Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-17T17:18:10.598Z Has data issue: false hasContentIssue false
  • English
  • Français

LIFE CARE ANNUITIES (LCA) EMBEDDED IN A NOTIONAL DEFINED CONTRIBUTION (NDC) FRAMEWORK

Published online by Cambridge University Press:  09 February 2016

Javier Pla-Porcel ,
Manuel Ventura-Marco  and
Carlos Vidal-Meliá
Javier Pla-Porcel
Affiliation:
Actuarial Department, SOS Seguros y Reaseguros, S.A., Calle Ribera del Loira 4-6, 28042 Madrid. (Spain) Email: javier.pla@internationalsos.com
Manuel Ventura-Marco
Affiliation:
Department of Financial Economics and Actuarial Science, University of Valencia, Avenida de los Naranjos s.n., 46022 Valencia. (Spain) Email: manuel.ventura@uv.es
Carlos Vidal-Meliá*
Affiliation:
Department of Financial Economics and Actuarial Science, University of Valencia, Avenida de los Naranjos s.n., 46022 Valencia. (Spain)
*
Email: carlos.vidal@uv.es
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper examines the possibility of embedding public long-term care (LTC) insurance within the retirement pension system, i.e. introducing life care annuities into a notional defined contribution framework. To do this, we develop a multistate overlapping generations model that includes the so-called survivor dividend and give special attention to the assumptions made about mortality rates for dependent persons and LTC incidence rates, which largely determine the contribution rate assigned to LTC. The proposed model could be of interest to policymakers because it could be implemented without too much difficulty, it would universalize LTC coverage with a “fixed” cost, and it would discourage politicians from making promises about future LTC benefits without the necessary funding support.

Keywords

LCANDCpay-as-you-goLTC insurancesocial security
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 46 , Issue 2 , May 2016 , pp. 331 - 363
Copyright
Copyright © Astin Bulletin 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Arthur, W.B. and McNicoll, G. (1978) Samuelson, population and intergenerational transfers. International Economic Review, 19 (1), 241–246.Google Scholar
Artís, M., Ayuso, M., Guillén, M. and Monteverde, M. (2007) Una estimación actuarial del coste individual de la dependencia en la población de mayor edad en España. Estadística Española, 49 (165), 373–402.Google Scholar
Auerbach, A.J. and Lee, R.D. (2011) Welfare and generational equity in sustainable unfunded pension systems. Journal of Public Economics, 95 (1–2), 16–27.Google Scholar
Barr, N. (2010) Long-term care: A suitable case for social insurance. Social Policy and Administration, 44 (4), 359–374.Google Scholar
Boado-Penas, M.C., Valdés-Prieto, S. and Vidal-Meliá, C. (2008) An actuarial balance sheet for pay-as-you-go finance: Solvency indicators for Spain and Sweden. Fiscal Studies, 29, 89–134.Google Scholar
Boado-Penas, M.C. and Vidal-Meliá, C. (2014) Nonfinancial defined contribution pension schemes: Is a survivor dividend necessary to make the system balanced?. Applied Economics Letters, 21 (4), 242–247.Google Scholar
Bommier, A. and Lee, R.D. (2003) Overlapping generations models with realistic demography. Journal of Population Economics, 16, 135–160.Google Scholar
Brown, J. and Finkelstein, A. (2011) Insuring long term care in the U.S. Journal of Economic Perspectives, 25 (4), 119–142.Google Scholar
Brown, J., Goda, G.S. and McGarry, K. (2012) Long-term care insurance demand limited by beliefs about needs, concerns about insurers, and are available from family. Health Affairs, 31 (6), 1294–1302.Google Scholar
