Funding Long-Term Care

Abstract

The uncertain need for long-term care services is a risk best protected by insurance. However, the current funding relies heavily on personal payment and public welfare, and only lightly on social and private insurances. This method, akin to sitting on a two-legged stool, is unlikely to be sustainable. To incorporate insurance as a key component of funding and to mobilize public and private resources more effectively, we propose a three-legged-stool funding model under which social insurance would provide a basic protection, to be supplemented by private insurance and personal payment. When these sources do not provide sufficient protection for some individuals, Medicaid as public welfare would serve as a safety net. This article (a) discusses how to implement this funding model by using the trade-off principle in both the public and private sectors when resources for long-term care are scarce, and (b) analyzes several objections to this model from cognitive psychology∕behavioral economics.