Long-Term Care Policy Simulator: About the Model
Key Long-Term Care Concepts:
This website allows you to create your own long-term care (LTC) benefit by customizing eight key variables. Each of the eight variables is outlined below. This website allows you to vary these eight policy variables in order to design different LTC programs. Keep in mind that there are many demographic and behavioral assumptions built into the underlying model that you can learn more about here.
|Choice||A voluntary program might attract individuals who are more likely to need LTC, while a mandatory program will ensure everybody pays into the system, thereby helping to spread costs over an overall healthier population.|
|Age and Work status||Work status is often a proxy to identify individuals who are healthy. By limiting the population to those who are working, you limit the risk of enrolling individuals who are at higher risk of disability and immediate need for services.|
|Method of payment: cash or services||A Medicare-style services benefit can guarantee that individuals receive comprehensive services, but this can be costly and drive up premiums. A cash benefit would allow flexibility in the type of services a person uses and would, for example, allow an individual to pay a family member who serves as a caregiver. On the other hand, a cash benefit may not provide enough to cover all needed services.|
|Minimum Premium Payment Period||A minimum premium payment period, also called a vesting period, would require individuals to pay premiums for a specified number of years before they are eligible to receive benefits. Without a vesting period, the cost of the program increases because some enrollees receive benefits before premium revenue can accumulate.|
|Length of benefit||Length of benefit stipulates how long individuals may receive continuous benefits once they become eligible for benefits. The longer the length of benefits, the more expensive the program will be.|
|Elimination Period||The elimination period, similar to a time deductible, is the amount of time individuals must wait after meeting the benefit trigger — which in this model is requiring assistance with at least two activities of daily life or having a cognitive impairment — before they can receive services. Without an elimination period, persons eligible for benefits would receive these benefit payments immediately, which would increase the cost of the program.|
|Low-income subsidy||The subsidy to low-income individuals increases participation in the program by lowering premium costs and covering any co-pays or deductibles for a services benefit. The low-income subsidy is covered through higher premiums to everyone else.|
|Proportion of program funding paid through premiums||The proportion of funding paid through premiums determines the proportion supported by general tax revenues versus premiums paid by participating individuals. Higher general revenue funding equals lower premiums and vice versa.|
Key Modeling Concepts
In addition to understanding the selection choices outlined above, it will also be helpful to understand the following concepts when designing your LTC benefit:
Insurance: Insurance allows individuals to pool financial risk. The concept of insurance depends on a large group paying premiums and only a small subset of participants needing to receive benefits at any given time. If one person needs to tap into insurance benefits — in this case for LTC — the fund of pooled premiums pays for that individual's benefits.
Balanced Model: A balanced model, sometimes called an actuarially balanced model, ensures that the total money collected from premiums and any interest payments can cover the total expected costs for participants. This is necessary to ensure the plan always has enough money to cover its spending needs. The model on this website calculates a starting premium by measuring expected premiums and costs over a 75-year window.
Eligibilty for Benefit: Any insurance program requires participants to meet certain eligibility requirements before receiving benefits. To qualify for benefits in the model on this website, participants in the program must require either sustained help with at least two of six activities of daily living (ADLs) or have a cognitive impairment such as Alzheimer's Disease. The six ADLs are eating, bathing, dressing, toileting, walking, and transferring.
Participation Rates: The calculation of premiums depends on an assumption of the number of people paying premiums and the number of people needing services. There are several different ways to measure the participation rate of any insurance program. For the model on this website, the participation rate is the number of people paying premiums out of the entire U.S. population, and is presented in this format to allow users to have a common measure of comparison across different input options.
Adverse Selection: There is a risk that any insurance program may enroll a disproportionate number of individuals who are at high risk of needing services. This issue — known as adverse selection — results in higher premiums for all participants because they must collectively absorb the higher costs.