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Long term care insurance puzzle

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  • Pierre Pestieau

    (CREPP - Center of Research in Public Economics and Population Economics - Université de Liège, CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique, CEPR - Center for Economic Policy Research - CEPR, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Grégory Ponthière

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

Abstract

The purpose of this paper is to examine the alternative explanatory factors of the so-called long term care insurance puzzle, namely the fact that so few people purchase a long term care insurance whereas this would seem to be a rational conduct given the high probability of dependence and the high costs of long term care. For that purpose, we survey various theoretical and empirical studies of the demand and supply of long term care insurance. We discuss the vicious circle in which the long term care insurance market is stuck: that market is thin because most people find the existing insurance products too expensive, and, at the same time, the products supplied by insurance companies are too expensive because of the thinness of the market. Moreover, we also show that, whereas some explanations of the puzzle involve a perfect rationality of agents on the LTC insurance market, others rely, on the contrary, on various behavioral imperfections.

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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00564862.

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Date of creation: Jun 2010
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Handle: RePEc:hal:psewpa:halshs-00564862

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Keywords: long term care insurance ; dependence ; annuity puzzle;

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References

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  1. Norton, Edward C., 2000. "Long-term care," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 17, pages 955-994 Elsevier.
  2. Sloan, Frank A & Norton, Edward C, 1997. "Adverse Selection, Bequests, Crowding Out, and Private Demand for Insurance: Evidence from the Long-Term Care Insurance Market," Journal of Risk and Uncertainty, Springer, vol. 15(3), pages 201-19, December.
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Blog mentions

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  1. Why do so few people buy long-term care insurance?
    by Economic Logician in Economic Logic on 2010-10-26 14:32:00
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Cited by:
  1. CREMER, Helmuth & PESTIEAU, Pierre & PONTHIERE, Grégory, 2012. "The economics of long-term care: a survey," CORE Discussion Papers 2012030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Cremer, Helmuth & Roeder, Kerstin, 2011. "Long-term care policy, myopia and redistribution," TSE Working Papers 12-314, Toulouse School of Economics (TSE), revised May 2012.
  3. repec:hal:wpaper:halshs-00622385 is not listed on IDEAS
  4. Grégory Ponthière, 2011. "Long-Term Care, Altruism and Socialization," PSE Working Papers halshs-00622385, HAL.
  5. DE DONDER, Philippe & LEROUX, Marie-Louise, 2013. "Behavioral biases and long term care insurance: A political economy approach," CORE Discussion Papers 2013020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Mireille Elbaum, 2011. "Le financement de la protection sociale : quelles perspectives au-delà des solutions miracles," Documents de Travail de l'OFCE 2011-27, Observatoire Francais des Conjonctures Economiques (OFCE).

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