Private Long-term Care Insurance 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.

Complements or Substitutes? Young Germans’ Experience and Expectations with Financing Sources for Long-Term Care

ABSTRACT Financing long-term care is a growing challenge in aging societies. To address this challenge, Germany created public long-term care insurance (DPV) more than 25 years ago. Germans still need to prepare for their own care throughout their life course to supplement public insurance. This study presents descriptive statistics and multivariate regression analysis to examine young Germans’ experiences and expectations of the relationship between the DPV and private financing sources. We base our analysis on a proprietary data set of young Germans (16–39 years old) that oversamples those with caregiving experience and East Germans. We find that public long-term care insurance is a substitute for rather than a complement to other financing sources. Specifically, many young Germans do not count on public long-term care insurance to finance care. Instead, they see private funding sources as substitutes for long-term care insurance. Those who count on private long-term care insurance are between 48 and 70% less likely to count on DPV benefits. Experience with care increases the likelihood of young Germans expecting future public benefits by factor of six or 18, depending on the specific care familiarity. Young Germans are also more likely to count on future generations to support their own care than they expect themselves to support the care of their parents through the DPV. Given that the DPV provides basic universal insurance that requires some complementary private income sources, our findings suggest that young Germans, who will need to build some of these income sources throughout their careers, are underestimating the value of the DPV and overestimating their own ability to pay for long-term care. Policymakers will need to reduce the political risks to the DPV and increase young Germans’ savings over the life-course to address this imbalance.

Private Long-Term Care Insurance Ownership in a Simple Choice Environment: Does Financial Literacy Matter?

ABSTRACT We present new evidence on financial literacy and private long-term care insurance (LTCI) ownership in Singapore, where policy intervention has resulted in a highly standardized marketplace with fixed benefit terms and premiums schedules. Using data from the 2018 Singapore Life Panel (N = 6,151), we document that almost half of the adults aged 50 and above in our large community-based sample have private LTCI coverage. We find that that financial literacy significantly increases LTCI demand, notwithstanding a simple choice environment where consumers cannot customize their policies. Furthermore, the importance of financial literacy was borne out through the knowledge aspect rather than financial skills/experience aspects; specifically, each financial knowledge question answered correctly increased the probability of LTCI ownership by 4.4% points on average. Tests for endogeneity between literacy and LTCI ownership reveal no endogeneity bias in the non-instrumented estimates. Overall, these findings underscore these importance of promoting financial education and literacy among consumers in LTCI markets, especially since financial knowledge is expected to play an even more salient role in markets with little or no product standardization.

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.

Prospect theory and insurance demand: Empirical evidence on the role of loss aversion

This paper empirically tests if prospect theory's loss aversion can explain an individual's real-world insurance take-up behavior. Using American Life Panel data, this paper shows that loss-averse individuals have a significantly lower ownership rate of private long-term care insurance and supplemental disability insurance than other sample populations. The results are consistent with the prospect theory, which predicts that loss-aversion may decrease insurance demand if an individual's reference points are “the status quo wealth level when they do not engage in insurance contracts.” This paper also provides suggestive evidence that reference points are important in determining the relationship between loss-aversion and insurance ownership by showing that the negative association is not observed in the take-up of auto insurance, which is one of the most widely held insurance products and often regarded as a basic necessity.

Cognitive abilities and long-term care insurance: evidence from European data

Long-term care (LTC) is one of the largest financial risks faced by the elderly. Yet, it remains largely uninsured. This paper explores the relationship between cognitive abilities and private voluntary or supplementary long-term care insurance (LTCI) ownership as another possible factor contributing to the small size of the market. We used data from a European panel survey, which collects detailed information on both private insurance coverage and three indicators of cognitive abilities: numeracy, verbal fluency and memory skills. We find that memory, but not numeracy or verbal fluency, has a positive and statistically significant effect on the probability of owning private LTCI above and beyond other characteristics such as general education, family, risk factors, income and wealth. Fixed effects estimates show that a one-standard deviation increase in the recall measure score is associated with a 0.5 percentage point increase in the probability of holding insurance for the baseline sample and a 1 percentage point increase among the younger cohort. The findings suggest that cognitive limitations in LTCI decision-making are likely to be linked to information processing skills and can be an important factor affecting the expansion of the market that need to be taken into consideration in policy design.

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.

Determinants of Demand for Private Long-Term Care Insurance (Empirical Evidence from Poland)

The main aim of the article is to evaluate determinants of demand for private long-term care insurance in Poland. Since this type of insurance is not (yet) offered on the market, the demand was examined through a survey in which respondents declared their willingness to purchase it. From the obtained results, it can be concluded that Poles declare a high propensity for private protection in the event of dependence. The vast majority (almost two-thirds) of the respondents were interested in purchasing long-term care insurance, while only one in sixteen respondents showed no such interest. Factors that predominantly determine the willingness to buy are as follows: individual foresight, knowledge about the costs of long-term care, preferences regarding methods of financing care, having children, and the level of education.

