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5 ways private LTCI affects entire families

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For families and their long-term care (LTC) planners, one of the goals of LTC planning may be to reduce the risk that adult children will have to spend large amounts of time caring for their aging parents.

For the federal government, and, to some extent the insurers, that goal is a problem.

The government, especially, wants to see society maximize the amount of informal care older Americans, including privately insured older Americans, get from their children, to reduce the risk that those older American families will make unnecessary use of scarce formal care services, and, in some cases, government LTC benefits programs.

Many LTCI issuers may prefer to see families put off LTCI claims as long as possible, and to think of the LTCI as a backstop to protect themselves against catastrophic LTC needs, not the first line of defense.

See also: Rosie the caregiver: 10 ways to help her rivet our LTC ship together

Norma Coe of the University of Washington and two other economists, Gopi Shah Goda of Stanford University and Courtney Harold Van Houtven of Duke University, have looked at the effects of private LTCI on the insureds’ children, including the effects of “intra-family moral hazard” — the risk that LTCI will help formal, paid care crowd out informal care  — in a draft research paper published on the National Bureau of Economic Research (NBER) website.

See also: Narrow framing: 5 things to know about an LTCI sales killer

The researchers based the paper on an analysis of eight batches, or “waves,” of data from the University of Michigan’s Health and Retirement Study (HRS).

The sample includes people who were ages 50 or older when they first began participating in the survey. When possible, the HRS team tries to get the participants to return to participate in new HRS surveys every two years for the rest of their lives.

Coe and her colleagues pulled out data on the participants who had income at or above the median and said they had filed income tax returns. The researchers then looked at whether the participants had or had not bought LTCI, and what kinds of state LTCI income tax incentives the participants could use.

The researchers also looked at matters such as the participants’ expectations about use of informal care; actual use of informal care; whether any children lived with the parents, or within 10 milies of the parents; whether the children worked full-time or part-time outside the home; whether the parents gave money to the children, or the children gave money to the parents; and whether the parents had named a child as the beneficiary of a trust or will.

See also: NBER: The Rich Spend More on Dying

For a look at what the researchers learned when they went through all that data, read on.

Someone filling out forms

1. Many of the tax filers ages 50 and higher with incomes above the median had private LTCI.

The researchers found that 15.7 percent of the HRS participants in their study analysis had private LTCI, and one-third were polled in a year and state in which a state tax subsidy or tax credit for private LTCI was available.

State LTCI subsidies often look modest on paper, but the researchers cite a 2011 paper indicating that the average state LTCI tax subsidy produced a 28 percent increase in LTCI coverage rates in that state.

Two-thirds had at least some college education, and half had three or more children. About 10 percent already had at least one limit on activities of daily living (ADL).

See also: 8 new facts about LTC caregivers who suffer

A serious couple looking at a laptop screen

2. Six years made a big difference in the HRS participants’ care needs.

About 60 percent of the participants who were not receiving care during their first survey wave said there was at least a 50 percent chance that they could get informal care from children, or from other informal caregivers other than a spouse.

Two years later, during the next survey wave, the percentage of participants using informal care increased to 9 percent.

The percentage increased to 16 percent four years after the first wave, and to 25 percent six years after the first wave.

See also: 4 reasons reverse mortgages are still LTC guppies 

Ben Franklin on a bill

3. Money had a way of flowing down through the family tree.

Older people in some cultures expect their children to support them financially in their old age.

In the HRS sample, only 3 percent of the adult children gave at least $500 to the parents. About 57 percent of the parents gave at least $500 to their children, and about half of the older participants named at least one child as the beneficiary of a trust or will.

See also: Will your state face a growing informal care gap?

Dream city of the future

4. LTCI buyers had high hopes for enjoying high levels of LTC moral hazard.

Policymakers might want families to provide as much informal care as possible for relatives with private LTCI, but, in the real world, after adjusting as much as possible for all other possible variables, only about 0.9 percent of the LTCI buyers said they expected to get informal care from relatives other than spouses and children, down from 16.5 percent of all sample members.

“This is suggestive of a 95 percent crowd-out rate from this source of informal care,” the researchers say.

Owning private LTCI cut the percentage of survey participants who said they expected to get informal care from their children to about 35 percent, from 43 percent.

See also: The caregiving tsunami

Skateboarder

5.  In the real world, having LTCI lowered use of informal care.

Tbe researchers found, after trying to hold all other variables steady, that having LTCI seemed to reduce use of informal helpers by 8.9 percentage points after two years, by 9.6 percent after four years, and by 13 percent after six years.

“The magnitude of these effects are large compared to the mean, suggesting near 100 percent crowd-out rates,” the researchers say.

Having LTCI also seemed to reduce the likelihood that LTCI insureds would end up living with their adult children by about 24 percentage points, and it increased the probability that any of the insureds’ adult children would be working full-time by 7.3 percentage points.

Having LTCI seemed to have no effect on whether parents put children in their wills, but it found that having LTCI reduced the probability of an insured parent reporting giving $500 or more to a child by 30 percent.

See also: 5 ideas for preventing a catastrophic caregiver drought

 

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