Private Capacity to Finance Long Term Care. Evaluating the Empirical Results


As described thus far, a number of potential measures are available for indicating the ability of the elderly to finance long term care. The conceptual discussion concluded that the best measure would be income--after adjusting for the effects of a disabling event on sources of income--plus other resources such as assets and in-kind transfers. Finally, from this total, expenditures on necessities--particularly for the remaining family members--and direct taxes should be subtracted. Not all the tools are available for such a "first best" approach, however.

Two measures might most closely approximate this goal. The first is based on nonearners. For single elderly individuals, we use income plus food stamps plus the full 10 year annuity (since these individuals are not likely to remain at home). If such individuals were institutionalized, no subtraction for necessities would have to be made. For elderly couples, two differences are necessary. First, only the partial annuity is added to income and food stamps since the nondisabled spouse would remain at home and, in some cases, the disabled individual might also be able to have home-based care. The other difference is the need to subtract the value of necessary expenditures.15

The second alternative includes all elderly couples and individuals but is based on nonearned income (omitting wages and salaries). Again, the same distinctions are made between couples and individuals. These two alternatives are compared in Table 12 which displays means by age groups.

TABLE 12. Mean Resources of Elderly by Age and Family Size for Two Combined Definitions of Resources*
(1976 data)
Alternative 1
Using Only Nonearners
Alternative 2
Using Income Minus Earnings
Single Person Household $6,882 $6,649
Two Person Household 5,748 3,875
Single Person Household 6,439 6,176
Two Person Household 4,627 4,690
SOURCE: Survey of Income and Education and Survey of Consumer Expenditures.
* These definitions use 10 year annuities. For the single person households the full annuity is used and no adjustments are made for necessary expenditures. For couples, the partial 10 year annuity is used and necessities are subtracted from the measure. See the test for additional details.

As also discussed earlier, however, the conversion of assets has a great impact on average measured ability to finance expenditures. Using a shorter 5 year annuity or even a one year exhaustion of all resources would change the outlook considerably. For example, the average-single elderly nonearner between the ages of 65 and 74 would have discretionary resources under the first alternative measure (described in this section) about one third higher if a five-year base were used.

The results shown in Table 12 show much higher resources for single elderly although in the earlier tables the resource levels of couples were always higher. This distinctrion is a result of allowances for the spouse to remain in the home and retain a share of the resources reflecting necessities.

The sensitivity of these results to such changes suggests that careful additional study is necessary--particularly with regard to the contribution of assets. Future data with better asset and consumption information could shed additional insight on this complicated area.

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