Report calls for public long-term care insurance plan

The report argues that relying on private savings is not an efficient way for individuals to provide for their potential needs, as they are likely to save too much or too little. “While the risk of becoming dependent on formal care for an extended period of time is concentrated among a relatively small segment of the population, for some that risk can reach catastrophic levels in financial terms (for example, needing extensive care for over five years),” it says.

Instead, some form of insurance, either private or public, is required, it says. However, it finds that private long-term care insurance is subject to significant market failures, and low demand due to particular characteristics of the long-term care insurance market; including: high loading fees due to policy cancellations; limitations on coverage and high loading fees due to systemic risk, which insurers cannot cover by increasing the size of the pool; and, crowding-out due to the presence of public programs for long-term care.

“… taking this option would require heavy government regulation and large subsidies,” it says, adding, “Because of their effect on individuals’ decisions and behaviour regarding long-term care insurance, last-resort options, such as obtaining care in public hospitals, would also have to be curtailed. Moreover, individuals would still end up paying more for coverage than they would if they contributed to a public insurance plan.”

The paper recommends that governments adopt a universal public insurance plan that provides full coverage based on a standard evaluation of care needs. “This would reduce uncertainty for aging Canadians and be more equitable. It would also be more consistent with ‘aging at home’ approach, which is favoured by seniors and increasingly promoted by governments,” it says.

It suggests funding the plan with a sales tax that would be set aside in a segregated fund dedicated to long-term care. “Our recommended option is a partially funded plan, in which more revenues would be collected than are currently needed,” it notes.

Nonetheless, the report concedes that this will not be a purely economic decision. “Arguments of political acceptability, intergenerational equity and administrative feasibility will certainly contribute to the debate,” it says. “But from an economics perspective, the widespread reluctance among Canadians to accept the tax increases that would be required to pay for a public plan should be overcome, simply because the other options are inefficient and inequitable.”

“In the absence of such a plan, Canadians will have to either save large sums of money or buy more expensive and less satisfactory private insurance,” it concludes. “Many could be left facing costs that exceed their individual means and may have to do without the long-term care services that their conditions require. Alternatively, many might have to fall back on the public health care system as a last resort, and this would lead to an inefficient and costly misallocation of Canada’s collective resources.”