How Much Risk Is Mitigated by LTC Protection Schemes? A Methodological Note and a Case Study of the Public System in Spain

Abstract

We present a methodology to measure the risk of incurring extremely large individual lifetime costs of long-term care (LTC). We show a method that can be used to compare the risk reductions achieved by alternative LTC protection plans. Our proposed methodology is illustrated with a case study. Our estimates show that, according to our proposed risk measure, the Spanish public LTC system mitigates individual risk by more than 30 per cent compared to the situation where no public protection is available. However, the Spanish public LTC system still leaves individuals facing very high lifetime costs of care. We estimate that there is a risk of about 1 per cent that a man will have to spend more than h211,800 and a risk of about 1 per cent that a woman will have to spend about h232,600 to cover lifetime LTC costs. Despite the current public Spanish LTC coverage, risk mitigation may still be too low since catastrophic costs of care persist and, therefore, we suggest that private insurance should be encouraged.

Adverse selection in a start-up long-term care insurance market

“…6.1. Although individuals face a risk in their future care costs, which might be mitigated by some form of LTC product (Guillén & Comas-Herrera, 2012 presents a methodology for measuring how well this is done), there is currently no deferred-needs cover – where the customer is not currently in need of care – for sale in the United Kingdom. During the 1990s, attempts were made by the UK insurance industry to produce and market such a product, but this sold in very few numbers and companies stopped selling it.…”

“…Product designs that share the insurance risk with the policyholder such as with-profits or reviewable premiums could act to reduce the capital requirements. How well these types of products meet the needs of the customer would need further research, in a similar approach to that taken by Guillén & Comas-Herrera (2012) in Spanish LTC products.…”

An NDC approach to helping pensioners cope with the cost of long-term care

“…He pointed out that his 1 LTC includes the health and social support services provided to those with chronic illness or physical or mental disability to help them achieve and maintain an optimal level of functioning. 2 Some authors have argued the benefits of having LTC social insurance mechanisms to complement family and volunteer care arrangements (Miyazawa et al 2000;Barr 2010;Zuchandke et al 2010;Guillen and Comas-Herrera 2012). 3 CFC programmes (Da Roit et al 2016) have various names and forms, including direct payments, care allowances, attendance allowances, individual budgets, personal budgets and self-directed care.…”

“… 2 Some authors have argued the benefits of having LTC social insurance mechanisms to complement family and volunteer care arrangements (Miyazawa et al 2000; Barr 2010; Zuchandke et al 2010; Guillen and Comas-Herrera 2012). …”

Life Care Annuities (Lca) Embedded in a Notional Defined Contribution (Ndc) Framework

“…There are some very good reasons (Miyazawa et al, 2000;Barr, 2010;Zuchandke et al, 2010;Colombo et al, 2011;Forder and Fernández, 2011;Colombo and Mercier 2012;Guillén and Comas-Herrera, 2012) for creating collective LTC coverage mechanisms to complement family and volunteer care arrangements:…”