Long-term Care Insurance Market Research Articles

Who can see it coming? Demand‐side selection in long‐term care insurance related to decision‐making abilities

AbstractDespite the growing demand for long‐term care (LTC), the uptake of private LTC insurance (LTCI) is low and even declining in the United States. One reason is the complexity of LTCI decisions. Researchers have therefore suggested to support decision‐making abilities. This paper shows, however, that such support would not unambiguously enhance functioning of the LTCI market. We analyze whether selection arises from two correlated but different decision‐making abilities at old age, education and numeracy, and interactions thereof with private information. Using historical data from the Health and Retirement Survey we find that education generates adverse selection, which is only partially offset by advantageous selection due to numeracy. In addition, individuals with greater decision‐making abilities make better LTCI choices, amplifying selection by education and numeracy. This points at a trade‐off between decision simplicity and selection in insurance markets and suggests other steps are needed to enhance the performance of private LTCI markets.

The Effect of Political Frictions on the Pricing and Supply of Insurance

Abstract Political frictions significantly affect both pricing and supply in the long-term care insurance (LTCI) market. Comparing the same insurer’s requests submitted for the same policy at the same time to different state regulators, we find that they are 13% more likely to be approved and receive 4% more of the requested amount after an election year. Over time, regulatory pushback on premium increase requests leads to persistently lower cash reserves and increases the probability of company dropout. An insurer who receives one-standard-deviation less of their requested increase is 20% more likely to leave the market next year.

On potential information asymmetries in long-term care insurance: A simulation study using data from Switzerland

The long-term care insurance (LTCI) market in Switzerland is still in a very early development stage. In this work, we make use of a representative sample of the Swiss population to simulate the likely effects of previously discovered information asymmetries in the LTCI market. By resorting to LTCI preferences of potential customers, and using Monte Carlo simulations, we provide estimations of the expected probability and duration of dependence indicators. Thereby, we compare the frequency and severity of the sub-population that has shown interest in LTCI with the rest in different mortality scenarios. While in the Swiss demographic context, individuals have a high probability to experience loss of autonomy in their lifetime, we do not find evidence to believe that those interested in LTCI coverage are so based on privileged information about them being at greater risk. In fact, we discover that most people are not aware of their own risk to lose autonomy, which makes potential adverse selection in the LTCI market rather difficult.

Willingness to Purchase Hypothetical Private Long-Term Care Insurance Plans in a Super-ageing Society: Evidence from Hong Kong

ABSTRACT Despite the soaring demand for long-term care (LTC) services in aging societies, dedicated risk-pooling mechanisms are largely absent. Private insurance has been advocated but the market remains small. This study seeks to unravel this paradox through an empirical study in Hong Kong, a super-aging society. We analyzed middle-aged individuals’ willingness to purchase hypothetical private LTC insurance plans derived from a discrete choice experiment. A survey was conducted in 2020 and sampled 1,105 respondents. We noted a fairly encouraging level of acceptance but also found clear barriers toward potential purchase. The desire for self-sufficiency and preference for formal care powerfully increased individuals’ interest. Cognitive difficulty, habitual adherence to out-of-pocket payment, and unfamiliarity with the LTC insurance market reduced such interest. We explained the results with reference to the changing social dynamics and drew policy implications for LTC reforms in Hong Kong and beyond.

Functional disability with systematic trends and uncertainty: a comparison between China and the US

AbstractChina and the US are two contrasting countries in terms of functional disability and long-term care. China is experiencing declining family support for long-term care and developing private long-term care insurance. The US has a more developed public aged care system and private long-term care insurance market than China. Changes in the demand for long-term care are driven by the levels, trends and uncertainty in mortality and functional disability. To understand the future potential demand for long-term care, we compare mortality and functional disability experiences in China and the US, using a multi-state latent factor intensity model with time trends and systematic uncertainty in transition rates. We estimate the model with the Chinese Longitudinal Healthy Longevity Survey (CLHLS) and the US Health and Retirement Study (HRS) data. The estimation results show that if trends continue, both countries will experience longevity improvement with morbidity compression and a declining proportion of the older population with functional disability. Although the elderly Chinese have a shorter estimated life expectancy, they are expected to spend a smaller proportion of their future lifetime functionally disabled than the elderly Americans. Systematic uncertainty is shown to be significant in future trends in disability rates and our model estimates higher uncertainty in trends for the Chinese elderly, especially for urban residents.

