How Best to Defuse the Long Term Care Time Bomb?
In today’s world, increasing life expectancy and decreasing fertility rates are piling pressure on social care systems. At the same time, traditional caregivers - typically daughters or daughters-in-law - are themselves engaged in long-term working careers. As a result, smaller and less stable family units often struggle to provide care for their elderly relatives.
One telling measure of the growing mismatch between care requirement and provision is the old-age dependency ratio. This ratio, the number of people aged over 65 years relative to the number of people aged 15-64 years, is projected to rise in the EU-28 countries, from 27.48 in 2013 to 39.01 by 2030. By 2060 the ratio is expected to hit 50.16, meaning there will be just two people of working age to support each pensioner.
Despite the obvious need to set aside funds to care for an ageing population, relatively few governments have acted to create public funding systems. Concurrently, the uptake of private LTC insurance policies lags far behind expectations in almost all markets.
In countries where government-backed and private LTC market solutions do co-exist, they have yet to reach their full potential. Indeed, many European countries have well-established public systems, but the majority of individuals remain unconvinced that setting aside money to fund for their future care is of crucial importance.
In Germany LTC insurance is perceived as expensive and is not yet widely distributed relative to the population size. But, it’s possible that new product approaches may eventually be helping German insurers to penetrate the market. A recent trend, for example, is for providers to combine LTC coverage with disability income or annuity insurance.
In France the costs of home care and nursing care are paid for through a mixture of state payments and public health insurance. Around 15% of the population aged over 40 years is covered by insurance companies, mutual insurance companies and provision funds, though almost half of all LTC policies is group business, so there’s clearly room for growth.
The UK is a special case because political devolution has allowed the four nations some freedom to pursue different LTC strategies: only Scotland provides free personal and nursing care services.
Private, pre-funded LTC insurance policies have not been sold since 2004. All the care products currently available are immediate needs annuities (INAs), plans that provide a guaranteed, tax-free income to meet the costs of the insured’s registered care provider. The annuity starts immediately and is financed by a single premium based on age and state of health. To date the uptake of INAs has been slow and largely by wealthy, single people.
On the other side of the world, in Singapore, the picture is quite different. Its ElderShield insurance scheme is a model example of a public-private LTC partnership. The Ministry of Health provides the framework for the scheme while the private insurance industry assumes the role of risk taker and administrator.
At the end of 2012 more than one million citizens had an ElderShield policy. Managing the care costs of those opting out may pose a political and economic challenge in the future, but for now the vast majority of the population enjoys some basic protection. A MediSave account (the national savings scheme) can be used to finance approved top-up plans sold by the three participating insurance companies.
While Singapore has moved in the right direction, elsewhere public benefits don’t provide a complete solution - and supplementary policies are only being bought in small numbers. With the demographic clock ticking, urgent action is needed to fully meet the challenge of funding care.
Read my full article for more on how different countries are approaching the challenge of providing Long Term Care for their citizens.