August 2014
The Last Word On LTCI…
We Are Not Alone
Ronald R. Hagelman, Jr.
We are indeed not alone. Our long term care support and services problem is not unique to our culture and political climate. Being unaware, uncommitted and unprepared is not unique to America. A population aging rapidly but steadily living longer as the result of advances in medical technology is a global problem.
Japan has the greatest proportion of age 65-plus—in 2010, 23 percent. The projected rate among six countries—France, Germany, Japan, the Netherlands, United States and United Kingdom—showed a range from 13 percent to 23 percent, projected to be 21 percent to 40 percent by 2050. The 85-plus age group in these six countries, as high as 8 percent of the population in 2010, projects to 12 percent in 2050. The problem is of course compounded by a steady decline in the younger age group of 15- to 64-year-olds, meaning fewer to provide care physically or financially.
Demographically, help and support is simply not on the way. The number of those dependent or potentially dependent on others is increasing, and those available to help is decreasing. The “dependency ratio,” defined as the ratio between those 65-plus compared to those 15 to 65, has been increasing steadily for all six countries beginning in 1960.
Adding to the demographic maelstrom are additional social considerations. For example: Marriage rates continue to decline and divorce rates are increasing. Funding for health care and long term care also takes place along a fairly wide perspective, with France and the Netherlands publicly funded; Japan at 86 percent, Germany at 71 percent, and the United States at 59 percent publicly funded; and the United Kingdom with funding slightly more private than public. The percentage of long term care expenditures compared to overall health cost also varies widely with a low of 7 percent in the United States to 28 percent in the Netherlands.
Perhaps a brief overview of the different approaches could help put our own circumstances in better perspective. The French model is a combination of government sponsored reserving strategies and reliance on family support. Sharing costs with families is an important component of the French long term care system. There has been rapid growth of private insurance. In 2007, only 1 percent owned a private policy, but that has increased rapidly to more than 15 percent today. Indemnity plans are the most common, with built-in inflation protection. In Germany there is a combination of compulsory social insurance using a health insurance structure. However, there is an active private market for higher wage earners. Private compulsory insurance may be chosen instead of the mandated employer-collected option. Social insurance costs are slightly more than 2 percent of income earnings. The private option is supported by a 50 percent contribution from employers.
Japan has very high life expectancies and low birth dates—the “perfect storm.” The dependency ratio has increased from 9 percent in 1960 to 35 percent in 2010. Family support for informal care is also reducing. Japan’s social insurance program began in 2000 and is compulsory for those over age 40. The system in the Netherlands is also very interesting. Over half of those receiving care did so in their own homes. A compulsory social insurance program is in place, costing 12.5 percent of earnings. Even at these high funding levels, coinsurance costs are so high that care is restricted for higher wage earners. A fully mandated social insurance program is not working, and the government is moving to shift costs back to the private sector. The market in the United Kingdom has been slow to develop, as there remains a perception that the government will provide. Much of the insurance market is addressed with prefunded immediate needs annuities. Current recommendations sound very familiar—“a new partnership between the individual and the state—one where individuals need to take reasonable and appropriate responsibility, but the state provides protection for those with greatest needs.”
The statistics provided above come from a report by the Institute and Faculty of Actuaries “Long-Term Care—A Review of Global Funding Models” March 10, 2014. The conclusions of that report require your careful consideration:
• Shifting from a means tested model to more universal approaches is growing in popularity.
• Long term care costs in nations with reforms in place have caused reduction in benefits.
• Growing incidence of disability, evaporating family ties, and more two-worker households requires “progressive change to the roles of public and private resources and fosters more innovative approaches.”
• Publicly funded programs need to consider more public/private partnerships and at the same time increase incentives for informal care.
• Financial sustainability is the most important ingredient to success.
Indeed, we are not alone. However, it is specifically the creative and innovative nature of our culture which will sustain and protect us. Working together, public and private, each doing what they do best has always been our only path forward.
Other than that I have no opinion on the subject.
