sigma 5/2014: How will we care?

The provision of long-term care (LTC) for the elderly is one of the biggest challenges society will face in the coming years as the number of retirees expands and the working age population shrinks.

Data on median wealth suggests that people in the US could only afford a six-month stay in a nursing facility, even if they sell their homes. It's a similar story in many other countries, such as in Europe, and in China, but few people realise there is a funding gap.

LTC funding may not be on our minds now, but the quality our future well-being depends on awareness and action.In the latest sigma study, How will we care? Finding sustainable long-term care solutions for an ageing world (PDF, 1.51 MB), Swiss Re researchers examine the possible paths to LTC funding.

Costly misconceptions

The bulk of care for the elderly today is provided informally by family members and financed largely out-of-pocket. Yet general awareness of the risks and costs of providing for one's own LTC is very low. People of working age rarely think of what will be in 50 years time: their end-of-life needs are remote and rank low on their list of priorities.

Also many people wrongly assume that when the time comes, the state will step in. Already today, state provision systems in many advanced countries are far from comprehensive and in most emerging markets don't exist. And in many places where it does exist, state support is being scaled back because public finances are tight.

At the same time, traditional models of family care are under pressure from demographic and societal changes such as smaller families, younger people moving from rural to urban areas, and increasing female labour force participation. These changes will lead ‎to a shortage of informal caregivers, which in turn could lead to a shift to more expensive formal sector options. Maintaining or building an adequate formal LTC supply, however, also requires significant investment.

Who will pay?

Individuals will increasingly need to shoulder the financial burden of their own LTC needs. Can they do so? With lack of awareness comes lack of preparedness, and the indications are that many people will struggle.

Private insurance can help people be better prepared. To date, the industry has typcially contibuted less than 2% of total annual LTC spending in different countries. Private insurers can and should play a bigger role by, for example, developing more hybrid type solutions that combine LTC insurance with life, retirement/pension and critical illness products. They can also design products that better meet consumers' needs, with more visible and tangible value to policyholders

A multi-stakeholder solution

But it's not just about insurance solutions. All stakeholders - governments, healthcare institutions, care providers, insurers and consumers of care services - can be part of a financially sustainable LTC solution. For instance, governments and employers can do more to raise awareness of LTC risks, and private insurers could become investors in care infrastructure. There can also be better coordination among the different agents involved in care delivery and greater promotion of healthy-ageing initiatives.

These are just some of the issues addressed and solutions proposed in the latest sigma study How will we care? Finding sustainable long-term care solutions for an ageing world.

Published 21 October 2014

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