Life Care Annuities (LCA) Embedded in a Notional Defined Contribution (NDC) Framework

Abstract

This paper examines the possibility of embedding public long-term care (LTC) insurance within the retirement pension system, i.e. introducing life care annuities (LCAs) into a notional defined contribution (NDC) framework. To do this we develop a multistate overlapping generations model (MOLG) that includes the so-called survivor dividend and give special attention to the assumptions made about mortality rates for dependent persons and LTC incidence rates, which largely determine the contribution rate assigned to LTC. The proposed model could be of interest to policymakers because it could be implemented without too much difficulty, it would universalize LTC coverage with a "fixed" cost, and it would discourage politicians from making promises about future LTC benefits without the necessary funding support.

Keywords: LCA, NDC, Pay-as-you-go, LTC Insurance, Social Security

JEL Classification: G22, H55, I13, J14, J26