Insurance with a deductible: a way out of the long term care insurance puzzle

Justina Klimaviciute and Pierre Pestieau

No 3158, LIDAM Reprints CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Long-term care (LTC) is one of the largest uninsured risks facing the elderly. In this paper, we first survey the standard causes of what has been dubbed the LTC insurance puzzle and then suggest that a possible way out of this puzzle is to make the reimbursement formula less threatening for those who fear a too long period of dependence. We adopt a reimbursement formula resting on Arrow’s theorem of the deductible, i.e. that it is optimal to focus insurance coverage on the states with largest expenditures. It implies full self-insurance for the first years of dependency followed by full insurance thereafter. We show that this result remains at work with ex post moral hazard.

Keywords: Long-term care insurance; Deductible; Arrow’s theorem; Reimbursement rule (search for similar items in EconPapers)
JEL-codes: G22 I13 J14 (search for similar items in EconPapers)
Pages: 11
Date: 2021-01-01
Note: In: Journal of Economics, 2020, 130, p. 297-307
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Journal Article: Insurance with a deductible: a way out of the long term care insurance puzzle (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvrp:3158

DOI: 10.1007/s00712-020-00700-0

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