Funding Long-term Care in the United States: The Role of Private Insurance

Abstract

This article complements an earlier publication (Chen, 1994) in which I discussed financing long-term care as a significant public policy issue in the United States because of a confluence of factors, which juxtaposed the growing number of older people against the slower-growing public and private resources. The major demographic and economic factors summarized then included the continued graying of America; the relative shrinkage of informal (non-paid) caregivers; declines in the growth rate of productivity; and federal budget deficits. Since then, although productivity has reversed course and budget surpluses have replaced deficits of late, public resources are not becoming more available because of other policy priorities. Meanwhile, as the large cohort of baby-boomers will be entering older ages beginning in about ten years, the trend toward fewer available informal caregivers is showing no sign of abating. Therefore, financing long-term care is becoming more of a challenge, not less. Although I am discussing the condition in the United States, funding long-term care is an issue that pervades most societies. I believe some of the solutions I am suggesting for the U.S. may have applicability in other countries as well. The way we fund long-term care in the U.S. now may be likened to sitting on a stool with only two legs because the bulk of costs is paid out of personal savings (out-of-pocket payment) and public welfare (Medicaid and other public sources), with social insurance and private insurance playing a minor role. This method of funding is unlikely to be sustainable because it tends to impoverish many people and severely strain Medicaid budgets nationwide. It is my view that a better funding method could be found by (a) more widespread use of the insurance principle for both private- and public-sector programs, and (b) linking several sources of funds in each sector that already exist so as to increase the efficiency with which these resources may be used. I therefore propose a ‘‘three-legged stool’’ funding model, consisting of social insurance, private insurance, and personal savings. When these three sources fail to provide for some individuals, public welfare will serve as a safety net. These are the same sources of funds presently in use, but they will be deployed vastly differently in the proposed model. Given the dim prospect for new public and private resources for meeting long-term care costs, I suggest use of a trade-off principle. Applying the trade-off principle in the public sector, we could create a social insurance program to provide basic long-term care coverage Yung-Ping Chen, PhD, holds the Frank J. Manning Eminent Scholar’s Chair, Gerontology Institute, University of Massachusetts Boston, Boston, MA. He expresses appreciation for the research support of Home Care Research Initiative of the Robert Wood Johnson Foundation, but he alone bears responsibility for the views contained herein.