Paying for the Boomers: Long-Term Care and Intergenerational Equity

• Published in: Commentary - C.D. Howe Institute 2014-09 (415), p.0_1
• Main Authors: Blomqvist, Åke, Busby, Colin
• Format: Article
• Language: English
• Subjects: Age; Aging; Baby boomers; Canadians; Charitable foundations; Cost control; Government; Government subsidies; Health care expenditures; Health care policy; Health economics; Long term care insurance; Long term health care; Medicare; Provinces; Retirement; Studies; Subsidies; Tax reform
• ISSN: 0824-8001; 1703-0765

The design of other international LTC financing systems offers insight as to what Canadian policymakers should be considering when choosing better LTC policies. We look at three models with lessons for Canada: 1) France, which has the largest per capita rate of voluntary private LTC insurance among OECD countries, with public LTC subsidies offered as vouchers; 2) The UK, which has undertaken numerous public commissions on the issue of LTC financing and most recently proposed a back-ended public LTC plan; 3) The US, which has the largest private LTC insurance market in the world, uses tax deductions to encourage the purchase of insurance, yet is still looking for solutions to encourage greater private LTC savings among individuals. There is great concern among US policymakers about the lack of savings and planning for future LTC risks. To encourage greater risk-pooling for future LTC risks, the US has opted for demandside approaches, such as tax deductions for the purchase of private LTC insurance. There are nearly 5 million Americans with LTC insurance, and the LTC insurance market in the US is one of the largest worldwide, perhaps partly because the restrictive rules under which individuals are eligible for Medicaid LTC subsidies are well known. The federal government, as well as some state governments, has also attempted to alleviate concerns over the affordability and attractiveness of LTC insurance in the hope that this will boost private LTC insurance purchases and shift more of the LTC cost burden onto individuals. There is an assortment of tax-based incentives to encourage private LTC insurance purchases, found mainly in the Health Insurance Portability and Accountability Act (HIPAA), but as a share of the population LTC coverage is still small (American Academy of Actuaries 2001). Projections suggest that the incentives will increase the purchase of private insurance, particularly the incentives that target individuals still in the labour force ([Wiener] et al. 1994). That said, research into the net savings to the public sector suggest that they are uncertainprojections range from Medicaid savings of anywhere from 25 to 81 cents per dollar of revenue lost to the incentives (American Academy of Actuaries 2001). The downside of these policies is the concern that the majority of individuals claiming the tax deductions are those who would have taken our private insurance anyway, so the incentives essentially use public funds to help finance the LTC of