Need For Private Long-Term Care Insurance Growing
Relatively few Americans have private long-term care insurance, but the need for such coverage will become increasingly important as the aging population strains public and family resources, according to a report by Richard W. Johnson and Cori E. Uccello of the Center for Retirement Research at Boston College.
In 2004, Johnson and Uccello noted, the United States spent around $135 billion on nursing home and home-based care for the aged. Medicaid picked up 35% of these long-term care costs, Medicare covered 25%, private health insurance covered 4%, while most of the remainder was paid for out of pocket by care recipients and their families.
Private long-term care insurance, according to the report, currently funds 3% of nursing home costs for elderly people, and 8% of home health costs. A relatively new insurance product that was first sold as nursing home insurance in the 1970s, long-term care insurance now typically covers a wide range of services for the elderly. While the cumulative number of long-term care insurance policies sold has risen from fewer than one million in 1987 to nine million by the end of 2002, these policies still cover only a small share of the population, the report noted.
By 2002 just 18% of the policies ever sold in the United States were employer-provided, the report said, though a program created in 2002 to encourage federal employees and their families to purchase long-term care insurance has boosted the number of employer-sponsored policies sold in recent years.
While warning that "future long-term care costs are likely to place enormous pressures on government and family budgets," Johnson and Uccello observed that the federal government currently offers few incentives for the purchase of private long-term care insurance. However, they added, some state governments are offering generous tax breaks and other incentives to those who buy long-term care coverage, and President George W. Bush has proposed allowing all taxpayers to deduct premium expenses for long-term care plans from their federal taxes. Currently, only taxpayers whose medical expenses exceed 7.5% of their adjusted gross income may claim this federal deduction.
Johnson and Uccello also recommended that the Medicaid safety net, which currently penalizes savings, be altered to encourage Americans to purchase long-term care insurance and save for their future care needs.
