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How to pay for long-term care for seniors

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As Canada’s population ages, a growing number of frail seniors will require long-term care services to help them perform daily activities such as eating, dressing or bathing. Ensuring that adequate care is accessible to every Canadian who needs it should be a national priority.

But who should foot the bill?

The cost of long-term care services can be very high: 24/7 assistance in an institution costs around $60,000 per person per year. At present, the financing of long-term care in Canada is a patchwork. Access to long-term care and its cost to individuals vary depending on the region where they live and whether they are still at home or in a residential facility.

In a study published earlier this year by the Institute for Research in Public Policy (www.irpp.org/pubs/IRPPstudy/IRPP_Study_no33.pdf), we reviewed the theory and practice on long-term care funding to determine what method would best suit Canada.

We found that relying on private savings is not an efficient way for Canadians to provide for their potential future care needs, since individuals are likely to save too much or too little. The risk of becoming dependent on formal care for an extended period of time is concentrated among a relatively small segment of the population for whom the risk can reach catastrophic levels in financial terms. For example, at age 65, only 20 per cent of individuals will require care for more than five years in their remaining years.

On average individuals would need to save the equivalent of $7,500 per year over a 40-year period, a total of $300,000, to adequately prepare for their potential long-term care funding needs (married couples could halve this amount). So the private savings option is not only not feasible for most, it would also be a waste of resources, because 80 per cent of the population will end up not needing so much savings.

In fact, in no country in the world are private savings the only source of funding for long-term care, not even in the U.S. or Singapore, two countries noted for their preference for individual savings and market competition in health care.

Our research found that the best way to guarantee that adequate long-term care and assistance will be available to every Canadian who needs it at a reasonable cost to society is through comprehensive, public, universal, compulsory and standardized insurance coverage. In other words, a public long-term care insurance plan, along the lines of what medicare already does for medical care in Canada, is the most desirable option.

Public long-term care insurance is the best option for two reasons. First, insurance is essential because private savings is not an efficient way for individuals to provide for their potential future care needs, as we have already stated. It makes good sense to have the lucky ones (those who can live independently) transfer resources to those needing care.

Second, insurance must be public, and not a mixture of public and private, or private. Private and public insurance cannot be combined because if there was a public means-tested program there would be no incentive for individuals to purchase private insurance. Hence a private-public mix would fail to produce universal coverage.

Private insurance alone will not result in universal coverage either. Data from the OECD indicate that private long-term care insurance is not widespread in wealthy countries. Less than one per cent of Canadians and less than 10 per cent of Americans have long-term care insurance contracts.

There are many possible reasons for this: perhaps people do not think they will require long-term care 20 or 30 years in advance of the need, and perhaps the premiums charged for long-term care coverage are too high because companies need to balance systemic risk (the significant time lapse between premiums collected and payouts).

So the best option is a public insurance scheme with a single payer that provides benefits based on a standardized evaluation of care needs. This would ensure that all Canadians have better care and that access to long-term care services is more equitable. With a universal public insurance plan transaction costs and loading fees would be lower, so it would also be less expensive than private insurance.

Overall, a universal public insurance plan would be far better than the fragmentary systems we have at present, which poorly serve those Canadians who need them most, often at the greatest cost.

 

Michel Grignon is an expert advisor with EvidenceNetwork.ca, an associate professor with the departments of economics and health, aging and society and McMaster University and director of the Centre for Health Economics and Policy Analysis (CHEPA). Nicole F. Bernier is the research director of the Faces of Aging program at the Institute for Research on Public Policy.

 

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