Funding care for the elderly: Working across sectors
Funding long-term care (LTC) is an immense global challenge that only continues to grow. To meet the care needs of their elderly populations, governments across the world are struggling to address the challenges of a rapidly ageing population, rising healthcare costs and shrinking government budgets. Government reforms are widespread and are utilising a wide range of approaches to create sustainable funding models for elderly care.
Not surprisingly there is no leading solution or clear cut answer; the way societies meet this funding challenge is deeply linked to cultural and social norms, moral and ethical values and specific, contextual circumstances. While reforms have varied in approach, they increasingly rely on innovative models where responsibility is shared between the individual, state and the insurance industry.
As China works to develop a long-term care system for its growing elderly population, there are a number of global best practices that offer insight and learnings for both the government and the insurance sector in China. At a recent workshop with the Beijing CIRC, Swiss Re colleagues from China and the UK presented a range of global care models and future trends in long-term care and discussed how government and industry can best work together to meet this growing challenge. Highlights of the workshop are presented below.
Current global care systems and recent trends
South Korea and Japan are typically looked to as exemplars in terms of government care systems. Both care systems are notable for their comprehensive, universal systems, clear assessment and needs criteria as well as their wide range of service delivery options. There is a limited private sector markets in these countries; however, as the funding burden of elderly care continues to grow, this may change.
Germany and France offer a different scenario where the private market has developed alongside the public system. In Germany, the long term care insurance system is mandatory and universal and covers both social and private insurance schemes. Individuals with care needs receive cash, care or a combination of benefits; however, LTC costs are only partially covered. High earners, civil servants and the self-employed are able to opt for private compulsory insurance which offers similar benefits. A small, but growing, private insurance system also exists outside of the private statutory system that is aimed at complementing statutory benefits.
The current French system also requires individuals to play a key role in financing LTC. The government provides individuals with care needs a monthly cash allowance that only meets part of their care costs as they are expected to fund difference. To address the gaps in public provision, a private insurance market has developed. Deferred benefits policies are most common. They typically pay a fixed monthly sum for life based on an individual's level of dependency and features usually include a waiting period, inflation protection and reviewable premiums.
Other markets, such as Singapore and Israel, offer alternative public-private models where the pubic LTC care insurance system is administered by the private sector. Recent reforms in the UK illustrate yet another model. Traditionally in the UK, social care is provided by local councils and individuals are responsible for funding their own care needs except in cases of extremely limited assets where the state will cover care costs. New reforms, aimed at strengthening public provision while building a private market, will cap an individual's care costs at GBP 72,000, after which point the government will assume responsibility. At the same time, the UK government has been working very closely with the insurance industry to develop products that will help individuals to better cope with their care costs. At present, the industry expects products such as immediate needs annuities and combined pension/care annuities to address the funding gap.
The US presents yet another public-private model. LTC is by large part funded by the government through two programs, Medicare and Medicaid, alongside funding from individuals and their families and a small percentage through long-term care insurance. In terms of government reforms, of greatest interest has been a new series of demonstration projects targeting funding for the frail elderly. Termed "dual-eligibles" demonstrations (as the individuals in the program are dually government funded by Medicare and Medicaid), these programs aim to increase efficiencies and reduce medical and care costs by combining medical and care budgets for the frail elderly.
Essentially, for this high cost, high need group, government has asked private insurance/provider organisations to step in and provide improved, coordinated medical and LTC services in exchange for a combined medical/care budget from Medicare and Medicaid. While it is still early days for the program, it highlights an important global trend being seen in other regions: the integration of medical/health and long-term care services and funding. Coordinated medical/LTC presents savings to the government in the form of reduced hospitalisations, emergency visits and reductions in nursing home utilisation, but also, significant opportunities for the private sector to support integrated care through innovative new products and strategies.
Looking forward: New opportunities and solutions in China
Widespread government LTC reforms have created significant opportunities for the insurance industry globally in the form of new shared responsibilities, new risks, new products and solutions and new funding streams.
By developing an environment that fosters open communication and working between the public and private sectors, reliable insurance infrastructure and product innovation, the government and insurance industry are well placed to create a sustainable model for care funding in China. Swiss Re is committed to continuing to work with the government in China to support development of its care system while supporting its insurance industry in creating a robust market for care solutions for China's growing ageing population.
Published September 2014