to limit the availability of
service. Even with institutional care, through certificates of
need, we do not allow nursing home beds to be built at a market
demand because we know that they would be filled and Medicaid
would be picking up a large part of that cost.
With our home care waiver, we have a fixed number of
waivers or the slots that are available, and when the slots are
filled, then the next person does not get the service. That is
the only way we can control the costs. If it were unlimited it
is estimated that there are probably four times as many people
that would meet a definition of real need than is what is being
served.
The Chairman. Do you remember what the reimbursement rate
for Medicaid Federal/state in Kentucky happens to be? 70/30?
65?
Governor Patton. Kentucky's rate is 70/30, 30 percent
state.
The Chairman. 70/30. So if your costs in Medicaid have gone
up by 47 percent, what are you attempting to do with the
legislature to try and curtail, reduce those costs? How are you
doing that?
Governor Patton. Flexibility is the greatest thing that
could happen to us to reduce costs. Now there is a limit to how
much we could do, but Medicaid, as I understand it, is sort of
one-size-fits-all. If you are going to provide some benefit,
then you have to provide that benefit to all people that are
eligible, and you cannot have a different copay for different
income levels. I am getting a little deeper into this than I
really know, but I know that if we could tailor our optional
benefits a little bit more closely to fit some populations, it
would make a tremendous difference.
Over the last year, we have had some experts and we have
done an awful lot of reducing the cost of our program. One of
the things that we have done has been to become more efficient
in transferring more of the cost to the Federal Government by
finding more services than we have been providing that are, in
fact, Medicaid eligible that we were paying 100 percent of the
cost of.
The Chairman. Yes.
Governor Patton. But we have gone as far down that road as
we can go.
The Chairman. Well, you have done some great work in
Kentucky, and we admire you for it. I appreciate your
leadership in the National Governors' Association on this
issue. I would really hope that what you said about elevating
this issue to a level of national debate and national
discussion really can be what we accomplish here.
I think the NGA can be a major player in that. Maybe it is
another commission. I do not reject it out of hand, but I
think, you know, if we can work together on this with the NGA
and the Congress, I think perhaps we can get some serious
discussion. When I left here, a reporter asked me outside of
the Senate chamber what are you all going to do about
increasing health costs?
I said, you know, we are not going to do anything this
year; it is an election year. You know we are not going to make
any real decisions of major importance on Medicaid or Medicare
because no one wants to touch it, because it is such a volatile
issue, and then we are going to say, well, we will do it next
year. But next year never gets here, and that is the problem.
But we appreciate your leadership. I urge you to continue
providing it when you become chairman of the NGA. We look
forward to working with you, and I understand you have to
depart. So we appreciate your being with us and let you go.
Governor Patton. Thank you, Mr. Chairman. We appreciate the
opportunity.
The Chairman. Thank you. Thank you very much, Governor
Patton.
Governor Patton. We do look forward to working with you in
partnership.
The Chairman. Yes, absolutely.
Governor Patton. Thank you.
The Chairman. With regard to some of the things that
Governor Patton said, Mr. Walker, I become convinced that we
operate health care in this country under the box theory.
Senator Kerrey used to talk about this, that if you are a
veteran, you are in the veteran's box at VA; if you are a poor
American, you are in the Medicaid box; if you are a working
American, you are in an employer-sponsored health insurance
box; if you are an old American, you are in the Medicare box.
Each one of those boxes has a complete bureaucracy that is set
up to run it.
Medicaid program, the Medicare program, the VA program, the
employer's sponsored health insurance, ERISA box. It just seems
to me that we as a nation ought to just provide health care for
Americans and get out of the box system. What I am thinking
about and what I have been working on with other members is a
concept that the Federal Government should mandate health care
insurance for all Americans, not an employer mandated system,
but federally mandated requirement that every American have
health insurance.
Every state in the union requires every American before
they drive a car or get a driver's license to have liability
insurance. People have accepted that and they understand they
have to do it, and there is no distinguishing difference
between poor people or wealthy people. It is just a flat law.
You have to have liability insurance or you cannot drive a car.
We are thinking of the approach which would say that every
American has to have a health insurance policy, and we will
help buy it for poor people. It will be a graduated
contribution to their premium. For poor people, we will pay 100
percent of the premium. Then on a sliding scale up to the point
where people can afford to pay for their own premium, perhaps
with it being deductible on their income tax.
We spend $300 billion a year on Medicare, $200 billion on
Medicaid, billions of dollars on the VA program, billions of
dollars on a tax credit for employer sponsored health insurance
because it is deductible. We could take all of that money and
use it to have a program that we would be subsidizing and
requiring everybody to have health insurance.
Do you have any thoughts about that type of concept? I
know it is a long-term process, and it is not going to be done
overnight, but if we do not start, we will never finish. Do you
have any thoughts on that concept?
