Long-Term Care Insurance, Savings, and Strategic Bequests

Oliver Fabel and Daniela Georgus

Chapter 5 in European Economies in Transition, 2000, pp 111-130 from Palgrave Macmillan

Abstract: Abstract This study reviews the theoretical arguments put forth to explain market failure in the provision of private long-term care (LTC) insurance and describes the relevant stylized facts as they apply to Germany. It then develops a simple principal-agent model of intra-family strategic bequest/care exchanges. Within this framework the risk-relief effect associated with mandatory LTC-insurance — as introduced in Germany in 1995 — is seen to induce a decrease in the private savings of parents. Very likely total accumulated wealth, including insurance claims, is also depressed. At the same time, strategic bequest/care exchanges will be observed less frequently over all consumer groups and the level of expected bequests tends to be decreased as well. Interestingly however, care for parents who are LTC patients will become more common.

Keywords: European Economy; Private Saving; Corner Solution; Optimal Insurance Coverage; Bequest Motive (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-28910-9_5

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DOI: 10.1057/9780230289109_5

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