An Equilibrium Analysis of the Long-Term Care Insurance Market

Abstract Informal care provided by adult children substitutes for formal long-term care services. However, information about children is not used in pricing long-term care insurance which pays only for formal care. I start by providing descriptive evidence that private information about children’s informal care likelihood results in adverse selection: the market attracts a disproportionate number of individuals who face higher formal care utilization risk due to a lower probability of receiving care from their children. To quantify the welfare consequence of adverse selection, I develop and estimate a dynamic intergenerational model featuring long-term care insurance, savings, informal care provision, and employment choices. Based on the estimated equilibrium insurance market framework, I show that using information about children in pricing insurance contracts reduces adverse selection and results in the average welfare gain of $6,200 per family. Using the non-cooperative feature of the model, I also quantify to what extent parents forgo long-term care insurance to avoid diminishing children’s informal care incentive.

Functional Disability with Systematic Trends and Uncertainty: A Comparison between China and the U.S.

China and the U.S. are two contrasting countries in terms of functional disability and long-term care. China is experiencing declining family support for long-term care and developing private long-term care insurance. The U.S. has a more developed public aged care system and private long-term care insurance market than China. Changes in the demand for long-term care are driven by the levels, trends and uncertainty in mortality and functional disability. To understand the future potential demand for long-term care, we compare mortality and functional disability experiences in China and the U.S., using a multi-state latent factor intensity model with time trends and systematic uncertainty in transition rates. We estimate the model with the Chinese Longitudinal Healthy Longevity Survey (CLHLS) and the U.S. Health and Retirement Study (HRS) data. The estimation results show that if trends continue, both countries will experience longevity improvement with morbidity compression and a declining proportion of the older population with functional disability. Although the elderly Chinese have a shorter estimated life expectancy, they are expected to spend a smaller proportion of their future lifetime functionally disabled than the elderly Americans. Systematic uncertainty is shown to be significant in future trends in disability rates and our model estimates higher uncertainty in trends for the Chinese elderly, especially for urban residents.

Private Long-Term Care Insurance Decision: The Role of Income, Risk Propensity, Personality, and Life Experience.

The rising aging population contributes to increased caregiver burden and a greater need for long-term care services, thereby posing stronger financial burden. The current study aimed to examine the effect of income, risk-taking propensity, personality traits, and life experience on the ownership of and intention to own private long-term care insurance (LTCI). Primary data were collected from 1373 registered nurses with a minimum of two years of full-time working experience. Multinomial logistic regression was used to examine the relationships between ownership of LTCI and personal discretionary income, risk propensity, openness to experience, and life experience. Personal discretionary income was a crucial positive indicator in predicting ownership of LTCI. Higher risk-taking propensity was found to be negatively related to both currently own and future intention to own private LTCI. Participants who currently live with elders and who agree to caregiving responsibilities with government-provided cash allowance showed future intention to purchase LTCI. Little evidence was found for an association between life experience and future intention to own LTCI. Income, risk-taking propensity, and personality traits differ in their impact on ownership of and future intention to own LTCI. Our results provide policy makers with a better understanding of the forces driving demand in the private LTCI market, as well as the accompanying implications for public LTCI.

Preferences for private long-term care insurance products in a super-ageing society: A discrete choice experiment in Hong Kong.

There is a stark contrast between rising long-term care (LTC) demands and limited financing capacity in many ageing societies. Despite the theoretical potential of private insurance in LTC financing reforms, the reality is that the market remains remarkably underdeveloped. This study adopts a novel two-phase approach to quantitatively examine the market demand for private long-term care insurance (LTCI) in Hong Kong, one of the world's super-ageing societies. In order to examine people's preferences regarding private LTCI in Hong Kong, which has been exploring alternative LTC financing mechanisms to relieve the overburdened public system, we conducted a discrete choice experiment (DCE) in 2019 to elicit the preferences of a representative sample of 410 middle-aged adults. At first, we used data from the US National Longterm Care Survey to perform an actuarial projection for Hong Kong. In the first phase, we computed the indicative premiums based on various attributes of hypothetical private LTCI products. Undertaken in the second phase and using two econometric techniques, the DCE suggested that the most preferred hypothetical LTCI product in Hong Kong was associated with the following features: 1) a monthly benefit level of HK$20,000 or HK$25,000, 2) 3% inflation protection, and 3) 15 years of contribution. These attributes led to a monthly premium of HK$1237 (US$160)/HK$1546 (US$200) for men and HK$2150 (US$278)/HK$2687 (US$348) for women. Furthermore, we also found that the preference for LTCI products varied across people with different socioeconomic and health characteristics. These insights could inform initial market segmentation, LTCI product design, and targeted marketing in the future. This paper concludes with cautious optimism regarding the market demand for private LTCI in Hong Kong, and recommends concrete policy instruments to nurture the LTCI market, including information campaign, premium subsidies, and tax benefits.

