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

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

Yung-Ping Chen, PhDYung-Ping Chen, PhDFrank J. Manning Eminent Scholar's Chair in Frank J. Manning Eminent Scholar's Chair in

Gerontology Gerontology Gerontology InstituteGerontology Institute

University of Massachusetts, BostonUniversity of Massachusetts, Boston

Co-sponsored by: Center on the Family, University of Co-sponsored by: Center on the Family, University of Hawaii, ManoaHawaii, Manoa

Executive Office on the Aging, State of HawaiiExecutive Office on the Aging, State of HawaiiWomen’s Caucus of the Hawaii State LegislatureWomen’s Caucus of the Hawaii State Legislature

State Capitol, Room 309, June 22, 2004, 9:00-State Capitol, Room 309, June 22, 2004, 9:00-11:00AM11:00AM

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Changes in Social Trends (1970-Changes in Social Trends (1970-2000)2000)

19701970 20002000

Female Labor Force Participation RateFemale Labor Force Participation Rate 42% 42% 58%58%

Divorced (% of adults)Divorced (% of adults) 3%3% 9.9% 9.9%

Unmarried adultsUnmarried adults 38 mil38 mil 87 mil87 mil

Never-married adultsNever-married adults

(% of all adults)(% of all adults) 16%16% 24%24%

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Marriage Delayed or Avoided:Marriage Delayed or Avoided:Japanese Young People are Delaying or Japanese Young People are Delaying or

Avoiding Marriage.Avoiding Marriage.

Percentage of Japanese & U.S. residents ages 25-29 who are not married:

18%

47%

11%19%

54%

69%

39%

52%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Women Men Women Men

1970 2000

JAPAJAPANN

USAUSA

Sources: U.S. Census: Japanese Ministry of Public Management, Home Sources: U.S. Census: Japanese Ministry of Public Management, Home Affairs, Posts and Telecommunications.Affairs, Posts and Telecommunications.

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Divorce is rising:Divorce is rising: Japan’s divorce rate Japan’s divorce rate is up sharply over the past decade, is up sharply over the past decade, thought it’s still well below the U.S. thought it’s still well below the U.S.

raterate

Divorces in Japan per 1,000 people

0

0.5

1

1.5

2

2.5

'90 '92 '94 '96 '98 '00 '02Sources: Japanese Ministry of health, labor and Welfare: Sources: Japanese Ministry of health, labor and Welfare: Japanese Institute of Global CommunicationsJapanese Institute of Global Communications

2.302.30

1.281.28

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Declining Percentages of Declining Percentages of Married Adults (1970-2000)Married Adults (1970-2000)

15% drop among whites, from 73% to 15% drop among whites, from 73% to 62%62%

36% drop among blacks, from 64% to 41%36% drop among blacks, from 64% to 41% 18% drop among Hispanics, from 72% to 18% drop among Hispanics, from 72% to

59%59%

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Increase in Never-Married Increase in Never-Married Persons Persons

(1970-2000)(1970-2000)

31% increase (from 16% to 21%) for 31% increase (from 16% to 21%) for whiteswhites

86% increase (from 21% to 39%) for 86% increase (from 21% to 39%) for blacksblacks

53% increase (from 19% to 29%) for 53% increase (from 19% to 29%) for HispanicsHispanics

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Proportions of New BeneficiariesProportions of New Beneficiariesaa as Retired Workers, Disabled as Retired Workers, Disabled Workers,Workers,

and Dependents and Survivors,and Dependents and Survivors,bb in Selected Years (1970–2010) in Selected Years (1970–2010)

YearYearcc Retired Retired WorkersWorkers

Disabled Disabled WorkersWorkers

Dependents Dependents & Survivors& Survivors TotalTotal

19701970 36.2%36.2% 9.5%9.5% 54.3%54.3% 100%100%

19801980 38.338.3 9.49.4 52.352.3 100100

19901990 44.844.8 12.612.6 42.642.6 100100

19971997 44.544.5 15.215.2 40.440.4 100100

20102010 48.848.8 15.515.5 35.735.7 100100

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 1970–97, 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.

