Long-term care policies: defusing a financial time bomb.

Most Americans have little or no private health insurance for chronic illness or disability, largely because of forces restricting the development of a market for long-term care insurance. Properly structured incentives could alter this situation and help defuse a financial time bomb confronting the nation. Spending for long-term care has grown dramatically in the last 20 years and is expected to continue escalating. The question is who will pay for it. Considerable room exists to increase private insurance's proportion of long-term care expenses, which are now largely paid by the patient out-of-pocket or by Medicaid. The current market, however, is under-developed because demand is thin and private third-party insurers are reluctant to write policies. But the potential demand is substantial because of the increasing elderly population. To develop a long-term care insurance market, tax incentives should be offered, the elderly need to be educated about the limited coverage provided by Medicare, and beneficiaries need to be made aware that relying on Medicaid's safety net could lead to impoverishment.