marketplace to offer private long-term care insurance to federal employees and their certain qualified family members. the initial contract to provide long-term care insurance for federal employees was with long-term care partners, a joint venture of john hancock and metropolitan life. the benefit became available to federal employees in 2002, and by february 2003, 187,000 individuals were enrolled. by the end of the initial seven-year contract term, enrollment had increased to approximately 224,000 enrollees. at the ending of the initial contract term in 2009, opm awarded a second contract to john hancock. as part of the newhan dock, john hancock add increased benefit options, new benefit periods, higher daily benefit amounts, and increased payment limits for informal care provided by family members. the long-term program provides coverage for nursing room stays, assisted living facilities, hospice stays, home care, and

other services. in addition to federal civilian and uniformed service employers, other qualified family members who are eligible to apply for the coverage includes spouses, same-sex domestic partner, surviving spouses, members of the uniformed services, parents, and adult children. although enrollees can customize the benefit, the vast majority, over 99%, opt for one of four prepackaged options. the prepackaged plans offer variations in the daily benefit amount, the benefit period, the maximum lifetime benefit amount, waiting periods, and inflation protection options. the package includes comprehensive care coordination, portability of coverage, international benefits with no war seclusions, and guaranteed renewability. enrollees can change their coverage options as their needs change and have a variety of premium payment options. since the new contract offered new covered options that were not previously available, in 2011, opm held an open season for the long-term care program. i should note that an individual can enroll in the long-term care

program at any time, but outside of an open enrollment period, or within 60 days of their hiring of an employee, they are subject to full medical underwriting, what we refer to as open season allows employees and their spouses to apply with abbreviated underwriting, which means applicants answer fewer questions about their medical history. i should also note that during the 2011 open season, same-sex domestic partners of federal employees had the option to apply with the abbreviated underwriting. this inclusion of same sex domestic partners followed president obama's june 2010 memorandum directing agencies to extend benefits to same-sex domestic partners of federal employees consistent with existing law. educational efforts for the 2011 open seasons began in fall of 2010. opm along with long-term care partners worked to increase awareness about the benefits of long-term care insurance for the federal workforce. direct mail, e-mail campaign,

workshops, webinars, advertisements, payroll notices and other tools educated the federal workforce about long-term care insurance. additional information was available on the federal long-term care website, including the ability to apply for coverage online. clarity and transparency were top priorities of the educational campaign, and care was taken to assure that benefits and features of the long-term care product were clearly understood. the educational efforts were very successful at increasing awareness among the eligible population that the program is a valuable and cost-effective way to protect against the high costs of long-term care. the success of the effort was born out by the numbers. we received over 45,000 applications during the 2011 open season. and total program enrollment increased 20% from 224,000 to approximately 270,000 members. as long-term care insurance market continues to evolve, we believe the federal long-term care program is well-positioned to offer a variety of benefit

choices with relatively low cost to enrollees. opm is working to maintain the long-term viability of the program by pursuing policies that will protect current and future enrollees. for example, we are interested in pursuing participation in state/federal long-term care partnerships which provide asset protection as an incentive for enrollment. we're also continuing to assess plan benefit options to assure that they're tariff to enrollees. long-term share insurance provides a cost-effective for individuals making average incomes like most federal employees to protect themselves against a financial castify that a long-term injury or illness can cause. the market is still relatively young and uncertain is, and opm will need to closely monitor the market to make sure the program meets the current and future needs of the federal family. our goal is to provide enrollees with insurance protection, mitigate their potential costs for long-term care services. thank you for the opportunity to testify today. and i am happy to address any

questions you may have. >> thank you, mr. o'brien. mr. colman? >> thank you, mr. chair and members of the committee. on behalf of commissioner jesseun, i thank you for the opportunity to share with the efforts that minnesota is making to provide the best possible long-term care system for older adults and persons with disabilities. minnesota has a strong infrastructure built over many years of long-term care services and supports for older adults and people with disabilities. last fall we were very proud and gratified to see the quality of minnesota's long-term system recognized by the aarp and the scan foundation. minnesota ranked number one among all states in the first ever aarp scoreboard on long-term care services and supports for older adults, people with disabilities, and family caregivers. the report validates the direction that minnesota has been moving for the past 25 years. to reduce reliance on

institutional care and encourage access to services in home and community-based settings. it acknowledges minnesota's efforts in providing comprehensive phone and web-based information and referral sources for seniors and their families and people with disabilities, as well as providing evidence-based support for family caregivers. not that long ago, most people that were served by medicaid in minnesota received long-term care services in institution. over time, we've developed the supports needed to serve people in their own homes and communities. today 63% of the older adults receiving medicaid long-term services get that care in their home or in community settings. and 95% of persons with disabilities receiving medical assistance long-term care services are in community settings. we're also proud of minnesota's systems of nursing facilities as the state and facilities have worked in partnership toward improved quality and care. several queers ago we launched a

nursing facility report card to give consumers and family members access to comparative information on quality and consumer satisfaction. we have promoted innovation and care through performance incentive payments. the median length of stay in minnesota nursing facilities is now less than 30 days as services become rehabilitative in nature. successful collaborations with the industry have contributed to rightsizing the number and distribution of nursing facilities in the state. in minnesota, healthy synergy results from having the policy areas for aging and adult services, disability services, nursing facility rates and policy, and the minnesota board on aging consolidated into the part of the department of human services that i oversee. we've worked very hard over the years to ensure a solid alignment of services delivered under medicaid and the older americans act.

