Private Capacity to Finance Long Term Care. Discretionary Income


After accounting for housing and food requirements, what share of income remains that could be devoted to financing long-term care? Table 11 presents results from the Survey of Consumer Expenditures. Food and total housing operations are treated as necessities and compared to income (including food stamps and other money receipts).12 The fractions given in the table indicate the proportion of income that can be designated as discretionary. They are calculated as one minus the share of income expended on necessities. Limitations with the expenditure survey preclude calculating a measure of discretionary resources based on the broader measure of resources.13

TABLE 11. Percentage of Income Available for Discretionary Purposes by Age and Household Characteristics
(1976 data)
Income Class (1976 dollars)*
Up to $2,500 $2,500 - 5,000 $5,000 - 10,000 $10,000 - 15,000 $15,000 or above
Single Person Household 1% 33% 52% 69% 77%
Two Person Household 0 23 52 64 75
Single Person Household 9 30 57 68 83
Two Person Household 0 32 55 68 77
SOURCE: Survey of Income and Education.
* Information is based on 1973 data but expressed in 1976 dollars. The inflator used is median income of persons 65 and over.

The proportion of income available is strikingly similar across type of household and age group. However, since average incomes vary by number of persons in the household and age of the head of the household, this does not imply that all families spend equal amounts on housing or food.

Families with incomes below $2,500 report housing and food expenditures equal to or in excess of their incomes.14 Consequently, they would be unable to contribute to their cost of long-term health care. Again the exception could be the individual living alone whose entire non-wage income could be devoted to the cost of institutional care. The proportion of income available rises dramatically with income.

Thus, using a measure of post-disability discretionary income suggests that even some of the at-risk elderly can afford to contribute to their cost of care. Although the figures shown here are adjusted to income, similar findings would be expected when comparing the share of discretionary resources to the level of total resources controlled by a household.

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