Brown, J.R. and Warshawsky, M. (2013) The life care annuity: A new empirical examination of an insurance innovation that addresses problems in the markets for life annuities and long-term care insurance. The Journal of Risk and Insurance, 80 (3), 677–703.Google Scholar
Broyles, I., Hammelman, E., Tumlinson, A. and Weier, S. (2010) Technical assumptions informing an interactive, web-based model of public long-term care insurance programs, avalere health, http://ltcpolicysimulator.org/LTC-Policy-Simulator-Technical-Paper.pdf.Google Scholar
Campbell, J.C., Ikegami, N. and Gibson, M.J. (2010) Lessons from public long-term care insurance in Germany and Japan. Health Affairs, 29 (1), 87–95.Google Scholar
Chen, Y.-P. (1994) Financing long-term care: An intragenerational social insurance model. The Geneva Papers on Risk and Insurance, 19 (73), 490–495.Google Scholar
Chen, Y.-P. (2001) Funding long-term care in the United States: The role of private insurance. The Geneva Papers on Risk and Insurance, 26 (4), 656–666.CrossRefGoogle Scholar
Chłoń-Domińczak, A., Franco, D. and Palmer, E. (2012) The first wave of NDC — taking stock ten years plus down the road. In NDC Pension Schemes in a Changing Pension World (eds. Holzmann, R., Palmer, E., and Robalino, D.), Chapter 2, Volume 1, pp. 31–84. Washington, DC: World Bank.CrossRefGoogle Scholar
Chon, Y. (2014) The expansion of the Korean welfare state and its results – focusing on long-term care insurance for the elderly. Social Policy & Administration, 48 (6), 704–720.Google Scholar
Colombo, F. and Mercier, J. (2012) Help wanted? fair and sustainable financing of long-term care services. Applied Economic Perspectives and Policy, 34 (2), 316–332.Google Scholar
Colombo, F.A., Llena-Nozal, J., Mercier, J. and Tadens, F. (2011) Help wanted? providing and paying for long-term care. OECD Health Policy Studies, OECD Publishing. http://dx.doi.org/10.1787/9789264097759-en.CrossRefGoogle Scholar
Costa-Font, J. (2010) Family ties and the crowding out of long-term care insurance. Oxford Review of Economic Policy, 26 (4), 691–712.Google Scholar
Costa-Font, J. and Courbage, C. (2014) Crowding Out of Long-Term Care Insurance: Evidence from European Expectations Data, Working Paper 4910. Munich, Germany: CESifo.Google Scholar
Costa-Font, J., Courbage, C. and Zweifel, P. (2014) Policy dilemmas in financing long-term care in Europe. LSE Health, WP No. 36/2014.Google Scholar
Costa-Font, J. and Font-Villalta, M. (2009) Does ‘early purchase’ improve the willingness to pay for LTC care insurance?. Applied Economics Letters, 16 (13), 1301–1305.Google Scholar
Courbage, C. and Roudaut, N. (2008) Empirical evidence of long-term care insurance purchase in France. The Geneva Papers on Risk and Insurance—Issues and Practice, 33 (4), 645–656.Google Scholar
Damiani, G., Farelli, V., Anselmi, A., Sicuro, L., Solipaca, A., Burgio, A., Iezzi, D.F. and Ricciardi, W. (2011) Patterns of long term care in 29 European countries: Evidence from an exploratory study. BMC Health Services Research, 2011(11/316).Google Scholar
Da Roit, B. and Le Bihan, B. (2010) Similar and yet so different: Cash-for-care in six European countries' long-term care policies. Milbank Quarterly, 88 (3), 286–309.Google Scholar
Davidoff, T. (2009) Housing, health, and annuities. The Journal of Risk and Insurance, 76 (1), 31–52.CrossRefGoogle Scholar
De la Maisonneuve, C. and Oliveira Martins, J. (2013) Public spending on health and long-term care: A new set of projections, OECD Economic Policy Papers, No. 6, OECD Publishing. DOI: 10.1787/5k44t7jwwr9x-en.Google Scholar
Devolder, P., Janssen, J. and Manca, R. (2012) Stochastic Methods for Pension Funds. ISTE Ltd and John Wiley & Sons, Inc. Great Britain and the United States.Google Scholar
