Private Capacity to Finance Long Term Care. Alternative Resource Definitions

03/01/1983

Thus far the discussion has considered the potential importance of various sources of income. These can now be combined to consider their net impact on a measure of total resources. Four basic definitions are presented in Table 6 and Table 7 which focus on all one- and two-person elderly households:

  • Income minus earnings;
  • Income minus earnings plus the net benefit amount of food stamps;
  • Income minus earnings plus the net benefit amount of food stamps and a partial 10 year annuity which omits the value of housing; and
  • Income minus earnings plus the value of food stamps and a "full" 10-year annuity which includes housing in the calculation.
TABLE 6. Mean Resources of Elderly by Age and Family Size Using Alternative Definitions of Resources
(1976 Data)
Resource Definition Age of Head
65-69 70-74 75-79 80-84 85+ All
Elderly
ELDERLY PERSONS LIVING ALONE
Income Minus Earnings 4052 4509 4277 3895 3950 4191
Income Minus Earnings Plus Food Stamps 4072 4523 4292 3909 3969 4207
Income Minus Earnings Plus Food Stamps and Partial 10 year Annuity* 4959 5620 5309 4791 5159 5204
Income Minus Earnings Plus Food Stamps and Full 10 year Annuity* 6324 6993 6594 6001 6272 6508
ELDERLY COUPLES
Income Minus Earnings 7075 8051 7831 8028 6671 7438
Income Minus Earnings Plus Food Stamps 7090 8065 7846 8042 6681 7452
Income Minus Earnings Plus Food Stamps and Partial 10 Year Annuity* 8855 10117 9743 10377 8245 9323
Income Minus Earnings Plus Food Stamps and Full 10 year Annuity* 11676 12847 12230 12742 10438 11986
SOURCE: Survey of Income and Education.
* Partial annuity excludes the value of the home. Full annuity includes net worth of home in calculations.


TABLE 7. Mean Resources of Nonworking Elderly by Age and Family Size Using Alternative Definitions of Resources
(1976 Data)
Resource Definition Age of Head
65-69 70-74 75-79 80-84 85+
ELDERLY PERSONS LIVING ALONE
Income 4,468 4,583 4,226 3,839 3,803
Income Plus Food Stamps and Partial 10 year Annuity* 5,409 5,666 5,181 4,672 4,888
Income Plus Food Stamps and Full 10 year Annuity* 6,716 7,025 6,443 5,842 5,995
Income Plus Food Stamps and Full 5 year Annuity* 8,951 9,516 8,681 7,842 8,314
Income Plus Food Stamps and Full Value of Assets 44,199 45,003 41,504 39,724 42,689
ELDERLY COUPLES
Income 8,612 8,657 7,938 7,905 6,416
Income Plus Food Stamps and Partial 10 year Annuity* 10,317 10,756 9,742 10,093 7,723
Income Plus Food Stamps and Full 10 year Annuity* 12,930 13,442 12,114 12,388 9,939
Income Plus Food Stamps and Full 5 year Annuity* 17,183 18,328 16,352 17,141 13,351
Income Plus Food Stamps and Full Value of Assets 56,694 67,749 58,098 58,808 48,085
SOURCE: Survey of Income and Education.
* Partial annuity excludes the value of the home. Full annuity includes net worth of home in calculations.

For all elderly, the addition of food stamps makes little difference to mean resources. Rather, the important increase arises from the annuity. The third definition is higher by about 25 percent for both singles and couples. When the net worth of the home is included in the annuity, resources rise by 55 percent for singles and 61 percent for couples over the income minus earnings definition.

The annuity figures would be even higher if 5 year annuities are calculated (not shown in tables). For example, using the third definition with a five year annuity would raise resources to $6,670 and $12,078 for singles and couples, respectively. The figures, when the value of an owned home is included, rise to $8,845 and $16,539. The longer 10 year period is used in the remaining tables as a more reasonable estimate of the contribution of assets to financing long-term care. This is particularly important if the value of the home is included in the measure.

Table 6 disaggregates average resources by age. Singles and couples in the age 65 through 69 range have lower resources than some of their older counterparts because earnings have been subtracted. These younger families will consequently have lower income from retirement programs, for example, because they are still in the labor force. In general, resources of the elderly decline with age. The 85 and older singles are an exception, although the sample size for this group is quite small.