these services on a continuum become the critical safety net that seniors use as they become more frail. by aligning them much more closely in how seniors transition among each service, we insure that the system works in a more cost conscious manner and delivers care better to seniors and their caregivers. the older american act is a critical resource in their long-term care system and supports. the senior linkage phone line, which annually serves 89,000 older minnesotans and their families and the complimentary disability linkage line and minnesota help.info help are valuable services. a statewide virtual call center that allows for a single toll-free access with routing to local communities. trained professionals answer questions from all types of insurance and medicare products, including our state's long-term care partnership policies and

other long-term care options. they are well-positioned to answer inquiries from people seeking to understand the basics and options about housing and other long-term care services as they age. under new legislation, these counselors also are involved in expanding long-term consultation that helps individuals considering assisted living to become fully informed consumers. we have found that good information as early as possible can also delay the need for more expensive services or the need to access medicaid. linkage line services have expanded under lieutenant gorney von pretner solon to be a one-stop shop for seniors and their families for direct contact with all state agencies on issues they may have with any area of our state government. similar to many states, minnesota is significantly challenged at meeting the anticipated demand for long-term care searches and supports, especially as boomers age. we're currently working on a

request for a medicaid waiver that would redesign the program to offer benefits based on the need of the individual so that they get the right levels of services based on their needs from lower needs to higher needs. we know that the preference of most older minnesotans is to remain in their home. we want to further empower older minnesotans to make those choices by making home and community-based services the norm in minnesota and institutional care the exception. as minnesota has worked successfully to rebalance their long-term care system, we also have had our eye on the coming age wave. and now we're on the verge of launching the own your future campaign in minnesota to encourage people to plan, especially those in the 40 to 65 years old range. we're building on what other states have done in partnership with the federal government, and we're adding some new elements, a public awareness campaign that includes marketing via the web,

using contemporary messaging such as internet ads, development of more affordable products for middle income people, better alignment of incentives within medicaid to support private financing of long-term care. the long-term partnership is a start, but it's not the end. targeted outreach to employers as a credible source of information about long-term care and financing options. employers benefit from offering workers a sense of control and peace of mind that a long-term care plan can provide. the minnesota business community has expressed a strong interest in working with us. our goal for own your future is not only to raise awareness of the financial risk of not preparing for long-term care needs. we want to improve the quality of life for minnesotans in their later years by increasing the number of those who have taken action to own their future and maintain choices. i can provide more details on the campaign if time allows today. thank you for the opportunity to testify. >> thank you very much, mr.

colman. professor feder? >> chairman kohl, ranking member corker, i'm delighted to be with you today to -- thank you -- i still am delighted to be with you today to discuss ways to improve the quality and efficiency of services for people who need long-term care. chairman kohl, you started by asking about ways we can reduce unnecessary hospitalizations for this population, and that is the focus of my testimony. i specifically want to explain why it is so important that the medicare program give top priority in delivery reform initiatives to people, beneficiaries who need long-term care, and that those initiatives extend care coordination beyond medical care to include the coordination of long-term care services. the data that i present in my testimony developed with the

support from the scan foundation will tell you why this is so important. and i'm hoping that you have my testimony in front of you, but if you don't, i'm going to tell you to look for in the data when you have that, when you look at the pictures. the first slide that we show you, figure 1, shows that despite the fact that we are focusing so much on people with chronic conditions as a source of rapid -- of high medicare spending, when we look at the data, it is not the people with chronic conditions alone who are driving high medicare spending, it is people whose chronic conditions create the need for long-term services and supports. in fact, what we show you in the first figure is that it is the 15% of medicare beneficiaries with chronic conditions and long-term care needs who account for close to a third of all medicare spending. the second figure brings this down to per capita spending per beneficiary spending and

explains, shows us how disproportionate that spending is. average per person spending for enrollees with chronic conditions and functional limitations, average spending is at least double the average for enrollees with chronic conditions only. medicare spends almost $16,000 per capita per beneficiary for impaired, functionally impaired beneficiaries, and much less for everybody else. the third figure in my testimony shows us that this pattern of higher spending for chronically ill people who have functional limitations relative to people, chronically ill people who don't holds true no matter how many chronic conditions people. so even the spending for people with five -- the per capita spending for people who have as many as five chronic conditions is lower than for a beneficiary