Inhomogenous risk exposure in dual insurance system: selection effects in Germany\u2019s long-term care plans

Long-term care (LTC) gains attention in ageing societies. Making LTC insurance affordable for the wide public is a primary objective of politics and insurance companies alike. Germany’s LTC insurance, introduced 25 years ago, is split in two branches, a private and a public one. The per-capita claims diverge in the two systems. This study is dedicated to explain the difference in average claims seen in the German LTC system. Based on publicly available claims data, we decompose the contributions to the difference in claims and we quantify the advantage gained by the private LTC insurance through selection of low-risk enrollees. Furthermore, the study provides simulation results of the development of the claims’ differences over the next 40 years. In order to level off the claims differences, transfer payments from the private to the public LTC insurance have been suggested as a matter of fair risk sharing. However, it turns out that such a payment scheme does not necessarily work in favor of the public system troughout the next 40 years. Therefore, it seems unlikely that such a financial transfer is able to substantially ease the public LTC insurance’s financial burden.

Long-Term Care Partnership Effects on Medicaid and Private Insurance

Can the expansion of Medicaid, a means-tested health and long-term care insurance, be slowed down by incentivising the purchase of private long-term care insurance (LTCI)? We study the implementation of the long-term care insurance partnership (LTCIP) program, a joint federal and state-level program that intended to promote LTCI coverage. Drawing on a difference-in-differences (DD) design we study the effect of the rollout of the LTCIP program between 2005 and 2016 on both LTCI uptake and Medicaid eligibility, and we estimate the effect on Medicaid savings. Drawing on a difference-in-differences (DD) design, we find that, unlike previous estimates, the introduction of the LTCIP does significantly increase LTCI coverage and reduce the uptake of Medicaid. The effects are driven by the introduction of LTCIP in states after 2010. We estimate that the adoption of LTCIP has given rise to an average Medicaid saving of $36 for every 65-year-old. This suggests scope for LTCI arrangements to reduce Medicaid spending.

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.

Impact of Health Systems on Life Expectancy in Taiwan, Singapore, and the USA: Similarities and Differences

Like Singapore, Taiwan has universal health care and universal long-term care (LTC). The USA has neither. Those who need LTC in the US pay out of pocket, buy private LTC insurance or spend down to qualify for Medicaid; there are inherent issues related to cost and quality. For example, nursing home care costs over US$100,000/year and only about 8% of the population has private LTC insurance. Many people become impoverished or struggle financially to qualify for Medicaid. Conversely, Taiwan has universal LTC insurance that offers comprehensive services for all, but it is relatively new and its impact remains to be seen. Similarities and differences related to LTC quality indicators such as functional independence, and the NCQA quality measures (e.g., effectiveness of care, access/availability) in Taiwan, Singapore and the US will be presented. The results of this comparison can inform policy makers and stakeholders leading to best practices. Part of a symposium sponsored by International Comparisons of Healthy Aging Interest Group.

Stepping Into the Breach of Federal Inaction: Reforming the Financing of Long-Term Services and Supports

The growing need for long-term services and supports (LTSS) poses significant challenges to both individuals and government. For the current cohort of adults aged 65 years and over, it is estimated that the total cost of LTSS (including the value of care provided by family members) will exceed $6.3 trillion. These staggering national costs are driven by the large and rapidly growing number of individuals in need, their longer life expectancies, significant caregiver shortages, and the high costs of care. Neither private health insurance nor Medicare cover these expenses; Medicaid serves as a safety net for individuals once they have impoverished themselves. With limited to no retirement savings, most older adults cannot cover this liability. Moreover, few people have private long-term care insurance to cover this risk and the private market for such insurance is troubled. Thus, the ability to pay for LTSS is sharply bifurcated: people must be either be rich enough to pay out-of-pocket, or poor enough to qualify for Medicaid. However, even Medicaid-eligible individuals may not be able access needed care due to the waiting lists common in Medicaid. The purpose of this symposium is to document the continuing failure to tackle this problem by the federal government, and to review state and national proposals and initiatives aimed at filling the void left by federal inaction. Marc Cohen and Edward Miller will serve as presenters and chair and co-chair, respectively; Eileen Tell will also present; Judy Feder will serve as the discussant.

Review of evolution of the public long-term care insurance (LTCI) system in different countries: influence and challenge