Forder, J. and Fernández, J.L. (2011) What works abroad? Evaluating the funding of long-term care: International perspectives, Report commissioned by Bupa Care Services, PSSRU Discussion Paper 2794, Canterbury: PSSRU.Google Scholar
Guillén, M. and Comas-Herrera, A. (2012) How much risk is mitigated by LTC protection schemes? A methodological note and a case study of the public system in Spain. The Geneva Papers on Risk and Insurance, 37, 712–724.Google Scholar
Haberman, S. and Pitacco, E. (1999) Actuarial Models for Disability Insurance. London: Chapman and Hall.Google Scholar
Helms, F. (2003) Estimating LTC premiums using GEEs for pseudo-values. Technische Universitat Munchen, Zentrum Mathematik.Google Scholar
Holzmann, R., Palmer, E. and Robalino, D. (2012) Non-financial Defined Contribution Pension Schemes in a Changing Pension World: Vol. 1, Progress, Lessons, and Implementation. Washington, DC: World Bank.Google Scholar
Lee, R. (1994) The formal demography of population aging, transfers, and the economic life cycle. In Demography of Aging (eds. Martin, L. G. and Preston, S. H.), pp. 8–49. Washington, DC: National Academy Press.Google Scholar
Miyazawa, K., Moudoukoutas, P. and Tadashi, Y. (2000) Is public long-term care insurance necessary?. The Journal of Risk and Insurance, 67 (2), 249–264.Google Scholar
Montesquieu, L. (2012) Construction of biometric actuarial bases for long-term care insurance. SCOR report. http://www.scor.com/en/sgrc/life/long-term-care/item/2014.html?lout=sgrc.Google Scholar
Moran, M., Glendinning, C., Wilberforce, M., Stevens, M., Netten, A., Jones, K., Manthorpe, J., Knapp, M., Fernández, J.L., Challis, D. and Jacobs, S. (2013) Older people's experiences of cash-for-care schemes: evidence from the english individual Budget pilot projects. Ageing and Society, 33, 826–851.Google Scholar
Mot, E., Faber, R., Geerts, J. and Willemé, P. (eds.) (2012) Performance of long-term care systems in Europe. ENEPRI Research Report-117. http://www.ancien-longtermcare.eu/.Google Scholar
Murtaugh, C., Spillman, B. and Warshawsky, M. (2001) In sickness and in health: An annuity approach to financing long-term care and retirement income. The Journal of Risk and Insurance, 68 (2), 225–254.CrossRefGoogle Scholar
Pestieau, P. and Ponthiere, G. (2011) The long term care insurance puzzle. Chapter 2, pages 41–52, In Financing Long term Care in Europe: Institutions, Markets and Models (eds. Costa-Font, J. and Courbage, C.), Palgrave Macmillan. [Online] Available at: http://www.palgraveconnect.com/pc/doifinder/10.1057/9780230349193. (Accessed: 6 January 2015).Google Scholar
Pitacco, E. (2002) LTC insurance in Italy. Paper presented at the XXVII ICA - Cancun, 2002 Health Seminar on Critical Issues in Managing Long-Term Care Insurance.Google Scholar
Pitacco, E. (2012) Mortality of disabled people (January 26, 2012). Available at SSRN: http://ssrn.com/abstract=1992319 or http://dx.doi.org/10.2139/ssrn.1992319.Google Scholar
Pitacco, E. (2013) Biometric risk transfers in life annuities and pension products: A survey. CEPAR Working Paper 2013/25, 2013. http://www.cepar.edu.au/media/123434/25_biometric_risk_transfersin_life_annuities_and_pension_products.pdf.Google Scholar
Pitacco, E. (2014) Health Insurance. Basic Actuarial Models. EAA Series. Springer.Google Scholar
Rickayzen, B.D. (2007) An analysis of disability-linked annuities. Faculty of Actuarial Science and Insurance, Cass Business School, City University, London. Actuarial Research Paper No. 180. http://www.cass.city.ac.uk/__data/assets/pdf_file/0018/37170/180ARP.pdf.Google Scholar
Rickayzen, B.D. and Walsh, D.E.P. (2002) A multi-state model of disability for the United Kingdom: Implications for future need for long-term care for the elderly. British Actuarial Journal, 8 (Part II, 36), 341–393.Google Scholar
