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When the affordable has no value, and the valuable is unaffordable: The U.S. market for long-term care insurance and the role of Medicaid

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  • Fels, Markus

Abstract

I consider the popular argument of Medicaid crowding out demand for private long-term care insurance. I show that this argument rests on a wrong counterfactual comparison. Furthermore, I question the welfare-decreasing impact of Medicaid as it neglects a large value of the program in providing access to care. I show that private insurance is unable to offer a similar value. I posit that the low take-up of private insurance is due to a dilemma prevalent in - but not exclusive to - the market for long term care insurance: a dilemma between access and affordability. Several empirical patterns in insurance uptake and lapsing behavior can be explained by considering the issue of limited affordability.

Suggested Citation

  • Fels, Markus, 2016. "When the affordable has no value, and the valuable is unaffordable: The U.S. market for long-term care insurance and the role of Medicaid," Working Paper Series in Economics 84, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
    • Handle: RePEc:zbw:kitwps:84
    DOI: 10.5445/IR/1000055418
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    1. Jeffrey R. Brown & Norma B. Coe & Amy Finkelstein, 2007. "Medicaid Crowd-Out of Private Long-Term Care Insurance Demand: Evidence from the Health and Retirement Survey," NBER Chapters, in: Tax Policy and the Economy, Volume 21, pages 1-34, National Bureau of Economic Research, Inc.
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    6. Markus Fels, 2020. "Mental Accounting, Access Motives, and Overinsurance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 675-701, April.
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    Cited by:

    1. Rabah Amir & Helmuth Cremer & Rim Lahmandi‐Ayed, 2020. "Introduction to the thematic issue on government‐provided services," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 839-844, August.
    2. Fels, Markus, 2019. "Risk attitudes with state-dependent indivisibilities in consumption," Ruhr Economic Papers 805, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    3. Fels, Markus, 2021. "Why Do People Buy Insurance? A Modern Answer to an Old Question," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242418, Verein für Socialpolitik / German Economic Association.
    4. Christophe Courbage & Guillem Montoliu‐Montes, 2020. "Estate recovery and long‐term care insurance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 949-972, August.

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    More about this item

    Keywords

    Aging; Insurance; Long term Care; Medicaid;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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