Social Care Insurance: A Review of Psychological Influences on Uptake.

There is not currently a developed market for long-term social care insurance in England. Policymakers are interested in what behavioral influences should be considered in the design of insurance products for long-term social care to increase uptake. This review describes the behavioral factors that might be barriers or facilitators of uptake and could be considered in future policy solutions. Behavioral factors include psychological capabilities (knowledge and understanding), which are important given that public knowledge on this topic is poor. Psychological motivations (reflective or automatic biases) may also influence consumers' decision-making. Cultural factors such as language barriers and family norms for caring are considered. Overall, the authors demonstrate processes by which the uptake of long-term social care insurance can be encouraged, pertinent to policymakers.

Pensions, annuities, and long-term care insurance: on the impact of risk screening

We examine the interaction between an individual’s pension scheme and her purchase of long-term care insurance in a context where individuals learn their longevity risk type over time. We show that the structure of an individual’s retirement pension scheme is an important component of her selection of long-term care insurance coverage. When individuals purchase their retirement product and long-term care insurance after learning their risk type, low-risk individuals signal their type solely on the retirement product market, which allows all individuals, irrespective of their risk type, to perfectly insure against the incidence of long-term care shocks. When individuals purchase their retirement product before learning their risk type, then the retirement product will pool all risk types, which prevents any signaling in that market. If individuals still learn their type before purchasing long-term care insurance, then having to signal their type in the long-term care insurance market considerably reduces the take-up rate for such protection for all risk types.

Does COVID-2019 have an Impact on the Purchase Intention of Commercial Long-Term Care Insurance among the Elderly in China?

Purpose: As an important measure to alleviate long-term care (LTC) costs for the disabled due to the aging of the population, long-term care insurance (LTCI) system has been paid more attention in China. In addition to the government-led public LTCI system that has been piloted in cities such as Qingdao, Chongqing and Shanghai, health insurers such as the China Life Insurance Company are also experimenting with various types of commercial LTCI in the private market. However, the commercial LTCI market is developing very slowly due to public awareness and other reasons. On the other hand, COVID-2019 has had an impact on the cognition of the importance of long-term care for the elderly due to the fact that the death cases of COVID-2019 have been mainly concentrated in the elderly population with chronic diseases such as hypertension. Therefore, the purpose of this study is to explore the differences in the purchase intention of commercial LTCI among the elderly in two different periods: before and after the outbreak of COVID-2019. Methods: By using the Andersen behavioral model and two investigations in two different periods before and after the outbreak of COVID-2019, this study explores the impacts of COVID-2019 on the purchase intention of commercial LTCI. Results: Some significant discoveries were found. For example, 25.8% of interviewees showed purchase intention in LTCI in the time before the COVID-2019 outbreak, while this proportion increased to 37.6% after the COVID-2019 outbreak. People who were younger (OR = 2.128, before COVID-2019; OR = 1.875, after COVID-2019) or who had more education (OR = 1.502, before COVID-2019; OR = 2.218, after COVID-2019) were more interested in commercial LTCI. Conclusion: This study shows that COVID-2019 has had an obvious impact on the purchase intention of commercial LTCI, which provides some enlightenment for China to improve the LTCI system in the future, especially to accelerate the development of commercial LTCI. For example, it is essential to promote the importance of long-term care among the elderly in a focused and targeted way. In terms of the key target audience, it can be developed gradually from the groups with higher education levels and the middle elderly aged 45–64 years old.

On the value of Medicaid in providing access to long‐term care

AbstractThe crowding‐out by Medicaid has been identified as a possible reason for the low demand for private long‐term care (LTC) insurance in the USA. I extend the previous analysis to the case in which budget constraints inhibit access to care. This reduces the role of the implicit tax and fundamentally changes the nature, scope, and welfare implications of crowding‐out. It suggests a large value of Medicaid that a private insurance market is unable to offer due to a dilemma prevalent in—but not exclusive to—the market for LTC insurance: a dilemma between access and affordability.

The Effect of Political Frictions on Long Term Care Insurance

We document that political frictions significantly affect both pricing and supply in the long-term care insurance (LTCI) market. Comparing insurers' requests for premium increases submitted in the same year and for the same policy to different state regulators, we find that they are 7.7% more likely to be approved and receive 4.4% more of the requested amount after an election year. Over time, regulatory pushback on premium increase requests can dampen cash flows and increase the probability of company dropout. Insurers who receive one standard deviation less of their requested increase are 7.8% more likely to leave the market.

