Due to the demographic changes and population aging occurring in many countries, the financing of long-term care (LTC) poses a systemic threat. The scarcity of knowledge about the probability of an elderly person needing help with activities of daily living has hindered the development of insurance solutions that complement existing social systems. In this paper, we consider two models: a frailty level model that studies the evolution of a dependent person through mild, moderate and severe dependency states to death and a type of care model that distinguishes between care received at home and care received in an institution. We develop and interpret the expressions for the state-and time-dependent transition probabilities in a semi-Markov framework. Then, we empirically assess these probabilities using a novel longitudinal dataset covering all LTC needs in Switzerland over a 20-year period. As a key result, we are the first to derive dependence probability tables by acuity level, gender and age for the Swiss population. We find that the transition probabilities differ significantly by gender, age and time spent in the frailty level and type of care states.

Long-term care (LTC) delivered to elderly persons in need of assistance in activities of daily living is a topic of increasing importance. The financing of LTC, the needs for specialized infrastructure and the limited number of caregivers will pose a systemic threat in many developed countries. In this paper, we analyze the factors influencing the old-age care prevalence rates in Switzerland through a log-linear regression model. Based on a cross-sectional dataset covering the LTC needs from 1995 to 2014, we statistically support the effect of key drivers such as the age, the gender and the region of residence. We distinguish the prevalence by the mild, moderate and severe frailty levels and by care received either at home or in an institution. Our regression results evidence that prevalence rates exponentially increase with the age yielding significantly higher values for women. These effects are emphasized for moderate and severe dependence and for institutional care. Finally, we forecast the number of dependent persons until 2045. Our projections reveal an important increase in the future numbers. While we observe that the dependent population more than doubles over the 30-year horizon, we report significant cantonal differences. Our results are relevant to governments, practitioners and academics alike and help to better understand the factors affecting the demand of LTC and predicting future needs.

The increase in the proportion of elderly people in most industrialized countries triggers higher demand for long-term care (LTC) associated with limitations in activities of daily living (ADL). The aim of this research is to derive the drivers affecting the probability of reporting limitations in ADL and the probability of demanding formal LTC, e.g., personal care and services in domestic tasks. By using the most recent wave of a cross-national European survey on individuals aged over 50 years (SHARE, wave 6), we develop econometric models for identifying the effect of demographic, social and medical factors on ADL limitations and formal LTC along five conjectures. On the one hand, we analyze functional limitations and we find that characteristics such as the age, the gender, the wealth status and the education level influence the probability to report limitations. Further, while we find that pathologies significantly increase the probability to become dependent in general, the effect of cancer is lower. On the other hand, we find again an influence of the demographic and social factors on the probability to use formal LTC. We emphasize on the decrease in the probability due to the presence of the partner in the household, in particular for housekeeping tasks. This is less the case for help related with personal care. In addition, we note that pathologies such as cancer have no influence on the probability to report formal LTC while others like mental and Parkinson diseases highly increase it. We find that elderly living in countries with LTC family care schemes report less formal care than in others. This indicates the importance of LTC policies. Finally, we validate the robustness of our results by applying the models to data from earlier waves of the survey. Our findings give insights for the underwriting standards to be used in future LTC insurance products and for the design of LTC policy environments across Europe.

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In most industrialised countries, one of the major societal challenges is the demographic change coming along with the ageing of the population. The increasing life expectancy observed over the last decades underlines the importance to find ways to appropriately cover the financial needs of the elderly. A particular issue arises in the area of health, where sufficient care must be provided to a growing number of dependent elderly in need of long-term care (LTC) services. In many markets, the offering of life insurance products incorporating care options and LTC insurance products is generally scarce. In our research, we therefore examine a life annuity product with an embedded care option potentially providing additional financial support to dependent persons. To evaluate the care option, we determine the minimum price that the annuity provider requires and the policyholder’s willingness to pay for the care option. For the latter, we employ individual utility functions taking account of the policyholder’s condition. We base our numerical study on recently developed transition probability data from Switzerland. Our findings give new and realistic insights into the nature and the utility of life annuity products proposing an embedded care option for tackling the financing of LTC needs.