Old, Frail, and Uninsured: Accounting for Features of the U.S. Long‐Term Care Insurance Market

R. Braun, Karen Kopecky and Tatyana Koreshkova

Econometrica, 2019, vol. 87, issue 3, 981-1019

Abstract: Half of U.S. 50‐year‐olds will experience a nursing home stay before they die, and one in ten will incur out‐of‐pocket long‐term care expenses in excess of $200,000. Surprisingly, only about 10% of individuals over age 62 have private long‐term care insurance (LTCI) and LTCI takeup rates are low at all wealth levels. We analyze the contributions of Medicaid, administrative costs, and asymmetric information about nursing home entry risk to low LTCI takeup rates in a quantitative equilibrium contracting model. As in practice, the insurer in the model assigns individuals to risk groups based on noisy indicators of their nursing home entry risk. All individuals in frail and/or low‐income risk groups are denied coverage because the cost of insuring any individual in these groups exceeds that individual's willingness‐to‐pay. Individuals in insurable risk groups are offered a menu of contracts whose terms vary across risk groups. We find that Medicaid accounts for low LTCI takeup rates of poorer individuals. However, administrative costs and adverse selection are responsible for low takeup rates of the rich. The model reproduces other empirical features of the LTCI market including the fact that owners of LTCI have about the same nursing home entry rates as non‐owners.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
https://doi.org/10.3982/ECTA15295

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:emetrp:v:87:y:2019:i:3:p:981-1019

Ordering information: This journal article can be ordered from
https://www.economet ... ordering-back-issues

Access Statistics for this article

Econometrica is currently edited by Guido W. Imbens

More articles in Econometrica from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().