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Fair long-term care insurance

Author

Listed:
  • Leroux, Marie-Louise
  • Pestieau, Pierre

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

  • Ponthiere, Gregory

Abstract

The study of optimal long-term care (LTC) social insurance is generally carried out under the utilitarian social criterion, which penalizes individuals who have a lower capacity to convert resources into well-being, such as dependent elderly individuals or prematurely dead individuals. This paper revisits the design of optimal LTC insurance while adopting two egalitarian social criteria—ex ante and ex post egalitarianism—which give priority to the worst-off either in expected or in realized terms. Using a lifecycle model with risk about the duration of life and risk about old-age dependence, it is shown that the optimal second-best insurance under the ex ante egalitarian criterion involves, in comparison to utilitarianism, higher LTC and pension benefits and higher tax rates on savings and on labor earnings. In comparison to ex ante egalitarianism, ex post egalitarianism involves lower LTC and pension benefits, a higher tax on savings and a lower tax rate on labor earnings, in order to increase consumption of the young, who include persons who will turn out to be short-lived.

Suggested Citation

  • Leroux, Marie-Louise & Pestieau, Pierre & Ponthiere, Gregory, 2021. "Fair long-term care insurance," LIDAM Reprints CORE 3161, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:3161
    DOI: https://doi.org/10.1007/s00355-021-01324-z
    Note: In: Social Choice and Welfare, 2021
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    as
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    Cited by:

    1. Philippe De Donder & Marie‐Louise Leroux, 2021. "Long term care insurance with state‐dependent preferences," Health Economics, John Wiley & Sons, Ltd., vol. 30(12), pages 3074-3086, December.
    2. Marie‐Louise Leroux & Pierre Pestieau, 2022. "Age‐related taxation of bequests in the presence of a dependency risk," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(1), pages 92-119, February.
    3. 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.
    4. Marie‐Louise Leroux & Pierre Pestieau, 2023. "Age‐ and health‐related non‐linear inheritance taxation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(3), pages 897-912, August.
    5. Yukihiro Nishimura & Pierre Pestieau, 2022. "Old age or dependence: Which social insurance?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(4), pages 639-652, August.

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    More about this item

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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