This investigation models economic catastrophe in the out-of-pocket financing of long-term care in the United States. It presents new theoretical and conceptual development and model for measurement of catastrophe and introduces a methodology to determine its occurrence, severity and duration.

The tested benefits of the new modeling procedure are that it: (1) more fully describes the structural components of catastrophe, (2) applies a simple analogue to demonstrate the location and onset of catastrophe, (3) differentiates vulnerability to catastrophe by income strata and by cumulative asset spend-down cycles, (4) might inform families who purchase care concerning charge variations that are most likely to produce catastrophe, and (5) indicates whether or not a policy response may be desirable.

In the current policy climate, where insurance rationing exists and government intervention is restricted to the destitute, catastrophe may be conceptualized as a deficit of assets with respect to the charges for care. Here, the financing mechanism for long-term care is the family who pays for care by spending-down four cumulative cycles of their assets. Whether or not the financing mechanism (at a given income strata) experiences catastrophe is determined by a coordinate graphing procedure which plots asset spend-down cycles against the charges for care over a five-year horizon period.

The results clearly indicate that not all income strata are equally vulnerable to catastrophe. The most wealthy strata are not vulnerable to catastrophe. Under current policy, the most poor are eligible for Medicaid assistance. If the modeling procedure proves correct by future iterations, the middle income strata are consistently vulnerable and would be the prime targets for public insurance against the hazards of catastrophe.