Family Changes: Policy Implications for Social Security and Long-Term Care

1
Family Changes Policy Implications for Social
Security and Long-Term Care

• Yung-Ping Chen, PhD
• Frank J. Manning Eminent Scholar's Chair in
  Gerontology
• Gerontology Institute
• University of Massachusetts, Boston
• Co-sponsored by Center on the Family, University
  of Hawaii, Manoa
• Executive Office on the Aging, State of Hawaii
• Womens Caucus of the Hawaii State Legislature
• State Capitol, Room 309, June 22, 2004,
  900-1100AM

2
Changes in Social Trends (1970-2000)

• 1970 2000
• Female Labor Force Participation Rate 42 58
• Divorced ( of adults) 3 9.9
• Unmarried adults 38 mil 87 mil
• Never-married adults
• ( of all adults) 16 24

3
Marriage Delayed or AvoidedJapanese Young
People are Delaying or Avoiding Marriage.
JAPAN
USA
Sources U.S. Census Japanese Ministry of Public
Management, Home Affairs, Posts and
Telecommunications.
4
Divorce is rising Japans divorce rate is up
sharply over the past decade, thought its still
well below the U.S. rate
2.30
1.28
Sources Japanese Ministry of health, labor and
Welfare Japanese Institute of Global
Communications
5
Declining Percentages of Married Adults
(1970-2000)

• 15 drop among whites, from 73 to 62
• 36 drop among blacks, from 64 to 41
• 18 drop among Hispanics, from 72 to 59

6
Increase in Never-Married Persons (1970-2000)

• 31 increase (from 16 to 21) for whites
• 86 increase (from 21 to 39) for blacks
• 53 increase (from 19 to 29) for Hispanics

7
Proportions of New Beneficiariesa as Retired
Workers, Disabled Workers,and Dependents and
Survivors,b in Selected Years (19702010)
Yearc Retired Workers Disabled Workers Dependents Survivors Total
1970 36.2 9.5 54.3 100
1980 38.3 9.4 52.3 100
1990 44.8 12.6 42.6 100
1997 44.5 15.2 40.4 100
2010 48.8 15.5 35.7 100
Notes a New beneficiaries refer to those awarded
benefits in each year. b
Dependents and survivors include wives/husbands,
children, widowers, widowed mothers/fathers, and
parents. c For 197097, calculations
based on data in Table 6.A (OASDI Benefits
Awarded Summary ), 1998 Statistical Supplement
to the Social Security Bulletin, Social Security
Administration, SSA Publication No. 13-11700, p.
254. For 2010, calculations based on unpublished
estimates supplied by the Office of the Chief
Actuary, Social Security Administration, Feb. 1
and Feb. 13, 2002.
8
Poverty Rates among Older Women (1999)

• Married 4.3
• Widowed 15.9
• Divorced 20.4
• Never married 18.9

9
Some Proposals

• Raise survivor benefit and lower spousal benefit
• Raise survivor benefit
• Lower length of marriage
• Implement earnings sharing
• Provide minimum benefit

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Caveats in Policy Development

• Employment-based income replacement
• Income deficiency outside Social Security

11
Reasons for Low Income at Widowhood

• Pre-widowhood income differential (20-26)
• Decline in Social Security benefit (40-50)
• Decline in pension income (15)
• Decline in other asset income (10-15)

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Two-Tier Benefit Structure

• First-tier benefit
• Flat rate
• Eligibility based on age or disability
• General revenue financing
• Second-tier benefit
• Earnings-related benefit
• Earnings sharing
• Payroll tax financing

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Funding Long-Term Care Applications Of The
Trade-Off Principle In Both Public And Private
SectorsorAn Intragenerational Funding Model for
Long-Term Care
14
LIFE EXPECTANCY AT BIRTH AND AT AGE 65
Sex and Year At birth (years) At age 65 (years)
Male 1940 61.4 11.9
1995 72.3 15.4
2040 76.6 17.3
2070 78.4 18.4
Female 1940 65.7 13.4
1995 79.2 19.2
2040 82.4 21.0
2070 84.1 22.2
Source 1996 Social Security Trustees Report,
p.61.
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Average Life Expectancy at Age 65 (U.S.)

• Historical
• 1940 12.6 years
• 2000 17.5 years
• Intermediate Projection
• 2030 18.9 years
• 2050 20.1 years

