Policy implications of an annuity approach to integrating long-term care financing and retirement income.

The authors consider an integrated income and disability annuity as an alternative framework for long-term care financing, show that pooling disability and mortality risks can reduce the need for medical underwriting, and discuss private and public implications. Data from the National Mortality Followback Survey of 1986 were used to simulate current underwriting and minimal underwriting, excluding only those already eligible for benefits. Remaining disability, life expectancy, and premiums are compared under both underwriting assumptions. Under minimal underwriting, 98% of persons age 65 would be eligible to purchase disability protection through an integrated annuity, versus 77% under current underwriting. Premiums for both the income and disability components were lower with minimal underwriting. Combining income and disability protection may be able to expand private markets for long-term care financing beyond what appears possible in the long-term care insurance market. Public policy should avoid the distortion of choices created by focusing exclusively on an insurance model.