Mr. Walker. Well, Senator, without specifically addressing
the mandate per se, let me address some elements that I think
that you touched on. I think what we have to recognize is we
have a lot of silos right now. You talk about it in terms of
boxes. I look at it in terms of silos. You know we have got,
you know, Medicare. We have got VA. We have got DoD. We have
got all these things, each with their own infrastructures, each
with their own definitions of what is covered, and in many
cases each with their own delivery mechanisms.
I think we need to step back, and we need to say that what
we have right now is fundamentally broken, it is unsustainable.
If there is one thing that could bankrupt this country, it is
health care costs. All right. Now that is not going to happen.
We will not allow that to happen, but it is that serious.
So I think we need to step back and we need to say, OK,
what are fundamental needs, and how best can those needs be
met? I would argue for your consideration that access to health
care at group rates or, stated differently, guaranteed
insurability; second, protection against financial ruin due to
an unexpected catastrophic illness.
All right. Now, financial ruin is different if you are a
multi-millionaire than if you have very little; OK.
Inoculations for children against infectious diseases. All
right. So to try to define what are the basics, what are the
basics that people need and it is in the national interest for
them to have and how best to go about doing that.
To the extent that people want more than that, then
choices, options, and to the extent that they have resources,
then obviously they ought to put some of their resources on the
table to be able to make a more conscious choice about how much
risk they want to lay off versus resources that they are
willing to put to do that.
I think you are right in saying you have got to put the tax
preferences on the table. I think the tax preferences are part
of the problem right now. I would suggest that it is
appropriate right now for the employers to get a deduction,
because if they do not get a deduction, then they will not
offer health care coverage. They will just pay cash, and that
could end up undercutting coverage.
On the other hand, right now all individuals get an income
tax exclusion for the value of health care, which further
desensitizes them to the cost of health care, and so there are
different ways, I think, you could go about it. But I think the
idea that you need to step back, you need to reassess, we need
to focus on, you know, what are the real needs, what is the
appropriate role from the standpoint of the individual versus
the employer versus the government, tax side as well as the
benefit, is the only way to go, because right now we are on an
unsustainable path and we are headed for a train wreck of
massive proportions. While the states are ahead of us, because
Medicaid is their biggest problem, that is our smallest
problem.
The Chairman. I mean you make a very good point. And most
of the discussion in the Congress right now is not about
reducing the amount we spend in this area. If anything, adding
$750 billion prescription drug program to a Medicare program,
we are going in exactly the opposite direction as far as not
controlling costs. We are going to be adding to the
government's responsibility unless we fix the program itself.
Is that concern legitimate?
Mr. Walker. Well, as you probably recall in your capacity
as a member of the Senate Finance Committee, one of the things
I testified a year ago was different levels of fiscal risk that
we need to consider today: while there are things we can afford
to do today, are we going to be able to sustain it tomorrow?
The area I said represented the highest fiscal risk is
increasing entitlement spending.
Increasing entitlement spending when we already have a huge
delta, or huge gap, between what is promised and what funding
we have available for it right now, and the degree of
difficulty in changing entitlement promises represents the
highest risk I believe from a fiscal perspective.
The Chairman. My final question is how much of a risk is it
if we are going to have a $750 billion prescription drug
program, and we just are going to pay for it out of Social
Security surplus, which is what some have advocated? I mean
what does that do to that system?
Mr. Walker. Well, in the end, people will say, well, all we
have to do is grow the economy more and we will solve our
problem, but I think these charts, as you know, assume economic
growth based on CBO assumptions which are not that far
different than OMB. We are not going to grow ourselves out of
this problem.
We are going to have to end up starting to make some of
these tough choices because Social Security might have a
surplus today, but it is not going to have one in the not too
distant future--2016, based on the latest Social Security
trustees' estimates. Frankly, the trustees said when I was a
trustee in 1992 that that program is unsustainable in its
present form, but, guess what, it is the easiest thing to
solve.
Medicare and Medicaid are much tougher, and the reason
being is in the case of Social Security I would respectfully
suggest that you can restructure that program. You and I were
on a commission together. There are different ways to do it.
You can restructure that program in a way that you exceed the
expectation of all generations of Americans, because current
retirees can get what they are promised, near-term retirees
can, and you can restructure it increasingly toward baby
boomers, Xers, and Y. They are already discounting this program
to a great extent, much greater than they should. So you can
restructure it so you give everybody more than they think they
are going to get, and also make it sustainable.
But the problem is the subject of this hearing, which is
long-term care, which is really not just health care. The
Medicare and Medicaid, the imbalances are so huge, the
expectation gaps are so great, that we are going to have to
start making some of these tough choices. I mean the states are
starting to do it. They are starting to cut back. In certain
areas where they were discretionary, they are not required to
provide.
