The Long-Term-Care Insurance Puzzle: Modeling and Measurement

John Ameriks (), Joseph Briggs (), Andrew Caplin, Matthew D. Shapiro and Christopher Tonetti

No 22726, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Individuals face significant late-in-life risks, prominently including the need for long-term care (LTC). Yet, they hold little long-term care insurance (LTCI). In this paper we use a structural model and a purpose-designed dataset to understand the determinants of insurance demand. We distinguish between a fundamental lack of desire to insure, crowd out from existing insurance, and unmet demand due to poor products available in the market. The model features individual-specific non-homothetic health-state-dependent preferences over normal consumption, consumption when in need of long-term care, and bequests, which are estimated using strategic survey questions. To account for differences between the modeled and measured insurance products, we study not only individuals' holdings of LTCI, but also their stated demand for an idealized product that mirrors that in the model. We find that many individuals would purchase LTCI and receive a large consumer surplus if it were a better product, while many others do not want to purchase even high-quality actuarially fair LTCI due to the values of their heterogeneous state-dependent preferences, their demographics, and their financial situation.

JEL-codes: D14 D91 E21 G22 H31 I13 J14 (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-age, nep-hea, nep-ias and nep-mac
Note: AG EH EFG ME PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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