medication and simple treatments, and personal assistance
such as help getting up and going to bed.
In addition to defining personal care and nursing care, the
Scottish legislation distinguishes nonpersonal care such as
housing support services and “hotel” costs in care homes. The
distinction means that accommodation and living costs are considered expenses of daily living and the responsibility of the
individual, regardless of his or her disability (with the exception
of those with insufficient funds, as determined by a means test).
To qualify as long-term care, the inability to perform certain ADLs or IADLs must also be expected to continue for some
period of time. According to researcher Kathleen King of the
National Academy of Social Insurance, care must be necessary
for at least three months to be considered long-term care. There
also may be a minimum amount of care required per day or per
week. In Germany, for example, at least 90 minutes of assistance
per day is necessary to qualify as long-term care. In Japan, by
contrast, a minimal benefit may be available to people who need
as little as 29 minutes of daily care.
None of these definitions
include mental illness or Alzheim-er’s disease and other forms of
dementia. People suffering from
mental illness may require long-term care even though they may
be physically capable of performing ADLs and IADLs.
Those countries that offer long-term care coverage through
social insurance vary in how limitations on ADLs and IADLs,
alone or in conjunction with mental or neurological illness, are
used to define disability for the purpose of qualifying for long-term care. The Japanese social insurance system, for instance,
uses a 79-item questionnaire of physical and mental status to
calculate to which of seven levels of long-term care an applicant
is entitled. Some countries provide long-term care regardless of
age, as is the case in Germany, while others limit it to certain age
groups—in Japan, those aged 65 and older. (Japanese aged 40
to 64 are covered only if they suffer from age-related diseases,
such as dementia.)
The costs of that long-term care can be staggering. In 2004,
according to an Urban Institute study, the daily average private
pay rate for a semi-private room in the United States was $169—
or about $61,700 per year—and the typical user of paid services
who received 60 hours of paid care per month had annual home
care costs totaling more than $14,000.
That same study determined that women 70 or older who
enter nursing homes forfeit approximately $40,000, or more
than one-third of the wealth they typically hold if they are married. Single older women forfeit $20,000, or approximately 60
percent of median wealth.
There are several ways to address this problem by using
private insurance, social insurance, or some combination of
the two. But for any insurance to be financially successful, it
is essential that the premiums cover the cost of claims and all
expenses, including marketing, risk selection, policy issuance,
to know they present a greater risk because of their health history—enhancing the potential for adverse selection.
There are a number of established techniques for reducing
adverse selection, including:
■ ■ Determining the risk represented by the applicant’s health
history through underwriting and charging an adequate premium to cover the risk;
■ ■ Declining coverage if the risk is considered too great or impossible to price;
■ ■ Enrolling a broad range of risks, such as employees in the
■ ■ Marketing to ensure that a large percentage of the population
participates, thereby increasing the likelihood that favorable
as well as unfavorable risks are covered;
■ ■ Requiring that individuals be insured and have paid premiums for a certain period of time before they are eligible to
have claims reimbursed.
Since the objective is to receive adequate premiums to cover claims and expenses, a viable policy design, especially for
long-term care, might provide an indemnity schedule of cash
benefits for specified time periods. This method imposes a dollar limit with respect to any claim period and makes it easier to
relate expected claims to expected premiums.
Insurance can play a vital role in the
the role of Insurance
provision of long-term care for classic
reasons: The timing of the insured event
is unpredictable, and the losses, should
the event occur, are large enough to
make advance budgeting difficult.
Insurance can play a vital role in the provision of long-term care
for classic reasons: The timing of the insured event is unpredictable, and the losses, should the event occur, are large enough to
make advance budgeting difficult.
Weiwin Ng, a visiting scholar at the National Academy of Social Insurance, has estimated that 69 percent of Americans who
turned 65 in 2005 would need some long-term care before they
died. The average length of care needed would be three years,
with 20 percent requiring more than five years of long-term care.