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Policy Implications of an Annuity Approach to Integrating Long Term Care Financing and Retirement Income

Brenda Spillman, Christopher Murtaugh, Mark Warshawsky

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Posted to Web: January 01, 2003

Permanent Link: http://www.urban.org/url.cfm?ID=1000726

This study explores the properties of an integrated income and disability annuity as an alternative framework for long-term care financing, demonstrating that pooling disability and mortality risks can reduce the need for medical underwriting, and discussing private and public implications. Specifically, a simulation indicates that pooling these competing risks can reduce the costs of both the income annuity and the disability coverage and expand the medically eligible population to 98 percent of 65-year-olds. Combining income and disability protection may be able to expand private markets for long-term care financing beyond what appears possible in the conventional long-term care insurance market, and is only one of multiple models that could be considered for long-term care financing. Public policy should foster innovation in financing mechanisms and avoid the distortion of choices created by exclusive policy focus on a conventional insurance model. (Journal of Aging and Health 15(1): 45–73, 2003.)

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