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Poverty Rates among Older Poverty Rates among Older Women (1999)Women (1999)

MarriedMarried 4.3%4.3% WidowedWidowed 15.9%15.9% DivorcedDivorced

20.4%20.4% Never marriedNever married

18.9%18.9%

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Some ProposalsSome Proposals

Raise survivor benefit and lower Raise survivor benefit and lower spousal benefitspousal benefit

Raise survivor benefitRaise survivor benefit Lower length of marriageLower length of marriage Implement earnings sharingImplement earnings sharing Provide minimum benefitProvide minimum benefit

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Caveats in Policy Caveats in Policy DevelopmentDevelopment

Employment-based income Employment-based income replacementreplacement

Income deficiency outside Social Income deficiency outside Social SecuritySecurity

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Reasons for Low Income at Reasons for Low Income at WidowhoodWidowhood

Pre-widowhood income differential Pre-widowhood income differential (20-26%)(20-26%)

Decline in Social Security benefit Decline in Social Security benefit (40-50%)(40-50%)

Decline in pension income (15%)Decline in pension income (15%) Decline in other asset income (10-Decline in other asset income (10-

15%)15%)

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Two-Tier Benefit StructureTwo-Tier Benefit Structure

First-tier benefitFirst-tier benefit Flat rateFlat rate Eligibility based on age or disabilityEligibility based on age or disability General revenue financingGeneral revenue financing

Second-tier benefitSecond-tier benefit Earnings-related benefitEarnings-related benefit Earnings sharingEarnings sharing Payroll tax financingPayroll tax financing

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Funding Long-Term Care: Funding Long-Term Care: Applications Of Applications Of

The Trade-Off Principle The Trade-Off Principle In Both Public And Private In Both Public And Private

SectorsSectorsoror

An Intragenerational Funding An Intragenerational Funding Model for Model for

Long-Term CareLong-Term Care

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LIFE EXPECTANCY AT BIRTH AND AT LIFE EXPECTANCY AT BIRTH AND AT AGE 65AGE 65

Sex and Sex and YearYear

At birth At birth (years)(years)

At age 65 At age 65 (years)(years)

Male 1940Male 1940 61.461.4 11.911.9

19951995 72.372.3 15.415.4

20402040 76.676.6 17.317.3

20702070 78.478.4 18.418.4

Female 1940Female 1940 65.765.7 13.413.4

19951995 79.279.2 19.219.2

20402040 82.482.4 21.021.0

20702070 84.184.1 22.222.2Source: 1996 Social Security Trustees Report, p.61.Source: 1996 Social Security Trustees Report, p.61.

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Average Life Expectancy at Age 65 Average Life Expectancy at Age 65 (U.S.)(U.S.)

HistoricalHistorical 1940: 12.6 years1940: 12.6 years 2000: 17.5 years2000: 17.5 years

Intermediate ProjectionIntermediate Projection 2030: 18.9 years2030: 18.9 years 2050: 20.1 years2050: 20.1 years

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Life Expectancy in Hawaii and in Life Expectancy in Hawaii and in

U.S.U.S. Life Expectancy - Life Expectancy -

YearYearHawaiiHawaii U.S./1U.S./1

19101910 4444 5050

19201920 4646 5454

19301930 5454 6060

19401940 6262 6363

19501950 7070 6868

19601960 7272 7070

19701970 7474 7171

19801980 7878 7474

19901990 7979 7575**

**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.Source: Hawaii Department of Health, Office of Health Status Monitoring.

/1 Centers for Disease Control and Prevention, National Center for Health /1 Centers for Disease Control and Prevention, National Center for Health

Statistics.Statistics.

