Multi-stakeholder approach needed to meet the long-term care challenge, says Swiss Re sigma study

Swiss Re’s latest sigma study: How will we care? Finding sustainable long-term care solutions for an ageing world examines how tightening government budgets, changing demographics, low personal means and limited awareness need to be addressed if this challenge is to be met.

The decision to move to a nursing home, or to set up some other form of LTC for their later years, is one of the most difficult life decisions people make. Yet awareness of the risks and costs of LTC is very low. For example, data in this sigma show that in most countries, people would not have enough wealth to cover the costs of a longer stay in nursing home – even if they sold their homes. Similarly, median incomes in most countries would make it very difficult for retirees or their children to fund their stay.

However, very few realise that there is a funding gap. There is also widespread misconception that the government will play a leading role as provider. "The problem is that people underestimate the cost of LTC and overestimate what the state will provide," says Kurt Karl, Swiss Re’s chief economist.

Current systems are unsustainable and not comprehensive

The current systems of funding and providing long-term care (LTC) for the elderly are unsustainable, according to Swiss Re’s research. In many advanced markets, state provisions do not fully cover the high costs of care. In most emerging markets, state-provided systems are often non-exsitent, while traditional models of family care are coming under pressure from demographic changes such as younger people moving from rural to urban areas, and increasing female labour force participation. Societal changes like these and demographics will lead to a shortage of informal caregivers. Another issue, in both the advanced and emerging markets, is limited capacity in residential care homes and a shortage of qualified formal carers.

Today, the bulk of care is provided informally by family members and financed mostly by out-of-pocket payments. Public spending on care for the elderly is expected to increase in the coming decades but even so, tax-payer funding is limited and the large scale of the LTC challenge will strain already-tight government budgets.

Towards an integrated, multi-stakeholder approach

A fundamental premise of today’s understanding of LTC is to assist people to live at home for as long as they can. The continuum of care begins with simple health prevention and assistance to help a recent retiree maintain an independent life. Thereafter comes additional support to manage the mounting health and physical incapacities that come with age. The very-later years of life may entail 24-hour residential care.

An integrated, multi-stakeholder approach – including private insurance – is needed to deliver the full contiuum of care. To date, insurers have played only a small role in the financing of LTC, with different demand- and supply-side factors holding back the development of a large-scale private insurance sector. There is scope to grow the market with more hybrid-type solutions that combine LTC insurance with life, retirement/pension and critical illness products. Insurers can also develop new products that better suit customer needs, such as immediate-need annuities and short-term care products.

But insurers can’t do it alone. All stakeholders, including governments, healthcare institutions, care providers and consumers should contribute to what can be a financially sustainable LTC solution. For example, private insurers can become investors in care infrastructure and services, and employers can do more to raise awareness of LTC risks. There also needs to be stronger coordination of the different agents involved in care delivery and greater promotion of healthy-ageing initiatives.

Other options are tax incentives to encourage and support family members to become home carers, and to enable those wishing to continue working to do so either in the formal sector or in social engagement activities. Technological innovation, which can enable better health monitoring and care coordination, is another element. "The different stakeholders and insurers can work together to create an effective and affordable system for LTC," says Lukas Steinmann, co-author of the report. "In doing so both the insurance industry and society at large will benefit."