Life Insurance Products Could Slash Billions in Government Spending, Report Finds

WASHINGTON, March 13 -- The American Council of Life Insurers (ACLI) released a report that highlights how private insurance products can save billions in federal spending by reducing dependence on Social Security and Medicaid. The report, titled "Insurance Benefits and Government Spending: How Life Insurer Products Reduce Reliance on Public Programs," estimates that life insurance, annuities, disability coverage, and long-term care insurance bolster financial stability, easing pressure on public resources.

Published in March 2025, the study quantifies savings across key programs. For Social Security retirement income, delaying benefits--often enabled by life insurance and annuities--yields a net present value savings of $11 billion per annual retiree cohort, with $16 billion saved in the first decade (2025-2034), though offset later by $5 billion due to higher payments and longer lifespans. Disability insurance saves $8 billion over 10 years by reducing Social Security Disability Income (SSDI) reliance, while long-term care insurance (LTCI) avoids $14 billion in Medicaid spending over the next decade, totaling $48 billion in present value across all years.

The report underscores the private insurance market's role in offering financial security across life stages, diverting policyholders from government aid. In 2023, Social Security and healthcare (including Medicaid) consumed 44% of the federal budget--$1.44 trillion and $1.56 trillion, respectively. ACLI argues that products like annuities, which provide steady retirement income, and disability coverage, with robust return-to-work programs, lessen this burden. For instance, 90 million U.S. families rely on life insurer products, with 50% of workers covered by private disability insurance, down from 60% a decade ago.

Medicaid savings stem from LTCI, which covers nursing homes and at-home care, reducing the need for asset spend-down to qualify for public assistance. With over 70% of those 65+ needing long-term care, ACLI estimates 5% of 8 million LTCI policyholders (6.5 million standalone, 1.5 million hybrid) might otherwise tap Medicaid, saving significant funds. The report cites a 2014 GAO study showing many Medicaid applicants have modest noncountable assets, reinforcing the potential overlap.

Methodologically, ACLI assumes 8-10% of retirees delay Social Security to age 70, cutting lifetime payouts by 7%, or 0.4% per cohort ($11 billion). For SSDI, it adjusts 2014 research showing private disability insurance prevents 0.73% of claims, factoring in today's 7.3 million beneficiaries and $18,000 average annual payout, yielding $0.8 billion yearly savings. Medicaid projections use historical LTCI claims from 2019-2023, calibrated to future needs.

Assumptions include a full retirement age of 67, a $2,500 monthly benefit for delayers, and an 8% annual increase per delayed year. Disability savings account for declining SSDI recipients (from 8.9 million in 2013) and insurance uptake. Medicaid estimates hinge on LTCI penetration and a conservative 5% eligibility overlap, validated by GAO data on asset profiles.

ACLI's findings suggest a broader economic upside: reduced government spending stabilizes budgets, benefiting taxpayers and future generations. With Social Security at 15.4% of 2023's $9.33 trillion budget, even small offsets matter. The report calls for recognizing private insurance's role in fiscal policy, urging further study into how these products can complement public programs amid rising costs and demographic shifts.

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The report is posted at: https://www.acli.com/-/media/public/pdf/news-and-analysis/research-hub/2025_acli_insurancebenefits_governmentspending_final.pdf

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