Public Programs and Out-of-Pocket Spending Predominantly Finance Long-Term Care Services

In 1999, spending for nursing home and home health care was about $134 billion. Private long-term care insurance has been viewed as a means of both reducing potential catastrophic financial losses for the elderly and relieving some of the financing burden now shouldered by public long-term care programs. Affordability of Long-Term Care Insurance Concerns Many Elderly Individuals

Many elderly and near-elderly individuals question the affordability and the value of long-term care insurance relative to the premiums charged. While NAIC’s model standards have helped address prior deficiencies in the terms of long-term care policies, whether these have been sufficient to assure consumers that long-term care products are reliable and the terms of the products are easily understood and will be fulfilled. The need for these services will become more critical after 2030, when this population reaches age 85 and older, which is the age group with the greatest need for long-term care. Increased confidence in long-term care insurance and the availability of affordable, reliable products are also crucial components of private insurance if it is expected to play a larger role in financing future generations’ long-term care needs.
What GAO Found

The confluence of the aging baby boom generation, longer life expectancies, and evolving options for providing and financing long-term care services will require substantial public and private investment in long-term care and the development of sufficient capacity to serve this growing population. Spending for long-term care was about $134 billion in 1999. Medicaid and Medicare paid for nearly 58 percent of these services, contributing about $59 billion and $18 billion, respectively. Private long-term care insurance was viewed as a possible way to reduce catastrophic financial risk for the elderly needing long-term care and to relieve some of the financing burden now shouldered by public long-term care programs. Yet private insurance represents only about 10 percent of long-term care spending. Questions remain about the affordability of policies and the value of the coverage relative to the premiums charged. Although many states have adopted standards for long-term care policies, it is uncertain whether these standards have bolstered consumer confidence in the reliability of long-term care insurance. If long-term care insurance is to have a more significant role in addressing the baby boom generation's upcoming chronic health care needs, consumers must view the policies being offered as reliable, affordable products with benefits and limitations that are easy to understand.