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Essay on Dad Doesn't Live In My Basement
A substantial number of the elderly could afford some kind of long-term-care insurance, particularly if they begin to purchase it before age sixty-five, and the proportion able to do so should increase. These assumptions depend, however, on what we consider a "reasonable" contribution. Moreover, the willingness of people to make such expenditures is not clear. For all family types, long-term-care insurance would have cost less than 2.5 percent of average money income if purchased at ages fifty to fifty-four. Because of the skewed income distribution, medians may be better measures against which to compare costs. If the table were based on medians, which are about 80 percent of mean incomes for this age group, it would show premium costs still well under 3 percent of money income for this age group.
A critical feature of long-term-care insurance is the assumed constancy of the premium once a person enrolls. Many current policies offer a constant money premium after enrollment. But, of course, the later in life a person enrolls, the higher the premium. Moreover, as people age, their incomes fall. Thus although the typical policy was reasonably priced--at about 6 percent of income or less--until age sixty-four, it would have become expensive at average incomes beyond that age. For instance, the average sixty-five- to sixty-nine-year-old couple or single man would have paid 4.5 to 6.9 percent of income, and the average single woman would have paid 5.4 to 8.3 percent; the typical policy would have cost 7.8 to 13.4 percent of income for those seventy and older.
If coverage is purchased early enough, then, it can be bought at a reasonable price. Waiting until retirement or later, however, makes the price prohibitive for the average elderly household. But early purchase also carries risks. If not indexed for inflation, benefits may be worth little in twenty or thirty years.......
