How Much Risk Is Mitigated by LTC Protection Schemes? A Methodological Note and a Case Study of the Public System in Spain

We present a methodology to measure the risk of incurring extremely large individual lifetime costs of long-term care (LTC). We show a method that can be used to compare the risk reductions achieved by alternative LTC protection plans. Our proposed methodology is illustrated with a case study. Our estimates show that, according to our proposed risk measure, the Spanish public LTC system mitigates individual risk by more than 30 per cent compared to the situation where no public protection is available. However, the Spanish public LTC system still leaves individuals facing very high lifetime costs of care. We estimate that there is a risk of about 1 per cent that a man will have to spend more than \[euro]211,800 and a risk of about 1 per cent that a woman will have to spend about \[euro]232,600 to cover lifetime LTC costs. Despite the current public Spanish LTC coverage, risk mitigation may still be too low since catastrophic costs of care persist and, therefore, we suggest that private insurance should be encouraged.