with only one chronic condition, but also long-term needs. so again, it's long-term care that is driving. the result is that it is beneficiaries with long-term care needs who rank among the highest medicare spenders. you can see it in figure 4. nearly half the beneficiaries in the top 20% of medicare spenders and 61% of the top 5% of spenders need long-term care along with having chronic conditions. now where is the extra spending going, which is going to take us to the hospitalizations. data show us that enrollees who need long-term care are much more likely than other beneficiaries to be using hospitals and to have hospital stays, and to use hospital emergency departments. we also find that the -- it is higher hospital and post-hospital spending in skilled nursing facilities,

short-term spending in skilled nursing facilities and by home health agencies that are the largest source of the extra spending that i've described to you for people with long-term care needs. the good news is that using new authorities in the affordable care act, the center for medicare and medicaid services is promoting delivery innovations that through care recognition aim to reduce this kind of excessive hospital and with it post-hospital service use. but past experience tells us that without effective targeting to beneficiaries, most at risk of inappropriate and high hospital use such as the long-term care users i've been describing, the coordination is not likely to produce significant savings. that's why it's so important that medicare target its innovations to people with chronic conditions and functional limitations and

coordinate the full range of their service needs. although limited in number, programs that do this exist and have shown all around the country, but mall in number, and they have shown promise in reducing hospital use, nursing home admissions, and costs for selected patient groups while improving the quality of care. cms can build on these organizations' experiences by encouraging interventions that accommodate the various size and capacity of primary care physician practices and by improving upon but not replacing the fee for service payment system, paying monthly amounts per enrolled patient sufficient to support care coordination and other currently uncovered care management services, and holding participating providers accountable for savings that offset the costs of coordination. dual eligibles, beneficiaries

served by both medicare and medicaid represent about half of the beneficiaries i've been talking about. but despite the potential i've shown you for medicare savings from coordinating medicare-financed care, to date policymakers have focused overwhelmingly on states and medicaid rather than medicare as primarily responsible for improving care to dual eligibles. the absence of medicare leadership is particularly odd given that 80% of the dollars that are spent on dual eligibles, and you can see this in figure 7, 80% of the dollars spent on dual eligibles are federal dollars, more than 2/3 of which flow through the medicare program. to improve costs and reduce -- to improve care and reduce costs for medicare/medicaid beneficiaries, dual eligibles, along with the roughly equal number of medicare only beneficiaries who need long-term care, it is essential that

medicare exert its leadership rather than simply shift responsibility to the states. and a major way they can do that, is as i've described, to give priority in delivery reform to people who need long-term care and to coordinating their long-term care as well as their medical services. thank you. >> thank you very much. dr. chernof? >> thank you, chairman kohl, ranking member corker for the opportunity to testify at this critical hearing today. my name is dr. bruce chernof, and i serve adds the president and ceo of the scan foundation, an independent nonprofit foundation dedicated to promoting a steady continuum of quality care for all seniors. where seniors receive integrated medical care in a setting most appropriate to their needs and with the greatest likelihood of contributing to a healthy and independent life. americans today are living

longer than in previous generations, often with chronic conditions and functional impairments at older ages, which increases the number of people who will need long-term services and supports. most americans are not aware of the high likelihood of needing long-term services and supports at some point in their lives, and have few tools to plan for this reality. the cost of this care is substantial, impacting both family financial resources and the ability for family caregivers to engage in the labor market. when individuals and families have exhausted their personal resources and can no longer shoulder these costs on their own, they have to depend on medicaid for help. those who qualify for medicaid long-term services and supports generally need the assistance for the rest of their lives. medicaid is fundamental to the current financing and delivery of long-term services and supports for low-income americans. it's the largest purchaser of long-term services and supports, and it is the backdrop for all

vulnerable older americans who need this level of care after spending their resources. now medicaid has evolved over the years from paying exclusively for nursing home care to funding critical services in the community that allow for low income individuals with substantial daily needs to live in the place that they call home. several states have taken or are currently taking strides to bolster their medicaid long-term services and support systems with the goal of providing high quality person-focused and cost-effective care to their residents, including states represented by members of this committee. so for example, in our recent scorecard that we put together with support of the commonwealth fund and completed by aarp comparing all states on having a high-performing long-term services and support system, wisconsin ranked 5th in the nation. additionally we funded technical

assistance to 51 states. tennessee is a front-runner in this group given their experiences with the choices program. current laws and regulations including many positive provisions in the aca already exist, giving states the flexibility to upgrade their operations, create more integrated person-centered care with strong beneficiary protections. under these arrangements, states must increase the quality monitoring and oversight rules to make sure that individuals have appropriate access, and that quality protections are incorporated into purchasing contracts and are strictly upheld in practice. states seeking only to solve what they perceive as a cost problem in medicaid without giving sufficient attention to improving person-centered access and care delivery have a great potential to create undue harm to some of the country's most vulnerable residents. we believe that more person-centered care delivered

