Who Will Take Care of Us When We Are Old?

The risk of losing self-sufficiency and the consequent need to receive care (both medical and non-medical) are becoming increasingly relevant in advanced economies, especially due to the aging of the population.

Care to meet the needs of a frail old person is a labor-intensive and time-intensive activity that last for an indeterminate amount of time, is expensive and is only partly provided and financed through public welfare instruments.

Family solidarity was in the past the main channel for providing the necessary services. In the case of the elderly, this occurred through the informal assistance offered by a spouse (if present) or children (especially if female), if geographically close to the place of residence of the person in need.

The role that family solidarity is able to play today is greatly reduced due to demographic factors and changing values. This exposes the shortcomings in public policies and private interventions to effectively manage a situation that becomes dramatic when the person at risk lives alone.

Three different types of problems arise: (1) the creation of effective and economically efficient assistance solutions, (2) the financing of the cost that their provision entails (3) the integration between the different agents that provide assistance (formal or informal) in order to reduce the overall cost for society.

With regard specifically to the second aspect, a first solution is to use private savings set aside for this purpose. This is an option that is seemingly simple to activate, but which, due to the unpredictable nature of the amount required to cover necessary care in the future, may prove ineffective.

A second solution is insurance-based. In this case, the financing of care is paid for by an insurance company, with which the person in need has previously taken out an insurance policy by paying a premium.

Long Term Care (LTC) policies are insurance contracts that can be activated for this purpose.

The insurance policy can be individual or collective and can be sold in conjunction with other insurance products, typically life insurance. It can cover the whole lifespan of the insured (so it covers the risk of non-self-sufficiency until the end of one’s life) or have a term. In this case, if the non-self-sufficiency occurs after the term set out in the contract, the insurer is not required to provide any benefits.

Benefits are disbursed exclusively in the case in which the insured person is no longer self-sufficient, that is, no longer able to independently carry out daily living activities.

The diffusion of this kind of insurance in Italy is still limited. Compared to the 6% of the Italian population over 65 who expressed a need for assistance covered through "formal" assistance tools (public home social-assistance services or nursing home stays), in 2022 the number of active LTC policies was equal to 120,000, corresponding to a meager 0.2% of Italians over the age of 65.

The reasons for this shortcoming are various. On the demand side, the cost of insurance is perceived as high by potential buyers, in addition to the lack of adequate information about the advantages of the product. On the supply side, the difficulty for insurers of managing the risk of long-term care in case of complete disability inhibits the application of convenient conditions that would make such policies more attractive.

However, the experience of foreign countries where the market is more developed (notably Israel – where 60% of the population has coverage of this type and France – where 5.5 million LTC insurance policies are active, a number corresponding to 10% of the country's adult population) is encouraging.

In particular, collective solutions seem to be the most promising way to extend this coverage to wider segments of the population.

In a collective contract, the insured are not subjects who have a specific motivation – typically consisting in the fact of being particularly exposed to risk – to sign the contract. They benefit from the coverage because they belong to a certain community – for example because their employment relationship is governed by an agreement in which insurance coverage is provided as an additional benefit.

This makes the risk easier to manage for the insurer, and it allows for more favorable conditions for the insured. This is also thanks to the solidarity mechanism implicit in the pooling of risk. In fact, the payment of an equal premium by all members of the insured community implies that the subjects who will not receive the benefits provided for in the contract, because fortunately they will not lose self-sufficiency, transfer resources to the less fortunate ones who, instead, will have a need for them.