BackgroundThe growing demand for LTC (Long-term care) services for disabled elderly has become a daunting task for countries worldwide, especially China, where population aging is particularly severe. According to CSY (China Statistical Yearbook,2019), the elderly aged 65 or above has reached 167 million in 2018, and the number of disabled elderly is as high as 54%. Germany and other countries have alleviated the crisis by promoting the public LTCI (Long-Term Care Insurance) system since the 1990s, while China’s public LTCI system formal pilot only started in 2016. Therefore, the development of the public LTCI system has gradually become a hot topic for scholars in various countries, including China.MethodsThis review has been systematically sorted the existing related literature to discuss the development of public LTCI (Long-Term Care Insurance)system form four aspects, namely, the comparison of public LTCI systems in different countries, the influence of public LTCI, challenge of public LTCI, and the relationship between public LTCI and private LTCI. We searched some databases including Web of Science Core Collection, Medline, SCOPUS, EBSCO, EMBASE, ProQuest and PubMed from January 2008 to September 2020. The quality of 38 quantitative and 21 qualitative articles was evaluated using the CASP(Critical Appraisal Skills Programme) critical evaluation checklist.ResultsThe review systematically examines the development of public LTCI system from four aspects, namely, the comparison of public LTCI systems in different countries, the influence of public LTCI, the challenge of public LTCI, and the relationship between public LTCI and private LTCI. For example, LTCI has a positive effect on the health and life quality of the disabled elderly. However, the role of LTCI in alleviating the financial burden on families with the disabled elderly may be limited.ConclusionSome policy implications on the future development of China’s LTCI system can be obtained. For example, the government should fully consider the constraints such as price rise, the elderly disability rate, and the substantial economic burden. It also can strengthen the effective combination of public LTCI and private LTCI. It does not only help to expand the space for its theoretical research but also to learn the experiences in the practice of the LTCI system in various countries around the world. It will significantly help the smooth development and further promote the in-depth reform of the LTCI system in China.

Role of Private Long-Term Care Insurance in Financial Sustainability for an Aging Society

This work analyzes and quantifies the significance of private long-term care insurance for the elderly in protecting families from the increased expenses derived from dependency. We propose an economic and financial model for consumption and income deficit evolution. Survival/dependency are modeled by a Markov process with stochastic simulation techniques to obtain random variable distributions. Based on the Spanish survey of household finances data, Spanish families are classified using a cluster analysis for the wealth decumulation period. The conclusion is that, for a generic family, hiring long-term care insurance causes a significant reduction in the probability of lack of liquidity, the mean first time of lack of liquidity (if it occurs), and the mean present value of overall liquidity needs. It is also observed that there are important differences between these impacts on different groups of families. These results show that hiring long-term care insurance would considerably lower financial problems in the decumulation period.

The effect of long-term care public benefits and insurance on informal care from outside the household: empirical evidence from Italy and Spain

This article uses cross-sectional data from the Survey of Health, Ageing, and Retirement in Europe (SHARE) database to test the effect of both long-term care (LTC) public benefits and insurance on the receipt of informal care provided by family members living outside the household in Italy and Spain. The choice of Italy and Spain comes from the fact that informal care is rather similar in these two countries while their respective public LTC financing systems are different. Our results support the hypothesis of LTC public support decreasing the receipt of informal care for Spain while reject it for Italy. They tend to confirm that the effect of public benefits on informal care depends on the typology of public coverage for LTC whereby access to proportional benefits negatively influences informal care receipt while access to cash benefits exerts a positive effect. Our results also suggest that private LTC insurance complements the public LTC financing system in place.

Comparison of the Measurement of Long-Term Care Costs between China and Other Countries: A Systematic Review of the Last Decade.

Background: The rapid aging of populations in some countries has led to a growing number of the disabled elderly, creating a huge need for Long-Term Care (LTC) and meeting its costs, which is a heavy economic burden on the families of the disabled elderly and governments. Therefore, the measurement of Long-Term Care (LTC) costs has become an important basis for the government to formulate Long-Term Care (LTC) policies, and academic research on Long-Term Care (LTC) costs is also in the process of continuous development and deepening. Methods: This is a systematic review that aims to examine the evidence published in the last decade (2010–2019) regarding the comparison of the measurement of Long-Term Care (LTC) costs between China and other countries. Results: Eighteen Chinese studies and 17 other countries’ studies were included in this review. Most Chinese scholars estimated long-term care costs based on the degree of disability among the disabled elderly. However, the studies of European and American countries are more and more in-depth and comprehensive, and more detailed regarding the post-care cost of specific diseases, such as Parkinson’s disease, Alzheimer’s disease, and epilepsy. Conclusion: In future academic research, we should fully consider the human value of long-term care providers and further study the differences in the long-term care costs of different chronic diseases. In China’s future policymaking, according to the experience of Germany, Sweden, and other countries, it may be an effective way to develop private long-term care insurance and realize the effective complementarity between private long-term care insurance and public long-term care insurance (LTCI).

Innovation in long-term care insurance: Joint contracts for mitigating relational moral hazard

A recent innovation is joint long-term care (LTC) insurance policies covering two related individuals. This contribution purports to find out whether they have the potential of mitigating relational moral hazard (RMH) effects. Intra-family moral hazard has been suspected of being responsible for the sluggish development of private LTC insurance. The parent, anticipating the informal care provided by a family member LTC, is tempted to buy less LTC coverage. The family member (or more generally, the partner of a senior person), knowing that the bequest is protected by LTC insurance, has less incentive to provide informal care. Since a joint LTC policy makes senior and partner decide simultaneously rather than sequentially, it may lead to a partial internalization of RMH effects by turning coverage purchased by the senior and informal care provided by the partner from strategic substitutes into strategic complements under certain conditions.