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Census Bureau Estimates of Number of Census Bureau Estimates of Number of Elderly Individuals in 1997, 2030, and Elderly Individuals in 1997, 2030, and

20502050

30,258

60,924 60,6363,938

8,45518,223

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1997 2030 2050

Pop

ulat

ion

in T

hous

ands

Total

85 and above

65-84

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Aging of the Elderly Aging of the Elderly Population Population

in the U.S. (in millions)in the U.S. (in millions)

20002000 20302030 20502050

Age 65-Age 65-8484

3030 6060 6060

Age 85+Age 85+ 44 99 1818

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Older Populations (65+ and 85+) Older Populations (65+ and 85+) As Percent of Total PopulationAs Percent of Total Population

19801980 19901990 20002000 2010/12010/1 2020/12020/1

65+65+ 76,21076,210 125,230125,230 161,134161,134 196,24196,2411

270,00270,0000

% of Total% of Total 7.9%7.9% 11.3%11.3% 13.3%13.3% 15.2%15.2% 19.2%19.2%

85+85+ 5,5615,561 10,39710,397 17,56417,564 31,18731,187 38,86738,867

% of Total% of Total 0.6%0.6% 0.9%0.9% 1.4%1.4% 2.4%2.4% 2.8%2.8%

TotalTotal 964,691964,691 1,108,221,108,2299

1,211,531,211,5377

1,291,01,291,05858

1,406,21,406,24848

Source: U.S. Census Bureau, Hawaii data. Source: U.S. Census Bureau, Hawaii data.

/1 Hawaii Department of Business, Economic Development and Tourism, Research /1 Hawaii Department of Business, Economic Development and Tourism, Research and Economic Analysis Division, DBEDT 2025 Series, and Economic Analysis Division, DBEDT 2025 Series, Population and Economic Population and Economic Projections for the State of Hawaii 2025Projections for the State of Hawaii 2025, February 2000. , February 2000.

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Comparison of Percent Increase in Comparison of Percent Increase in PopulationPopulation

0%

50%

100%

150%

200%

250%

85+ 87% 69% 216%

60+ 52% 19% 82%

Total 15% 9% 26%

1980 to 1990 1990 to 2000 1980 to 2000

Source: U.S. Census Bureau, Source: U.S. Census Bureau,

Hawaii dataHawaii data..

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Many 65+ Have at Least One Many 65+ Have at Least One DisabilityDisability

65+: Percent having specific disabilities

25%

22%

14%

12%

9%Self-care

Mental

Sensory

Go-outside-home

Physical

Source: U.S Census Bureau, Census 2000, Hawaii dataSource: U.S Census Bureau, Census 2000, Hawaii data. .

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Need for Assistance with Personal Need for Assistance with Personal Care Increases with AgeCare Increases with Age

Needs help with personal care

3.6%5.2% 4.7%

6.8%

22.1%

0%

5%

10%

15%

20%

25%

18-44 45-59 60-74 75-84 85+Age Age GroupGroup

Source: Hawaii Department of Health, Office of Health Status Monitoring, Source: Hawaii Department of Health, Office of Health Status Monitoring, Hawaii Health Survey 2000.Hawaii Health Survey 2000.

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Percent 60+ Diagnosed with Diabetes Percent 60+ Diagnosed with Diabetes (1994-2001)(1994-2001)

Hawaii 60+ Diabetes

10%

8%

11%10%

14%

11%

13%

15%

0%

2%

4%

6%

8%

10%

12%

14%

16%

1994 1995 1996 1997 1998 1999 2000 2001

% d

iagn

osed

with

diab

etes

Source: Hawaii Department of Health, Community Health Division, Behavioral Risk Factor Source: Hawaii Department of Health, Community Health Division, Behavioral Risk Factor

Surveillance System.Surveillance System.

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Percent 60+ Diagnosed with High Percent 60+ Diagnosed with High Blood PressureBlood Pressure

Hawaii 60+ High Blood Pressure

41%44%

48%51%

0%

10%

20%

30%

40%

50%

60%

1995 1997 1999 2001

% d

iagn

osed

with

HBP

Source: Hawaii Department of health, Community Health Division, Behavioral Risk Source: Hawaii Department of health, Community Health Division, Behavioral Risk

Factor Surveillance System.Factor Surveillance System.

