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Long-Term Care Insurance: Knowledge Barriers, Risk Perception and Adverse Selection

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

Abstract

We conduct 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 objective risks computed from a dynamic microsimulation model, these stated-choice probabilities are used to predict market equilibrium for long-term care insurance using the framework developped by Einav et al. (2010). We investigate in turn causes for the low observed take-up of long-term care insurance in Canada despite substantial residual out-of-pocket financial risk. We first find that awareness and knowledge of the product is low in the population: 44% of respondents who do not have long-term care insurance were never offered this type of insurance while overall 31% report no knowledge of the product. Although we find evidence of adverse selection, results suggest it plays a minimal role in limiting take-up. On the demand side, once respondents have been made aware of the risks, we find that demand remains low, in part because of misperceptions of risk, lack of bequest motive and home ownership which may act as a substitute.

Suggested Citation

  • Martin Boyer & Philippe De Donder & Claude Fluet & Marie-Louise Leroux & Pierre-Carl Michaud, 2017. "Long-Term Care Insurance: Knowledge Barriers, Risk Perception and Adverse Selection," CESifo Working Paper Series 6698, CESifo.
  • Handle: RePEc:ces:ceswps:_6698
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    References listed on IDEAS

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    Cited by:

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    3. Martin Boyer & Philippe Donder & Claude Fluet & Marie-Louise Leroux & Pierre-Carl Michaud, 2019. "Long-term care risk misperceptions," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(2), pages 183-215, April.
    4. Junhao Liu & Anita Mukherjee, 2021. "Medicaid and long‐term care: The effects of penalizing strategic asset transfers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(1), pages 53-77, March.
    5. Nathaniel Hendren & Camille Landais & Johannes Spinnewijn, 2021. "Choice in Insurance Markets: A Pigouvian Approach to Social Insurance Design," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 457-486, August.
    6. M. Martin Boyer & Philippe De Donder & Claude Denys Fluet & Marie-Louise Leroux & Pierre-Carl Michaud, 2018. "A Canadian Parlor Room-Type Approach to the Long-Term Care Insurance Puzzle," CIRANO Working Papers 2018s-13, CIRANO.
    7. Lambregts, Timo R. & Schut, Frederik T., 2020. "Displaced, disliked and misunderstood: A systematic review of the reasons for low uptake of long-term care insurance and life annuities," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).

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    More about this item

    Keywords

    long-term care insurance; adverse selection; stated-preference; health; insurance;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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