How likely is the need for LTC?

There are a number of misconceptions in our society related to the likelihood of various risks, ranging from developing heart disease to being struck by lightning. The November of 2006 issue of Time magazine accurately discussed a confounding habit of worrying about mere possibilities while ignoring concrete probabilities and building barriers against perceived dangers while exposing ourselves to the real ones.

Unfortunately, this notion applies equally to long-term care (LTC). We have entrenched sophisticated risk mitigation mechanisms to protect families against catastrophic financial events such as sickness, disability, death, and retirement. Medical coverage protects employees against catastrophic medical bills, life insurance protects against the loss of income due to death, disability insurance protects against financial hardship in the event of loss of income, and pension plans protect against the loss of income after retirement. These insurance products are viewed as common sense financial planning tools and are widely accepted and utilized services. Long-term care is one potential financial catastrophe against which most individuals have no protection. And yet, the need for LTC is the most likely event of the ones mentioned above. Indeed, the probability that a person will one day face a nursing home stay is much greater than either the probability of disability or premature death while employed. Chart 1 quantifies these various risks for males and females at age 25, 45, 65, and 85.

The New England Journal of Medicine published an estimate that 43% of persons turning age 65 will use a nursing home before they die and 21% of users will spend more then 5 years there . We propose the following as the best question to ascertain the probability of needing long-term care services: “given your gender and your current age, what is the probability that, before you die, you will use nursing home services?” To answer this question, we used the Milliman Long-Term Care Guidelines, a tool used by the insurance industry to price long-term care insurance products. In doing so, we consider continued improvements in health and mortality. Table 1 contains the results produced by these calculations:

The table above represents average usage values. Married people tend to use fewer services, and single people tend to use more. Males use fewer services than females, partially because wives usually outlive their husbands.

Given the facts, recognizing the risk of financial destitution from needing long-term care services is the first step to solving the problem. LTC is a vital part of the financial safety net that needs to be addressed by employers and government entities.

Why is true group long-term care so important?

• Many Americans will have no way to pay for long-term care services when they are needed.
• Insurance for long-term care will not become widespread if only available on an individual basis, which means that the change will need to come first from employers.
• Group coverage needs to include employer contributions to make it affordable to employees and vesting to make it affordable to employers.

i. Society of Actuaries. 1990-95 US SOA Basic Female, Age Nearest and 1990-95 US SOA Basic Male, Age Nearest, (Mortality tables 369 and 371), Retrieved March 23, 2004, from Table Manager Program version 3.0.

ii. Society of Actuaries, Transactions: 1984 Reports of Mortality, Morbidity and Other Experience, “Group Long-Term Disability, Table I-1A,” (St. Joseph, Michigan: Imperial Printing Company, 1988), 247.

iii. Milliman USA, Long Term Care Guidelines, (July 1, 2002).

iv. P. Kemper and C. M. Murtaugh, “Lifetime use of nursing home care,” New England Journal of Medicine Vol 324 No 9 (Feb 28, 1991).

v. Milliman USA, Long Term Care Guidelines, (July 1, 2002).