Insuring Long-Term Care in the United States

TLDR

Long‑term care expenditures represent one of the largest uninsured financial risks for the elderly in the United States, profoundly affecting their retirement security. The essay examines the large, variable long‑term care costs and the scarcity of private insurance coverage. The authors review the private long‑term care insurance market—its limited size due to market imperfections and demand constraints—and discuss recent state and federal public policy initiatives. Public Medicaid coverage suppresses the private long‑term care insurance market.

Abstract

Long-term care expenditures constitute one of the largest uninsured financial risks facing the elderly in the United States and thus play a central role in determining the retirement security of elderly Americans. In this essay, we begin by providing some background on the nature and extent of long-term care expenditures and insurance against those expenditures, emphasizing in particular the large and variable nature of the expenditures and the extreme paucity of private insurance coverage. We then provide some detail on the nature of the private long-term care insurance market and the available evidence on the reasons for its small size, including private market imperfections and factors that limit the demand for such insurance. We highlight how the availability of public long-term care insurance through Medicaid is an important factor suppressing the market for private long-term care insurance. In the final section, we describe and discuss recent long-term care insurance public policy initiatives at both the state and federal level.