16
Life Expectancy in Hawaii and in U.S.
Life Expectancy - Year Hawaii U.S./1
1910 44 50
1920 46 54
1930 54 60
1940 62 63
1950 70 68
1960 72 70
1970 74 71
1980 78 74
1990 79 75
State with the highest life expectancy is Hawaii (79 yrs.) State with the highest life expectancy is Hawaii (79 yrs.) State with the highest life expectancy is Hawaii (79 yrs.)
Source Hawaii Department of Health, Office of
Health Status Monitoring. /1 Centers for Disease
Control and Prevention, National Center for
Health Statistics.
17
Census Bureau Estimates of Number of Elderly
Individuals in 1997, 2030, and 2050
18
Aging of the Elderly Population in the U.S. (in
millions)
2000 2030 2050
Age 65-84 30 60 60
Age 85 4 9 18
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Older Populations (65 and 85) As Percent of
Total Population
1980 1990 2000 2010/1 2020/1
65 76,210 125,230 161,134 196,241 270,000
of Total 7.9 11.3 13.3 15.2 19.2
85 5,561 10,397 17,564 31,187 38,867
of Total 0.6 0.9 1.4 2.4 2.8
Total 964,691 1,108,229 1,211,537 1,291,058 1,406,248
Source U.S. Census Bureau, Hawaii data. /1
Hawaii Department of Business, Economic
Development and Tourism, Research and Economic
Analysis Division, DBEDT 2025 Series, Population
and Economic Projections for the State of Hawaii
2025, February 2000.
20
Comparison of Percent Increase in Population
Source U.S. Census Bureau, Hawaii data.
21
Many 65 Have at Least One Disability
Source U.S Census Bureau, Census 2000, Hawaii
data.
22
Need for Assistance with Personal Care Increases
with Age
Age Group
Source Hawaii Department of Health, Office of
Health Status Monitoring, Hawaii Health Survey
2000.
23
Percent 60 Diagnosed with Diabetes (1994-2001)
Source Hawaii Department of Health, Community
Health Division, Behavioral Risk Factor
Surveillance System.
24
Percent 60 Diagnosed with High Blood Pressure
Source Hawaii Department of health, Community
Health Division, Behavioral Risk Factor
Surveillance System.
25
Defining Long-Term Care

• Medical, nursing, social, and personal services
• At home, in the community, or in an institution
• Extended period of time
• Functional impairment (activities of daily
  livingADLs)
• Bathing
• Dressing
• Eating
• Transferring
• Toileting
• Continence
• Cognitive Impairment

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Types of Long-Term Care

• Informal (non-paid)family and friends
• Formal (paid)professional providers

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Reasons for Less Informal Care

• Geographic dispersion of family members
• More women working in paid labor force
• Smaller families
• fewer children per family
• more childless families
• higher divorce rates
• more single-parent families
• Impairments of adult children themselves

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Tests for Insurability of a Risk

• Involuntary risk
• Economic loss incurred
• Verifiable risk
• Law of large numbers
• Contingency falling on a small proportion at one
  time
• Predictable risk

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Long-Term Care as an Insurable Risk

• Need for LTC
• predictably small proportion of population
• costs may be substantial or even catastrophic
• Risk pooling limits an individuals financial
  exposure
• Insurance in private and public sectors

30
Present Pattern of Funding in the U.S.

• Out of pocket (personal savings)
• Medicaid (public welfare)
• Medicare (social insurance)
• Private insurance

31
Formal Long-Term Care Expenditures for the
Elderly, 2000
Source Based on projections in Congressional
Budget Office (2000).
32
Formal Long-Term CareExpenditures for the
Elderly, 2000Public and Private Sectors Combined
33
Formal Long-Term CareExpenditures for the
Elderly, 2000Public Sector
34
Formal Long-Term CareExpenditures for the
Elderly, 2000Private Sector
35
Impediment to Social and Private Insurance
Programs

• Competition for funds
• Social insurance vs. general health, education,
  welfare, and other expenditures
• Private insurance vs. other consumption outlays

36
Lack of Penetration by Private Insurance Demand
Factors

• High costs
• Use it or lose it
• Exclusions (the fine print problem)
• Can self-insure
• Rely on public welfare (Medicaid)
• Procrastination
• Uninsurable
• Will never need it
• Long lapse of time between sales/purchase and use

37
Lack of Penetration by Private Insurance Supply
Factors

• Moral hazard (greater use of services induced by
  insurance)
• Adverse selection (buyers are those who know
  they will likely need LTC services)
• Problems for the sales force
• Long lapse of time between sales/purchase and use

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Guiding Principles for LTC Funding

• Insurance in public and private sectors
• The trade-off principle

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Sharing Public and Private Responsibility A
three-legged stool approach

• Retirement income
• Acute health care
• Long-term care

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A Three-legged Stool Approach Retirement Income

• Social insurance as a floor of protection
• Employment-based (occupational) pensions as
  supplement
• Personal savings as supplement
• Public assistance as safety net when three legs
  prove insufficient

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A Three-legged Stool Acute Health Care

• Medicare
• Employer-provided health benefits
• Medicare Supplemental (Medigap) policies
• Medicaid as a safety net for the poor

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Funding Long-Term Care A Schematic View
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Estimated revenue for the proposed Long-Term Care
(LTC) Trust Fund in first 5 years of operation
(no disbursements) (All dollar amounts are in
billions)
Calendar year Social Security (OASDI) benefit payments Annual contributions to the LTC Trust Fund Annual contributions to the LTC Trust Fund Interest rate for contributions in the year LTC Trust Fund accumulated at the end of the year
Calendar year Social Security (OASDI) benefit payments Percent of OASDI benefits Amount Interest rate for contributions in the year LTC Trust Fund accumulated at the end of the year
1996 355.0 1 3.6 6.0 3.7
1997 374.9 2 7.5 6.0 11.7
1998 396.1 3 11.9 6.1 24.7
1999 419.0 4 16.8 6.3 43.5
2000 444.2 5 22.2 6.4 69.1
Note OASDI benefits and interest rates are those
projected under the alternative II
(intermediate) assumptions in the 1993 Annual
Report of the Trustees.
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Measures of Solvency for Social Security,
1991-2004 Intermediate Assumptions
45
Measures of Solvency for Social Security,
1991-2004 Intermediate Assumptions