Mandatory aged care insurance: a case for Australia

Date

2015-02

Authors

Paolucci, Francesco
Sowa, Przemyslaw M.
Garcia-Goni, Manuel
Ergas, Henry

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Volume Title

Publisher

Cambridge University Press

Abstract

This paper assesses the feasibility and welfare-improving potential of an insurance market for aged care expenses in Australia. As in many other countries, demographic dynamics coupled with an upward trend in costs of personal care result in consumer co-contributions imposing a risk of expenses that could constitute a significant proportion of lifetime savings, in spite of the presence of a government-run aged care scheme. We explore issues around the development of an insurance market in this particular setting, considering adverse selection, moral hazard, timing of purchase, transaction costs and correlation of risks, as well as such contextual factors as longevity and aged care cost determinants. The analysis indicates aged care insurance is both feasible and welfare-enhancing, thus providing a gainful alternative to the aged care reform proposed by the Productivity Commission in 2011. However, while the insurance market would benefit the ageing Australian population, it is unlikely to emerge spontaneously because of the problem of myopic individual perceptions of long-term goals. Consequently, we recommend regulatory action to trigger the market development.

Description

Keywords

aged care insurance, long-term care financing, Australia, Productivity Commission

Citation

Source

Ageing and Society

Type

Journal article

Book Title

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