in organized the systems will generate savings in medicaid. these savings, however, are necessary but not sufficient given that there will be a net increase in need. medicaid is poised to take on more long-term services and supports costs due to the trifecta of increasing life expectancy, increasing prevalence of chronic conditions and functional conditions at older ages, and finally low savings rates among baby boomers. some states will experience the impact of these factors on their medicaid programs faster than others. policy options are needed to minimize the disparity among states to absorb these costs through already constrained resources. those same resources that face potential cuts as part of entitlement reform discussions. one possibility is to provide enhanced federal support to states that experience the most rapid patient aging. we also think that there is a lot of almost mythology about what is or isn't happening in the medicaid program.

and medicaid is frankly one of the areas that is more theory supported with scant evidence than proven fact. many other organizations have done polling work, and we've done polling work ourselves that demonstrate that the vast majority of americans have no idea who pays for long-term care, long-term services and supports or they believe medicare will cover them when the time comes. furthermore, no one looks forward to being on medicaid because it carries a public perception as being a welfare program. so american families deserve affordable, accessible, comprehensive solutions in order to plan for their future long-term services and supports needs without having to spend down to medicaid if possible. policy options in the public sector, but also in the private realm should be thoroughly explored to meet these aims so americans can receive high quality services provided with dignity, respect, and transparency. thank you so much. >> thank you very much, dr. chernof. dr. holtz-eakin? >> chairman kohl and ranking

member corker, thank you for the privilege of being here today. let me pick up on some points made by the panelists before me, and then i'll be happy to answer your questions. the first is obviously this is a very difficult problem whose scale will grow rapidly in the years and decades to come. and there are really two separate aspects to it. the first is going to be the nuts and bolts costs of long-term care services driven by a greater number of individuals who will require those services and an increasing cost per person. and there are really two things that the committee can think about on dealing with that fundamental problem, which is the cost. one is those kinds of preventative actions that could be taken to either defer or eliminate the need for long-term care services. and they're the things that stand out are the increasing prevalence of alzheimer's and dementias, which lead to extremely costly cases. and to the extent that research and other progress -- other efforts can make progress on that, i think that's something

that should be within the scope of the discussion. and the second is the models of delivery, which actually are more efficient and thus given the state of the condition of a beneficiary would lower the cost on actually delivering those services. and there i think the real moral is going to be picking very flexible strategies. we know the current molds, largely informal care provided by family members can't survive. they need to work, and the increasing number of people needing the service. and we're going to have a lot of flexibility in the delivery of these services as we try to figure out what works. so avoiding building into some sort of program with a rigid structure i think is the first order of business, given the cost problems that are going to face us. then the second aspect is the financing. of the cost of those services. and again, i think we're going to have to do things very differently. i at least believe that an enormous effort should be placed

on enhancing the private sector financing of these services as the top priority, and doing everything possible. and i understand this is not easy to have private long-term care insurance take a greater role in the financing of this. i say this for two major reasons. the first is we know the current and projected strains on the federal budget. they are, quite frankly, daunting. and in my years at the cbo and my career spent studying congressional budget problems, i've never seen anything like the position we find ourselves in. it's simply not a time at which we can commit the taxpayer to additional mandatory spending commitments without thinking very hard about it. right now the cash flow gap between premiums and payroll taxes coming into medicare and spending going out is approaching $300 billion a year. it's an unsustainable trajectory. so if we can enhance the private sector pickup of these costs

before we put them on the federal budget, everyone comes out ahead, i think. the second reason is we've never prefunded the costs of these services. and if we had private insurance reserving premiums and prefunding the payment for the cost of that care, we would in fact address some of our national saving issues and have a benefit there of delivering better overall growth and economic performance at a time when we're going to need every national dollar to meet the variety demands on both the public and the private sector for resources to meet the standards of living for both the elderly and the working population. i think the strategies have to be flexibility and prevention on the costs and private sector first on the financing. and i'd be happy to continue the discussion. thank you. >> thank you very much. so we'll go to questions and comments at the moment. there appear to be three areas

where there is strong evidence that we can indeed save money while at the same time not damage effect theiveness of long-term care. and you've all referred to these three. number one, by keeping people out of a hospital in the first place. number two by not sending people to a nursing home until they absolutely need to be there. and number three, by rebalancing or shifting nursing home residents who don't really need to be there to a home or community setting where their costs are lower. so moving from here on forward, addressing these three things, how can we do better? particular thoughts and ideas on how we can improve on our cost of long-term care while not damaging the product. mr. o'brien? >> i think opm is incredibly interested in sort of continuing to improve the