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Long term care insurance puzzle

Author

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  • PESTIEAU, Pierre

    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium; CREPP, University of Liege, B-4000 Liège, Belgium and Paris School of Economics)

  • PONTHIERE, Grégory

    (Paris School of Economics and Ecole Normale Supérieure, Paris, France.)

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.

Suggested Citation

  • PESTIEAU, Pierre & PONTHIERE, Grégory, 2010. "Long term care insurance puzzle," LIDAM Discussion Papers CORE 2010023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2010023
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    References listed on IDEAS

    as
    1. David M. Cutler, 1993. "Why Doesn't the Market Fully Insure Long-Term Care?," NBER Working Papers 4301, National Bureau of Economic Research, Inc.
    2. Sloan, Frank A & Picone, Gabriel & Hoerger, Thomas J, 1997. "The Supply of Children's Time to Disabled Elderly Parents," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 295-308, April.
    3. 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 201-219, December.
    4. Hoerger, Thomas J & Picone, Gabriel A & Sloan, Frank A, 1996. "Public Subsidies, Private Provision of Care and Living Arrangements of the Elderly," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 428-440, August.
    5. Duée, Michel & Rebillard, Cyril & Pennec, Sophie, 2005. "Les personnes dépendantes en France : Evolution et prise en charge [Old-age disability in France: Long-term evolution, private caregiving and public expenditure]," MPRA Paper 69877, University Library of Munich, Germany.
    6. Meier, Volker, 1999. "Why the Young Do Not Buy Long-Term Care Insurance," Journal of Risk and Uncertainty, Springer, vol. 18(1), pages 83-98, April.
    7. Kopczuk Wojciech & Slemrod Joel, 2005. "Denial of Death and Economic Behavior," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 5(1), pages 1-26, August.
    8. Jeffrey R. Brown, 2007. "Rational and Behavioral Perspectives on the Role of Annuities in Retirement Planning," NBER Working Papers 13537, National Bureau of Economic Research, Inc.
    9. 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.
    10. Pauly, Mark V, 1990. "The Rational Nonpurchase of Long-term-Care Insurance," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 153-168, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    long term care insurance; dependence; annuity puzzle;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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