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Long-Term Care Insurance: Information Frictions and Selection

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  • M. Martin Boyer
  • Philippe De Donder
  • Claude Fluet
  • Marie-Louise Leroux
  • Pierre-Carl Michaud

Abstract

This paper conducts a stated-choice experiment where respondents are asked to rate various insurance products aimed to protect against financial risks associated with long-term care needs. Using exogenous variation in prices from the survey design and individual cost estimates, these stated-choice probabilities are used to predict market equilibrium for long-term care insurance. Our results are twofold. First, information frictions are pervasive. Second, measuring the welfare losses associated with frictions in a framework that also allows for selection, it is found that information frictions reduce equilibrium take-up and lead to large welfare losses, while selection plays little role.

Suggested Citation

  • M. Martin Boyer & Philippe De Donder & Claude Fluet & Marie-Louise Leroux & Pierre-Carl Michaud, 2020. "Long-Term Care Insurance: Information Frictions and Selection," American Economic Journal: Economic Policy, American Economic Association, vol. 12(3), pages 134-169, August.
  • Handle: RePEc:aea:aejpol:v:12:y:2020:i:3:p:134-69
    DOI: 10.1257/pol.20180227
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Chris Sampson’s journal round-up for 24th August 2020
      by Chris Sampson in The Academic Health Economists' Blog on 2020-08-24 11:00:07

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    3. Romuald Meango, 2023. "Identification of Ex Ante Returns Using Elicited Choice Probabilities," Papers 2303.03009, arXiv.org.
    4. Philippe De Donder & Marie-Louise Leroux & François Salanié, 2022. "Advantageous Selection Without Moral Hazard (with an Application to Life Care Annuities)," CESifo Working Paper Series 9764, CESifo.
    5. Philippe De Donder & Marie-Louise Leroux & François Salanié, 2023. "Advantageous selection without moral hazard," Journal of Risk and Uncertainty, Springer, vol. 67(1), pages 21-43, August.
    6. Achou, Bertrand & De Donder, Philippe & Glenzer, Franca & Lee, Minjoon & Leroux, Marie-Louise, 2022. "Nursing home aversion post-pandemic: Implications for savings and long-term care policy," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 1-21.
    7. Marie-Louise Leroux & Pierre Pestieau & Gregory Ponthiere, 2021. "Fair long-term care insurance," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 57(3), pages 503-533, October.
    8. Liran Einav & Amy Finkelstein, 2023. "Empirical analyses of selection and welfare in insurance markets: a self-indulgent survey," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 48(2), pages 167-191, September.
    9. Nicholas-James Clavet & Réjean Hébert & Pierre-Carl Michaud & Julien Navaux, 2022. "The future of long-term care in Quebec: what are the cost savings from a realistic shift towards more home care?," CIRANO Working Papers 2022s-09, CIRANO.
    10. Zheng, Jiakun, 2020. "Optimal insurance design under narrow framing," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 596-607.
    11. Franca Glenzer & Pierre-Carl Michaud & Stefan Staubli, 2023. "Frames, Incentives, and Education: Effectiveness of Interventions to Delay Public Pension Claiming," CIRANO Working Papers 2023s-05, CIRANO.
    12. Romuald Méango & François Poinas, 2023. "The (Option-) Value of Overstaying," CESifo Working Paper Series 10536, CESifo.
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    14. de Bresser, Jochem & Knoef, Marike & van Ooijen, Raun, 2022. "Preferences for in-kind and in-cash home care insurance," Journal of Health Economics, Elsevier, vol. 84(C).
    15. Romauld Méango, 2023. "Identification of ex ante returns using elicited choice probabilities," Economics Series Working Papers 1007, University of Oxford, Department of Economics.
    16. Romuald Meango, 2023. "Using Probabilistic Stated Preference Analyses to Understand Actual Choices," Papers 2307.13966, arXiv.org.
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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