Long-term care insurance would create huge fiscal burden for adult children of aging boomers

By Bonnie-Jeanne MacDonald, Samir Sinha, Alyssa Brierley

A recent editorial in the Globe and Mail proposed the creation of a national long-term care (LTC) insurance program like the Canada or Quebec Pension Plans (CPP/QPP). Although this is a well-intentioned and potentially valuable policy option, it’s important to clear up some common misconceptions. Such a solution will not solve the immediate clear and present danger for LTC in Canada: the imminent and mounting fiscal pressures facing Canada’s rapidly aging population with its struggling LTC systems.

Understanding the context

During the height of the pandemic in 2021, when the systemic challenges in our LTC systems were laid bare, the oldest baby boomer had just turned 76, an age at which the majority of Canadians do not require care. This disconnect in public perceptions will become increasingly evident over the coming decade, as baby boomers age into their 80s and begin requiring overall levels of care that have never been seen in our history.

Using a complex population microsimulation model to project Canada’s future LTC costs — including nursing homes and home care — we at the National Institute of Ageing (NIA) at Toronto Metropolitan University found that if Canada continues on its current track, the cost of publicly funded LTC will more than triple in 30 years (in today’s dollars). A combination of other factors, such as the growing international labour shortage for health-care workers, will drive these figures up further.

Like LTC, the CPP/QPP will also have dramatically escalating costs over the next three decades as our population ages. However, the CPP/QPP is equipped with a bank account of more than $500 billion, along with a well-planned continuing inflow of contributions.

The key to the CPP/QPP’s success is that these programs were set up six decades ago, meaning the baby boomers who helped pay into the CPP/QPP while working will also be paid out from it while retired (otherwise known as a “partially pre-funded” pension program).

LTC, however, is financed out of general tax revenue — there is no dedicated fund to cover the costs. Even if a national LTC insurance program were set up today, it would take decades for the program to be “fully mature” and pay out fully funded benefits to new retirees, too late for the baby boomers who will need them.

Trying to have our cake and eat it too

Alternatively, if we create a national LTC insurance program that asks the younger generation to immediately fund new LTC benefits to older people (i.e., those who haven’t paid into it), there will be a major issue of intergenerational fairness, particularly given that this younger generation will also be called on to provide significant levels of voluntary care to older Canadians.

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To date, adult children have been the backbone of the actual provision of LTC in Canada. Research by the NIA has found that 75 per cent of all care in the home, among those receiving government-funded home care, is being provided informally by close family members and friends.

However, along with being the largest generation in history and having the longest life expectancies, baby boomers are also the first generation to have relatively few children. Based on the demographics, the NIA estimates unpaid family members would need to increase their efforts by 40 per cent just to keep up with the growing care needs of their aging parents. And not only will each person need to do more, but many more people will need to reduce their working hours or leave their jobs altogether to provide that care, as the number of seniors needing support more than doubles.

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Looking ahead

We already know that as baby boomers move further into retirement, more and more working-age adult children will have the burden of having to choose between caring for their older loved ones, or looking out for the current and future financial interest of themselves and their children.

Creating a traditional national LTC insurance program that attempts to finance the care needs of baby boomers will only make the pressures on this working-generation even heavier by imposing on them a new double payroll tax: they would pay into a program to support an unprepared aging population, while also being forced to pre-fund the care needs of their own retirements. There needs to be a better interim financing solution.

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The financial elephant in the room is a complex, high stakes problem that will affect us all. We at the NIA are committed to tackling the question of adequate and sustainable LTC financing, including taking lessons from national LTC insurance programs from around the world. But as we move forward, it’s critical that our solutions are evidenced-based and designed for a future that is going to look very different than the past.

Bonnie-Jeanne MacDonald is the director of financial security research at the National Institute on Ageing (NIA) at Toronto Metropolitan University, a fellow at the Canadian Institute of Actuaries, and resident scholar at Eckler Ltd. Dr. Samir Sinha is the director of health policy research at the NIA; and the Director of Geriatrics at Sinai Health System and the University Health Network in Toronto. Alyssa Brierley is the executive director at the NIA.