Building a Public/Private Framework for LTC Financing

By Steve Schoonveld

A coordinated approach between public programs and private insurance can create a sustainable foundation to meet the growing long-term care needs of older adults and their families.

There is overwhelming consensus among experts that the need for care and support for older adults and their families is enormous. There is little disagreement over how that can be best accomplished, as a majority believe funds from both public and private sectors are necessary to meet this growing need. But what does a public/private collaboration mean, and is it too late to make it work?

The opportunities in long-term care (LTC) financing have been present for decades. With a majority of baby boomers now entering the age during which care needs arise, is that window of opportunity closing? Are both the public and private industry sectors able to meet the ever-increasing needs of these older adults? What is the role of public programs and private approaches and how would they blend to meet consumer needs? These are critical decisions requiring meaningful study and research.^[1] Many have argued for a front-end public program, where the first dollars of claims are covered, while others advocate for a back end or catastrophic public approach where benefits begin after a year or two. There are reasons supporting each. However, a collaborative approach must address the increasing demand on current public programs such as Medicaid. It must also address the caregiver supply crisis and the need for a robust financing market to reduce the devastating impact of LTC expenses on older adults and their families.

Either way, neither current public nor private approaches are comprehensive enough to truly address the LTC crisis. Middle-income families are often forced to use their retirement savings; they must rely upon family members for 24/7 care; and too often they depend on Medicaid. Long-term care insurance (LTCI) must be affordable and supportive of families trying to provide for their loved ones. Older adults seek to remain in their homes with support for both their acute and long-term care needs as they age. Furthermore, they require caregiver training and support for those times when they do wish to rely on family members or community resources.

Such a public/private collaboration can address the caregiving crisis, improve the ability of middle-income population to purchase private insurance, and help reduce overall care needs and costs.

This article aims to not only address the state of today’s LTCI market, but also offer solutions to the problems raised previously.

The Evolution of Long-Term Care Insurance

LTCI came into existence in the early 1980s and has evolved significantly from the initial nursing-home-only coverage offerings to today’s hybrid products that combine life and annuity policies with long-term care expense coverage. Today, over 7 million individuals have some form of LTCI coverage.^[2] Furthermore, approximately $16 billion in LTC claims were paid in 2024 for the current in-force standalone long-term care population.^[3] That number is projected to more than double within 10 years and peak at $41 billion in 2041.^[4] Clearly, insureds are being supported by the coverage they purchased many years ago.

The survey projections assumed that just 13.6% of in-force policies were issued within the past 10 years, while over 80% were issued between 2000 and 2015.^[5] One reason for that dip is the evolution of the market during that period, with a shift toward hybrid life and LTCI policies, as well as the high volume of standalone policy sales in the early 2000s. One can only imagine how much more robust the industry’s projected claims would be if the market had continued to grow in line with the sales patterns of the early 21st century.

In 2002, over 755,000 standalone LTC policies were placed.^[6] The group LTC market was very robust, the Federal LTC program had launched and was generating significant sales, and a hybrid market was beginning to emerge. In recent years, sales of standalone long-term care insurance policies have fallen to less than 10% of their 2002 peak, and sales of hybrid products and short-term care policy sales have not fully made up for the decline.

While many carriers over the history of LTCI have done an exceptional job producing products and writing coverage for their clients over the years, the limited number of carriers available to educate consumers about the need for coverage and to meet demand has contributed to the decline. And while innovation in underwriting and issue, technology, and sales support has kept pace with broader trends in the insurance industry, a return to the sales levels of 2002 has yet to be seen.

There are plenty of other contributing factors that have caused the gap between demand and coverage levels:

A recent industry study found that consumers don’t purchase long-term care coverage because “they have competing financial priorities” and “they are overwhelmed by the perceived costs of LTC protection….”^[7]
While carrier innovation has indeed occurred in the past 25 years, state-based regulations have not changed to support the broad product innovation that’s needed. Specifically, policies that meet the needs of the middle income-such as short-term care and affordable state partnership program products^[8]-have only recently emerged.
State and federal programs aimed at fostering collaboration between public and private insurance programs have been slow to develop. By comparison, nearly 90% of people enrolled in traditional Medicare have some form of supplemental coverage, including Medigap, Medicaid, or employer-sponsored retiree health plans.^[9]
Selling LTC insurance requires a health producer’s license and specific LTC insurance continuing education. While these requirements promote necessary product knowledge, they may also limit the number of advisors and brokers who actually support and sell LTC products.

Market Differences

Having an appreciation for music, it is interesting to consider how our approaches to both listening and LTCI products have evolved from 2000 to today. Remember that the iPod was not introduced until October 2001; Napster had just launched, and music stores were still thriving as Amazon didn’t begin selling music until late 2000. At the turn of the century, we were listening to music on CDs, cassettes, and even old records. Today, music can be streamed on virtually every electronic device you own, including your car and phone. You no longer need a stereo system, a Walkman, or a boombox. When was the last time you dropped a quarter in a jukebox?

