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Insurance with a deductible: a way out of the long term care insurance puzzle

Author

Listed:
  • Klimaviciute, Justina
  • Pestieau, Pierre

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract

Long-term care (LTC) is one of the largest uninsured risks facing the elderly. In this paper, we first survey the standard causes of what has been dubbed the LTC insurance puzzle and then suggest that a possible way out of this puzzle is to make the reimbursement formula less threatening for those who fear a too long period of dependence. We adopt a reimbursement formula resting on Arrow’s theorem of the deductible, i.e. that it is optimal to focus insurance coverage on the states with largest expenditures. It implies full self-insurance for the first years of dependency followed by full insurance thereafter. We show that this result remains at work with ex post moral hazard.

Suggested Citation

  • Klimaviciute, Justina & Pestieau, Pierre, 2021. "Insurance with a deductible: a way out of the long term care insurance puzzle," LIDAM Reprints CORE 3158, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:3158
    DOI: https://doi.org/10.1007/s00712-020-00700-0
    Note: In: Journal of Economics, 2020, 130, p. 297-307
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    Cited by:

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    2. Justina Klimaviciute & Pierre Pestieau, 2023. "The economics of long‐term care. An overview," Journal of Economic Surveys, Wiley Blackwell, vol. 37(4), pages 1192-1213, September.
    3. Hangsuck Lee & Minha Lee & Jimin Hong, 2024. "Optimal insurance for repetitive natural disasters under moral hazard," Journal of Economics, Springer, vol. 143(3), pages 247-277, December.
    4. Richiardi, Matteo & Bronka, Patryk & van de Ven, Justin, 2025. "Welfare effects of social care policies," Centre for Microsimulation and Policy Analysis Working Paper Series CEMPA5/25, Centre for Microsimulation and Policy Analysis at the Institute for Social and Economic Research.
    5. Bram Wouterse & Arjen Hussem & Albert Wong, 2022. "The risk protection and redistribution effects of long‐term care co‐payments," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(1), pages 161-186, March.
    6. Marianne Tenand & Pieter Bakx & Bram Wouterse, 2021. "The impact of co-payments for nursing home care on use, health, and welfare," CPB Discussion Paper 430, CPB Netherlands Bureau for Economic Policy Analysis.

    More about this item

    Keywords

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    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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