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Defining Long-Term CareDefining Long-Term Care Medical, nursing, social, and personal Medical, nursing, social, and personal

servicesservices At home, in the community, or in an At home, in the community, or in an

institutioninstitution Extended period of timeExtended period of time Functional impairment (activities of daily Functional impairment (activities of daily

living—ADLs)living—ADLs)• BathingBathing• DressingDressing• EatingEating• TransferringTransferring• ToiletingToileting• ContinenceContinence

• Cognitive ImpairmentCognitive Impairment

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Types of Long-Term CareTypes of Long-Term Care

Informal (non-paid)—family and Informal (non-paid)—family and friendsfriends

Formal (paid)—professional Formal (paid)—professional providersproviders

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Reasons for Less Reasons for Less Informal CareInformal Care

Geographic dispersion of family Geographic dispersion of family membersmembers

More women working in paid labor forceMore women working in paid labor force Smaller familiesSmaller families

fewer children per familyfewer children per family more childless familiesmore childless families higher divorce rateshigher divorce rates more single-parent familiesmore single-parent families

Impairments of adult children Impairments of adult children themselvesthemselves

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Tests for Insurability of a Tests for Insurability of a RiskRisk

Involuntary riskInvoluntary risk Economic loss incurredEconomic loss incurred Verifiable riskVerifiable risk Law of large numbersLaw of large numbers Contingency falling on a small Contingency falling on a small

proportion at one timeproportion at one time Predictable riskPredictable risk

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Long-Term Care as an Long-Term Care as an Insurable RiskInsurable Risk

Need for LTCNeed for LTC predictably small proportion of predictably small proportion of

populationpopulation costs may be substantial or even costs may be substantial or even

catastrophiccatastrophic Risk pooling limits an individual’s Risk pooling limits an individual’s

financial exposurefinancial exposure Insurance in private and public Insurance in private and public

sectorssectors

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Present Pattern of Present Pattern of Funding Funding

in the U.S.in the U.S. Out of pocket (personal Out of pocket (personal

savings)savings) Medicaid (public welfare)Medicaid (public welfare) Medicare (social insurance)Medicare (social insurance) Private insurancePrivate insurance

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Formal Long-Term Care Expenditures for the Formal Long-Term Care Expenditures for the Elderly, 2000Elderly, 2000

Medicare24%

Medicaid35%

Private long-term care insurance

4%

Other payer2% Personal out-of-

pocket35%

Source: Based on projections in Congressional Budget Office (2000).

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Formal Long-Term CareFormal Long-Term CareExpenditures for the Elderly, 2000Expenditures for the Elderly, 2000

Public and Private Sectors CombinedPublic and Private Sectors Combined

Risk Pooling20.2%

No Risk Pooling79.8%

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Public SectorPublic Sector

Risk Pooling33.3%


34


Private SectorPrivate Sector


Risk Pooling1.2%

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Impediment to Social and Impediment to Social and Private Insurance ProgramsPrivate Insurance Programs

Competition for fundsCompetition for fundsSocial insurance vs. general Social insurance vs. general

health, education, welfare, and health, education, welfare, and other expendituresother expenditures

Private insurance vs. other Private insurance vs. other consumption outlaysconsumption outlays

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Lack of Penetration by Private Lack of Penetration by Private Insurance: Demand FactorsInsurance: Demand Factors

High costsHigh costs ““Use it or lose it”Use it or lose it” Exclusions (the “fine print” problem)Exclusions (the “fine print” problem) Can self-insureCan self-insure Rely on public welfare (Medicaid)Rely on public welfare (Medicaid) ProcrastinationProcrastination UninsurableUninsurable Will never need itWill never need it Long lapse of time between sales/purchase Long lapse of time between sales/purchase

and useand use

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Lack of Penetration by Private Lack of Penetration by Private Insurance: Supply FactorsInsurance: Supply Factors

Moral hazard (greater use of services Moral hazard (greater use of services induced by insurance)induced by insurance)

Adverse selection (buyers are those Adverse selection (buyers are those who “know” they will likely need LTC who “know” they will likely need LTC services)services)

Problems for the sales forceProblems for the sales force Long lapse of time between Long lapse of time between

sales/purchase and usesales/purchase and use

38

Guiding Principles for LTC Guiding Principles for LTC FundingFunding

Insurance in public and private Insurance in public and private sectorssectors

The trade-off principleThe trade-off principle

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Sharing Public and Private Sharing Public and Private Responsibility: Responsibility:

