Geriatrics and Gerontology International 2004; 4: S143–S145 S143 Correspondence: Wai Sum Chan, Department of Statistics and Actuarial Science, The University of Hong Kong, Pokfulam Road, Hong Kong. Email: chanws@hku.hk INVITED SYMPOSIA An actuarial analysis of long-term care demand in Hong Kong Wai Sum Chan, Siu Hang Li and Pak Wing Fong Department of Statistics and Actuarial Science, The University of Hong Kong, Hong Kong Hong Kong is a fast-aging society. More than 775 000 citizens (around 11% of the total population) in Hong Kong were aged 65 or above in 2002, and it is expected the figure will increase to 2.2 million (or 24% of the total) in 2031. In this paper, an actuarial projection of the demand of long-term care (LTC) services in Hong Kong using the US National Long-Term Care Surveys (NLTCS) data, is provided. The need for LTC in Hong Kong will be growing drastically for older ages in the next few years; around 10% for elderly aged between 65 and 74 and the proportion would mount to 60% for the elderly at age 85 or above. Using a Markov Chain model, an individual’s (age–gender specific) future LTC expenditures in Hong Kong have been projected. The net actuarial present values of total future LTC costs are expected to be HK$83 000 and HK$160 000 for males aged 65 and females aged 65, respectively. Alternative funding strategies for these liabilities are dis- cussed. A simple private insurance scheme is chosen to illustrate the actuarial calculations. The results could be useful for funding and planning LTC services in Hong Kong. Keywords: activities of daily living disability, actuarial projection, financing long-term care, insurance, Markov Chain model. Introduction Compared with other countries/territories, Hong Kong enjoys very low mortality. The expectations of life at birth for both sexes are close to those of low mortality countries like Japan and Switzerland. Moreover, life expectancy is expected to further improve in the next few decades. In 2002, life expectancy at birth in Hong Kong was 78.2 years for men and 84.1 years for women. Men who reach the age of 65 can expect to live to age 82.5, while life expectancy for women aged 65 rises to age 86.6. It is estimated that the 2002 figure of 775 600 persons aged 65 or above in Hong Kong will increase to 1 million by the year 2016 and to 2.2 million in the sub- sequent 15 years. 1,2 The rapidly aging population in Hong Kong is a result of an influx of young immigrants from mainland China during the period 1945–1955 and the baby boom in the 1960–1970s. Concomitant with population aging is the increase in disease and disability burden, 3,4 resulting in increasing demands for long- term care (LTC). In this paper, we provide an actuarial projection of the demand of LTC services in Hong Kong using the US National Long-Term Care Surveys (NLTCS) data. Main results Data and long-term care classifications This paper presents a LTC status transition model. The model is fitted to longitudinal data obtained from the 1982, 1984, 1989 and 1994 National LTC Surveys in the United States. The resulting transition matrices are applied to the Hong Kong population. There are many classification systems for describing people in need of LTC services, but the most important is the system introduced by the US Health Insurance Portability and Accountability Act of 1996 (HIPAA). This system focuses primarily on severely disabled persons with activity of daily living (ADL) limitations, 5 but it also introduced specific criteria for dealing with cognitive impairments (CI) that are not associated with ADL lim- itations. 6 This paper uses the HIPAA definitions. Static crude projections In the first stage of the projection, we use a simple static component method. The Hong Kong population