Long-Term Care Financing

For more information, contact Stacy Becker at [email protected]

Most of us do not like to think about our future selves as elderly and frail, relying on others for help in managing our daily lives. In years past, such a future was far less likely, but in only a few generations, “old age” has gone from limited survival after retirement to “middle age” with almost twenty years of life ahead at retirement.

As welcome as this is, living longer has brought about a perplexing financial problem. As life expectancy has risen, retirees must spread their retirement savings out over longer periods of time. Many people have failed to save adequately for their retirement needs, and more specifically, they have not saved for long-term care. Long-term care is both expensive and likely. At age 65, a person has an 70% chance of needing some type of long-term care in their future years. The average cost for those who need care is $48,000.

The default financing source has become Medicaid, which provides publicly funded health care for those in poverty. But the growing number of people turning to Medicaid is creating a future crisis in public funding. In short, we face an unprecedented set of enormous costs that we have not prepared for, either individually or publicly. Medicaid as the fallback is unsustainable.

Recommendations

  1. Medicaid reform, along the lines of a co-insurance option, is needed to remove disincentives for personal responsibility.
  2. A set of new financial products that are structured to help people prepare and save: If “personal responsibility” is to be truly “personal,” there must be a variety of financial products to meet different situations and interests, so the recommendations include prize-rewarded savings, new insurance products, and a new financial product that can tap into home equity. The beauty of these products is that they can be executed with little or no taxpayer cost. Focus groups (pdf) have suggested that these products are on the right track.
  3. Better public information through the development of a collaborative, objective website and through working with employers to include discussions of long-term care in their annual benefits enrollment activities.

Report and other Resources