Janemarie Mulvey
Specialist in Health Care Financing
Asthe 80 million baby boomers approach retirement, many are concerned they willnot have sufficient savings to sustain their standard of living in retirement.Few, however, may be focused on another risk to their retirement security—thepotential cost of financing often expensive longterm care services andsupports (LTSS). LTSS include help with either functional or cognitive impairmentand generally include assistance with activities such as bathing, eating, anddressing. For the majority of older Americans, the cost of obtaining paidhelp for these services may far exceed their financial resources in thefuture.
Private long-term care insurance (LTCI) is available to provide some financialprotection for persons against the risk of the potentially high cost ofLTSS. In 2010, about 6% of LTSS spending was paid by LTCI. This low rateof financing reflects relatively low demand for LTCI over the past fewdecades. Moreover, most policy owners have not yet reached the age where theymay need services.
In 2010, between 7 million to 9 million Americans owned a private LTCI policy,with about 11% of the population aged 55 and older covered by a policy. Anumber of factors have adversely affected the demand for LTCI. The costand complexity of LTCI policies have been cited as major deterrents topurchasing LTCI. In addition, increased concerns have arisen about the adequacyof consumer protections for LTCI as a result of inconsistencies in LTCIlaws and regulations across the states. More recently, adverse publicityabout premium increases and heightened concerns about the future solvencyof LTCI insurers in the current economic environment have further dampeneddemand, prompting state regulators to re-evaluate current regulations and laws governingLTCI.
The private LTCI market has undergone significant changes in the past threedecades. The employer-sponsored market has grown as a share of total LTCIsales and the overall market has become more concentrated in terms of thenumber of companies selling the product. A number of newer product lineshave been introduced that combine LTCI with other products, such as retirementannuities and life-insurance products.
To address these issues, the 113th Congressmay consider a number of legislative options to increase participation inthe voluntary LTCI market. These may include proposals to
- increase tax incentives to lower the after-tax cost of policies,
- improve consumer protections to boost consumer confidence in the product, and
- expand consumer education.
This report discusses the role of LTCI in financing LTSS and current trends inthe LTCI industry; factors affecting the demand for LTCI, including costand complexity of the product and adequacy of consumer protections; andlegislative options available to address these issues.
Date of Report: January 16, 2013
Number of Pages: 24
Order Number: R40601
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