LTCI policies continue to be designed with as little flexibility, relying on product features and requirements rooted in the NAIC Long-Term Care Insurance Model Act and Regulation (640 and 641, respectively) in effect since 2000.^[10] Sure, we packaged the “CD” differently, through hybrids, short-term care products, and chronic illness riders, but the core content and provisions remain the same.

Certainly, carriers now issue and deliver policies using modern technology and have developed care and claim support tools that reflect today’s care and caregiving needs. But one clear example of the system’s inflexibility is the inability to use policy benefits to support needs before the insured becomes ADL-dependent or experiences severe cognitive impairment. While the tax code does have limitations, early intervention is an approach that can reduce reliance on informal and family caregiving, and increase the likelihood that claimants may remain at home. Not only is home care preferred by most, but it is also less expensive, and it is what consumers want from their LTC insurance product.

As stated above, LTCI has evolved from a primarily standalone product into a broader ecosystem that now includes a mix of hybrid-life-and-LTC, hybrid-annuity-and-LTC, chronic illness riders, short-term care products, and offerings across both group and individual products. Furthermore, there is a broad but relatively small distribution force made up of insurance brokers, financial advisors, captive agents, and employee benefit specialists.

Finally, while the number of carriers is lower than at the market’s peak, a mix of public and private companies, mutual insurers, and fraternal carriers continue to write these products. This evolving maturity requires the support of state, federal, and tax regulations that can create a common platform across the full spectrum of long-term care solutions, which appeals to consumers.

Public Program Opportunities

During a recent Academy webinar on the state of the LTCI industry, attendees were polled on this question: “What will have the biggest impact on future LTC insurance markets?”

Nearly two-thirds of the attendees selected a state or federal LTC/LTSS program with tax incentives as the most promising path to enhancing the future of the market. A Medicare home care benefit was a distant second.^[11] It’s worth noting that this unscientific poll included a diverse group of attendees, both actuaries and non-actuaries, with approximately half working in state and federal agencies, and the other half from consulting firms, insurance carriers, and other employers.

Similarly, a recent Employee Benefit Research Institute survey found that 61% of employees expect their future care recipients to qualify for Medicaid. Furthermore, a majority of employees are seeking ways to finance their long-term care needs: 53% said they are willing to purchase a LTC policy through their employer, and 64% indicated that they would pay an additional state payroll tax during their working years^[12] to obtain coverage. Clearly, a majority of the 2,445 employees in this online survey are searching for financial support for their future LTC needs. Like many other consumers, respondents in this study are seeking LTC solutions that span a broad spectrum-from home- and community-based services to institutional care, and from private market offerings to public-program supports. This highlights the opportunities that both public and private solutions can provide while emphasizing the need for collaborative approaches.

Due to the current and anticipated explosion in Medicaid costs, both state and federal initiatives are being proposed to address the crisis. Washington state implemented the WA Cares program to help address these challenges. This approach provides a front-end coverage for LTC expenses, offering a benefit of up to $36,000 (indexed annually for inflation), and is funded through a payroll tax. Recently, the governor of Washington signed a bill to create new standards for a supplemental product that is intended to work alongside WA Cares and has been described as “very similar to how Social Security and Medicare work.^[13]

Popular Medicare supplement products help cover out-of-pocket costs, including copayments and deductibles that Medicare does not pay. In this way, these supplements represent a very small portion of the overall Medicare program costs for senior health care.

Given that the average length of a LTC claim exceeds two years, and the cost of care in Washington state ranges from $44,000 to $166,000 per year,^[14] the WA Cares program itself functions more like the true “supplemental” product. While the average claimant may have his or her initial care needs covered, the costs for a claim that continue into the second and third years of care can be devastating. Is WA Cares an example of appropriate public/private collaboration, or should state programs evolve to cover more than just initial nominal expenses?

Additionally, there have been significant complications with WA Cares. For example, while participants who leave the state may continue to fund their coverage through voluntary premiums-similar to the payroll tax-many are unlikely to maintain their coverage. These “lapses” result in a lower overall payroll tax, but they also reflect a phenomenon similar to what the private LTCI market experienced when policies were priced with high lapse expectations-in other words, as lapse-supported products. Moreover, benefits are reduced for care received outside of Washington state.

Another approach being offered at the federal level is the Well-Being Insurance for Seniors to be at Home Act, or the WISH Act. This proposal, introduced by Rep. Tom Suozzi (D-NY) and co-sponsored by Rep. John Moolenaar (R-MI), seeks to establish a “federal catastrophic long-term care insurance program that provides financial support for disabled seniors while fostering a more vibrant private sector insurance market”.^[15]The bill, introduced on Feb. 11this year, seeks to reduce the need for older adults to spend down their assets to qualify for Medicaid and to generate Medicaid savings by supporting home-based care at the onset of care needs. The WISH Act also proposes an income-based elimination period, designed to enable affordable private insurance supplemental products.

As federal programs like WISH and additional state-based programs are being considered (California, Minnesota, and Massachusetts), LTC insurance products should be allowed to coordinate care with these programs to reduce unwanted gaps in coverage and inconsistencies between programs.