But it would be great if we could do it more
comprehensively, which is what you are talking about, to step
back and let us try to rationalize the whole system and try to
make sense of it now rather than just incrementally just keep
on chopping back to where we have got a worse situation years
from now.
The Chairman. Well, I could not agree with you more. I
thank you very much. We have been joined by Senator Carper.
Tom.
Senator Carper. Mr. Chairman, as we listen to Mr. Walker
talking about restructuring Social Security and all, this is,
you know, the issue of notch babies. We have been dealing with
that issue for as long as you and I have been here.
The Chairman. Yes.
Senator Carper. In a sense, we have a great opportunity to
have a whole new generation of notch babies or those who
perceive themselves to be that. Thanks for joining us today and
thank you for the work you do and for the leadership that you
provide. I apologize for not being here to hear your testimony,
and I had a chance to visit with Governor Patton, my old
colleague, and chatted a little bit in the halls, so I have
some sense for what he was here to say.
One of the things that would be helpful for me would just
be to ask for you to take the next 5 minutes or so and lay out
for me what you think our options are with respect to long-term
care, and maybe some of the pluses and minuses of those
options, and then if you have an option or a path forward that
you think would be especially preferable, if you could share
that with me.
Mr. Walker. Well, let me give you an executive summary,
Senator. First, I think we have to keep in mind that we face a
very serious long-range fiscal challenge at the Federal level
due primarily to known demographic trends and rising health
care costs, Medicare, Medicaid being a subset of that, a major
element of that.
Second, long-term care, as you know, is not just health
related. It is quality of life related. There are certain
services that really do not have that much to do with a
person's health. It is more a matter of daily living, assisted
daily living, and certain of those types of things.
Clearly one of the things that has to be recognized is we
already have made more promises than we have funded, and the
gaps are huge, and so we to have a division, try to come up
with what is the appropriate division of responsibilities. How
much should individuals personally be responsible? To what
extent, through either tax preferences, through encouraging the
insurance market, and through public education efforts, that
you can get people to be doing things today that will help put
them in a better position to be able to meet these needs in the
future?
To the extent that there are portions of the population,
whether it be the disabled or the poor that might need special
assistance, for them to target assistance into those areas of
greatest need, but recognizing that, you know, we do not want
to make promises that we cannot deliver on 10 years from now or
15 years from now in doing that.
So I think what I would commend to you, and I am happy to
provide more details, if you would like, Senator, is on page
two of the testimony, which we have entered into the record.
Those are some of the key questions that I think, and I think
part of it is defining what is long-term care, and what kind of
services represent needs versus wants, because right now there
are differences, there are significant differences, there are
about five or six basic services that are normally included in
there, but there are others that are sometimes included.
I think the insurance market right now is not very strong,
in part because the numbers are not there yet, but, you know,
when baby boomers start retiring, I think the numbers will
come, but I would say last that I think we have to recognize
that long-term care is a subset of Medicaid. Medicaid is a
subset of our health care challenge, and our health care
challenge is a subset of the overall long-range challenge. So
we have got to be careful not to try to solve this piece
without understanding how it fits with the rest of the puzzle.
That is why I think the idea of trying to look more
comprehensively here is the way to go, because otherwise we are
in danger of solving one problem but creating bigger problems
in other areas, and I think that would be unfortunate if that
is what happens.
Senator Carper. All right. Good. Thank you very much.
Mr. Walker. Thank you, Senator.
The Chairman. Thank you, Senator Carper. Then the next
hearing we are going to have is going to be on the use of tax
credits to buy long-term health care insurance in more specific
detail. But as a concept, I mean rather than just adding an
ingredient into Medicare or Medicaid, if the government is
going to pay for it again, can you comment on the concept of
using the tax code to provide a tax credit for people to
purchase long-term health care insurance?
Mr. Walker. I think clearly from an intellectual
standpoint, that is preferred than adding an entitlement that
would end up being broad-based, if you will. I do, however,
believe that one of the things that has to be a part of your
comprehensive review that you are talking about is that
Congress places a lot of time and attention focusing on direct
spending programs, Medicare, Medicaid, et cetera.
We do not spend enough time collectively in this country in
looking at the revenue side, the tax preference side. Health
care is either No. 1 or No. 2 on the tax preference. If it is
not No. 1 yet, it will be very shortly, and I think that has to
come under the microscope to figure out how that fits within
this overall equation, because obviously if you give tax
preferences, it helps on one hand, but it can end up hurting
potentially with regard to the fiscal imbalance as well, and so
that has got to be targeted as well I think.
The Chairman. Yes. I appreciate it. Thank you, Mr. Walker.
Always a pleasure to have you before the committee and look
forward to continuing with our work with GAO. That will
conclude this hearing.
Mr. Walker. Thank you.
[Whereupon, at 10:45 a.m., the committee was adjourned.]
A P P E N D I X
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