Annuities, long-term care insurance, and insurer solvency

The market for long-term care (LTC) insurance is much smaller than economic theory predicts. One reason is that premium markups are prohibitively high. We aim at quantifying markups for LTC insurance due to mortality and morbidity risk. To this end, we model a shareholder value maximising insurance company that is subject to solvency regulation. Because liabilities from LTC insurance (which depend on future morbidity and mortality) are more volatile than liabilities from annuities (which only depend on future mortality), capital provisions to ensure compliance with regulatory solvency requirements are higher if an insurance company offers LTC insurance instead of annuities. At the same time, a higher volatility in the LTC insurance segment also implies a higher expected payoff to the insurance company’s shareholders. To quantify which effect prevails and which product policy is optimal, we conduct an empirically calibrated simulation study with stochastic mortality and LTC needs. Our results show that offering LTC insurance increases the upside potential to shareholders, but that effect is more than offset by a higher need for external capital. Consequently, if shareholders are to accept an LTC insurance segment, holders of an LTC insurance policy need to pay considerable markups. The more LTC insurance contracts the insurer has sold, the higher the markups.

Moral hazard under zero price policy: evidence from Japanese long-term care claims data.

We evaluate the presence and magnitude of moral hazard in Japan's public long-term care insurance (LTCI) market. Using monthly LTCI claim records from January 2006 to December 2015 linked to concurrent death records, we construct a sample by propensity score matching insured individuals who co-pay 10% of their fees to those with no required copayments, and we implement fixed-effect estimations. We find that a ten-percentage-point reduction in the copayment rate increases monthly costs by 10.2 thousand yen, corresponding to a price elasticity of about - 0.1. Insured individuals with no copayments tend to use more services and have more utilization days than those with copayments do. Furthermore, we find that insured individuals who die from cerebral (myocardial) infarction increase their service use more in response to a reduction in the copayment rate than those who die from senility do, indicating a positive association between ex-ante health risks and ex-post service use. We verify that a cost-sharing adjustment is a valid solution for soaring LTCI expenditures. These findings could provide broad implications for the rapidly aging world.

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

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.

Practical Applications of Improving the System of Financing Long-Term Services and Supports for Older Americans

Practical Applications Summary In Improving the System of Financing Long-Term Services and Supports for Older Americans, from the Summer 2017 issue of The Journal of Retirement, authors Mark Warshawsky and Ross Marchand (then both with the Mercatus Center at George Mason University) explore possible weaknesses of the existing framework under which seniors can qualify for long-term services and supports (“LTSS”) under Medicaid. They explain that aspects of the eligibility criteria in certain states allow seniors to draw on the Medicaid resources even if they have sufficient resources to pay for their care. The authors also discuss how states with mandates to recover assets from deceased Medicaid recipients have a poor track record of doing so. The authors assert that the market for long-term care insurance (“LTCI”) is being depressed by the ability of seniors to qualify for Medicaid LTSS benefits even when they can afford private LTCI. The authors offer several policy recommendations, including tightening Medicaid eligibility standards, narrowing the “primary residence” exclusion, and implementing a more robust estate recovery scheme.

What Affects the Demand for Long-Term Care Insurance? A Study of Middle-Aged and Older Adults in Hong Kong.

Despite the potential of private insurance in financing long-term care (LTC), its coverage remains rather limited. This study is built on a comprehensive framework to examine the demand for LTC insurance in Hong Kong, a rapidly aging Asian society. A telephone survey was conducted in 2016 to collect data that formed a sample of 1,474 middle-aged and older adults. Multivariate analysis reveals more nuanced characteristics of Hong Kong middle-aged and older adults who tend to show a demand for LTC insurance, including: (a) being younger, better educated, relatively high status, and financially literate; (b) living with children but reluctant to be a burden on the family; (c) being in a better financial situation and able to afford premiums; and (d) anticipation of LTC needs and dependence, and a preference for formal care. This study offers preliminary evidence to understand the demand structure of the LTC insurance market in an Asian society.

Selection Behavior in the Market for Private Complementary Long-Term Care Insurance in Germany

Using data from an insurance company, we examine the selection behaviour in the German market for private complementary long-term care insurance (CompLTCI). We provide a detailed analysis of the holding, the uptake and the lapse of CompLTCI policies. The analysis identifies the preference for insurance, the occupation as well as the residential location as unused observables. Our findings suggest that the socioeconomic status is a robust factor in explaining the uptake and lapse behaviour in the German market for CompLTCI. More generally, our findings indicate that the mere identification of unused observables is insufficient to derive robust conclusions about the redistribution between different risk types in insurance markets with long-term policies.