A Spectrum of Solutions Series: Part 1—Non-public Options
By Nate Worrell
Long-Term Care News, February 2022
This year Long-Term Care News will review funding options for long-term care in a four-part series. We will travel across the spectrum from fully private to fully public options and everything between. These pieces are meant to be educational and not endorsements for any particular option.
To begin, we will review three options that don’t include any governmental provisions: self-funding, family and community care, and insurance.
Self-funding
The National Association of Insurance Commissioners (NAIC) shopper’s guide[1] breaks down costs of care (as of 2019) into three buckets, as shown in Table 1. These numbers don’t include additional costs that may come with aging, like medications and home adaptations. It’s not surprising that only a small percentage of households will be able to foot the entire bill with their own assets. Per the National Council on Aging, “80% of households with older adults—or 47 million—are financially struggling today or are at risk of falling into economic insecurity as they age.”[2]
Table 1
Costs of Long-Term Care
Source: National Association of Insurance Commissioners. A Shopper’s Guide to Long-Term Care Insurance. Kansas City, MO: NAIC, 2019.
The pandemic has put even more pressure for labor on an already strained care market. These shortages and challenges are coming at a time when increasing numbers of our population are aging and interest rates are at historic lows. The demand pressure and economic squeeze may continue to narrow the possibility of self-funding to only the richest few. One alternative that may be more accessible is an increase in the prevalence of “continuing care retirement communities,” as spotlighted in recent Society of Actuaries (SOA) publications.[3]
On the more positive side, the pressures brought on by the pandemic may serve as crucibles for innovations and technologies that can provide more economical caring solutions. If more of the population can self-fund, even in part, without wiping out all their assets, it could free up space for the insurance market.
Family and Community Care
In 2018, the Pew Research Center claimed that one in five families lived in multigenerational households,[4] and indications are that the pandemic has only amplified that number.
While staying with family may avoid the cost of a facility or skilled staff, there are still economic considerations for these burdens. Supplemental assistance will continue to be an important element of this type of approach. The good news is that more companies are carving out a space in the “aging at home” industry. Recent Elder Tech conferences have presented how various technologies are addressing the needs in this caring community.
Insurance and Finance
While the shortfalls and struggles of the long-term care insurance (LTCI) industry have been extensively covered over the past decades, including a recent case study from the SOA,[5] the surviving companies remain a significant source of funding for many families. Per a recent Milliman study, “the LTCI industry is responsible for almost $13 billion in annual claims and growing and covers over six million individuals nationwide.”[6]
To complement the standard market, innovation has been a buzzword for some time. While the hybrid/combo products tend to get a lot of attention, other proposals have emerged through the years.
For example, the SOA’s Long-Term Care Think Tank[7] proposed two solutions:
- “LifeStage protection” that begins as term life insurance during prime income-earning years and changes to LTC insurance in later years
- Flexible retirement plans with built-in long-term care features
Other sources have suggested variable long-term care insurance[8] and bundling short-term care with Medicare supplements.[9]
In addition to traditional insurance plans, other financing solutions include:
- Home equity/reverse mortgage[10]
- Health savings accounts
- 401k/retirement withdrawals
Summary
There are several possibilities to fund long-term care costs that do not require any burden on the taxpayer. However, none of the solutions seem to be a panacea for the aging population. New innovations will continue to be required in this space to expand the patchwork of available solutions.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.
Nate Worrell, FSA, is a client support actuary with Moodys’ Analytics. Nate can be contacted at nathan.worrell@moodys.com.