Financing Options for Long-Term Care: Who Benefits and at What Cost?


This policy brief summarizes findings from long-term care financing option research by the Urban Institute and Milliman, Inc., courtesy of Health Affairs.

Date Updated: 11/14/2015

Half of all Americans turning 65 today will one day find themselves needing a high level of help with basic daily activities like walking, eating, getting out of bed in the morning, and bathing. For older adults and their families, needing this level of assistance can take a sizeable toll on both quality of life and personal finances.

The typical American faces long-term care costs in old age averaging $91,000 for men and $182,000 for women—but can be much higher depending on the number of years individuals need high levels of help.3 It creates an unpredictable financial burden. At the same time, the number of aging Americans with high health and personal needs is projected to grow from 6 million to almost 16 million in the next several decades.3

While each experience is unique, families cover more than half of the total share of long-term care costs through out-of-pocket spending, which can deplete personal savings, retirement accounts, and other assets.3 In many instances, the costs exceed what families can provide, impacting family members and other unpaid caregivers. While individuals can qualify for Medicaid to cover needs when their savings are exhausted, they typically incur large out-of-pocket expenses beforehand. Few Americans have private long-term care insurance coverage today due to high premiums and inability to qualify if they have preexisting conditions.

When faced with unpredictable needs and costs, Americans generally use insurance as a tool to mitigate overwhelming financial risk. Therefore, to help address the long-term care financing crisis and offer policy alternatives, a project convened by The SCAN Foundation, AARP, and LeadingAge is making new data on insurance options available. The project enlisted the Urban Institute and actuary group Milliman, Inc. to simulate the impact of three insurance options with the same benefit structure.

The long-term care financing crisis means:

– Individuals are not getting the care they need.
– Families are facing bankruptcy.
– Unpaid caregivers are losing wages from missed work and experiencing physical and emotional strain.
– Federal and state budgets are impacted, as individuals and families turn to Medicaid when their resources are exhausted.

This analysis tested insurance options over three coverage periods, assessing performance across several designs including voluntary or mandatory enrollment. All options could be implemented as private and/or public products. Taken as a whole, the research creates a comparative framework for long-term care financing that can help policymakers and thought leaders explore creative solutions.

Insights from this analysis shed light into how different policy designs impact performance including participation, savings in Medicaid, and affordability. Findings shown below specifically focus on a key cohort—Americans who are between 35 and 39 years old today—those who are often saddled with the caregiver responsibilities for their parents, the need to save for their own retirement, and college expenses for their children.

Basic Policy Designs

Initial: Insurance covers the first two years of a person’s care once they have reached a high level of need, but not later stages.
Year 3 +: Insurance covers a person’s care starting at year three after the highneed threshold is met – meaning the first two years are not covered.
Full duration: Comprehensive insurance covers a person’s care once they have reached a high level of need and continues through the individual’s lifetime.

Figure 1 shows the percentage of people born between 1976-1980 who would be covered by the three policy designs at age 65, with mandatory designs providing the broadest coverage. The options also offer variations on the economic impact to Medicaid (Figure 2). Figure 3 summarizes how these options perform against each other and the status quo (baseline). All income levels in this age group benefit from mandatory programs considered, while the middle‐ and higher‐income groups can benefit from a variety of options. Some show more savings to out-of-pocket spending and greater impact on enrollment than others. Regardless of which options are considered, there is no easy answer given that each have inherent tradeoffs.1,2

American families deserve affordable, accessible, and wide-ranging solutions in order to plan for future long-term care needs for their parents, themselves, and their children. The costs of inaction will only increase over time.

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