Can Catastrophic Long-Term Care Insurance Policies Increase Private Insurance Coverage and Reduce Medicaid Expenditure?

Abstract

Abstract Using an inter-temporal optimization model of long-term care insurance purchase decisions, we evaluate catastrophic long-term care insurance policies that cover the tail risk of long-term care costs at affordable premiums. Under our baseline model, we show theoretically that introducing catastrophic policies will induce 11 percent of middle-income men and 3 percent of middle-income women to initiate private insurance coverage. As a result, Medicaid costs will be reduced by 0.20 percent and 0.19 percent for men and women, respectively.