EUROPEAN PAPERS ON THE NEW WELFARE

Health Care System in the Industrialised Countries and the Role of Private Insurance

10. Long Term Care

Long Term Care deserves a separate discussion. In the future, we will be increasingly confronted with the problem of the care of people who become non-self sufficient, not only because of injury or sickness, but mostly because of population ageing. This problem is aggravated by the restriction of household groups, with the presence of single parent families, which make the traditional model of home care less feasible (Assicurazioni Generali, 1999).
The cost of non self-sufficiency might become hard to sustain, both for an individual who might be forced to use his/her own assets to pay for the necessary health care expenses, and for the State budget, due to the scarcity of resources. For this reason, some governments are creating new financial channels and implementing a better integration between public and private mechanisms, with solutions that generally follow the approach of their respective health care systems.
In the United States, health care is guaranteed only to part of the population, through the previously mentioned public programs Medicare and Medicaid, conceived for the elderly and poor respectively. In this country, the absence of a welfare state based upon the concept of universality, creates substantial room for the growth of private health care schemes, notably long term care insurance policies.
In Europe, one of the best example is Germany. This country has established a mandatory state fund targeted to the care of not self-sufficient people. High income earners can opt out of this fund by following the same rules foreseen for the health care service. Long Term Care coverage is based on a capitalization system and, from a solidarity point of view, must comply with the rule of non selection of risk; moreover it has forced the companies to create a pool of businesses to share the aggravated risks.
The highly complex nature of the problem of care for the elderly — both from an economic and a human viewpoints — paves the way for a whole range of integration options, even at the level of a third pillar. If public service has to meet the primary care needs of the population and funds must provide collective integration, it is important to leave room for private social security aimed at meeting more specific needs.
The idea is that the need for long term care is considered a standard risk in human life; following this rationale, the insurance services offered to senior citizens can fall within a ‘package’ of coverages, encompassing disability due to injury or illness as well as social security services, which provide lifelong coverage to the individual and interact with each other synergistically.
Insurance providers have developed solutions in the various countries to reduce the technical-insurance problems related to these kinds of products. The first problem is the lack of technical data on the frequency and disability level of non-sufficient people. As a result, the insurer is rightly cautious when it comes to close contracts and select risks; secondly, the dynamics of risk increases with ageing, thus creating the need for higher insurance premiums for the elderly.
The option offered by private insurers grants access to the product starting from a fairly young age group, for whom the risk of disability is low, as is the relevant premium. Furthermore, with a payment scheme split up over a sufficiently long period of time, even across the entire work career, it is possible to reduce the premium paid by the policy holder.
Nevertheless, generally people can hardly understand the scope of the problem of non self-sufficiency in all its aspects. This issue has emerged only recently and although the situation is expected to worsen, the majority of the people will become fully aware of it through first hand experience, or if a family member or someone very close becomes non self-sufficient; clearly, when the problem does occur, it is too late to mitigate its economic implications.
This is not a minor issue, especially if we consider that the risk becomes catastrophic, both on the individual and the collective national level. It is therefore imperative to find solutions that, to be truly effective, must be put in place quickly, before the problem becomes too large to be managed; these solutions must provide for a distribution of costs over various levels, but at the same time people must remain conscientious consumers.
In this context, the development of social security schemes to accumulate savings over time can become a key tool to finance Long Term Care coverage. Upon retirement, or when they reach an age when the perceive the risk of becoming non self-sufficient, policy holders have two options: full annuity for those who do not want coverage against risk, or a lower annuity — whereby the difference might be used to fund LTC coverage.
For people who are already senior citizens, it seems appropriate to envisage a product that gives immediate coverage with respect to a single insurance premium; it is therefore possible to meet the current needs of this group of customers, who are highly exposed to risk. Even though the premium requested is high — due to the abovementioned reasons — the higher concentration of savings among the older groups, resulting from a life cycle that favours consumption during young age, could reduce the size of the problem.
In order to provide integrated and concrete solutions to the problem of care for the elderly, services offered by companies operating in the health care sector can easily complete the line of LTC products. These companies specialize in offers that are not specifically based on an insurance rationale, but instead complement it, by providing services such as integrated home care, including health care services like organization and management of care services for the elderly directly at home.
In this regard, insurance companies are able to provide a thorough and global response to the problem of health care for senior citizens. The solution must be found by public institutions and private business operators alike. They should play different but integrated roles, and work together to reach the same goal.


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