A three-legged stool approachA three-legged stool approach

Retirement incomeRetirement income Acute health careAcute health care Long-term careLong-term care

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A Three-legged Stool A Three-legged Stool Approach: Retirement Approach: Retirement

IncomeIncome Social insurance as a floor of Social insurance as a floor of

protectionprotection Employment-based (occupational) Employment-based (occupational)

pensions as supplementpensions as supplement Personal savings as supplementPersonal savings as supplement [ Public assistance as safety net [ Public assistance as safety net

when three legs prove insufficient ]when three legs prove insufficient ]

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A Three-legged Stool: A Three-legged Stool: Acute Health CareAcute Health Care

MedicareMedicare Employer-provided health benefitsEmployer-provided health benefits Medicare Supplemental (Medigap) Medicare Supplemental (Medigap)

policiespolicies [ Medicaid as a safety net for the [ Medicaid as a safety net for the

poor ]poor ]

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Funding Long-Term Care: A Funding Long-Term Care: A Schematic ViewSchematic View

O ut-of-pocket paym ent

S tand-a lone LTC policy

Accelerated death benefit w ith a rider

C om bination Policy

Private Long-Term C are Insurance

Private Sector

M edica id andother public sources

In ter-generationa lM odel

(M edicare)

In tra-generationa l M odel(Socia l Security/Long-Term C are)

Socia l Insurance

Public Sector

Sources of Funds

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Estimated revenue for the proposed Long-Term Care Estimated revenue for the proposed Long-Term Care (LTC) Trust Fund in first 5 years of operation (no (LTC) Trust Fund in first 5 years of operation (no

disbursements) disbursements) (All dollar amounts are in billions)(All dollar amounts are in billions)

Calendar year

Social Security (OASDI) benefit payments

Annual contributions to the LTC Trust Fund

Interest rate for contributions in the year

LTC Trust Fund accumulated at the end of the year

Percent of OASDI benefits

Amount

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.

44

Measures of Solvency for Social Measures of Solvency for Social Security, 1991-2004 Intermediate Security, 1991-2004 Intermediate

AssumptionsAssumptions

KEY DATES FOR THE TRUST FUNDS 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

First year outgo exceeds income (excluding interest income) 2017 2016 2017 2013 2013 2012 2012 2013 2014 2015 2016 2017 2018 2018

Number of years from year of projection 26 24 24 19 18 16 15 15 15 15 15 15 15 14

First year outgo exceeds income (including interest) 2028 2024 2025 2019 2020 2019 2019 2021 2022 2025 2025 2027 2028 2028


Year trust fund assets are exhausted 2041 2036 2036 2029 2030 2029 2029 2032 2034 2037 2038 2041 2042 2042


Long-range actuarial deficit -1.08% -1.46% -1.46% -2.13% -2.17% -2.19% -2.23% -2.19% -2.07% -1.89% -1.86% -1.87% -1.92% -1.89%

Sources: Compiled and computed from data in annual reports of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance trust funds (for respective years).

45

Measures of Solvency for Social Measures of Solvency for Social Security, 1991-2004 Intermediate Security, 1991-2004 Intermediate

AssumptionsAssumptions

KEY DATES FOR THE TRUST FUNDS 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 First year outgo exceeds

income (excluding interest income) 2017 2016 2017 2013 2013 2012 2012 2013 2014 2015 2016 2017 2018 2018


First year outgo exceeds income (including interest) 2028 2024 2025 2019 2020 2019 2019 2021 2022 2025 2025 2027 2028 2028


Year trust fund assets are exhausted 2041 2036 2036 2029 2030 2029 2029 2032 2034 2037 2038 2041 2042 2042


Long-range actuarial deficit -1.08% -1.46% -1.46% -2.13% -2.17% -2.19% -2.23% -2.19% -2.07% -1.89% -1.86% -1.87% -1.92% -1.89%

Sources: Compiled and computed from data in annual reports of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance trust funds (for respective years).

Documents

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