A Need to Review State Regulations

In recent years, many Contingencies authors have presented potential solutions to the crisis that is now at our doorstep:

Sam Gutterman, who is chairperson of the Academy’s Social Security Committee and member of the Retirement Practice Council, has called for actuaries to continue repeating the demographic and financial facts over and over to spur serious discussions.^[16] In 2025, these facts are no longer actuarial projections-they are a clear reality. Achieving consensus to address an issue like long-term care requires educating policymakers. We are now at the end of the decades spent anticipating-and ignoring-the crisis.
Robert Eaton, a member of the Academy’s Data Science and Analytics Committee and past chairperson of the LTC Combo Product Valuation Practice Note Work Group, has highlighted how technology may help reinvent the LTCI marketplace, pointing to tools such as fall detection, enhancing communication to prevent social isolation, and wearables that monitor vital signs.^[17] These tools can support both public and private solutions by enabling older adults to remain in their homes longer and more safely. However, as noted above, the current state regulations for LTC insurance products do not readily enable such supports.
Paul Forte offered 10 ideas, including building wellness initiatives aimed at delaying or mitigating the effects of aging. He also called for realigning LTCI with the broader health care system.^[18] This was further discussed in a recent article that advocated integrating acute and long-term care approaches in the same way many dual-eligible (Medicare and Medicaid) programs are supported in about half of the states.^[19]

As state- and federal-based solutions emerge, the 25-year-old state insurance regulations must be reviewed to improve and encourage true public/private collaboration and partnership. This includes coordinating benefits between programs, providing opportunities that truly supplement state or federal programs, and aligning the evolving needs of older adults and their families. Without updating and clarifying the market for LTC financing products, we risk placing even greater strain on public programs and families not only from the baby boomer generation but those that follow.

An Opportunity to Build a Robust System

This year, the first of the baby boomer generation turns 80, the age at which LTC needs begin to increase significantly. Soon, more adults will be reaching this age than the 11,400 currently turning age 65 each day.^[20] The demand for care and caregivers will be overwhelming. The opportunity and ability for many older adults to retire comfortably while affording their LTC costs is diminishing. As a result, there will likely be growing reliance on community care and family caregivers to meet the escalating demand. Public/private collaborative solutions should be developed to support community and family caregiving, assist families in navigating care needs, integrate acute and LTC services, and fund long-term care needs through a combination of both public and private resources.

Let’s work together to build an LTCI market robust enough so that the next article on the state of the industry is a list of successes not warnings. It is time to toss the CDs and Walkmans and get real about LTCI.

Steve Schoonveld, MAAA, FSA, is a member of the Academy’s Long-Term Care Committee.

Endnotes

Long-Term Care Financing Reform Proposals That Involve Public Programs; American Academy of Actuaries; July 2021.
Long-Term Care Insurance Coverage: State-to-State 2023; AHIP.
“Milliman’s annual U.S. industry LTCI claims projection”; Milliman; March 2025.
Ibid.
Ibid.
“Exiting the Market: Understanding the Factors behind Carriers’ Decision to Leave the Long-Term Care Insurance Market”; Department of Health and Human Services; June 2013.
“2024 Long-Term Care Consumer Study”; OneAmerica Financial; October 2024.
These products allow seniors to keep financial assets beyond the normal limits and still qualify for Medicaid due to the purchase of a partnership eligible policy. Until recently, the required inflation protection of 5% made these policies unaffordable for many.
A Snapshot of Sources of Coverage Among Medicare Beneficiaries; KFF; September 2024.
Reference the date and appropriate model regulation. While an update did occur in 2017, the changes primarily focused on rate increase issues.
Note that multiple responses were allowed to the polling questions.
Employee Perspectives on Long-Term Care; EBRI; May 2025.
“Changes to the WA Cares Fund expand long-term care support”; Washington State Department of Social and Health Services; May 2025.
Cost of Long Term Care by State; CareScout.
Suozzi Introduces One-of-a-Kind Bipartisan Bill to Address Senior Long Term Care Crisis; Congressman Thomas Suozzi; March 2025.
“The Looming Crisis of Long-Term Care”; Contingencies; October 2024.
“Innovation and Long-Term Care Insurance”; Contingencies; July/August 2022.
“Writing Long-Term Care in a Short-Term World”; Contingencies;
March/April 2024.
“Supporting Older Adults”; The Actuary; June 2025.
“Turning 65 This Year? Here Are 10 Key Things To Know”; Kiplinger.

Academy Resources

Earlier this year, the Academy’s Long-Term Care Committee released an issue brief, The State of Long-Term Care Insurance-2025, which explores the 40-plus-year history of long-term care insurance and how the industry has evolved to better meet consumer needs and address early challenges with pricing and carrier risk. The brief also discusses managing in-force blocks, emphasizing that policyholder engagement is crucial for both existing and new business. In addition, the Academy hosted a webinar examining the current LTCI landscape and the potential impacts of emerging changes.