Rothgang, H. (2010) Social insurance for long-term care: An evaluation of the German model. Social Policy and Administration, 44 (4), 436–460.Google Scholar
Schut, F. and Van den Berg, B. (2010) Sustainability of comprehensive universal long-term care insurance in the netherlands. Social Policy and Administration, 44 (4), 411–435.CrossRefGoogle Scholar
Settergren, O. and Mikula, B.D. (2005) The rate of return of pay-as-you-go pension systems: A more exact consumption-loan model of interest. The Journal of Pensions Economics and Finance, 4 (2), 115–138.Google Scholar
Society of Actuaries (SOA) (2011), Long term care experience committee intercompany study 1984–2007. http://www.soa.org/research/experience-study/ltc/research-ltc-study-1984-report.aspx.Google Scholar
Spillman, B., Murtaugh, C. and Warshawsky, M. (2003) Policy implications of an annuity approach to integrating long-term care financing and retirement income. Journal of Aging and Health, 15 (1), 45–73.CrossRefGoogle ScholarPubMed
Van der Gaag, N., Bijwaard, G., de Beer, J. and Bonneux, L. (2014) Forecasting long-term care need of elderly using a multistate projection model. NIDI Working Paper no. 2014/2. The Hague: NIDI.Google Scholar
Ventura-Marco, M. and Vidal-Meliá, C. (2014) An actuarial balance sheet model for defined benefit pay-as-you-go pension systems with disability and retirement contingencies. ASTIN Bulletin, 44 (2), 367–415.Google Scholar
Ventura-Marco, M. and Vidal-Meliá, C. (2016) Integrating retirement and permanent disability in NDC pension schemes. Applied Economics, 48 (12), 1081–1102, DOI:10.1080/00036846.2015.1093084 Published online: 30 Sep 2015.CrossRefGoogle Scholar
Vidal-Meliá, C. and Boado-Penas, M.C. (2013) Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?. Applied Economics, 45 (10), 1303–1320.Google Scholar
Vidal-Meliá, C., Boado-Penas, M.C. and Navarro-Cabo, F. (2015) Notional defined contribution pension schemes: Why does only Sweden distribute the survivor dividend?. Journal of Economic Policy Reform, Published online: 15 Apr 2015. DOI: 10.1080/17487870.2015.1028547.Google Scholar
Vidal-Meliá, C., Boado-Penas, M.C. and Settergren, O. (2009) Automatic balance mechanisms in pay-as-you-go pension systems. The Geneva Papers on Risk and Insurance: Issues and Practice, 33 (4), 287–317.Google Scholar
Warshawsky, M.J. (2007) The life care annuity - a proposal for an insurance product innovation to simultaneously improve financing and benefit provision for long-term care and to insure the risk of outliving assets in retirement. Georgetown University - Long-Term Care Financing Project. Working Paper No. 2. http://ltc.georgetownedu/forum/2warshawsky061107.pdf.Google Scholar
Warshawsky, M.J. (2012) Retirement Income: Risks and Strategies. Cambridge, MA: MIT Press.Google Scholar
Willis, R. (1988) Life cycles, institutions and population growth: A theory of the equilibrium interest rate in an overlapping-generations model. pp. 106–138 in R.D. Lee, W.B. Arthur, and G. Rodgers, eds., Economics of Changing Age Distributions in Developed Countries. Oxford: Clarendon Press.Google Scholar
Yakoboski, P.J. (2002) Understanding the motivations of long-term care insurance owners: The importance of retirement planning, Benefits Quarterly (Second Quarter) 18 (2), 16–21.Google Scholar
Zuchandke, A., Reddemann, S., Krummaker, S. and v. d. Schulenburg, J.-M. G. (2010) Impact of the introduction of the social long-term care insurance in Germany on financial security assessment in case of long-term care need. The Geneva Papers on Risk and Insurance - Issues and Practice, 35 (4), 626–643.Google Scholar