Long-Term Care Insurance and Intra-family Moral Hazard: Fixed vs Proportional Insurance Benefits

Justina Klimaviciute

The Geneva Risk and Insurance Review, 2017, vol. 42, issue 2, No 1, 87-116

Abstract: Abstract Pauly (1990) argues that an explanation for the low long-term care (LTC) insurance demand could be intra-family moral hazard: parents might refuse to buy insurance since it reduces children’s incentives to provide care. This paper raises and explores the idea that the extent of intra-family moral hazard and non-purchase of LTC insurance might differ when insurance benefits are fixed and when they are proportional to LTC expenditures. It shows that fixed benefits limit and might even eliminate intra-family moral hazard, while the effect of proportional benefits is at best ambiguous. Consequently, non-purchase of insurance is less likely with fixed benefits.

Keywords: long-term care; long-term care insurance; intra-family moral hazard; informal care (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (10)

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DOI: 10.1057/s10713-016-0018-8

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