If the sample is restricted to the nonworking elderly, the appropriate alternative measures also differ somewhat. An expanded set of alternative definitions of resources are shown in Table 7. These include:

  • Income;
  • Income plus food stamps and partial 10 year annuity;
  • Income plus food stamps and full 10 year annuity;
  • Income plus food stamps and full 5 year annuity; and
  • Income plus food stamps and full value of assets.
TABLE 8. Mean Resources of Nonworking Elderly by Family by Family Size and Selected Characteristics Using Alternative Definitions of Resources
(1976 Data)
Resource Definition Homeownership Status Race Sex
Own Rent White Other Male Female
ELDERLY PERSONS LIVING ALONE
Income $4,543 $3,976 $4,403 $2,740 $4,863 $4,134
Income Plus Food Stamps and Partial 10 year Annuity* 5,774 4,630 5,542 3,015 5,761 5,128
Income Plus Food Stamps and Full 10 year Annuity* 7,975 4,630 6,782 3,461 6,984 6,405
Income Plus Food Stamps and Full 5 year Annuity* 11,268 5,548 9,198 4,096 9,116 8,705
ELDERLY COUPLES
Income 8,459 7,633 8,430 5,127 8,261 ---**
Income Plus Food Stamps and Partial 10 year Annuity* 10,631 9,295 10,407 5,387 10,150 ---
Income Plus Food Stamps and Full 10 year Annuity* 13,546 9,295 13,007 6,377 12,667  
Income Plus Food Stamps and Full 5 year Annuity* 18,537 13,142 17,658 7,350 17,130 ---
SOURCE: Survey of Income and Education.
* Partial annuity excludes the value of the home. Full annuity includes net worth of home in calculations.
** The SIE automatically considers a male to be family head, if present.

Since these are nonearners, it is not necessary to subtract earnings for any of the resource measures. The two extra alternatives are included to demonstrate the importance of assets and the sensitivity of a measure of resources to the procedure for allocating assets. Using a five year annuity rather than a 10 year annuity raises the average resource level by about one-third.11 If all assets were included--assuming that an individual should be liable for paying up to the full value of his or her assets from the beginning--the amounts are much higher, averaging over $40,000 for single persons, for example. Again, as was the case with income, alone, results in Table 7 are similar to those in Table 6 for persons over 75 but quite different for younger elderly couples and individuals.

In Table 8, means of the first four of these measures are also shown by homeownership, sex and race. Homeowners are better off than renters, even if definitions three and four (which include the value of the home) are not considered (see Table 8). The mean resource levels of whites are nearly twice as high as those of other races. Women live alone more frequently than men and with a lower level of resources.

Mean resources, however, do not show the dispersion of resources across these groups. Table 9 and Table 10 present distributions of three of the definitions by age and family composition. Since the addition of food stamps makes little difference by itself, that distribution is not presented here. To avoid excessively small sample size within some of the cells, only two broad age categories are used.

TABLE 9. Distribution of Resources Among Nonworking Individuals Living Alone by Age Using Alternative Definitions of Resources
(1976 Data)
Resource Level Income Income Minus Earnings Plus Food Stamps and Partial 10 Year Annuity Income Minus Earnings Plus Food Stamps and Full 5 Year Annuity
INDIVIDUALS AGED 65 THROUGH 74
$2,500 or less 27.6% 24.2% 16.8%
$2,501 to $5,000 44.4 41.9 28.9
$5,001 to $10,000 21.4 22.0 24.5
$10,001 to $15,000 4.4 7.0 12.9
$15,000 and above 2.2 4.9 16.9
Total 100.0 100.0 100.0
INDIVIDUALS AGED 75 AND ABOVE
$2,500 or less 32.8% 28.9% 19.4%
$2,501 to $5,000 47.2 44.4 30.6
$5,001 to $10,000 15.7 17.8 25.6
$10,001 to $15,000 2.5 5.4 11.2
$15,000 and above 1.8 3.6 13.2
Total 100.0 100.0 100.0
SOURCE: Survey of Income and Education.

The addition of food stamp benefits and the annuities moves some families out of the two lower resource categories in all cases. The number of individuals living alone and having resources of more than $15,000 triples. The annuitized value of the home not only adds substantially to average resources, it strongly affects the distribution of resources at all levels. Even for those with few other resources, this asset remains important. For example, food stamps and the annuitized value of other assets have only a small impact on the lowest resource class for couples, while the addition of the annuity value of the home cuts the number in that group by half.

TABLE 10. Distribution of Resources Among Nonworking Elderly Couples by Age Using Alternative Definitions of Resources
(1976 Data)
Resource Level Income Income Minus Earnings Plus Food Stamps and Partial 10 Year Annuity Income Minus Earnings Plus Food Stamps and Full 5 Year Annuity
COUPLES WITH HEAD AGED 65 THROUGH 74
$2,500 or less 2.6% 1.9% 1.9%
$2,501 to $5,000 24.7 22.3 11.4
$5,001 to $10,000 48.4 44.2 24.0
$10,001 to $15,000 14.4 15.9 22.2
$15,000 and above 9.9 15.8 41.2
Total 100.0 100.0 100.0
COUPLES WITH HEAD AGED 75 AND ABOVE
$2,500 or less 3.4 3.1 1.7
$2,501 to $5,000 29.8 26.3 13.4
$5,001 to $10,000 46.4 43.8 27.6
$10,001 to $15,000 12.0 12.6 22.1
$15,000 and above 8.3 14.2 35.1
Total 100.0 100.0 100.0
SOURCE: Survey of Income and Education.

View full report

Preview
Download

"privcap.pdf" (pdf, 2.25Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®